OIG Cites Fraud, Waste and Abuse Concerns with Skin Substitutes 

Many compliance professionals rely on HHS OIG focus areas as they perform risk assessments and plan subsequent auditing and monitoring activities. In November 2024, the OIG added an item to their Work Plan describing their intention to review Medicare Part B payments for skin substitutes.  

More recently, in September of 2025, the OIG published a data snapshot report that concluded Medicare Part B payment trends for skin substitutes raise major concerns about fraud, waste and abuse.  

This blog explores the implications for compliance and what health systems need to be aware of.  

How Skin Substitutes Are Covered Currently 

Skin substitutes aid in wound healing and redevelopment of skin. Medicare covers skin substitutes that are reasonable and necessary for the treatment of an enrollee’s condition. Local coverage determinations state that Medicare Part B generally covers skin substitutes for treatment of diabetic foot ulcers and venous leg ulcers that have failed to respond to at least four weeks of standard wound care.  

However, no national or local coverage requirements apply for other wound types (e.g., pressure ulcers or trauma wounds), and coverage of skin substitutes for these wounds is determined on a case-by-case basis.  

How Medicare Pays for Skin Substitutes 

Medicare Part B pays for skin substitutes based on the number of service units billed at prices ranging from approximately $100 to more than $1,000 per square centimeter.  

For payment purposes, CMS treats skin substitutes like approved prescription biologics, and skin substitutes are reimbursed in non-institutional Part B settings at 106% of the average sales price (ASP).  ASP Refers to the average price of a drug sold to providers, and it’s used for calculating reimbursement rates.  

From calendar years 2020 through 2023, Medicare Part B payments for skin substitutes increased substantially. In two years, Part B spending on skin substitutes increased 640%, going from $389 million (Q3 2022) to $2.88 billion (Q3 2024). 

What Drives Increases in Skin Substitute Pricing and Utilization? 

The rapid growth in expenditure is driven by both higher prices and increased utilization, and the OIG found concerning trends in both areas. 

Higher Prices Driven by ASP and Incentives 

Some of the factors potentially increasing prices include the ASP and incentives for providers. Manufacturers of skin substitutes can quickly bring new skin substitutes to market compared to typical products paid using ASP.  

By statute, ASP is defined as a manufacturer’s sales of a drug to all purchasers in the United States in a calendar quarter (net of most discounts) divided by the total number of units of the drug sold by the manufacturer in that same quarter. 

Calculating Payments for Billing Codes 

In cases in which CMS is unable to calculate a volume-weighted ASP for a code (e.g., a new code for which ASPs have yet to be reported), Medicare Part B contractors typically use Wholesale Acquisition Costs, aka WACs (i.e., list prices) or payment invoices to determine a payment amount.  

Providers Seek More Favorable Payments Based on Spread 

Allowing for the time it takes for manufacturer price reporting and the subsequent CMS validation and calculations, there is a two-quarter lag in the ASP-payment process (e.g., first-quarter 2024 ASPs were used as the basis for third-quarter 2024 payment amounts). 

Part B providers can retain the “spread” between their acquisition cost for a drug and the Medicare payment amount. Previous OIG work found that higher spreads may correlate with increased utilization for certain drugs.  

Under the current payment system, Medicare often pays providers for skin substitutes at amounts much higher than providers’ purchase prices, and providers keep the “spread.” This creates incentives to bill for more and more units of skin substitutes and to choose products with the greatest spreads – the same types of billing trends highlighted in the OIG’s report. 

Increased Utilization Has Average Part B Payment Up 153% 

Utilization of skin substitutes has also increased steadily, with more enrollees having skin substitute claims and a higher number of units being billed per enrollee. OIG found that between the first quarter of 2023 and the third quarter of 2024: 

• Number of unique Part B enrollees with skin substitute claim increased by 53%. 
• Total number of units paid under Part B increased by 83%. 
• Average Part B payment amount for each unit of skin substitute increased by 153%. 

In less than two years, the amount paid per Part B enrollee has tripled from $40,051 to $121,501. 

28% Growth in Utilization and Payments in Home Care Settings 

The OIG also found the growth of skin substitute utilization and payments in the home care setting to be particularly notable. By the third quarter of 2024, 28% of enrollees with a paid skin substitute claim under Part B were reportedly being treated in their home. These home care enrollees accounted for more than half of Part B spending on skin substitutes that quarter. 

They also noted that utilization and expenditures for skin substitutes under Medicare Advantage (MA) are just a fraction of utilization and expenditures under original Medicare.   

For example, in the third quarter of 2024, OIG found that only 3,800 Medicare Advantage enrollees were associated with a skin substitute claim, compared to 24,000 enrollees in Part B.  

OIG concluded there were no obvious differences in the enrollee demographics of original Medicare and Medicare Advantage that would explain the massive variance in skin substitute utilization.  

Instead, they suggested variance is likely driven by MA plans’ ability to use numerous reimbursement and utilization management tools to set payment rates and coverage for products such as skin substitutes. 

Urgent Action Needed to Rein in Spending Increases and Fraud 

Based on their data snapshot report, the OIG concluded that action is urgently needed to rein in the massive increases in Medicare Part B spending for skin substitutes in non-institutional settings. They also cited numerous fraud schemes involving skin substitutes. 

Compliance professionals should make sure they are considering their organization’s use of skin substitutes and determine if there are existing risks. If so, they should monitor and audit their organization’s use of skin substitutes to ensure compliance. 

More Resources on Compliance Risk 

Know the Compliance Risk for Certain Anesthesia Services 

A good healthcare compliance program is all about reducing risk, both in patient care and in financial reimbursement. This detailed blog by compliance expert, CJ Wolf, will bring you up to date on the compliance risks associated with certain anesthesia services.   

How to Avoid Compliance Risk in Peripheral Vascular Reimbursement   

Peripheral vascular disease (PVD) reimbursement is fraught with potential compliance pitfalls. This expert-written blog addresses the pressing concern of compliance risks in PVD reimbursement. It provides insights into regulatory trends, recent investigations and best practices. 

Exclusion Screening Failure Causes Compliance Nightmare 

Even a seemingly small glitch can have major consequences for healthcare compliance. This blog shares the story of the consequences of an incident when exclusion screening software glitched. 

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