If you are a Medicare beneficiary, a fraud scheme involving wound care products contributed to higher Part B premiums than you would otherwise have paid. Federal investigators have confirmed it: Medicare spending on wound care products called skin substitute allografts grew from $256 million in 2019 to more than $10 billion by 2024 — a nearly 40-fold increase in five years — largely driven by abusive pricing, unnecessary procedures, and outright fraud.
The Centers for Medicare and Medicaid Services has since restructured the payment system, with a new rule that took effect January 1, 2026, and is projected to reduce gross spending on skin substitutes by $19.6 billion this year — roughly a 90 percent reduction compared to prior spending levels.
That scale tells you exactly how distorted the old system had become.
Why This Matters
Medicare's Part B program covers outpatient medical services, including wound care, and is funded in part through monthly premiums paid by every Medicare beneficiary. When Part B spending surges dramatically — particularly from abusive or fraudulent billing — the cost is distributed across all enrollees through higher premiums.
CMS administrator Dr. Mehmet Oz said last year that skin substitute billing was "massively inflating" Medicare spending. The HHS Office of Inspector General (OIG) was blunter still, titling its September 2025 report: "Medicare Part B Payment Trends for Skin Substitutes Raise Major Concerns About Fraud, Waste, and Abuse."
What We Know So Far
Skin substitutes are wound care products — grafts made from human donors, animal sources, synthetic materials, or tissue-engineered constructs — used when chronic wounds like diabetic foot ulcers or venous leg ulcers fail to heal through standard treatment. They are clinically valuable tools when used appropriately.
What made them a vehicle for massive fraud was how Medicare paid for them.
Under the old payment methodology, Medicare treated skin substitutes like biologic drugs and reimbursed them at 106 percent of their average sales price. This created a perverse incentive: manufacturers could set launch prices artificially high, knowing Medicare would reimburse at a premium above those inflated prices. Higher launch prices meant higher Medicare payments. The OIG found the system led to a race to the top on pricing that had nothing to do with clinical value, with some products priced above $2,000 per square centimeter.
Meanwhile, CMS and the OIG identified billing by clinicians in specialties unrelated to wound care; multiple claims submitted on the same date to avoid automated denial thresholds; skin substitutes applied without prior conservative treatment; and, in some extreme cases, claims for patients with no documented wounds at all.
The Fraud Cases
The fraud reached criminal scale. The Department of Justice announced the sentencing of Alexandra Gehrke and Jeffrey King of Scottsdale, Arizona, who pleaded guilty to healthcare fraud after their companies submitted more than $1.2 billion in Medicare claims for wound care grafts, many on hospice patients with terminal illnesses who required no wound care whatsoever. Federal and private insurers paid out more than $614 million before the scheme was identified.
In a separate case, CMS's Fraud Defense Operations Center identified a medical group practice that submitted $4.3 million in claims for wound care services purportedly provided to a single beneficiary — a patient who had no documentation of any wound treatment whatsoever.
In 2025 alone, CMS's fraud operations center stopped nearly $185 million in improper payments related to skin substitutes.
What the 2026 Reform Changed
Effective January 1, 2026, CMS restructured the entire payment system. Instead of reimbursing based on inflated average sales prices, Medicare now pays a flat rate of approximately $127 per square centimeter for skin substitutes — regardless of the manufacturer's list price. This removes the financial incentive to use expensive products over clinically equivalent ones.
Additionally, CMS is implementing a multi-year prepayment review model using artificial intelligence in six states, requiring prior authorization for potentially fraudulent or wasteful skin substitute use before payment is made. The DOJ has also established a Health Care Fraud Strike Force in Massachusetts, specifically focused on skin substitute fraud.
CMS estimates the payment reform will reduce gross Medicare Part B spending on skin substitutes by $19.6 billion in 2026. That single-year reduction exceeds the entire Part B drug expenditure for most drug categories combined.
What Doctors and Experts Say
David Tawes, Regional Inspector General with the HHS-OIG Office of Evaluation and Inspections, said in late 2025 that the growth in skin substitute spending was unlike anything the agency had encountered in a single product category. "There are other many smaller cases out there, but it was a billion dollars in just 12 to 18 months — that shows you how much money is to be made by unscrupulous actors," he said, according to Medical Economics.
Tawes emphasized that the OIG's concern was not to restrict legitimate wound care. "We want enrollees who need the treatment to get the treatment. But we also want to remove incentives that drive inappropriate and even fraudulent billing."
What the Evidence Shows — and What It Does Not
The OIG's analysis confirmed not only fraud but structural vulnerabilities in the payment system that made the fraud predictable. The incentive to inflate prices existed from the moment CMS applied drug-pricing methodology to wound care products — a category with far more variability in pricing, evidence base, and clinical necessity than approved biologics.
The 2026 flat-rate reform addresses the pricing incentive. It does not immediately resolve all the past billing that occurred under the old system, which will continue to generate enforcement actions, audits, and civil and criminal cases throughout 2026 and beyond.
Who Was Most Affected?
Every Medicare Part B beneficiary in the United States was affected by higher premiums than would otherwise have been necessary, as the fraudulent billing inflated the program's cost base. Patients who received unnecessary skin substitute procedures also faced risks from medically unwarranted interventions, including hospice patients in the Arizona case, who received wound grafts they did not need.
What You Can Do Now
- If you are a Medicare beneficiary who received wound care involving skin substitutes between 2022 and 2025, review your Medicare Summary Notice to ensure procedures were medically documented and appropriate.
- If you suspect fraudulent billing in your name, contact the HHS OIG Hotline at 1-800-HHS-TIPS (1-800-447-8477).
- If you have chronic wounds requiring skin substitute treatment, the 2026 flat-rate reform should not affect the availability of appropriate care — the change is in how providers are paid, not in whether clinically necessary treatment is covered.
- Medicare beneficiaries with concerns about their wound care billing can also contact the State Health Insurance Assistance Program (SHIP) in their state for free counseling.
Cost and Access: What Patients Should Know
The 2026 payment reform is expected to reduce the cost of skin substitute products to Medicare while maintaining patient access to clinically appropriate treatments. Only 18 of 66 evaluated products qualified for covered status under the new evidence-based framework — meaning some products will no longer be reimbursed because they lacked sufficient clinical evidence of benefit.
For patients with legitimate chronic wound care needs, Medicare coverage of clinically appropriate skin substitutes continues in 2026 under the new flat-rate structure.
What Happens Next
DOJ enforcement actions tied to pre-2026 skin substitute billing are expected to continue throughout 2026 and into 2027. The AI-based prepayment review model in six states is being evaluated for potential nationwide expansion. CMS has indicated it will differentiate payment rates by clinical evidence tier starting in 2027. MedicalDaily will continue tracking fraud enforcement actions and patient impact.
The Bottom Line
A $10 billion billing scheme — built on inflated prices, clinically unnecessary procedures, and outright fraud — quietly drove up Medicare Part B premiums for every beneficiary while generating billions in criminal profits. The federal government has restructured the payment system, stopped hundreds of millions in improper payments, and prosecuted the most egregious offenders. But the cases continue, and Medicare beneficiaries deserve to understand how their premium dollars were affected.
References
- CMS — CMS Modernizes Payment Accuracy and Significantly Cuts Spending Waste (Press Release)
- HHS OIG — Medicare Part B Payment Trends for Skin Substitutes Raise Major Concerns About Fraud, Waste, and Abuse
- Arnold & Porter — Cracking Down on Alleged Wound Care Fraud: A New Era of DOJ and HHS Enforcement
- Medical Economics — HHS-OIG Major Concerns About Medicare Skin Substitute Spending
- Applied Policy — Skin Substitutes in Medicare: Trends, Challenges, and CMS's Policy Response
- Liles Parker — Responding to Wound Care Audits and Skin Substitute Audits in 2026
