HHS-OIG Raises Red Flags Over Skin Substitutes; Heightened Enforcement Expected

HHS-OIG Raises Red Flags Over Skin Substitutes; Heightened Enforcement Expected

The use of skin substitutes, products made from human or bioengineered tissues, is an emerging treatment for chronic, non-healing wounds. While their effectiveness remains debated, many providers report clinical benefits. However, their increasing use has drawn scrutiny from federal regulators, with enforcement actions already underway and more anticipated.

Alarming Medicare Part B Billing Trends

On September 3, 2025, the U.S. Department of Health and Human Services Office of Inspector General (HHS-OIG) released a report highlighting explosive growth in Medicare Part B spending on skin substitutes provided in a non-institutional setting. Key findings include:

• Spending Surge: Medicare Part B spending on skin substitutes has skyrocketed from $400 million to nearly $3 billion per quarter over two years, totaling over $10 billion in 2024, a 640% increase.
• Increased Utilization: Not only are more beneficiaries receiving skin substitutes, but they are also receiving a higher volume of skin substitute procedures. In less than 2 years, the amount paid per Part B beneficiary on skin substitutes tripled.
• Disparities Across Programs: Medicare Advantage enrollees receive fewer, less expensive skin substitutes compared to Part B beneficiaries.
• Growing Product List and Prices: As more products enter the market, they are often reimbursed at higher prices due to delays in Average Sales Price (ASP) reporting, which affects the reimbursement rates.
• Home Care Billing Outpaces Offices: Home care providers bill significantly more for skin substitute procedures and for more expensive products than those in office-based settings. In Q3 2024, costs for skin substitutes provided in a home setting were four times higher than for patients in an institutional setting. In total, home care now accounts for over half of Part B spending on skin substitutes.

Fraud Concerns and Red Flags

HHS-OIG expressed serious concern over the potential for fraud, waste, and abuse, noting that skin substitutes are “particularly vulnerable to questionable billing.” Specific concerns related to skin substitute billing data included:

• Claims filed for skin substitutes procedures during a beneficiary’s first visit without attempting prior conservative treatments.
• Newly enrolled Medicare providers billing almost exclusively for skin substitutes procedures without any billings for other associated wound care management.
• High volumes of claims for skin substitutes submitted on a single day to bypass Medicare billing systems.
• Billing for excessive quantities of skin substitutes or use for non-approved conditions.
• Out-of-scope billing, such as non-wound care providers (e.g., psychiatrists) submitting claims for skin substitute procedures.

The report warned that the current system enables “bad actors to quickly get paid millions of dollars” with minimal patient volume. HHS-OIG called for urgent action to curb the explosion in Medicare Part B spending for skin substitutes in non-institutional settings and the critical need for reform to address fraud, waste, and abuse in Medicare skin substitute billing.

DOJ Enforcement Already Underway

Even before the release of this report, federal enforcement associated with skin substitute procedures had already begun:

• On January 31, 2025, the DOJ announced that an Arizona couple pleaded guilty to conspiracy to commit healthcare and wire fraud in connection with $1.2 billion in false Medicare claims for medically unnecessary skin substitutes. The couple admitted to receiving over $279 million in illegal kickbacks from a distributor and financially incentivizing sales representatives to order the most expensive skin substitute products to maximize health insurance reimbursements.
• On June 30, 2025, as part of the largest healthcare fraud takedown in DOJ history, the DOJ announced charges against seven individuals, including five medical professionals, in Arizona and Nevada for allegedly causing the submission of approximately $1.1 billion in false claims for unnecessary skin substitute procedures on hospice patients. When discussing the case, CMS Administrator Dr. Mehmet Oz cited “advanced data analytics” as one of the keys to detecting the fraud.

Looking Ahead: What Providers Should Do

Given the OIG’s findings and the DOJ’s ongoing enforcement efforts, the skin substitute space is rapidly becoming a burgeoning area for healthcare fraud investigations. Providers delivering the legitimate care of skin substitutes may face increased scrutiny as a result.

Takeaways:

• Providers, distributors, manufacturers, and sales representatives associated with skin substitutes should examine their agreements with one another to ensure that there are no federal or state Anti-Kickback Statute implications.
• Engage in robust compliance programs to minimize risk, highlighting strong policies and procedures regarding the appropriate use of skin substitutes and the documentation of conservative treatments before using skin substitutes.

• Investigate whistleblower or employee complaints and document your findings. Consider retaining outside counsel to investigate allegations, as necessary.

• Providers, especially those in a non-institutional setting, should use internal data analytics to assess their organization’s billing patterns and identify potential regulatory concerns.
• Providers, individuals, or entities who are contacted should seek experienced government enforcement counsel.