A storm is roiling the world of medical care for wounds that won’t heal.
It may not be a big world, but it’s an important one: Wounds that don’t heal by themselves need special treatment, often by the application of products commonly known as skin substitutes that can be biologic or synthetic — derived from infant foreskins, placentas or cadaver skin, as well as fish skin and some other sources. Treatment of these wounds, including diabetic foot ulcers and venous leg ulcers, as well as other wounds like pressure injuries (bedsores), and some surgical incisions, can avert pain and other complications, including amputations.
Doctors and industry experts agree that the products used to close wounds are crucially important for care. But the system has generated a fierce competition for products that some say are wildly overpriced, and a series of practices for pricing and application of the products that are less than pristine — it’s a market described by some sources as “the wild, wild West.” Spending has ballooned, with much of that spending coming from Medicare.
“At the beginning of 2022, Medicare spent about $10 million a month on skin substitutes but by November, it was roughly $80 million, according to an estimate from the University of Pennsylvania,” Dr. Caroline Fife wrote on her blog, in an article titled “Billion-Dollar Medicare Scam?”
It is also a big market, Fife said in a Zoom interview: “About 16% of Medicare beneficiaries have a chronic non-healing wound. That’s a lot. We’re talking $90 billion a year in boo-boos that haven’t gotten well.”
Regulation attempts
As a result, new attempts to maintain or improve care while limiting skyrocketing costs and imposing other rules have brought new regulation to the market, scheduled to take effect on Feb. 12. (Update: On Jan. 24, as we were posting this, the effective date of the rules was postponed by 60 days, to April 13.)
While most agree that spending should be rational, some doctors and others — especially manufacturers — say that current attempts to regulate the system (read: harness costs) are misguided and threaten to harm patients.
As is so often true, the regulators are trying to catch up, while they are outmanned and outgunned. In June, federal prosecutors charged the owners and two employees of an Arizona wound care company with conspiring to defraud Medicare of over $900 million, accusing them of targeting older Americans, many of them terminally ill. The industry is full of people suggesting that this is only the tip of the iceberg.
[For our second installment, see here. ]
The treatment of choice is often what has traditionally been called a skin substitute, a group of products that can be applied to a wound to temporarily or permanently replace the skin’s structure and function. Skin substitutes reduce the risk of infection, protect the wound and speed healing. The terminology is a little confusing: While they were commonly called “skin substitutes,” the formal name is officially “cellular and/or tissue-based products” (C.T.P.’s) or “cellular and acellular matrix-based products” (C.A.M.P.’s) — different variations on the theme. Payments are generally based on the price of the procedure plus the price of the product used, but there are different arrangements.
Once I started reporting this story, it became clear that it is complicated and full of mystery. Several of the people I spoke with were candid and then said they could not be quoted on the record — either fearing professional damage, or wishing not to be made into a pariah in the small world of wound care.
It is also clear that this is extremely political. Manufacturers of some of the higher-priced products, and a collection of other industry figures, have united to oppose the proposed changes, and are suggesting that they will block those changes in court. Two people said they understand that the higher-priced manufacturers are telling others that the expected relaxed regulatory environment under the new Trump administration means that they will not be curbed in any serious way.
[For our second installment, see here. ]
There are widespread allegations that manufacturers are bringing to market products that are very similar to existing products — derived from amniotic tissue, for example, but treated in a slightly different way — and charging higher prices, claiming success rates with new-to-market products that are not backed up by the studied research that preceded the official approval of the early products.
There are also charges that some sellers of wound care products offer those products at an artificially raised price, then give rebates for physicians to pocket. A case like this was described in a 2023 Fierce Healthcare article titled “Wound care manufacturer controversy calls attention to shady dealings.” The article refers to a YouTube video that has since been deleted; the person who created the video wrote to me in an email that the video was deleted as part of a court settlement in the case that he is not allowed to discuss, as part of the settlement.
Hyperbarics and wound care
Dr. Helen Gelly started her career in emergency medicine, and joined the faculty at Emory University in that specialty. In 1991, she was asked to focus on hyperbaric medicine, the practice of delivering oxygen to the body by providing pure oxygen in an enclosed space with higher-than-normal air pressure, which is useful for treating serious tissue disease or wounds, as well as decompression sickness, carbon monoxide poisoning and other conditions. Many patients in hyperbaric medicine also have wounds; at that time, wound care was gauze and saline, she said, and she began doing wound care “as a service to the patients to reduce time in doctors offices.” The group now has three offices in the Atlanta area, she said. She has published widely in the wound care and hyperbaric spaces, she said.
The terminology here is also complicated. Fife wrote in an email: “The reason that I say ‘boo-boo’ is not trying to be cute. Medicare considers these problems in two different categories: wounds (generally either caused by a surgery or an accident) and ulcers (generally caused by or linked to some underlying chronic disease). The problem is that there is no English word that encompasses both meanings. If we use the word ‘wound’ with C.M.S., they think we mean surgical complications and accidents (which can include ‘I hit my leg on the coffee table.’)”
The way the system now works, Gelly said, it discourages a physician in an office from providing wound care, because the incentives are mis-aligned.
The billing structure varies by location type. In a hospital outpatient department, once the most common setting, for a wound debridement procedure (removing dead tissue), the hospital receives a facility fee for the C.P.T. code/procedure, $380, and the physician performing the procedure gets $60. If a doctor does the same thing in her office, she gets $120, with that single higher payment including practice expenses, so it’s clearly more costly in the hospital. Then there’s the charge for the product used. If the procedure goes on to application of a skin substitute, there’s a charge for that procedure also, as well as for the product used.
But the billing process, based on both invoice price and Average Sales Price, leaves a doctor losing money, Gelly explained in a letter to Fife that wound up as a blog post. “In the case of this product, the invoice price is $775 (meaning, that’s what I actually paid for the product). The ‘allowable’ amount that Medicare can reimburse me for the product is based on the published Average Sales Price (A.S.P.). The A.S.P. for this product is $758, and that means that Medicare pays $606.40. As everyone understands, I must get the remaining 20% ($151.60) by billing the patient’s secondary insurance, or from the patient themselves if they do not have a secondary insurance,” the letter says. Adding in the 2 percent sequester, the 2 percent reduction in Medicare claims originating from the Medicare Budget Control Act of 2011, she wrote, she will lose $29.13 per application — assuming she can collect the co-pay, which is far from certain.
Hospital outpatient billing changed seven or eight years ago due to overuse, Gelly said, with Medicare — the primary payer — creating two pricing buckets for products — one low-cost (around $30 a square centimeter, though it changes by a bit regularly) and one high-cost, meaning more than that.
Pricing of products
The Office of the Inspector General took note of skyrocketing prices: “In March 2023, O.I.G. issued a report that found that manufacturer noncompliance with new average sales price (A.S.P.) reporting requirements for skin substitutes led to millions in excessive Part B payments. A.S.P. is used to set Medicare payment amounts.
“Since that report was issued, Part B expenditures for skin substitutes have risen significantly, exceeding $1.6 billion in the fourth quarter of 2023 alone. Despite efforts by C.M.S. to address the accuracy and completeness of A.S.P. reporting, the sharp increase in expenditures raises concerns that poor A.S.P. reporting continues to result in excess Medicare payments.
“Given this rapid increase in Part B expenditures and a recent history of fraud in the area, this study will provide an update on reporting issues as well as highlight billing trends and identify potential solutions to any challenges in using the A.S.P. methodology for skin substitutes.”
Products and venues
Fife said there are several problems in the marketplace. For one, the original products that were used starting in the 1990’s have been upgraded by companies that have done careful randomized controlled trials. But other new “me-too” products have come onto the market that lack such evidence, she said, made with similar methods.
In addition, hospital outpatient departments (and inpatient departments) used to be the most common places for such procedures. But given changes to the way Medicare pays and the growth of the business, now a lot of procedures take place in patients’ homes, in mobile clinics and in skilled nursing facilities. Doctor’s offices are also used, as Gelly noted, but it’s not a slam dunk for the clinician financially.
Also the pricing of the actual products has changed, several experts said. In 2015 or so, most of the work was being done in hospital outpatient departments, and C.M.S. paid a fixed amount. So utilization was fairly low because the products were expensive and used only when absolutely necessary in the clinician’s judgment.
Early skin substitutes got F.D.A. approval, one expert said, speaking on condition of anonymity. But at one point, manufacturers realized that their products did not need to get F.D.A. approval: Exempt from the F.D.A. approval process are products that are human tissues that are minimally manipulated before they come to market. The F.D.A. essentially said “we don’t want to regulate skin grafts. Or human organ harvesting.” So as long as it’s a piece of human tissue that’s being used “more or less in the way that that tissue was designed to be used by God” — for example, repurposed foreskin or placental tissue — it does not have to be cleared through the F.D.A., this expert said.
Another problem, this expert said, is that the companies can bring a product to market and post whatever price they want to, “a price that they totally make up,” publishing it on the Red Book, a database of pricing that is used to calculate payments. “I am not exaggerating when I say that they’ve gone from $30 a square centimeter to $3,000, $4,000 — we are almost to $5,000 per square centimeter,” the expert said.
A third problem, the expert said: Sometimes the manufacturer uses a middleman. The manufacturer sells the product to a middleman at full price, and the middleman then sells to a clinician at half price — and receives a rebate from the manufacturer and is thus made whole for the discounted sale. The clinician may bill at full price, and may be paid at the A.S.P.
A different expert, also speaking on condition of anonymity, said the new, expensive products are not backed by science as the originals were: “Companies with no history and no studies are able to enter the market and bill Medicare for billions of dollars without question. The ease of extracting astronomical amounts of money from the system is staggering. They are then using that money to run around DC buying up lobbyists and lawyers. Going on multiple trips to Mar-a-Lago.” The result is substandard care and a system awash in money, this expert said.
Procedures change
Fife wrote in a blog post that hospital wound care has a flawed package pricing model — “package pricing drastically limits the choice of products due to cost and the size of affordable products to small, often clinically inadequate sizes.” So outpatient departments are often unable “to treat large wounds due to package pricing and flawed coding methodologies.”
Payment models are why a lot of the wound care business has moved from hospitals and doctor’s offices into mobile wound care units, into patients’ homes and into skilled nursing facilities, she said.
She also wrote in a blog post about a company that offered a manufacturer rebate scheme by which it said a doctor could make $594,000 per patient.
Fife wrote a blog post last year setting out the various issues she sees in the wound care industry. Among the points she raised are these on product cost:
- “Lack of normal market controls over the [wholesale acquisition cost, or W.A.C., which is the manufacturer’s list price for a drug.] (It appears that manufacturers can set virtually any price they wish)
- “The method by which the [average sale price, or A.S.P.] is determined (based at least initially on the “anything goes” W.A.C.).
- “Lack of transparency regarding product discounts so that they do not impact the ASP as they are supposed to.
- “Indefensible and dramatic variations in the per cm2 pricing of identical products based solely on the site of care in which they are used.
- “Lack of pricing pressure from either Medicare or private insurers/MA, the latter preferring to just deny coverage rather than seek cost-effective solutions.”
‘Robin Hood’ care
She also wrote about the money side of the business in a post titled “How Do We Feel About Robin Hood Wound Care?” She quoted a doctor saying about care of these wounds: “With the money we are making, we can afford to help these patients.”
Describing this “Robin Hood” care, she wrote: “The profits made from the use of C.T.P.’s/skin subs are not being ‘stolen’ from Medicare – but it is true that the money is being made because of a loophole in coverage policy. Whether it is ethical is an interesting and separate question from whether it is legal. One commenter on my blog informed me how stupid I was since I clearly did not understand that the patients had ‘paid into Medicare’ and it was not my tax dollars that were funding his profits.”
She touched on another issue: She said she has heard that sometimes if the patient is required to pay a co-pay, usually 20 percent, the doctor will waive the co-pay — perhaps telling the patient “we’ll bill you for the rest, but you can ignore it.”
She added on her blog, “Another told me that since the Medicare copays were ‘waived,’ no patients were financially hurt. I won’t even try to deal with the issues of draining the Medicare trust fund with services of unclear benefit, which ultimately means restricting other types of care because the Medicare coffers are empty – or the specter of raising taxes or insurance premiums to cover the deficits created.
“Many practitioners who offer mobile wound care services drive long distances to remote settings. Caring for patients in rural and isolated settings is highly ‘inefficient,’ not to mention that it’s often difficult and perhaps even dangerous. They frankly admit to me that were it not for the profits they make from the use of C.T.P.’s/skin subs, they could not offer wound care to those patients. Because of these C.T.P. profits, patients who have been forgotten now have access to care.”
Arizona fraud case
Nevertheless, the factors she and others cited suggest that there are a lot of people making a lot of money, with less than pristine business practices.
In the fraud case that came to light in June, two people in Arizona, Alexandra Gehrke and Jeffrey King, “were charged by indictment with various counts of conspiracy, health care fraud, receiving kickbacks, and money laundering in connection with an alleged scheme to fraudulently bill Medicare $900 million for highly expensive amniotic allografts. The defendants targeted elderly Medicare patients, many of whom were terminally ill in hospice care, through their companies—Apex Mobile Medical LLC, Apex Medical LLC, Viking Medical Consultants LLC, and APX Mobile Medical LLC,“ the Office of the Inspector General wrote. (See legal document below.)
“The defendants caused unnecessary and extremely expensive amniotic grafts to be applied to these vulnerable patients’ wounds indiscriminately, without coordination with the patients’ treating physicians, without proper treatment for infection, to superficial wounds that did not need this treatment, and in sizes excessively larger than the wound. In just sixteen months, Medicare paid the defendants more than $600 million as a result of their fraud scheme, paying on average more than a million dollars per patient for these unnecessary grafts.”
In addition, the Office of the Inspector General said, the defendants received more than $330 million in illegal kickbacks from the graft distributor for buying, ordering and arranging for the purchasing of the grafts billed to Medicare.
Susan Paquette, writing for SmartTrak, a business intelligence company, wrote that SmartTrak believes “these charges are just the tip of the iceberg in terms of the amount of fraud occurring in the US Market for Skin Substitutes. With a dramatic spike in Medicare claims in 2023, it’s clear widespread Medicare abuse has allowed the US Skin Substitute market to balloon, almost doubling in just one year! The abuse is primarily limited to amniotic tissue products, which held 52.5% of the US market in 2022 and 64.5% of the market in 2023.”
Joe Capper, C.E.O. of one of the top companies in the amniotic tissue market, MiMedx, highlighted the issue in an earnings report, Paquette wrote, saying: “Several companies continue to engage in schemes to sell artificially high-priced, yet clinically unproven, skin substitutes primarily in the private office, by sharing a substantial portion of the revenue with treating physicians…”
New regulations
In April 2024, in an attempt to regularize some of the erratic behavior, eight Medicare Administrative Contractors (M.A.C.’s) issued essentially identical Local Coverage Determinations governing the use of skin substitutes and C.T.P.’s for treatment of diabetic foot ulcers and venous leg ulcers. (Some reports say seven M.A.C.’s issued them.) The L.C.D. limits reimbursement of products based on clinical evidence and number of applications. (In historic terms, there has generally been plenty of confusion on what was covered by Medicare and at what price.)
The document requires that patients have a comprehensive assessment to see if they have other health issues that are keeping a wound from healing. Fife, who has been practicing for 35 years and who is the chief medical officer at Intellicure, provider of a wound care app and electronic health record, said this is crucial, and it sometimes doesn’t happen.
She told of a patient who was not responding to wound care treatment when he came to her. She did a skin perfusion pressure test on him as part of his workup, and found that he had occluded arteries below the knee. Once he had an angioplasty to fix the problem, she said, he healed quickly with basic wound care and an offloading boot — while if he hadn’t had that basic test, he would have continued not to heal. Also, he had paid more than $17,000 in co-pays before he found her, she said.
Repeated applications
The new regulations also have several clauses referring to repeated applications when no progress toward healing has been made: “If the ulcer does not progress or heal within 16 weeks continued use of the product is non-covered.” These new policies significantly restrict the use of skin substitutes, limiting coverage, and setting strict documentation requirements. They also urge clinicians to avoid discount and rebate programs, which are seeing increased scrutiny.
While the L.C.D. regulations refer only to diabetic foot and venous leg ulcers, they are likely to affect other conditions using skin substitutes too, like pressure sores and Mohs surgery, clinicians said.
Also the prices are governed by the L.C.D.: The list of average sales prices is used to calculate payment amounts.
A sharply limited number of products will be considered cover-able. Here is a list of products in the L.C.D. for diabetic foot ulcers and venous leg ulcers.
The amount of recordkeeping under the new procedures has also raised some objections; an administrative burden is almost always undesirable, but the M.A.C.’s clearly wanted better records.
Paquette wrote for SmartTrak: “The US Skin Substitute market is more than inflated. It is a bubble waiting to burst, and how quickly remains to be seen. It is imperative that the proposed M.A.C. L.C.D.’s be implemented as soon as possible to limit further abuse.”
(Update: On Jan. 24, as we were posting this, the effective date of the rules was postponed by 60 days, to April 13.)
Objections
Meanwhile, various industry figures object to the plan specified by the L.C.D. Wiliam Padula, assistant professor in the Department of Pharmaceutical & Health Economics, U.S.C. Mann School of Pharmacy & Pharmaceutical Sciences, and David G. Armstrong, M.D., PhD, professor of surgery and neurological surgery at the Keck School of Medicine of U.S.C. and director of the Limb Preservation Program at U.S.C., wrote a letter of public comment in June in response to the Medicare administrative contractors’ local coverage determination.
They urged that the L.C.D. be withdrawn, saying that it restricts clinicians’ treatment in unacceptable ways.
They wrote: ‘The consequences of this L.C.D. in terms of restricted coverage for skin substitutes will have an impact on the U.S. healthcare economy and key stakeholders in the health system:
- “Providers who treat Medicare beneficiaries will not be able to justify the application of skin substitutes since they will not be able to follow parameters for use.
- “Patients in the Medicare program will face greater risk of non-healing chronic wounds, wound recurrence, infection, amputation, and mortality.
- “Medicare will spend more overall on the long-term consequences of non-healing wounds, infection, and amputation, rather than save money as a result of the upfront investment in skin substitutes.”
Patient care
In a Zoom interview, Padula said that the L.C.D. is bad for patients and would lead to higher costs in the long run. There is a shortage of doctors and nurses to apply these dressings, he said, especially in rural areas where a clinician may need to travel long distances to treat a patient.
“It’s a lot cheaper to buy dressings than it is to pay for more doctors,” he said. “This idea that C.M.S. is going to save money? They’re never going to save money. They’re going to spend more money because by not paying for dressings that have comparative effectiveness literature on faster healing rates, on reduced readmission rates, on reduced wound recurrence rates — if we don’t use these dressings or pay for them, then I’m going to have to spend more F.T.E.’s on $450,000-a-year physicians.
“So I don’t understand where we’re going to save money here by cutting costs or cutting coverage for dressings. My economic calculations show these dressings are cost-effective, cost-saving, in fact, and so we’re providing something that’s clinically beneficial to the patient. And yes, it’s expensive, but it’s less expensive than the alternative,” which, he said, is long term chronic wound follow-up and possibly amputations.
He said the situation resembles that of the original cholesterol drug atorvastatin, which was been challenged by me-too manufacturers of generics. He said that the original handful of skin substitute manufacturers have been imitated by me-too manufacturers, with less research. Since the originals, he said, “I think something like 600 or 700 other biotech companies have come along and said, ‘We also have a cellular tissue product, and we’re just a me-too.’ They’re trying to come into the market the same way that a generic statin manufacturer from India is trying to come into the market.
“I don’t necessarily have an issue with that, for the simple reason that we don’t have enough supply of these cellular tissue products, without there being more manufacturers.”
Other restrictions in the L.C.D. also don’t work, he said. “The evidence shows that you need to apply a skin substitute every one to seven days. So that means you could apply seven in a week, if it was appropriate for the individual patient, based on clinical judgment, for 12 to 15 weeks to fully heal a wound and show statistically significant reductions in wound recurrence, in readmission, in mortality, in all the major outcomes. That’s what the peer-reviewed literature showed needs to be done for patients.
“Medicare is proposing to cut coverage for skin substitutes to one treatment per week for up to 12 weeks. So if a patient needs extended duration of treatment past the 12th week, that might not be covered without prior authorization, or if a patient needs more than one application in a week, that might not be covered without prior authorization. So you’re ending up with a situation where patients who are complex, who need more skin substitutes than that, one per week per 12-week period — they don’t necessarily get the coverage.”
Padula and Armstrong are not the only opponents. Multiple commenters on the proposed L.C.D. objected to the plan.
Industry group
An industry group formed to oppose the L.C.D., called the Medicare Access to Skin Substitutes Coalition (“MASS Coalition”), has a site at saveourwoundcare.org. “Stop Medicare From Limiting Access To Life-And-Limb-Saving Wound Care Therapy,” the site says, urging people to write to Congress and share their stories of wound care. It says MASS includes manufacturers, processors and distributors, though the site does not have a membership roster or explain who is organizing and supporting it.
Even before President Donald J. Trump was inaugurated, several industry figures said they believed the Trump administration would somehow derail the L.C.D. It is not clear how this could be done, but in the flurry of executive orders since the inauguration, some are interpreting the Trump order of a regulatory freeze to mean that the L.C.D. is also on hold.
The MASS site claims that the Trump regulatory freeze means the L.C.D. is on hold. But this is not completely clear; the L.C.D. does not seem clearly to be in the categories described by the regulatory freeze language.
(Update: In any case, on Jan. 24, the effective date of the rules was postponed by 60 days, to April 13. The change was made public quietly: The “effective date” of the L.C.D. was changed on a CMS document online. There was no announcement, but a screenshot of the changed date was passed around quickly in the industry on Friday evening.)
“Medicare’s latest approach abandons Americans struggling with open wounds,” was the headline in a Washington Times opinion piece by Joe Grogan, former director of the Domestic Policy Council under Donald Trump, on Jan. 13. “The American patients who depend on innovation and live with the hope that the next breakthrough will relieve their suffering deserve better. Prioritizing innovation — not short-changing it — will make Americans healthier and help get our deficit under control.”
“For patients, this policy change isn’t just administrative red tape; it affects access to products that doctors depend on for complex wound care.
“Team Biden’s policy eliminates more than 200 products from coverage. The narrow selection of remaining products represent older technologies that may not work as successfully as newer, more advanced products.”
Serious money
The industry has serious money attached to it. A recent help wanted ad for an independent sales representative listed the potential annual income as anywhere from $100,000 to $9 million.
Another ad for a nurse practitioner promised $250,000-$500,000 a year in pay with full benefits for 15 to 20 hours a week of work, Fife wrote on her blog. The post is no longer live, but similar help-wanted ads are visible in many places.
The $594,000 plan described above also suggests the amount of money that can be made.
On Reddit, in the nurse practitioner subreddit, a commenter wrote: “I’ve been approached by this mobile wound care company who apparently has ‘reps’ over the country that have found patients with non-healing wounds. They are offering crazy money to travel and presumably place skin substitutes/skin grafts on patients in my area. Obviously, something is off. I’m not going to do it but I’m curious as to what the catch is, or if it’s even legal? Any insight is appreciated!”
Do you have things to tell us about the wound care or skin substitute industry? Reach Jeanne Pinder at email jeanne@clearhealthcosts.com or encrypted Signal at 914-450-9499.
Posts in this series:
Wound care and skin substitutes: Rising costs, new policies and a whiff of scandal
Skin substitutes and possible danger: Is patient harm happening in wound care?
Federal investigators probe wound care industry
Trump makes social media post disparaging proposed wound-care rules, setting off speculation
Care groups raise concerns about ‘heartbreaking’ wound care practices
