Federal officials are investigating the industry of wound care and skin substitutes, several sources said.
The investigators are said to be looking at the manufacturers and marketers of skin substitutes, the products used to try to close up wounds that won’t heal on their own, and also at the doctors and other clinicians who are buying and applying these substances, the sources said.
One source, a Texas doctor who spoke on condition of anonymity to avoid disrupting an ongoing investigation, said he spoke by Zoom recently with two prosecutors and several investigators.
“They mentioned that it is a slow process and have been investigating for a while,” he wrote in an email. “They told me there should be press releases soon.”
Special treatment
Wounds that don’t heal by themselves may need special treatment, sometimes by the application of products commonly known as skin substitutes that can be biologic or synthetic — derived from placentas, infant foreskins, or cadaver skin, as well as fish skin and some other sources. Treatment of these non-healing wounds, including diabetic foot ulcers and venous leg ulcers, as well as other wounds like pressure injuries (such as 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 for the appropriate patient. But the system has generated a fierce competition for creating 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 skyrocketed, with much of that spending coming from Medicare — about 16% of Medicare beneficiaries have a chronic non-healing wound. Wound care is also important for diabetic foot ulcers, venous leg ulcers, pressure wounds like bed sores, and Mohs surgery for skin cancer.
New regulations
As a result of concern over high prices and improper usage, new regulations were proposed by the nation’s seven Medicare Administrative Contractors to limit the number of products that are covered by Medicare, and also to impose some other restrictions, including a condition that the products should have good research behind them supporting their efficacy, and that the people applying these products should be certain that patients are assessed for underlying reasons that might delay wound healing, like poor circulation, poor nutrition and other causes. The restrictions were due to come into effect Feb. 12. But those new regulations, proposed in identical Local Coverage Determinations (L.C.D.’s) by the administrative contractors, were postponed on Jan. 24 until April 13.
Without such restrictions, industry sources predict that Medicare will continue to spend billions on treatments that may not have clinical documentation of results. (Here is our first post about this topic.) Also, some patients are being harmed by practitioners who apply these products inappropriately, as a Colorado doctor explained.
The Texas doctor wrote that he was not sure how the Trump administration’s widespread firings of inspectors general would affect the probe. “I was afraid to ask how the Trump administration’s vendetta against the DOJ & OIGs would affect the investigations,” he wrote. “I did not want to invite a conversation where the Trump administration policies might be criticized. Someone could get fired.”
Previous investigation
This would not be the first investigation involving practitioners using skin substitutes. After an investigation, an Arizona couple pleaded guilty to causing over $1.2 billion of false and fraudulent claims to be sent to Medicare and other health insurers for expensive, medically unnecessary wound grafts that were applied to elderly and terminally ill patients. That investigation included the F.B.I., the inspectors general of the Department of Health and Human Services and the Veterans Administration, and the Defense Criminal Investigative Service, the criminal investigative arm of the U.S. Department of Defense Office of Inspector General. Many in the industry suggest that this is only the tip of the iceberg.
In 2023, the Office of the Inspector General issued a report titled “Some skin substitute
manufacturers did not comply with new ASP reporting requirements.” It noted that self-reporting and incomplete reporting of prices seemed to be ballooning costs. The A.S.P. is the average sales price, which the companies are supposed to report.
It read in part: “According to our analysis, Part B payment amounts would be reduced substantially if A.S.P.’s were consistently reported and used, potentially leading to tens of millions of dollars in savings each quarter. However, C.M.S. faces several unique hurdles in implementing A.S.P.-based reimbursement for skin substitutes. For example, because
skin substitutes are not actually prescription drugs, C.M.S. cannot employ its usual methods and data sources to corroborate manufacturer-reported data on pricing and packaging. C.M.S. is actively considering changes to the payment methodology for skin substitutes and, in January 2023, conducted a skin substitutes Town Hall to address stakeholder concerns and discuss potential payment approaches.” The L.C.D.’s followed.
A lot of the abuse, the Texas doctor said, comes from mobile wound care companies. These companies get essentially kickbacks for buying the product, which makes it easy for them to hire clinicians — maybe a physician’s assistant or a nurse practitioner — to go out and find patients in nursing homes and the like, and then apply the skin substitutes as freely as possible. These clinicians may not be fully trained, and they may not assess the whole patient to see the reason that the wound is present or that it’s not healing.
If the patient has poor nutrition, or vascular compromise, or diabetes, for example, healing is impaired. If the wound is a bedsore, then applying a skin substitute to speed healing won’t have any effect if the pressure on the area continues.
Government’s role
Part of the problem is with the way these products can be brought to market, said two executives of a skin substitute company who spoke on condition of anonymity to protect business relationships. These products do not require F.D.A. approval before going to market, since the regulatory pathway is under Section 361 of the Public Health Service Act — essentially the manufacturer self-certifies that these products are being manufactured and tested in accordance with the requirements under Section 361, for organ donors and things like that, as opposed to drugs that need FDA approval. In other words, the product a human cell or tissue that is being used “as God intended,” one doctor said.
Coupled with the incredibly low barrier to entry to bring a lot of these products to market, the two executives explained, they are priced under what is called the “average sales price” or A.S.P. framework — which allows the manufacturer to set its own price, with the assumption that the market will correct that price if it’s wrong. The A.S.P. methodology is built on drug development: After years of development and study, and clinical trials, in theory, the drug comes to market and the market either accepts or does not accept the price. But many skin substitutes are quite similar, they said, and the “me-too” addition of newer brands is not often accompanied by deep research and studies confirming their value.
In this way, there’s no real cap on the price, if Medicare continues to pay, which it does. When the first explosion in the market took place, around 2021 or 2022, the price for a skin substitute was typically around $125 a square centimeter, they said. Now, some are still priced around that, but those who are looking for higher prices are saying their A.S.P. is $2,000 or $3,000 or more, they said.
Discount prices
“Now, how do you get a doctor to use this? You give half the money to the doctor, in the form of a discount. And the discounts are well above what are considered normal discount levels within the in the drug world. They’re discounting at 40 or 50 percent.
“So I’m a doctor. I buy a product of $2,000 a square centimeter. I only pay $1,200 for it, but I get reimbursed $2,000, plus 6 percent, so I get reimbursed $2,160 per square centimeter but I’m only paying $1,200 for it.”
Beyond that, he said, the numbers get bigger. “A four by four, which is 16 square centimeters — we could do the math. From $2,000 a square centimeter, it’s $32,000 for that. So on one little teeny allograft, smaller than the size of a sugar packet, they’re getting paid $32,000, with doctors keeping 40 percent of that.”
This pricing is not used in a hospital outpatient department, where a bundled price usually prevails. The executives said their products are used in outpatient departments, in doctor’s offices and in mobile wound care settings such as a patient’s home or a nursing facility. But because of the way payments are made, most of the lower-priced skin substitutes are being used for commercially insured patients and Medicare Advantage patients, where reimbursements are capped and prior authorization is common. The high-priced skin substitutes are being used freely on patients with traditional Medicare, they said, because traditional Medicare pays more consistently and with fewer, if any, hitches.
“It’s frankly outrageous, because it’s the most vulnerable of the population that’s being abused the most severely, because it’s just Medicare fee-for-service where this occurs,” one said.
What has the trajectory of pricing been for the past few years? In discussing this with the Centers for Medicare and Medicaid Services, and congressional staffers, one said: “In one of the meetings, we said, ‘Look, by your own numbers, this is a $4 billion spend last year.’ And they said, ‘Lord knows, if we don’t do something about it in ’24, this thing could be up a couple billion more. Could be 6 or 7 billion.’ I said, ‘No, let us correct you. It is now at $1 billion a month’ — by mid-year ’24, it had risen to a billion a month.”
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.
Turning back the regulations
A lawyer for the industry sources who want to turn back the local coverage determinations, Preeya Pinto of the law firm King & Spaulding, said that the fault lies in the regulations — the manufacturers are following the F.D.A.’s 361 regulatory approval pathway and the C.M.S.’s A.S.P pricing methodology. It’s up to the agencies to change, she said in a Zoom interview.
She has been spearheading the legal opposition to the L.C.D.’s for the opposition group, the MASS coalition, she said, trying to overturn or delay the regulations because they deny coverage in a way the coalition finds inappropriate. The MASS coalition website says it is a group of manufacturers, processors and distributors of wound care products, but the names of the members and the sources of funding are not visible on the website. The regulations deny Medicare coverage for non-compliant products and clinicians, leaving a much smaller number of products that are approved for coverage.
She said the L.C.D. as written “just simply denies coverage for the vast majority of products that are out there, and doesn’t allow patients to get the care that they need. If it was allowed to go into effect, there would be so much demand that the companies that are left on the covered list just can’t meet that demand.”
MASS has been trying for months to overturn or delay or rewrite, with no success — so why haven’t they been able to sway the discussion to their side? “The government moves slowly on anything,” she said. “It’s a lot of people to convince and educate.”
Hopes for new administration
“We recognize that there is a lot of fraud and abuse and bad actors in space, but the MASS coalition is not that, and they want to work with C.M.S. in getting rid of that,” she said, “hoping now with the new administration, that there will be a lot of collaboration and dialogue going forward, so we can get to a place where patients benefit at the end of the day.”
“We think the incentives are completely skewed right now as to who uses what — it should be based on the clinical value of product to the patient,” she added.
“The MASS coalition is very, very eager to work with the new leadership at H.H.S. and C.M.S to get us to the place where patients get the medically necessary treatment that they need, and the payment methodology is reasonable, and accurately values the great clinical benefit that these products give to patients, which I don’t think anyone can deny.
“When used on the right patients and the right conditions, these products do work, and I hope that folks will remember that that we can’t throw the baby out with the bathwater. I’m really worried that we continue to go down this road, these products will no longer exist because it will not be feasible for companies to produce them. We want to reduce fraud and abuse, but we also want to protect innovation and patient access. I think we’re all on the same page with the same goals, and we really need to figure out the best way to get there.”
Behind the scenes
Meanwhile, the L.C.D.’s are scheduled to go into effect on April 13. The industry sources said there is a lot of negotiating behind the scenes, and efforts to both preserve and destroy the L.C.D.’s are under way.
And the companies that are making and buying and applying skin substitutes willy-nilly, having gotten a reprieve from the new regulations, are hiring up a storm.
A recent help wanted ad for a 1099 medical sales representative promised up to $9 million annually in commission, for remote, contract work, Dr. Caroline Fife wrote on her blog: “Projected earnings for this company’s sales are in the millions of dollars. This is possible because at least some of the amniotic products sold cost more than $4,000/cm2. Claims on individual patient wounds can exceed $1M (as ACO medical directors have complained).”
Pricing is also taking on new levels of exuberance. One industry source said he had seen an internet post of a skin substitute priced at $1.5 million, for a piece measuring 20 centimeters square. “This is where it gets into really crazy stuff,” he said, “20 by 20 is a big wound. The last thing that most people would do, if you’re really aboveboard, is flap a skin substitute for $1,500,000 on that size wound. You would do a million other things before you would do that. (He went back looking for the link to the post, but could not find it.)
“And the sad thing is, a wound that size, obviously, one piece isn’t going to do a doggoned thing. You would need, I don’t even know how many you would need, but to bring that a 20 by 20 wound down to something — you can use 18 of those and still not get the wound down. Are you O.K. with that — $20 million for a wound? It’s out of control.”
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
