Several arrests for improper use of skin substitutes in wound care were announced by federal investigators recently, just as new rules attempting to crack down on improper usage were announced by the Centers for Medicare and Medicaid Services.
A total of seven defendants, including five medical professionals, were charged with approximately $1 billion in fraudulent claims for Medicare and other benefit programs, prosecutors said. They said medically unnecessary skin grafts were applied on dying patients.
One of the medical professionals charged was a doctor, a podiatrist; others included a business associate, nurse practitioners, and one nurse. The lack of medical training among the accused people suggests that prosecutors are accusing skimpily trained professionals of delivering unnecessary and expensive care, often to older people who may be in skilled nursing facilities or other congregate care settings.
“Charges were filed in the District of Arizona and the District of Nevada against seven defendants, including five medical professionals, in connection with approximately $1.1 billion in fraudulent claims to Medicare and other health care benefit programs for amniotic wound allografts,” the statement said. “As alleged, certain defendants targeted vulnerable elderly patients, many of whom were receiving hospice care, and applied medically unnecessary amniotic allografts to these patients’ wounds. Many of the allografts allegedly were applied without coordination with the patients’ treating physicians, without proper treatment for infection, to superficial wounds that did not need this treatment, and to areas that far exceeded the size of the wound. Certain defendants allegedly received millions in illegal kickbacks from the fraudulent billing scheme.”
Skin substitutes, used to treat wounds that do not heal properly, have become a focus of attention because of skyrocketing costs. When used properly, skin substitutes for wound healing are very helpful. But they are frequently used on the wrong patients and using substandard wound care practices, by clinicians lacking full training and seeking to make money — resulting in serious complications. See our previous coverage here.
‘Ramping up’
Dr. Caroline Fife wrote in a comment that “the DOJ is ramping up its enforcement.” Fife has been a certified wound specialist since 1998, and she is the chief medical officer of the wound care software company Intellicure, the executive director of the U.S. Wound Registry nonprofit and a professor at Baylor College of Medicine in Houston; she blogs about the industry at CarolineFifeMd.
She wrote on her blog that with the exception of the one podiatrist: “All the practitioners above were nurse practitioners or in one case, a nurse who may not have had prescribing authority. This suggests that NPs have entered into business arrangements with amniotic distributors or sales representatives in which their use of amniotic products was determined to be a kickback or ‘bribe.’ NPs are strongly urged to have attorneys review any referral agreements with distributors or sales representatives. Also, the lack of medical training was pointed out in the sales representatives who were indicted for ‘money laundering.’ It is also important to note the fact that many patients were described as being on hospice or at the end of life, a group of patients who are particularly vulnerable and about whom the DOJ is understandably concerned about protecting.”
Others in the industry were not enthusiastic about commenting except for anonymously, in keeping with our previous experiences. It seems that people in the industry do not see an upside in commenting publicly, especially given the fact that it is widely believed that people close to President Donald J. Trump and his administration have no quarrel with the excesses in the industry.
One person in the industry, who spoke on condition of anonymity, wrote: “I haven’t read the indictments and I don’t have time to — but I’m betting that they entered into agreements for which payment was based on number of applications or square centimeters applied — some metric that was not linked to appropriate care but to volume — and that this is what the D.O.J. is paying attention to. (In other words, the D.O.J. is focusing on things that are not gray areas in the law, such as the amount of profit a doctor can make from the sale of the product.”
The wound care arrests were part of a larger Department of Justice effort, described as the “2025 National Health Care Fraud Takedown,” which resulted in criminal charges against 324 defendants, the justice department said. The investigators were from the Department of Health and Human Services Office of the Inspector General, the Federal Bureau of Investigation, the Drug Enforcement Administration, and other federal and state law enforcement agencies.
Industry figures have been expressing concern over both the practices of using skin substitutes when they may not be needed or helpful — and might even be causing patient harm — and also over sharp increases in skin substitute product prices, with new and ever-pricier products coming to market with limited scientific proof of increased efficacy to justify those increased prices. As a result, new regulations were proposed last year 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. Those new regulations, proposed in identical Local Coverage Determinations (L.C.D.’s) by the M.A.C.’s, were set aside by the Trump administration, leaving the field with little or no regulation. See our previous coverage here.
New Medicare limits
In an attempt to crack down on inappropriate treatment, the Centers for Medicare and Medicaid Services in late June rolled out a model to test new prior authorization requirements in traditional Medicare.
The model is called Wasteful and Inappropriate Service Reduction (WISeR), in an attempt to modernize efforts through enhanced technologies, C.M.S. said in a statement. The agency said it was testing a streamlined prior authorization process while protecting Medicare beneficiaries from unnecessary and often costly procedures.
In a press release, the agency said the model will help “patients and providers avoid unnecessary or inappropriate care and [will safeguard] federal taxpayer dollars.”
The agency said the model will be tested first in six states: New Jersey, Ohio, Oklahoma, Texas, Arizona and Washington.
Participants in the program will use artificial intelligence to speed prior authorization, particularly for certain services that are regarded as vulnerable to waste fraud and abuse. Among the services named are wound care using skin substitutes for the elderly and terminally ill patients.
Target areas
For the new prior authorization procedures, C.M.S. named — in addition to wound care — electrical nerve stimulator implants, and knee arthroscopy for knee osteoarthritis. The model “excludes inpatient-only services, emergency services, and services that would pose a substantial risk to patients if significantly delayed,” C.M.S. said
The announcement is unusual because prior authorization is not typically required in traditional Medicare. Prior authorization is fairly common in Medicare Advantage programs. This explains why in the widespread inappropriate use of skin substitutes in wound care treatment, Medicare Advantage patients are rarely involved.
That’s because prior authorization requests are routinely turned down by Medicare Advantage. But in traditional Medicare, there has not been a tradition of prior authorization, so this is a sharp break from the past — even if only advertised as a limited trial, it has larger implications.
Questionable pitches
As attempts to rein in questionable practices continue, questionable pitches continue to circulate around the marketplace. This one pitches the recipient on grafts of 100 square centimeters or larger (that’s nearly 4 inches square) and promises an average of $100,000-$250,000 a month in revenue for clients.
The pitch makes a point of saying that the participants in this plan “are tired of relying fully on physician referrals,” which “can be somewhat limiting to clinic growth.”
“We understand the challenges of being both a Clinician and a Business Owner,” the writer says.
This size of wound — 4 inches square — is one that medical professionals we have spoken with say often should be treated first with some other modality than a skin substitute. So it’s not clear that this would be kosher enough to avoid scrutiny by a regulator seeking to establish appropriateness of treatment.
Skin substitute cases
The skin substitute cases included these, from the Justice Department statement:
“David Jenson, 57, and Nestor Rafael Romero Magallanes, 29, of Spring, Texas, were charged by superseding indictment with conspiracy, health care fraud, and money laundering in connection with an alleged scheme to fraudulently bill Medicare $90 million for highly expensive skin substitutes. Jenson is a podiatrist who owned Doctor’s Inc., a clinic in the suburbs north of Houston. Romero was the clinic’s chief executive officer. As alleged in the superseding indictment, the defendants submitted claims for highly expensive skin substitutes for patients that did not have qualifying wounds, or any wounds at all. The defendants were warned that their billing was improper when they were audited in early 2023, yet they continued to bill after the audit. In addition, in the weeks following a search warrant, defendants pressured patients into writing false statements claiming they had qualifying wounds in an attempt to interfere with the investigation.
“Ira Denny, 56, of Surprise, Arizona, was charged by information with conspiracy to commit health care fraud in connection with a scheme to defraud Medicare by billing for medically unnecessary amniotic allografts that were procured through kickbacks and bribes. As alleged in the information, medically untrained sales representatives identified and referred elderly Medicare beneficiaries to Denny, a nurse practitioner, who applied amniotic allografts to the beneficiaries without exercising independent medical judgment and in the amount and frequency determined by the sales representatives. Medicare was billed approximately $209,359,607 for allografts ordered and applied by Denny, which were medically unreasonable and unnecessary, ineligible for reimbursement, and procured through kickbacks and bribes.”
“Tyler Kontos, 29, of Mesa, Arizona, Joel ‘Max’ Kupetz, 36, of Scottsdale, Arizona, and Jorge Kinds, 49, of Phoenix, Arizona, were charged by indictment with conspiracy to commit health care fraud, health care fraud, and conspiracy to defraud the United States in connection with a $1 billion amniotic wound allograft fraud scheme. Kontos and Kupetz were also charged with transactional money laundering, and Kupetz was charged with receiving health care kickbacks. As alleged in the indictment, the defendants targeted elderly Medicare patients, many of whom were terminally ill in hospice care, through Arizona-based companies Apex Mobile Medical LLC, Apex Medical LLC, Viking Medical Consultants LLC, and APX Mobile Medical LLC to cause unnecessary and expensive allografts to be applied to these vulnerable patients’ wounds indiscriminately, without coordination with the patients’ treating physicians, to superficial wounds that did not need this treatment, and in sizes excessively larger than the wound. Kontos and Kupetz—neither of whom had any medical training—located elderly Medicare patients with wounds of any size or severity, ordered and recommended the ordering of allografts to be placed on the patients’ wounds, and referred the patients to Kinds and other nurse practitioners to apply the allografts. … In just fourteen months, the defendants and their co-conspirators caused the submission of over $1 billion in false and fraudulent claims to Medicare, CHAMPVA, TRICARE, and commercial insurers, of which over $600 million was paid. Kontos and Kupetz received illegal kickbacks for ordering and arranging for and recommending the purchasing and ordering of allografts, while Kinds received up to $1,000 for each allograft application. [A case last year involving skin substitutes resulted in guilty please from two Apex principals.]
“Gina Palacios, 40, of Phoenix, Arizona, was charged by information with conspiracy to commit health care fraud in connection with a scheme to defraud Medicare by billing for medically unnecessary amniotic allografts that were procured through kickbacks and bribes. As alleged in the information, medically untrained sales representatives identified and referred elderly Medicare beneficiaries to Palacios, a nurse practitioner, who applied amniotic allografts to the beneficiaries without exercising independent medical judgment and in the amount and frequency determined by the sales representatives. Medicare was billed approximately $59,470,478 for allografts ordered and applied by Palacios, which were medically unreasonable and unnecessary, ineligible for reimbursement, and procured through kickbacks and bribes. Medicare paid approximately $28,442,271 based on these false and fraudulent claims. “
“Paulino Gonzalez, 40, of Las Vegas, Nevada, was charged by information with conspiracy to defraud the United States and pay and receive kickbacks for participating in a $94 million scheme to order, recommend, and apply amniotic wound allografts in return for illegal kickbacks. As alleged in the information, Gonzalez, a registered nurse, received approximately $7,391,584 in illegal kickbacks from an allograft distributor in exchange for recommending the purchasing and ordering of certain allografts billed to Medicare. A wound care company paid Gonzalez to apply allografts, some of which were medically unnecessary, to Medicare beneficiaries. Between October 2021 and April 2024, the wound care company billed Medicare over $94 million for allografts applied by Gonzalez and others.”
“Mary Huntly, 67, of Las Vegas, Nevada, was charged by information with conspiracy to defraud the United States and pay and receive health care kickbacks for participating in a scheme to receive illegal kickbacks in exchange for purchasing and ordering amniotic wound allografts billed to Medicare. As alleged in the information, Huntly, a nurse practitioner, applied medically unnecessary allografts to Medicare beneficiaries that were procured through illegal kickbacks and bribes. From September 2022 through April 2024, Huntly’s wound care company fraudulently billed Medicare approximately $14,333,550, and Medicare paid approximately $9,105,563 based on those claims. “
Other fraud cases
Separate from the skin care fraud, another big target of the investigation, the Justice Department said, was an international organization using a network of foreign straw owners that bought medical supply companies located across the United States and then submitted $10.6 billion dollars in fraudulent health care claims to Medicare for urinary catheters and other durable medical equipment, exploiting the stolen identities of over 1 million Americans, prosecutors said.
In another case, prosecutors said the defendants used Medicare beneficiaries’ identification numbers and other confidential information obtained through theft and deceptive marketing, and then used artificial intelligence to create fake recordings of Medicare beneficiaries consenting to receive certain products.
Also, one defendant based in Pakistan and the United Arab Emirates orchestrated a scheme that preyed upon individuals in need of addiction treatment, by conspiring with treatments that are owners to fraudulently bill Arizona Medicaid approximately $650 million dollars for substance abuse treatment.
The full Justice Department statement is here.
