OIG Report Highlights Issues With Wound Care Payments in Medicare

WASHINGTON—The U.S. Department of Human Services Office of the Inspector General (OIG) released a review of Medicare Part B payment trends for wound care products known as skin substitutes that the office said “raises major concerns about fraud, waste and abuse.”

In March 2023, OIG issued a report that identified significant gaps in manufacturer compliance with new average sales price (ASP) reporting requirements for skin substitutes. 

For payment purposes, CMS (Centers for Medicare & Medicaid Services) treats skin substitutes like approved prescription biologics, although most are regulated by FDA through much less rigorous processes. As such, providers of skin substitutes in non-institutional Part B settings are reimbursed at 106% of the ASP. In cases in which ASPs are not available (e.g., a new billing code), Medicare typically uses wholesale acquisition costs (WACs) or payment invoices to determine a payment amount.

According to the most recent review, despite efforts by CMS to address the accuracy and completeness of ASP reporting, significant increases in expenditures since the OIG report was released raise concerns about what could be driving these trends.

For example, the review reported that in just two years, Part B spending on skin substitutes has increased 640%, surpassing $10 billion annually by the end of 2024.

Despite Medicare Advantage having more than half of all Medicare enrollees, utilization and expenditures for skin substitutes under Medicare Advantage were just a fraction of utilization and expenditures under original Medicare. Among enrollees with a skin substitute claim, costs for those reportedly treated at home were four times as high as those treated in an office setting.

Factors that may be driving these trends include:

• Manufacturers’ ability to quickly bring new skin substitutes to the market compared to typical products paid using ASP.
• Financial incentives such as spread pricing that make certain products more attractive to providers.

According to the review, under the current payment system Medicare often pays providers for skin substitutes at amounts much higher than the providers’ purchase prices, and providers keep the “spread.”

“This creates incentives to bill for more and more units of skin substitutes and to choose products with the greatest spreads,” the OIG said. 

The review ended with the OIG pressing an urgent call to action for payment reforms to address these issues and noted CMS has recently taken steps to address the concerns.