Skin substitutes, bioengineered or natural materials designed to promote healing by replacing or supporting damaged skin, have become a key component of advanced wound care. But the significant Medicare reimbursement of these products commanded over the last few years has made them a prime target for enforcement by the Department of Justice and the Department of Health and Human Services Office of Inspector General (OIG).  

Concerns around clinical efficacy, medical necessity, and the financial arrangements between healthcare providers, distributors, and manufacturers have fueled a wave of audits, investigations, and fraud allegations under the False Claims Act (FCA) and the Anti-Kickback Statute (AKS). While the government’s stated aim is to protect federal healthcare program integrity, many providers offering legitimate treatment have found themselves caught in the crosshairs of intensifying enforcement efforts.

Escalating Risks for Providers: From Audits to Asset Seizures

These enforcement efforts and resulting risks are substantial. The OIG has added skin substitute billing to its oversight work plan, and Medicare contractors—including Unified Program Integrity Contractors (UPICs) and Recovery Audit Contractors (RACs)—are actively targeting high-cost products and outlier billing patterns. These audits typically begin with records requests, but can quickly escalate to suspension of Medicare payments, recoupment demands, and referrals for fraud investigation. If the Centers for Medicare & Medicaid Services (CMS) determines that a provider’s billing is not medically necessary, or the provider is flagged as an outlier in her region, the provider could face recoupment of funds, and suspension, exclusion from Medicare, or a referral to the Department of Justice. Even minor coding errors or documentation gaps can trigger scrutiny that evolves into civil or criminal enforcement.

A recent case out of the Central District of California illustrates just how aggressively the government is pursuing these matters. In May 2026, a federal court authorized the seizure of more than $2 million from a Pasadena-based wound care clinic. Expert Wound Care faces accusations of defrauding Medicare for reimbursement for skin graft substitutes and skin grafts that were allegedly never performed on patients. According to court filings, from September 2025 to April 2026, the clinic submitted over $46.6 million in claims to Medicare for skin substitute products and wound care services allegedly provided to 78 beneficiaries, resulting in approximately $34 million in approved payments.

Notably, certain indicators in the Expert Wound Care case highlight the type of billing anomalies that trigger federal scrutiny. For example, the government highlighted that the clinic’s average allowed amount per claim for substitute skin grafts was approximately $37,449, more than double the national average of $16,837. The clinic’s Medicare billing skyrocketed from under $5,000 in July 2025 to roughly $33 million by December 2025. The clinic’s percentage of total beneficiaries receiving skin substitute grafts was 38.5%, more than six times the national average, and its percentage of total claims for such grafts was approximately nine times the national norm. Among the most striking allegations, law enforcement identified a single beneficiary for whom the clinic billed approximately $2.6 million and received nearly $2 million in payments for skin graft services that were never actually provided. In one month alone, Expert Wound Care filed 27 claims on that beneficiary’s behalf despite the individual allegedly receiving no home services whatsoever.

Mitigating Risk: Key Takeaways for Industry Stakeholders

Providers can take proactive steps to reduce their audit risk and ensure proper reimbursement for advanced wound healing products.

First, documentation must be detailed and support medical necessity, particularly when advanced products, which may be seen as “experimental” or “investigational,” like cellular or tissue-based grafts, are used. The provider should also ensure each patient’s chart clearly shows that standard of care was instituted prior to progressing to the use of a skin substitute. Documentation must also demonstrate that the standard of care was insufficient and why continued treatment was needed. Providers should note the limited coverage of skin substitutes considered biological products as of January 1, 2026. Biological products licensed under section 351 of the Public Health Service (PHS) Act will continue to be paid as biologicals under the average sales price (ASP) methodology in section 1847A of the Act. However, all other products will be reimbursed as incident-to services at a flat rate of $124.17 per square centimeter.

Providers should consider conducting regular internal audits of high-risk billing codes, understand any applicable regulatory requirements, as well as Local Coverage Determination guidelines developed by CMS, in order to remain current on Medicare’s evolving regulations and guidance. As the Expert Wound Care case demonstrates, dramatic spikes in claim volume, per-beneficiary costs far exceeding national averages, and disproportionate utilization of specific procedure codes are precisely the red flags that trigger additional scrutiny. Practitioners should ensure that billing practices are supported by documented, legitimate, and medically necessary patient care.  Robust internal compliance programs are needed to detect and prevent the kind of statistical outliers that drew the government’s attention with Expert Wound Care.

Third, providers should consider reviewing their agreements with manufacturers and distributors of skin substitutes to ensure that they negate FCA and AKS exposure.

Finally, while enforcement efforts to date have largely focused on healthcare providers, brokers, distributors, and manufacturers of skin substitute products also face significant exposure. These entities often play a central role in driving the product volume and selection.  Their business arrangements—including commissions, volume-based incentives, exclusive supply agreements, and marketing practices—can create substantial exposure under the FCA and AKS. Where a distributor or manufacturer offers some value to induce a provider to use a particular product or to increase utilization beyond what is medically necessary, all parties to that arrangement may face both civil and criminal liability. Moreover, as the government continues to investigate provider-level billing outliers, it is only a matter of time before enforcement attention shifts upstream to the entities that supplied the products and structured the financial relationships that enabled the alleged fraud. Brokers and distributors who facilitate introductions between manufacturers and providers, negotiate pricing arrangements, or receive some spread based on the discounting/pricing structure should carefully evaluate whether their compensation structures could be characterized as kickbacks. Manufacturers, for their part, should scrutinize their sales and distribution models, ensure compliance with safe harbor requirements, and maintain robust compliance programs that monitor downstream utilization patterns for red flags.

Because wound care and the use of skin substitutes is an evolving area of interest for CMS, OIG, and DOJ, if a provider, broker/distributor or manufacturer receives a letter from a UPIC, a civil investigative demand from DOJ, or an administrative subpoena from OIG or other regulatory inquiry, they should contact an experienced healthcare attorney as soon as possible to implement an appropriate strategy for next steps and protect the practice or company. Bass, Berry & Sims has developed a National Skin Substitutes, Wound Care, & Cellular and Tissue-Based Products (CTP) Task Force, focused on government investigations, enforcement actions, reimbursement issues, and regulatory compliance involving skin substitutes and advanced wound care products.