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The bankruptcy of Flowood's Wound Management Specialists brought to light a battle being waged at Medicare.  Medicare is cracking down on companies providing skin substitutes after it discovered a loophole created a gravy train.  Such tightening apparently caused Wound Management's finances to crash, leaving it owing between $100 million and $500 million to creditors while revenue fell by 80% in one year.  

The Inspector General reported a year ago Medicare spending on wound care products such as skin substitutes skyrocketed to nearly $10 billion.  In just two years alone, such spending increased 640%, rising from $389 million per quarter to nearly $3 billion per quarter. The amount paid per Medicare Part B patient tripled from $40,000 to $121,000. 

Health care providers made a mint providing such products in a home setting. Home care enrolled doubled in two years while office treatment was cut in half.  The home care patients received 2 1/2 times the units of skin substitutes as those treated in the office.  The cost per home patients was - get this - $240,000 compared to $57,000 for a patient treated in the office.  Ouch.  

The National Institute of Health described the problem: 

Between 2019 and 2024, annual Medicare Part B spending on these products increased more than 40-fold, from $250 million to more than $10 billion. Prior to the recent reform, CMS reimbursed clinicians for skin substitutes administered in nonfacility settings (eg, physician offices and patient homes) at a rate of an average sales price (ASP) of +6%. However, skin substitute manufacturers were omitted from federal ASP reporting requirements. Some manufacturers and clinicians exploited this exemption to enter spread pricing arrangements, whereby clinicians profited on substantial differences between Medicare reimbursement (calculated based on undiscounted list prices) and actual acquisition costs. NIH website

NIH cut the payola, establishing a new rate of $127/cm2 for skin substitutes.  Medicare was paying up to $2,000 per unit in 2024. So the new guidelines affected a few bottom lines. 

Medicare plans to slash payments for expensive and untested skin bandages that have cost the federal government billions of dollars, the Trump administration announced Monday.

The new proposed limit is an about-face for the administration, which twice delayed Biden-era rules to reduce spending on the bandages, known as skin substitutes. President Trump, who previously defended the payments on social media, received a large campaign donation last year from a leading bandage seller.

Spending on skin substitutes has increased fortyfold in the past five years, surpassing $10 billion in 2024. That sharp increase is one of the largest examples of Medicare waste in the program’s history, according to data analysts and industry experts.

Medicare, the government insurance plan for seniors, spent more last year on the bandages than on ambulance rides or anesthesia, despite limited evidence that they work. The bandages are made from dried bits of placenta and are used on wounds that won’t heal.

For years, lax Medicare rules have allowed makers of the bandage to essentially set their own prices. Companies have brought more than 100 new versions to market since 2023, some costing Medicare more than $21,000 per square inch.

The new Medicare policy proposes setting a flat payment of $806 per square inch. The lower fee is likely to stamp out a lucrative scheme that The New York Times reported on this year: Doctors can buy the coverings at large discounts and then charge Medicare the full sticker price, pocketing the difference.

Some doctors have earned tens of millions of dollars for relatively simple procedures that involve making house calls to apply the bandages.

“We’re making it easier for seniors to access preventive services, incentivizing health care providers to deliver real results and cracking down on abuse that drives up costs,” Dr. Mehmet Oz, the Medicare and Medicaid administrator, said in a statement. Article

Medicare is testing requiring pre-authorization for the use of such products in several states.  The article ended with a little warning for those who might have gouged Medicare: 

Last month, the Department of Justice announced that it was prosecuting multiple doctors for improper use of the products. Prosecutors charged two Texas podiatrists with billing Medicare for $90 million worth of unnecessary bandages between 2022 and 2024, in some cases using them on patients who had no wounds. They spent the money on “expensive jewelry and vehicles, and private jet travel,” the government wrote in a June court filing. Both men have pleaded not guilty.

 Stay tuned.