Skin-Substitute Payment Changes: When Medicare Changed the Price and the Category

Skin substitute Medicare payment changes took effect on January 1, 2026, moving most nonfacility products from individual drug-price payments to payment as supplies used during a covered application procedure. For someone who sells these products, buys them for a practice or prepares Medicare claims, the change reaches the gap between what the provider pays and what Medicare allows. That gap can influence which product gets ordered. Missing price reports left Medicare and its enrollees facing higher payments while manufacturers that reported their prices risked losing business.

What Medicare Paid Before 2026

Before 2026, Medicare generally paid for skin substitutes in physician offices and other nonfacility settings at average sales price plus 6%. Each product had its own billing code and payment limit. Hospital outpatient departments worked under a different arrangement: since 2014, Medicare had generally included the product in payment for the application procedure.

Skin substitutes are wound-care products. The old nonfacility payment system treated most of them like prescription biologics, even though the category included products regulated differently by the FDA. The setting mattered to the business: an office could receive a separate product payment while a hospital had to buy the product out of its bundled procedure payment.

Average sales price is a manufacturer-reported, volume-weighted price that accounts for required discounts and other price concessions. Medicare’s payment files use that information with a two-quarter lag. What a provider pays today and the price underlying today’s Medicare payment can therefore come from different periods.

When the Centers for Medicare & Medicaid Services lacked an average sales price for a skin substitute, contractors used wholesale acquisition cost or invoices. Wholesale acquisition cost is an undiscounted list price. An invoice can also miss a rebate paid after the purchase. A payment based on either can exceed the provider’s actual acquisition cost, leaving a larger spread for the provider to keep.

That is why manufacturer-reported prices and omitted concessions matter to the payment trail. The commercially useful number is what the product costs after the discounts. The number Medicare receives determines what the program pays.

Missing Price Reports Could Make a Product More Attractive

Missing average sales price reports left Medicare paying some skin substitutes from higher benchmarks. In its March 2023 report on reporting compliance, the HHS Office of Inspector General found that the Centers for Medicare & Medicaid Services could not calculate payments based on average sales price for the first quarter of 2023 for 30 of the 68 billing codes reviewed because manufacturers had not supplied the required data.

The reporting requirement had begun with the first quarter of 2022. Before that, some manufacturers supplied the information voluntarily. The inspector general examined four products that switched from list-price or invoice payments to payments based on average sales price during 2021. Their average Medicare payment amounts fell between 21% and 73%.

For two of those products, payment reverted to the earlier basis in the next quarter and rose back to prior levels. In one instance, the manufacturer had stopped reporting its average sales price. The payment changed with the information reaching Medicare.

The inspector general identified the commercial problem directly: a larger spread could make products without payments based on average sales price more attractive to providers. Manufacturers that reported their prices could find their products at a disadvantage. The reporting system could reward the absence of the information it needed.

The percentage add-on supplied another incentive. A higher benchmark produced a larger dollar add-on. Product choice, acquisition discounts and the timing of reported prices all belonged in the same business calculation.

Why Skin-Substitute Spending Rose

Skin-substitute spending grew through both increased use and higher prices, according to the inspector general’s September 2025 findings. The report also identified rapid product entry and spread pricing as factors that could make particular products attractive to providers.

The setting showed a striking difference. Among enrollees with a skin-substitute claim, costs for those reportedly treated at home were four times those for people treated in an office. Medicare Advantage covered more than half of Medicare enrollees, yet its skin-substitute use and expenditures were only a fraction of Original Medicare’s.

The 2026 Medicare Trustees Report gives a program-financing measure of $0.8 billion in 2021 and $14.1 billion in 2025.

Even within the growing category, individual prices could fall. The Medicare Payment Advisory Commission reported in its July 2026 Data Book that average sales price declined 20.8% for Membrane Graft or Wrap and 33.9% for Restorigin between 2024 and 2025. More use, different products and different settings can move the total while particular prices fall.

What Changed in 2026

Medicare began paying most skin substitutes separately as incident-to supplies: products used as part of a covered application procedure. The physician fee schedule final rule replaced the individual product-price approach with a common payment rate across three FDA categories for the first year.

Those categories cover human cells and tissue products, cleared medical devices, and devices with premarket approval. The final rule set the physician-office rate for covered sheet products at about $127 per square centimeter before geographic adjustments, replacing the separate price for each product. It retained payment based on average sales price for products licensed as biologics under the Public Health Service Act.

In hospitals, the outpatient final rule removed skin substitutes from the bundled application payment and established separate product payment. The two settings moved toward the same categorization from different starting points: offices had separate product prices, while hospitals had bundled product costs.

The Centers for Medicare & Medicaid Services said it intended to propose different rates for the three FDA categories in future years. The published final rules used a single rate across those categories for 2026.

The rule also ended mandatory average sales price reporting for products newly paid as supplies. A missing report under the old system and a missing report after reclassification belong to different payment rules.

Skin-Substitute Spending After Reclassification

A comparison of skin substitute spending before and after payment reclassification has to follow the products into their new category. The drug-spending series fell sharply in the first quarter after the change, as spending moved away from the old drug-payment treatment.

The billing code alone can conceal that break. The Centers for Medicare & Medicaid Services kept the existing product codes while changing how payment was calculated. The code could look familiar even though the payment attached to it had changed.

For an insider comparing the business before and after the change, the useful connection is the product, the date of service, the setting and the payment basis.

The Dermagraft Case Put the Sales Incentive in View

A historical skin-substitute case shows how a commercial incentive can become a specific allegation about product use. In January 2017, the Justice Department announced a $350 million civil settlement with Shire Pharmaceuticals over alleged kickbacks and other conduct inducing clinics to use or overuse Dermagraft. Six whistleblower lawsuits brought the allegations.

One complaint described an offer tied directly to the product’s storage needs:

ABH was Advanced BioHealing. The alleged offer connected equipment the customer needed with the quantity it agreed to buy. That is a concrete kickback question about what drove product selection: what did the supplier give the practice, and what purchases did it expect in return?

What an Insider’s Records Can Show

Health care billing and purchasing records can connect the product purchased, the price reported and the treatment billed. We examine the acquisition invoice alongside rebates and other concessions, the manufacturer’s pricing submission, the product code and the Medicare payment for the relevant period. The same comparison follows a product through the change in payment rules.

The 2017 Journal of AHIMA article Busting Bad Medicine: A Call to Action Addressing Healthcare, Fraud, Waste, and Abuse describes a specific false-billing pattern: the patient receives one drug, but the claim bills a more expensive one. For skin-substitute claims, the corresponding comparison connects the wound and application records to the product and quantity billed.

In sales, an offer of equipment, a purchase commitment or a payment linked to orders can show how the business encouraged product use. Those are different parts of the transaction, often visible to different people.

The price report supplies one account of the sale. Purchasing knows what the practice actually paid. Billing knows what it asked Medicare to pay. We work with insiders to connect those accounts and examine who chose the numbers or the incentives behind them.

A whistleblower case under the False Claims Act can pay 15% to 30% of what the government recovers.

A Whistleblower Case Built on Your Records

If you can see a discount missing from the reported price, a claim that misstates the treatment or an offer tied to product orders, speak with our whistleblower experts about the skin-substitute business you know. We connect the commercial decisions to the Medicare payments and bring in healthcare fraud whistleblower lawyers who understand pricing reports and wound-care claims. We stay with you as partners in building and pursuing your case.