Skin substitutes came under intense scrutiny last year after the public became aware of the staggering cost to taxpayers for these advanced wound care treatments. In response, and after many delays and lobbying efforts by manufacturers of these products, Medicare revised reimbursement from an ASP +6% model to a significantly reduced flat fee.
Adding to the cost-cutting measures, the Centers for Medicare and Medicaid Services (CMS) also announced that it would no longer pay for wastage, discarded amounts of skin substitutes not applied to the wound. CMS finalized this change through the annual fee schedule process and reclassified most skin substitutes as routine supplies with a uniform national per‑square‑centimeter rate for amounts used in a covered procedure. Products with Section 351 FDA Biologics License Approvals (BLAs) remain separately payable under the biologics payment framework. The result is a clear shift in reimbursement logic, documentation expectations, and product strategy.
What the CMS Final Rule Changes
Before 2026, Medicare paid for skin substitutes as biologics using average sales price methodologies. Under the new policy, CMS treats most products as incident‑to routine supplies that are paid as part of the application procedure, and it pays only for the specific units applied to a wound. Discarded (wasted) quantities are no longer separately billable with a modifier and will not be reimbursed. The exception is limited. Products with BLAs (Section 351 products) retain separate, product‑specific payments under existing biologic payment rules, but they operate in a market now influenced by a single national rate for other products.
Practical Impact
The most obvious impact on providers is reduced revenue, as wastage is no longer billable and now directly impacts profitability. Documentation must support wound size, the surface area treated, and the precise quantity applied. Claims should reflect only the units used during a covered application procedure, and providers should focus on accurate measurement, unit calculations, and internal reconciliation between clinical notes and claims.
In current wound care audits, CMS contractors are fixated on proper modifier usage to determine if there was any wastage. In future audits, this scrutiny is expected to increase, with greater focus on wound size, application area, and the size of grafts purchased.
Providers should continue to expect auditors to closely review medical necessity, wound characteristics, and the appropriateness of the application procedure.
Because coverage requirements can affect denial rates even when national payment rules are stable, organizations should update internal checklists and templates to reflect any contractor communications in their region. Coordinated efforts between providers, coders, billers, and compliance officers will help reduce avoidable denials and create a cleaner claims record in the event of an audit.
The Future of Medicare Rates
CMS has indicated that it intends to evaluate 2026 claims and consider differentiated payment across recognized categories of skin substitutes in a future rulemaking cycle. Any such move would require a new proposal, a transparent methodology, and a reasoned explanation that connects the data to the policy choice.
Manufacturers have been actively lobbying and litigating with CMS because of the significantly reduced rates and allegations by CMS auditors that these products are experimental and investigational. This is a frequent argument raised by auditors in an effort to avoid paying for medically reasonable and necessary products.
If the current reimbursement of these products is revisited later this year by CMS, lobbying efforts will be intense on both sides. It remains unclear whether those efforts will result in rates comparable to those that existed prior to 2026. For now, the pendulum has swung in the opposite direction with rates being flat nationwide and wastage no longer allowed to be billed.
How Frier Levitt Can Help
Frier Levitt has been on the front lines of the skin substitute war that has been waged by Medicare against providers, manufacturers, distributors, and consultants. If you are the subject of a CMS audit or federal investigation, Frier Levitt’s attorneys can help guide you through this changing landscape.
