Medicare Spent $10 Billion on Wound Bandages Sold as Biologics

A "skin substitute" is a small sheet of processed tissue laid over a wound that won't close — a real product, for a real problem: diabetic ulcers, venous ulcers, wounds that plain gauze can't heal.▸ Medicare pays for it the way it pays for a biologic drug: cost plus a 6% markup, no cap. Manufacturers noticed. Between 2019 and 2024, spending on the category went from a rounding error to one of the single largest line items in the entire Medicare Part B drug budget — and HHS's own Office of Inspector General says the growth tracks fraud and abusive pricing more than it tracks sicker patients.

According to CMS's own account of the CY2026 Physician Fee Schedule final rule, Medicare Part B spending on skin substitutes rose from $256 million in 2019 to more than $10 billion in 2024 — roughly a 40-fold increase in five years, in a program whose enrollment barely moved.▸ CMS attributes the spike "largely ... to abusive pricing practices in the sector, including the use of products with limited evidence of clinical value," noting that some products billed at more than $2,000 per square centimeter.

Put another way: skin substitutes now account for more than 15% of everything Medicare Part B spends on drugs — a category most beneficiaries have never heard of eating the same share of the drug budget as entire disease areas.▸ OIG's analysis of Part B claims data puts the 2024 total at "more than $10 billion," against $66 billion spent on all Part B drugs combined that year.

The clearest evidence the growth is priced abuse, not medical need, is the one control group Medicare already runs: Medicare Advantage.▸ MA insurers negotiate their own rates instead of paying list-price-plus-6%, and in the third quarter of 2024 — with more than half of all Medicare enrollees on an MA plan — only 3,800 MA enrollees had a skin-substitute claim, worth $192 million, against 24,000 Part B enrollees whose claims cost $2.9 billion. Same wounds, same country, same quarter. MA billed fewer units per patient (69 vs. 82) using less expensive products ($730 vs. $1,470) and spent 93% less overall. Part B's fee-for-service pricing didn't buy more healing — it bought a bigger bill.

OIG's report reads less like an actuarial study and more like a fraud docket: a single Arizona-based scheme run by Alexandra Gehrke and Jeffrey King submitted over $1.2 billion in false claims for medically unnecessary grafts, targeting elderly and hospice patients and instructing sales reps to oversize grafts to maximize reimbursement — Medicare alone paid out more than $600 million of it, over $1 million per patient on average, before the couple pleaded guilty in January 2025.▸ CMS says its own fraud unit stopped another $185 million in suspect skin-substitute payments in 2025, including $4.3 million billed for a single beneficiary with no record of ever having been treated for a wound.

None of that growth shows up as more wounds.▸ It shows up as more claims per existing wound and more dollars per claim. Between the first quarter of 2023 and the third quarter of 2024, the number of unique Part B enrollees with a skin-substitute claim rose 53% — while the average payment per unit of product rose 153% over the same stretch, and the number of units billed per enrollee climbed too. The people side of the ledger didn't explode; the price and volume attached to each person did.

CMS's response, finalized alongside the rest of the CY2026 Physician Fee Schedule, stops treating skin substitutes as biologics and reclassifies them as incident-to supplies, paid at a single rate of about $127.28 per square centimeter instead of cost-plus-6%.▸ CMS estimates the change will cut gross fee-for-service spending on the category by $19.6 billion in 2026 — a reduction of nearly 90% — without, in the agency's telling, restricting access to care. The agency's own July 2025 proposed-rule estimate for the same fix was $9.4 billion; the number nearly doubled by the time the rule was finalized in October, which says less about arithmetic than about how fast the underlying spending kept climbing while the rule was still in draft.

Figures are drawn from CMS's own account of Part B claims data and the HHS Office of Inspector General's independent analysis of the same claims system; the two do not always share an identical measurement quarter or methodology, and each figure is labeled with its source and period above.