The government has wound care in its crosshairs. The HHS Office of Inspector General published a September 2025 report titled Medicare Part B Payment Trends for Skin Substitutes Raise Major Concerns About Fraud, Waste, and Abuse, declaring that Medicare Part B expenditures for skin substitutes “have skyrocketed,” surpassing $10 billion annually by the end of 2024. OIG announced plans to review Medicare Part B claims for skin substitutes to identify payments “at risk for noncompliance.” And in July 2025, CMS announced the Wasteful and Inappropriate Services Reduction (“WISeR”) Model — a six-year prior authorization experiment specifically targeting skin substitutes in select states beginning January 1, 2026.

The message is clear: if you bill Medicare for skin substitutes, the government considers you a target.

But here is what the headlines miss: skin substitutes work, Medicare’s own rules authorize their coverage, and providers are winning when they fight back.

How Skin Substitutes Work — and Why Medicare Should Pay

Skin substitutes — also called cellular and tissue-based products (“CTPs”) or skin and tissue substitutes — are wound care products that aid in wound healing and the redevelopment of skin. They serve as biological scaffolds that promote the body’s own healing processes, providing a matrix for new tissue growth, delivering growth factors to the wound bed, and protecting against infection. They are used to treat chronic wounds that fail to respond to standard wound therapy — most commonly diabetic foot ulcers (“DFUs”) and venous leg ulcers (“VLUs”), but also pressure ulcers and trauma wounds.

Medicare’s coverage framework is clear. Under Section 1862(a)(1)(A) of the Social Security Act, 42 U.S.C. § 1395y(a)(1)(A), Medicare covers items and services that are “reasonable and necessary for the diagnosis or treatment of illness or injury.” Local Coverage Determinations (“LCDs”) issued by Medicare Administrative Contractors (“MACs”) generally cover skin substitutes for DFUs and VLUs that have failed to respond to at least four weeks of standard wound care. For other wound types — including pressure ulcers and trauma wounds — there is no national or local coverage prohibition; coverage is determined on a case-by-case basis under the general “reasonable and necessary” standard.

When a skin substitute procedure is performed, providers bill HCPCS codes to describe wound preparation, the skin substitute product itself, and the application technique (typically CPT codes 15271 through 15278 for application to various wound sizes and anatomical locations). In non-institutional Part B settings, CMS reimburses skin substitutes at 106 percent of the Average Sales Price (“ASP”), treating them like approved prescription biologics under Section 1847A of the Social Security Act.

The bottom line: when a patient has a chronic wound that has failed conservative therapy, and a skin substitute is medically necessary to promote healing, Medicare is required to pay for it.

The Audit Machine: How It Works — and Where It Goes Wrong

Despite clear coverage authority, Medicare contractors — including RACs, UPICs, and MACs — have launched aggressive audit campaigns targeting wound care providers. The playbook is familiar. The contractor selects a provider, pulls a sample of claims, reviews a fraction of the medical records, determines that some or all of the sampled claims do not meet coverage criteria, and then uses statistical extrapolation to project an overpayment across the provider’s entire claims universe. What started as a review of 30 claims suddenly becomes a multimillion-dollar recoupment demand.

The authority for this approach comes from Health Care Financing Administration (HCFA) Ruling 86-1, which provides that statistical sampling “creates a presumption of validity as to the amount of an overpayment which may be used as the basis for recoupment.” The Medicare Program Integrity Manual (“MPIM”), Chapter 8, sets out detailed guidelines for how contractors must conduct probability sampling, design stratified samples, and project overpayments.

But that same legal framework contains critical safeguards that contractors routinely ignore or cut corners on. Extrapolation may not be used to determine overpayment amounts “unless the Secretary determines that … there is a sustained or high level of payment error.” 42 U.S.C. § 1395ddd(f)(3). The MPIM requires that the sampling procedure result in a valid probability sample, with known selection probabilities for each sampling unit. And the provider has every right to “attack the statistical validity of the sample, or … challenge the correctness of the determination in specific cases identified by the sample.” HCFA Ruling 86-1.

Providers Are Winning — At the ALJ Level and in Federal Court

What the government does not advertise is that providers who fight back are winning — and winning big.

ALJ Victories: Destroying the Extrapolation

In New Vision Home Health Care, Inc., an ALJ conducted an individual review of each of the 228 claims in the audit sample and found that the contractor’s statistical sampling methodology “had numerous defects, which diminished the reliability and probative value of the evidence.” The ALJ concluded that “because the sample was not valid, the resulting amount of the overpayment, calculated by extrapolation for the universe of claims, was not valid.” The original extrapolated overpayment demand was $4,155,239. After the ALJ’s claim-by-claim review, the actual overpayment was just $35,872.28 — less than one percent of the contractor’s demand. The ALJ directed the contractors to return any amounts recouped based on the invalid demand.

This case illustrates a pattern: contractors use flawed extrapolation methodologies to inflate overpayment demands by orders of magnitude, banking on the fact that most providers will settle rather than fight. When providers do fight and the sampling methodology is scrutinized by an impartial adjudicator, the house of cards collapses.

Similarly, in Momentum EMS, Inc. v. Sebelius, the ALJ conducted a de novo review of each claim in the sample and found that “some of the line items in the claims included in the sample were medically reasonable and necessary; however, other line items were incorrectly found fully favorable at the lower levels.” The ALJ ordered re-extrapolation based on corrected findings — significantly reducing the government’s demand. The case illustrates that even when the sampling methodology survives scrutiny, the underlying medical necessity determinations are frequently wrong and must be challenged claim by claim.

Federal Court: Challenging the System

In San Bois Health Services, Inc. v. Hargan, the provider challenged the Medicare Appeals Council’s decision upholding an extrapolated overpayment in federal district court under 42 U.S.C. § 1395ff(b). While the court ultimately upheld the Council’s decision in that case, finding the sampling methodology was valid, the case demonstrates that statistical methodology challenges receive meaningful judicial review. Notably, the ALJ in San Bois had initially invalidated the contractor’s statistical sampling, finding it “was invalid and cannot be used to extrapolate the overpayment in this appeal,” before being reversed by the Council on own-motion review — highlighting that ALJs are often more sympathetic to provider challenges than the administrative apparatus above them.

Federal courts have also made clear that contractors cannot use extrapolation as a blank check. Under 42 U.S.C. § 1395ddd(f)(3), extrapolation requires a threshold determination of “sustained or high levels of payment errors,” and courts like the one in Gentiva Healthcare Corp. have enforced this prerequisite. Providers who are hit with an extrapolated demand should always investigate whether the contractor made the required threshold determination before resorting to extrapolation.

The “Indicia of Reliability” Defense

For providers in the Medicaid space — where skin substitutes are also under scrutiny — there is an additional powerful defense. Under 42 C.F.R. § 455.2, a “credible allegation of fraud” must be “verified by the State” and must have “indicia of reliability,” with the State Medicaid agency having “reviewed all allegations, facts, and evidence carefully” and acting “judiciously on a case-by-case basis.” If the State simply accepts an MCO’s or a UPIC’s audit findings without conducting its own independent preliminary investigation as required by 42 C.F.R. § 455.14, the resulting payment suspension is legally vulnerable.

What Wound Care Providers Should Do Right Now

1. Read your overpayment letters carefully. Look for any language indicating a referral to OIG, a Medicaid Fraud Control Unit, or law enforcement. That sentence transforms a billing dispute into a fraud investigation.
2. Challenge the sampling methodology. Demand the contractor’s sampling plan, random number generation documentation, universe definition, and confidence interval calculations. If the methodology does not comply with the MPIM and HCFA Ruling 86-1, the extrapolation is invalid.
3. Challenge every claim in the sample. Contractors routinely deny claims that are, in fact, medically necessary. The ALJ conducts a de novo review and may reach different conclusions on medical necessity — as happened in New Vision and Momentum.
4. Document medical necessity meticulously. Every skin substitute application should be supported by documentation showing: the wound type and duration; that conservative therapy failed for at least four weeks (for DFU and VLU claims subject to an LCD); the clinical rationale for the specific product; and wound measurements before and after treatment.
5. Know the prior authorization landscape. If you practice in New Jersey, Ohio, Oklahoma, Texas, Arizona, or Washington, the WISeR Model will impose prior authorization requirements for skin substitutes beginning January 1, 2026. Prepare your compliance infrastructure now.
6. Fight back. The five-level Medicare appeals process — redetermination, reconsideration, ALJ hearing, Medicare Appeals Council review, and federal district court — exists for a reason. Providers who fight their way to the ALJ level are winning. Do not accept a multimillion-dollar extrapolated demand at face value.

The Real Story

The government wants the public to believe that every wound care provider is a fraudster. The OIG report paints the entire industry with a broad brush, pointing to rising expenditures as evidence of systemic abuse. But rising expenditures are also consistent with an aging population, a diabetes epidemic, an expanding evidence base supporting skin substitute therapy, and the introduction of new products to the market.

Skin substitutes heal wounds. Medicare’s own rules say they should be covered when reasonable and necessary. And when providers stand up and challenge the government’s audit machinery, they are proving — case by case, ALJ by ALJ, courtroom by courtroom — that the system is not as broken as the government claims. The broken part is an audit process that uses flawed statistical extrapolation to manufacture multimillion-dollar demands against providers who are, in many cases, doing exactly what Medicare’s rules authorize them to do.

The government should be thanking wound care providers for saving limbs and lives — not treating them like criminals.