Weekly roundup
Here’s what you missed last week!
🏛️ Policy & Payers
Get ready for 2026 payments, as CMS has published the CY 2026 Medicare Physician Fee Schedule final rule aimed at improving efficiency and quality.
Ensure you get paid for cash-pay patients by understanding the billing guidelines for cost-sharing ministries.
Check your facility's network status, as Anthem may begin to penalize facilities that utilize out-of-network providers.
AI may help your coding compliance, as new analysis shows how AI enhances medical coding for risk management and reimbursement optimization.
📈 Business & Tech
Your AI scribe vendor may soon offer more than notes, as startups are pivoting beyond transcription while AI scribe funding hits $1.6 billion.
Check your portal's readability, as using clear and simple language, much like a restaurant menu, can improve understanding of patient portals.
⭐ Just for Fun
The Deep Dive
The Skin Sub Compliance Crackdown Continues
Why it matters. The Office of Inspector General (OIG) has raised a massive, multi-billion-dollar red flag, and dermatology practices are directly in its path. According to a recent OIG data snapshot, Medicare Part B spending on skin substitutes has exploded, skyrocketing 640% in just two years. With Part B spending hitting $2.88 billion in the third quarter of 2024 alone (an annualized rate over $11 billion), this astonishing growth has not gone unnoticed. The OIG has officially added a review of these claims to its work plan (OAS-25-09-005), signaling that the wave of audits and enforcement actions already seen in 2025 will continue and intensify through 2026.
For any practice utilizing these advanced wound care products, the message is clear: the compliance landscape is changing, and the time to prepare is now. Here, we lay out a practical guide for dermatology practices to understand the risks, navigate the complex rules, and audit-proof their operations before the crackdown begins.
Why Skin Substitutes?
The OIG’s intense focus on skin substitutes is a direct response to spending trends that it believes raise “major concerns about fraud, waste, and abuse.” In its data review report (OEI-BL-24-00420), the agency detailed several alarming patterns that have put this entire service line under the microscope. Key drivers for this heightened scrutiny include:
The OIG noted large increases in both the number of patients receiving skin substitutes and the amount of product billed per patient. The OIG’s data spotlights the home care setting as a major driver of this explosion, where costs per enrollee are four times higher than in an office setting, making these claims a primary audit target.
A significant gap exists between spending in traditional Medicare Part B and Medicare Advantage. For example, data from the third quarter of 2024 shows Part B spending was $2.9 billion compared to just $192 million in Medicare Advantage, a difference largely attributed to MA plans’ utilization management tools.
The agency highlighted a steep rise in the cost of individual products combined with a provider tendency to shift toward increasingly expensive substitutes, driven by reimbursement incentives.
The OIG expressed concern that the current payment system is susceptible to fraud schemes that allow bad actors to bill and receive tens of millions of dollars from a small number of patients in a short period.
The CY 2026 Physician Fee Schedule (PFS) proposed rule aims to reclassify most skin substitutes as "incident-to supplies" instead of biologics. This change, expected to cut spending by nearly 90%, would establish a flat-rate payment (approx. $125.38/cm²) for most products (including Section 361 (HCT/Ps) products, those requiring 510(k) clearance, or those subject to premarket approval) which will result in drastically reduced reimbursements.
The OIG concluded its report with an unambiguous call for "action to rein in the massive increases" in spending. This is a clear signal to providers that the current environment of lax oversight is ending and a period of aggressive enforcement is imminent.
Mastering the Rules: A Compliance Checklist for Skin Substitute Use
The only effective defense against a payer audit is ironclad adherence to Medicare's rules. For both practice managers and clinicians, this means moving beyond general awareness to operational mastery of the coverage, coding, and documentation requirements.
Acute vs. Chronic Wounds
A primary area of risk for dermatologists is the use of skin substitutes for acute or general wounds, such as surgical defects after Mohs surgery. Unlike chronic ulcers, there is typically no Local Coverage Determination (LCD) governing this use. Without an LCD, coverage all comes down to medical necessity.
Medicare only reimburses a service or device if it is determined to be medically reasonable and necessary. In the absence of an LCD, your defense of medical necessity relies on three specific areas:
Clinical Criteria: The product must be covered, legitimate, and you must be able to justify its use over standard wound care.
A Defensible Product: Is the product supported by an LCD for any indication? Does it have FDA approval or clearance? Is its use for this specific wound type supported by peer-reviewed literature demonstrating it is clinically safe, effective, and meets an accepted standard of care?
Crucial Documentation: Since there is no LCD, coverage for acute or surgical defects is determined on a case-by-case basis by your Medicare Administrative Contractor (MAC). Documentation is your primary defense.
There is a strong potential for non-coverage. If Medicare denies coverage, you bear the burden of demonstrating that the device met all applicable coverage criteria, was medically necessary, and complied with all regulatory requirements during an administrative appeal. The defensibility of the product hinges on aligning clinical decision-making with applicable Medicare coverage requirements and regulatory guidelines.
What we are seeing is that skin substitutes for the management of Mohs micrographic surgery wounds are often considered experimental, investigational, or unproven because the effectiveness of this approach has not been established, and they are therefore deemed not medically necessary. While this is not a blanket Medicare ruling, it highlights the significant risk of denial.
Use the following checklist to ensure your practice is compliant when using skin substitutes for chronic wounds, which are governed by specific LCDs.
1. Prove Standard Care Failed (The "4-Week Rule")
Before a skin substitute can be considered medically necessary for a chronic wound like a Diabetic Foot Ulcer (DFU) or Venous Leg Ulcer (VLU), you must document that the ulcer has failed to improve after a trial of standard wound care. This rule acts as a critical gatekeeper, directly addressing the OIG’s concern about runaway utilization.
According to CMS's Billing and Coding Article (A54117), providers must have documented evidence that a chronic wound has not improved after at least four weeks of standard therapy. Starting January 1, 2026, this requirement will become a more objective clinical threshold: a failure to achieve a "50% ulcer area reduction after four weeks of standard care." This change is part of a forthcoming unified Local Coverage Determination (LCD) that will be adopted by all Medicare Administrative Contractors, standardizing the rule nationwide.
2. Respect the Episode of Care Limits
Medicare defines an "episode of care" for skin substitute application as a 12-to-16-week period that begins with the very first application. Within this episode, there are firm utilization limits: a maximum of eight applications are allowed per ulcer. This utilization limit is a direct countermeasure to the OIG’s finding of providers billing for excessive amounts of product per patient.
Furthermore, for any applications beyond the fourth one, providers must append the -KX modifier to the claim. As stated in CMS guidance, this modifier serves as a legal attestation by the provider that documentation is on file verifying the medical necessity for continuing treatment and that the wound is showing signs of healing progress.
3. Document Meticulously
Comprehensive and precise documentation is non-negotiable. An auditor must be able to reconstruct the patient's entire course of treatment from the medical record alone. Based on CMS and dermatology-specific guidance, every record must include:
Clinical Justification: A detailed rationale for why the skin substitute is necessary, including a description of the prior standard care interventions that failed over a period of at least four weeks.
Detailed Ulcer Description: Baseline and ongoing documentation of the ulcer's characteristics, including its size (length and width), location, and stage. This should be supported by graphic evidence like regular photographs or wound measurements.
Specific Product Information: The record must clearly state the name of the skin substitute product used and the package size.
Wastage Documentation: If any portion of the product was discarded, the record must detail the amount used, the amount discarded, the specific reason for the wastage, and the manufacturer’s lot number. Proper billing of discarded amounts requires the use of the JW modifier (for the discarded portion) or the JZ modifier (attesting no product was discarded). This meticulous requirement directly targets the OIG's concern about providers billing for excessive amounts of product, ensuring payment is only for what is medically necessary and actually used or unavoidably discarded.
4. How to Audit-Proof Your Practice
With the OIG expecting to issue its formal report in 2026, the window to get your house in order is closing. The time for proactive preparation is now. Practices should immediately begin conducting internal audits of their skin substitute claims from the past year, comparing clinical documentation and billing records against the compliance checklist above to identify and remediate any gaps.
Pay special attention to another high-scrutiny issue: the misuse of Modifier 25. This is a complex topic that carries significant audit risk, and we will be covering it in-depth in a future article.
Bottom line. Ultimately, surviving the coming regulatory crackdown hinges on two principles: robust compliance protocols and meticulous documentation. In an environment of ten-figure spending and explicit OIG warnings, demonstrating adherence to the rules is the only strategy that will protect your practice.
Need a pro?
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That’s it for this week.
This one was super fun. Hope you enjoyed it too.
