This is not a story about a few bad actors. That framing is how regulators prefer to tell it — and it lets too many people off the hook. The real story is about a payment system that was structurally broken from the start, a market that responded to those incentives exactly the way markets do, and a regulatory apparatus that was either unwilling or unable to act until the damage became impossible to ignore. There were genuinely bad people in this industry. There was also a system that made bad behavior not just possible but predictable — and a lot of people who knew it and said nothing, because the money was good.
A Payment System Built to Be Exploited
To understand what happened, you have to understand how Medicare was paying for these products. Skin substitutes billed under Medicare Part B were reimbursed at average sales price (ASP) plus six percent. The ASP methodology was designed for drugs, where a competitive market and manufacturer reporting requirements keep prices within a reasonable range. For skin substitutes, it created something entirely different.
The payment structure created a spread between Medicare reimbursement and providers' actual acquisition costs — which incentivized providers to select the products with the greatest spreads and bill for more units.1 In plain terms: the more expensive the product, the more money the provider made. That is not a loophole someone discovered. That is the architecture of the system as designed.
As of July 2025, CMS reported that the average sales price of placental grafts per square centimeter ranged from $20.85 to $47,704 — a greater than 200-fold variation in price on products that are essentially identical in how they are sourced, processed, formed, and packaged, and how well they work for patients.2
There is no clinical explanation for that pricing range. It exists because the system allowed it.
In MAC jurisdictions where no ASP data existed, Medicare relied instead on wholesale acquisition costs or actual invoices. Reimbursement for these non-ASP products was typically higher, because wholesale acquisition costs generally reflect the manufacturer's list price without discounts — and many invoices omitted post-purchase rebates that manufacturers may have offered.3 This jurisdictional inconsistency, a direct consequence of CMS never issuing a National Coverage Determination that would have standardized practices nationally, created structural ambiguity that different operators exploited to different degrees.
2021: The Government Gets Tools It Doesn't Use
The Consolidated Appropriations Act of 2021 required manufacturers of skin substitutes billed under Medicare Part B to submit ASP data to CMS.4 This was the government's first meaningful legislative tool to bring transparency to a category that had been operating without it. What followed was revealing.
Compliance was uneven at best. A 2023 OIG investigation found that nearly half of the relevant billing codes lacked the required pricing information, leaving CMS to rely on inflated benchmarks to determine payments.4 Manufacturers had been given a legal reporting requirement, and a substantial portion either didn't comply or complied selectively. CMS received this information — and continued paying.
The payment differential was even greater when Medicare relied on wholesale acquisition cost or invoice-based payments in the absence of ASP data.4 The 2021 reporting requirement was supposed to close that gap. It did not.
The Product Cycling Scheme: A Symptom of a Broken System
One of the most significant findings in the OIG's September 2025 report was the documentation of a pricing pattern that, on its surface, looked like manipulation — but was in fact a rational response to a reimbursement structure that CMS had built and never corrected.
Unlike drugs paid under Medicare Part B, the highest-expenditure skin substitutes changed rapidly as new products entered the market. In the first quarter of 2023, one skin substitute reached $244 million in Medicare expenditures — nearly 40 percent of all skin substitute payments. The following quarter, expenditures for that product fell to $28 million. By the start of 2024, Medicare spent just $1.2 million on it — a 200-fold decrease in a single year. The skin substitute that replaced it at the top was sold by the same manufacturer and followed a nearly identical trajectory.5
A manufacturer that did not introduce new products would watch its revenue evaporate while its competitors did not. That structure was not designed by manufacturers. It was designed by CMS.
The OIG characterized this as manufacturers cycling new products to maintain higher reimbursement before the ASP calculation was triggered.5 The mechanics are worth understanding. Under the ASP methodology, a new product's reimbursement rate is initially set at wholesale acquisition cost — reflecting the manufacturer's list price without discounts. Once sufficient sales data accumulates, ASP kicks in and the rate begins declining, often 30 to 40 percent per quarter, until the product is no longer commercially viable for the manufacturer to support. With hundreds of competing products on the market, providers would simply move to whatever carried the higher reimbursement rate.
Manufacturers operating inside a market where new products command higher initial reimbursement were, by definition, responding to rules CMS wrote and never changed — even after the pattern became visible. The 2021 Consolidated Appropriations Act gave CMS new tools to address ASP reporting gaps.4 Nearly half of manufacturers were found non-compliant with those requirements.4 CMS continued paying. The incentive structure remained intact.
Pointing to manufacturer behavior as the cause while leaving the incentive structure untouched is not a solution. It is an explanation for why the same behavior will continue under whatever framework replaces this one — unless the underlying payment architecture is addressed at the source.
March 2023: The First OIG Warning Nobody Acted On
In March 2023, the OIG issued a report identifying significant gaps in manufacturer compliance with the ASP reporting requirements Congress had established two years earlier.6 The report raised concerns that poor ASP reporting was producing excess Medicare payments, noted that the spending trajectory was already alarming, and called for action.
Nothing substantive changed. Spending continued to climb. The same product cycling patterns continued. New entrants flooded the market. The OIG had put the category on notice in March 2023 — and by the end of 2024, Medicare was spending more than $10 billion annually on skin substitutes, up from $256 million in 2019.7
The gap between what the OIG documented in 2023 and what CMS actually did about it in the following 18 months is a central part of this story. The information was there. The authority was there. The urgency was not.
The YouTube Video That Started Pulling the Thread
In late 2023, a YouTuber named Spencer Cornelia published an investigation into Legacy Medical Consultants, a Fort Worth, Texas-based wound care manufacturer, alleging the company was running a rebate scheme that left physicians liable for improper Medicare billing. Legacy employees told Cornelia that the company sent invoices with rebate amounts to providers through a portal Medicare did not have access to — and that Legacy directed customers to submit the full-cost invoice to Medicare rather than the net price after rebates.8
The situation was more structurally complicated than the video acknowledged. In jurisdictions where MACs required invoice-based pricing because no ASP data existed, the gap between the submitted invoice and the net price after rebates became a mechanism for holding prices artificially high. As documented in subsequent legal and regulatory analysis, federal prosecutors were pursuing actions based on allegedly problematic rebate practices — an area with little criminal precedent at the time, reflecting just how unsettled the legal framework around this space actually was.9
The video was later deleted as part of a court settlement. Inside the industry, the reaction was complicated. Physicians who had worked with Legacy were mortified. And the investigation framed what was partly a Medicare-created structural problem as if it were purely manufacturer misconduct. The underlying mechanics — manufacturers managing prices through invoice and rebate arrangements, providers pocketing spreads, MACs paying without consistent scrutiny across jurisdictions — were a function of how the system had been built. Some companies operated in that gray area more aggressively than others.
What the video missed entirely was context. Distributors and smaller operators had been raising concerns about pricing manipulation and spread exploitation for years. Nobody wanted to hear it, because the money was flowing and the incentives ran in the wrong direction all the way up the chain.
August 2023: The First LCD Attempt, and How It Died
What most people in the industry don't know — or have forgotten — is that the November 2024 coordinated LCD effort was not the first attempt. In August 2023, three MACs issued a final LCD governing skin substitutes, set for implementation later that same year.10 It was rescinded days before its effective date under stakeholder pressure.
That history matters. When the seven MACs released their coordinated LCDs in November 2024, they were not trying something new. They were trying again — this time with all seven MACs aligned and CMS publicly signaling support. The industry that pushed back in 2024 was pushing back against a second attempt, not a first. That context is essential for assessing whether the objections were substantive or strategic.
Arizona: When It Stopped Being About Billing and Became About Patients
In the first prosecution of its kind, the owners of several Arizona wound graft companies were sentenced to significant prison terms for causing over $1.2 billion in false and fraudulent claims to be submitted to Medicare and other health insurance programs — for medically unnecessary wound grafts applied to elderly and terminally ill patients.11
According to court documents, Alexandra Gehrke and her husband Jeffrey King orchestrated a large-scale wound care scheme from 2022 through 2024. Gehrke ran two companies that contracted with medically untrained sales representatives to find elderly Medicare beneficiaries with wounds of any kind. She instructed and financially incentivized those representatives to order grafts only in sizes 4×6 centimeters or larger — even when the wound was far smaller — to maximize reimbursement.11
Gehrke and King, who had no medical training, directed nurse practitioners to suspend their clinical judgment and apply whatever quantities and sizes of grafts were ordered by the sales representatives — regardless of medical necessity. This resulted in grafts being applied to infected wounds, wounds that had already healed, and wounds not responding to treatment.11
Over 18 months, the conspirators submitted approximately $1.2 billion in false claims, including over $960 million to Medicare, TRICARE, and CHAMPVA.11
Gehrke was sentenced to 15.5 years in federal prison. King received 14 years. Combined restitution exceeded $1.2 billion, with over $410 million in fraudulent proceeds subject to forfeiture.12
The Arizona case changed the temperature of the conversation permanently. Physicians who had nothing to do with these schemes were suddenly afraid. The prosecutions that made headlines did not always communicate the full context: that many of these operations had no medical director, no clinical oversight structure, and that providers were often financially incentivized by the companies themselves. The line between a legitimate practice and a fraud scheme was not always visible to physicians caught in between.
What Medicare Advantage Told CMS That CMS Already Knew
One of the most telling facts in this entire saga does not appear in any enforcement action. It is in utilization data that CMS had access to the entire time.
Despite more than half of Medicare enrollees being covered under Medicare Advantage plans by 2024, only a fraction of skin substitute claims and spending occurred under MA. In the third quarter of 2024, MA plans had 3,800 enrollees with skin substitute claims, compared to 24,000 in traditional Medicare. MA providers billed fewer units per patient and used less costly products. MA spending represented just 7 percent of Part B spending — $192 million versus $2.9 billion.13
The mechanism that controls abuse was visible inside CMS's own program. It chose not to apply that mechanism to traditional Medicare until 2026 — years after the data had made the case for it.
The difference came down to prior authorization and utilization management. MA plans required pre-approval. Traditional Medicare did not. The OIG noted that this divergence suggested some of the spending in traditional Medicare may have involved services that would not have been approved under MA's management tools.13 CMS had this data. It chose not to act on it for years.
CMS Was Not Blameless
The fraud that occurred in this space did not happen in spite of Medicare's oversight. It happened within a payment structure Medicare built, maintained, and was slow to correct — even as the warning signs accumulated.
CMS has never issued a National Coverage Determination governing skin substitute grafts and tissue-based products.14 The NCD process involves formal evidence review, public comment periods, congressional notification, and a structured timeline for stakeholder input — producing nationally binding, transparent, and legally reviewable coverage decisions. CMS chose not to use it for skin substitutes at any point during the years that Medicare spending in this category grew from $256 million to over $10 billion.
Instead, coverage was left to the Medicare Administrative Contractors — regional private contractors with jurisdiction-specific authority. A law enacted in 2003 requires CMS to review LCDs and determine which should be adopted nationally.15 For skin substitutes, that review never happened in any meaningful way. The result was geographic inconsistency that enabled exactly the kind of coverage arbitrage that allowed exploitation to proliferate across jurisdictions.
The explosive spending on skin substitutes was not the result of a few bad actors — it was the inevitable outcome of a fundamentally flawed payment system.6 That conclusion, from the government's own oversight arm, is as direct an indictment of regulatory design as any formal report produces.
The LCD That Created New Problems While Trying to Fix Old Ones
In November 2024, all seven Medicare Administrative Contractors released identical finalized Local Coverage Determinations governing skin substitute use for diabetic foot ulcers and venous leg ulcers.16 The procedural problem was immediate.
An LCD is by definition a local determination — issued by a MAC within its specific jurisdiction. An NCD is a national policy established by CMS, developed through a formal evidence review process with public participation.17 When all seven MACs release identical policy language simultaneously, they are not issuing local determinations. They are issuing a national policy through a local mechanism — one that bypasses the formal NCD process and its associated public accountability requirements.
Stakeholders said so directly and on the record. At a public MAC meeting in May 2024, the MASS Coalition stated that the MACs had "effectively issued a National Coverage Determination or National Coverage Policy" — and described the approach as "arbitrary and capricious, inconsistent with the FDA regulatory framework for skin substitute products, and bad for patient care."18
The clinical concerns compounded the procedural ones. The Alliance of Wound Care Stakeholders noted that MACs increased the covered application limit from 4 to 8 in the final policy — stating it was now consistent with supportive clinical evidence and current standard of care — which implicitly acknowledged that the original proposed limit of 4 was not.19
All seven MACs release identical final LCDs. MiMedx stock gains 23.56% on the day of announcement; Organogenesis announces manufacturing expansion.
Extremity Care — a company whose products lacked scientific validation for coverage inclusion — donates $5 million to President Trump's super PAC.
Six days after the donation, Trump posts Extremity Care's talking points on Truth Social.
CMS announces the LCD will be delayed until at least January 1, 2026.
CMS withdraws the LCDs with no replacement timeline and no explanation.
The political circumstances of that delay were documented and widely reported. At the same time, the underlying policy argument — that the LCD was procedurally irregular, clinically unsupported in its original application limits, and structured in ways that raised legitimate questions about competitive access — was also documented and argued on the record by multiple independent stakeholders. Both things were true simultaneously.
June 2025: The Federal Government Steps Onto the National Stage
On June 30, 2025, the DOJ announced the largest coordinated healthcare fraud takedown in its history — charging 324 defendants in connection with over $14.6 billion in alleged fraud.16 Skin substitutes were a named priority. CMS Administrator Mehmet Oz appeared publicly alongside DOJ leadership to make the announcement: the first time the head of CMS had stood on stage with the DOJ to signal enforcement priorities in this category.
According to the DOJ's 2025 Year in Review, the Wound Care Initiative identified that Medicare payments for amniotic wound allografts had exploded in recent years, driven by illegal kickbacks from graft distributors to providers.17 The takedown included charges against multiple defendants in Arizona and other states in connection with schemes structurally similar to the Gehrke and King operation.
This was not a signal that enforcement was coming. It was confirmation that it had arrived.
What the WISeR Model Signals About Where This Is Heading
The payment restructuring is in effect. The coverage framework is not settled. And CMS has introduced something that represents a more fundamental shift than either: a pre-payment scrutiny model built on artificial intelligence.
The WISeR model, operating in four states, will function as a high-tech gatekeeper — leveraging artificial intelligence and streamlined prior authorization to scrutinize the medical necessity of high-cost skin substitute claims before any reimbursement payment. Providers must either voluntarily seek prior authorization or face a pre-payment medical review after the service.18
This is the logical consequence of a system that operated for years without meaningful pre-payment review. The Medicare Advantage data proved that oversight works. It took CMS the better part of a decade to apply that lesson to traditional Medicare.
The Honest Accounting
This did not have to get this bad. The payment system that created these incentives was knowable. The exploitation was predictable. The warnings were there — in 2021, when the ASP reporting requirement went largely ignored; in March 2023, when the OIG documented the problem formally; in the Medicare Advantage utilization data that demonstrated exactly how prior authorization controlled this category; and in the voices inside the industry who had been raising concerns for years without being heard.
The absence of a National Coverage Determination for a product category that grew to more than $10 billion in annual Medicare spending is not a minor administrative oversight. It is a policy decision with consequences that are now being paid for by the entire industry — including the physicians and practices that did everything right.
Some of the companies that built businesses on this system were deliberately predatory. Some were operating in a gray area that CMS itself created and never clearly defined. Some were doing legitimate work and got swept up in enforcement patterns that did not distinguish between them. Those are three very different situations, and the regulatory response has not always treated them as such.
The companies that maintained standards through all of this did not get credit for it at the time. The market did not differentiate between operators who held the line and those who didn't. It is starting to now.
Bionavix — March 2026The DOJ has been direct about where it is focused, and has signaled there are more cases in the pipeline.19 Related allegations from the Gehrke and King case remain under seal as the government continues to investigate other parties. This is not over.
At Bionavix, we watched this unfold from the inside. We had those conversations with clients when the Arizona case broke. We saw what happened to physicians who became collateral damage in schemes they never fully understood. The path forward requires CMS to do what it has so far avoided: issue a National Coverage Determination, build a transparent and evidence-driven coverage framework, and create a policy environment stable enough for legitimate manufacturers to invest in the clinical data the system is now demanding.
The LCD mechanism, however well-intentioned, has proven too fragile, too easily challenged, and too susceptible to the kind of regional inconsistency that created this problem in the first place. The industry deserves a more durable foundation — and patients deserve a system that puts clinical judgment first.
- 1Inside the False Claims Act. "HHS-OIG's Latest Wound Care Report Warrants Careful Scrutiny." October 2025. insidethefalseclaimsact.com
- 2Ethical Placental Tissue Company Speaks Out. Parents Guide Cord Blood Foundation Newsletter. 2025. parentsguidecordblood.org
- 3Applied Policy. "Skin Substitutes in Medicare: Trends, Challenges, and CMS's Policy Response." December 2025. appliedpolicy.com
- 4Applied Policy. Ibid. (Consolidated Appropriations Act of 2021 / 2023 OIG ASP compliance report)
- 5HHS Office of Inspector General. OEI-BL-24-00420. "Medicare Part B Payment Trends for Skin Substitutes Raise Major Concerns About Fraud, Waste, and Abuse." September 2025. oig.hhs.gov
- 6HHS Office of Inspector General. March 2023 and September 2025. oig.hhs.gov
- 7CMS.gov. "CMS Modernizes Payment Accuracy and Significantly Cuts Spending Waste." October 31, 2025.
- 8Fierce Healthcare. "Wound Care Manufacturer Controversy Calls Attention to Shady Dealings." November 22, 2023.
- 9Paul Hastings LLP. "Washington, We Have a Problem: OIG Calls for Skin Substitute Payment Reform." 2025.
- 10SmartTRAK / HMP Global Learning Network. "Medicare Administrative Contractors' (MACs) LCD Changes: Impact on Skin Substitutes/CTPs." 2024.
- 11U.S. Department of Justice. "Arizona Couple Pleads Guilty to $1.2B Health Care Fraud." January 31, 2025. justice.gov
- 12U.S. Department of Justice. "Wound Graft Company Owners Sentenced for $1.2B Health Care Fraud." December 12, 2025.
- 13Inside the False Claims Act. "HHS-OIG's Latest Wound Care Report." October 2025. (Medicare Advantage divergence data)
- 14Liles Parker PLLC. "Responding to Wound Care Audits and Skin Substitute Audits in 2026." January 2026.
- 15PMC / National Library of Medicine. "Local Versus National Medicare Coverage." 2009.
- 16Intellicure. "FINAL LCDs FOR SKIN SUBSTITUTES Frequently Asked Questions." November 2024. / DOJ National Health Care Fraud Takedown. June 30, 2025.
- 17National Law Review. "DOJ Criminal Fraud Section 2025 Year in Review." February 2026.
- 18Paul Hastings LLP. "Washington, We Have a Problem." 2025. (WISeR model description)
- 19Moore & Van Allen. "Increased Criminal and Civil Enforcement by DOJ for Skin Substitutes in Wound Care." 2025. / Arnold & Porter. "Cracking Down on Alleged Wound Care Fraud." January 2026.