From audits resulting in significant overpayment demands to indictments for alleged violations of the Anti-Kickback Statute, wound care providers are finding themselves in the crosshairs of a significant increase in regulatory enforcement.
This article outlines recent wound care enforcement cases, why these services are in the government’s spotlight, and steps providers can take to ensure compliance.
1. Why chronic wound supplies suddenly look like the next crypto
Bioengineered “skin substitutes,” collagen/alginate dressings, negative-pressure wound VAC devices, and other advanced dressings have gone from niche to nine-figure in only a few years. Medicare Part B will pay the average sales price plus 6 percent for every square centimeter dispensed in the office—sometimes $100–$1,000 per cm²—while hospital outpatient claims package the same products into “high-cost” or “low-cost” buckets that still dwarf ordinary dressings. (insidethefalseclaimsact.com)
The predictable result: distributors, compounders, and newly minted “wound care management” firms courting physicians with promises of easy revenue share, “clinical education stipends,” or sweetheart stock in startup joint ventures. Regulators have noticed.
2. What exactly are the products involved in wound care?
| Product Family | Common HCPCS/CPT Codes | Clinical pitch | Compliance wrinkles |
| Skin substitutes / cellular & tissue-based products (CTPs) e.g., Dermagraft, Apligraf, porcine or amniotic membranes | Q4100Q4250 series | Biological scaffold to jumpstart epithelialisation in diabetic foot and venous leg ulcers | High ASP drives audit focus; strict LCD use limits (≤ 8 applications per ulcer over 16 weeks; KX modifier required after the 4th) (cms.gov, cms.gov) |
| Negative pressure wound therapy (NPWT) disposables and pumps | 9760797610; A6550A6551 | Controlled suction removes exudate, increases perfusion | 2022 improper payment rate was 39 %—CMS flags as “high risk” (cms.gov) |
| Collagen / alginate / hydrofiber dressings | A6010A6203 series | Maintain moist environment, absorb drainage | Often “incident-to” supplies in physician offices—documentation gaps common |
| Topical growth factor gels & silver dressings | A6234A6248; Q4176 | Biochemical stimulation or antimicrobial action | Several were removed from the fee schedule after clinical utility reviews—coding drift still prosecuted under FCA |
(It is important to note that codes vary by MAC; always confirm the local policy for your area.)
3. How Medicare turns these widgets into real money
In the physician’s office (Part B) setting: If the product has a listed HCPCS code, payment = Average Sales Price (ASP) + 6 %. Many CPTs report quarterly ASPs > $2,000 per 7 cm² graft; larger diabetic wounds can require multiple sheets.
In the hospital outpatient / ASC setting: The product cost is “packaged” into the Ambulatory Payment Classification (APC) for the underlying procedure, but CMS created two APC groups, so a high-cost graft (above the geometric mean unit price) converts into an appreciably richer payment than a low-cost one.
Why so generous? CMS (and Congress) still believe that avoiding amputations and sepsis saves money long-term. The policy lever they control is frontend reimbursement—hence the lavish rates while they wait for longer-run health economics data.
4. Federal guidance & audit themes to watch
- Local Coverage Determinations (LCDs). Five MACs finalized identical LCDs in 2024 limiting skin substitute use to 8 applications in 16 weeks and requiring the KX attestation after four. (cms.gov, cms.gov)
- OIG Work Plan. “Medicare Part B payments for skin substitutes” remains an active item; we can expect national sample audits and statistical extrapolations for these services. (oig.hhs.gov)
- MLN Compliance Tips. CMS’s July 11 2024 tip sheet highlighted a 39 % error rate for NPWT and warned of documentation shortfalls in place of service and medical necessity narratives. (cms.gov)
- Upcoming LCD refresh (2026). A proposed LCD (ID 39823) keeps the 8-application ceiling but hardcodes failure criteria and photodocumentation rules worth developing into templates now. (cms.gov)
5. Enforcement evidence: DOJ’s highlight reel
| Date | Case | Allegations | Dollars at Stake |
| Apr 2025 | U.S. v. Vohra (S.D. Fla.) | Upcoded every visit to “surgical debridement,” built EMR defaults to force modifier 25, and set doctor revenue quotas | TBD |
| May 2024 | Arizona graft distributors | Paid $330 M in kickbacks; Medicare paid $600 M, > $1 M per patient | (justice.gov) |
| March 2025 | $1.2B plea, AZ couple – skin grafts on terminal elders | Largest single FCA recovery in wound care | (justice.gov) |
| June 2025 | Woodlands (TX) podiatrist | Billed $90M for “second-skin” grafts on patients without wounds; laundered proceeds into crypto | (houstonchronicle.com) |
6. Where the Anti-Kickback Statute (AKS) ambushes the unwary doctor
The AKS (42 U.S.C. § 1320a7b(b)) makes it a felony to offer, pay, solicit, or receive anything of value to induce or reward referrals paid by a federal program. A single prohibited payment can trigger:
- Criminal fines and up to 10 years’ imprisonment
- Civil FCA liability (treble damages + $25 kplus penalties)
- Exclusion from Medicare/Medicaid
CMS/OIG safe harbors (42 C.F.R. § 1001.952) carve out narrow shelters—but only if every condition is met. The most relevant safe harbors are:
| Safe harbor | Practical hurdles in wound-care deals |
| Discount (§ 1001.952(h)) | Must be a bona fide price reduction reflected on the physician’s purchase invoice and readily reportable to the government. “Free product with rebated resale” flunks this test. |
| Personal services & management contracts (§ 1001.952(d)) | Written, one-year term, fixed FMV compensation not tied to volume/value of business. Avoid per-case “application fees.” |
| Warranties (§ 1001.952(g)) & AO 1810 | Wound care manufacturer can stand behind its product, but credit/replacement must be documented and not traded for new purchases. (oig.hhs.gov) |
| Small entity investment (§ 1001.952(a)(2)) | Physicians’ returns must be in exact proportion to their capital at risk—not the number of wounds they treat. |
7. Highrisk deal structures we keep seeing (and DOJ keeps indicting)
| Scheme | Why regulators hate it | Compliance countermeasure |
| “Jointventure” LLC where the physician contributes patient flow, the supplier contributes everything else | Classic sham investment; profit distribution = disguised referral fee | Real capital, real business risk, dividends divorced from ordering volume |
| “Marketing agreement” that pays the doctor for “educational talks” on the supplier’s product | Speaker program fraud alert + AKS remuneration | Flat fee, fair market value, documented content; avoid pay per prescription |
| Product purchase “discount” offset by a separate services payment | Two check tango designed to hide true price | Put the whole discount on the invoice, report it, no side payments |
| Free staff (“wound care liaison”) embedded in the physician’s office | In kind remuneration; services have FMV | Lease arrangement at FMV wages; time/attendance logs |
| Consignment closet with automatic restock and revenue share | Inventory at no cost until used = financing the practice | Treat as bonafide sale; pay upon delivery, not upon use |
8. Practical tips for wound care providers
- Medical necessity narrative. For every billed application, document why standard dressings failed, include wound dimension photos, and cross-reference the LCD’s criteria.
- LCD compliance. Track the eight application/16-week clock in the EMR; fire an alert when the KX modifier will be required.
- Deal detox.
- Joint venture that “never got off the ground” still counts—wind it down, document capital actually at risk, and ensure any distributions matched prorata equity, not utilization.
- If discounted product was purchased, make sure the invoice shows the true net price and that your client passed the discount on to Medicare where required.
- Internal audit. Compare your practice’s utilization rate, modifiers, and average dollars per beneficiary to the latest PEPPER or UPIC benchmarks; large outliers invite subpoenas.
- If the knock comes. Preserve records but avoid “coaching” staff—obstruction was an extra felony in some of the cases mentioned above. Have a defensible billing rules memo ready before the government asks for one.
The Bottom line
The same biologic graft that helps a diabetic senior keep her foot is now the hottest Medicare revenue stream since home health in the 1990s. Where money gushes, enforcement follows. Keep the clinical documentation airtight, treat every discount like it will be Exhibit A at trial, and approach any “too good to be true” supplier proposal with the healthy skepticism you’d reserve for an email from an exiled Nigerian prince.
The Safe Harbor Group team has significant experience in regulations regarding wound care. Contact us today for an assessment of your practice’s compliance program, assistance with a recent audit, or an opinion on potential Anti-Kickback Statute issues to ensure your practice is insulated from enforcement.
