The Centers for Medicare & Medicaid Services (CMS) has proposed significant reforms to the Medicare Part B payment methodology for skin substitute products. If adopted, the proposed changes¹ would significantly decrease the reimbursement rate for such services.

Background

Skin substitutes are advanced wound care products that help facilitate healing in chronic, nonhealing wounds such as diabetic foot ulcers and venous leg ulcers. For many patients, especially those with significant diabetes or circulatory issues, skin substitutes have been a valuable tool resulting in faster healing and improved quality of life. For providers, they represent a clinically effective option in the growing field of wound care management. At the same time, some providers have seen skin substitutes as a lucrative opportunity for profit and abuses have occurred.

As a result, over the last several years, more providers have integrated these products into care protocols due to their effectiveness in promoting healing, preventing complications, reducing long-term costs associated with delayed wound recovery, and high reimbursement. According to CMS, in just a five-year period between 2019 and 2024, Medicare Part B spending on skin substitutes in the non-facility (office) setting grew from $250 million to over $10 billion, while the number of patients treated with skin substitutes doubled. Due to the increased spending, CMS has sought to increase oversight and control costs.

CMS’s proposed rule that is the subject of this article addresses how Medicare proposes to pay for skin substitutes, not whether they are covered services.²

What is Changing?

Currently, Medicare categorizes skin substitutes as “biologicals.” Each product typically has its own billing code and payment rate, based on the Average Sales Price (ASP) reported by the manufacturer. If the product does not yet have an established ASP, reimbursement is based upon the invoice price (minus any discounts or rebates). This means providers are reimbursed separately for both the procedure to apply the product and for the product itself. According to CMS, this approach has led to wide variation in payment amounts depending on the product and has contributed to rising Medicare costs as more expensive products have entered the market.

CMS’s proposed rule seeks to reclassify most skin substitutes from being treated as biologicals under the Average Sales Price (ASP) methodology to being reimbursed as “incident-to” supplies when used in covered application procedures in the non-facility (office) setting. CMS proposes to group skin substitute products into payment categories based on their FDA regulatory pathway, which purportedly aligns payment with clinical and regulatory characteristics. For products that have obtained a biologics license under Section 351, they would continue to be paid as a biological under the ASP methodology. Section 351 licenses are issued only after showing that the product is safe, pure, and potent (i.e., effective). Such products must meet stringent pre- and post-market requirements to ensure the products’ safety and efficacy when marketed. All other products would be placed into one of three payment categories:

1. Section 361 HCT/Ps (Human Cells, Tissues, and Cellular and Tissue-Based Products). Products regulated under Section 361 of the PHS Act do not require premarket approval but must be minimally manipulated, intended for homologous use, and meet other specific conditions.
2. Products requiring 510(k) clearance. A 510(k) is a premarket submission made to the FDA to demonstrate that the product is safe and effective by showing that it is substantially equivalent to a legally marketed product that is not subject to premarket approval.
3. Premarket Approval (PMA). PMA requires demonstration of safety and efficacy for the intended use, which generally requires the performance of clinical studies. It is a more rigorous premarket review than what is required for 510(k) clearance.

Under the proposed rule, skin substitutes that are licensed as biologics under Section 351 would continue to be paid under the ASP-based payment methodology. All other skin substitute products (most of the products in the market) would be paid as incident-to supplies. For calendar year 2026, CMS is proposing to use a single payment rate for all categories of skin substitute products (except those licensed under Section 351) at the rate of $125.38/cm2. In future years, however, CMS intends to propose payment rates that differentiate between the three FDA regulatory categories (361 HCT/Ps, 510(k)s, or PMAs).  

Implications for Providers 

Medical practices and providers should consider doing the following now:

• Assess which skin substitute products your practice currently uses.
  • Determine the FDA classification and ASP reporting status for each product used.
  • Contact product manufactures to verify how the proposed changes may impact their pricing methodology and how they anticipate responding to the proposed changes.
• Evaluate the financial impact of expected reimbursement differences under the new incident-to payment approach.
  • You should analyze current margins for each skin substitute product you use (acquisition cost compared to current reimbursement rates).
  • You should then estimate how those margins would be impacted under the proposed incident-to payment methodology, including the proposed rate of $125.38/cm2 for calendar year 2026.
  • You should analyze how such changes may impact overall revenue per wound treatment, provider compensation models, and practice viability for wound care services.
• Re-examine your clinical decision-making protocols to ensure production selection is based on clinical appropriateness, evidence of benefit, and cost-effectiveness, especially when multiple products are available.
• Monitor the finalization of LCDs for skin substitutes, which will govern coverage criteria, including which products are covered, regardless of how they are paid for.
• Educate your billing and clinical staff, ensuring that they understand the proposed changes and correctly code and document procedures.
• Engage in the public comment process by submitting feedback to CMS before the September 12, 2025, deadline if you believe the proposed reimbursement approach may negatively affect patient access or clinical decision-making. 

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Article provided by: Andrew Alder, Parsons Behle & Latimer

References:

1. These proposed changes are part of the CMS’s CY 2026 Physician Fee Schedule (PFS) Proposed Rule, released on July 16, 2025.
2. CMS has sought to address coverage issues by (1) scrutinizing the medical necessity of skin substitute services through post-payment audit initiatives; and (2) releasing proposed Local Coverage Determinations (LCDs) establishing updated coverage criteria and designating only a small number of products that are deemed to be “covered” products. The effective date of the new LCDs has been postponed and is currently scheduled to go into effect January 1, 2026.

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