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Providers warn of the risk skin substitutes pose to ACOs

Provider groups are worried ACOs will suffer from the recent spike in skin substitute spending, raising concerns about the broader impact fraud, waste and abuse has on value-based care.

Jacqueline LaPointe
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Published: 04 Dec 2025

Medicare has a skin substitute problem, and CMS is addressing it with recent changes to the Physician Fee Schedule. However, value-based providers are worried that they will be on the line for potentially fraudulent and wasteful spending on these services.

The American Medical Association, American Hospital Association, the American College of Physicians and about a dozen other leading provider associations recently alerted CMS of concerns accountable care organizations (ACOs) and clinical in the Merit-Based Incentive Payment System (MIPS) have regarding skin substitutes.

Earlier this year, CMS said in the final rule for the Medicare Physician Fee Schedule that spending on skin substitutes increased from $256 million in 2019 to more than $10 billion in 2024. This prompted the agency to reclassify the service from a supply to a biological in hopes that it would curb spending by nearly 90%.

CMS also intends for the payment policy switch to reduce instances of fraud, waste, and abuse, which it said are common with skin substitutes.

But the use of skin substitutes is often beyond the control of clinicians participating in ACOs and other value-based programs, the coalition of provider associations explained in a recent letter to Abe Sutton, JD, Deputy Administrator of CMS.

Many ACOs have reported an increase in the utilization of skin substitutes in mobile wound care clinics, with numerous instances of inappropriate utilization, the coalition stated.

"ACOs are actively working to stop fraud and curb wasteful and abusive skin substitute spending by developing wound care protocols, enhancing care management practices, and coordinating direct outreach to clinicians who have billing and treatment patterns that raise concerns," they wrote in the letter. "Yet ACOs continue to see increases in spending on skin substitutes in 2025, with $7.7 billion in Medicare Part B billing in just the first six months of the year."

Increased and potentially unnecessary spending poses a risk to ACOs across Medicare programs and CMS Innovation Center models, such as the Accountable Care Organization Realizing Equity, Access, and Community Health (ACO REACH) and the Comprehensive Kidney Care Contracting (CKCC) Model. These ACOs are accountable for spending, even outside of their control, since trend adjustments don't "adequately account for the increased billing for skin substitutes," the coalition explained.

Additionally, stop loss policies in the ACO models intended to shield participants from certain high-cost beneficiaries do not take into account less extreme cases that add up, they said. This also impacts clinicians participating in MIPS, who face financial penalties on cost measures due to potentially abusive skin substitute billing.

"To keep participants in the MSSP, ACO REACH, and CKCC, as well as to encourage physicians in MIPS to transition to alternative payment models, CMS must ensure that these clinicians are not unfairly penalized. CMS should explore approaches to holding clinicians harmless using the agency’s existing policy authority," the coalition wrote.

Aligning incentives key to skin substitute solution

The skin substitute solution detailed in the Physician Fee Schedule may still have value-based providers on edge, but aligning incentives will be key to combating such cases of healthcare fraud, waste and abuse, according to Mara McDermott, CEO of Accountable for Health (A4H).

"In a fee-for-service environment, there are often incentives to do more and then not worry about it," McDermot said at Xtelligent's Payer + Provider Summit this November. "There are no incentives to coordinate the care, to talk to one another, to see what happened to that patient after they left your office. In the case of skin substitutes, which has been well-documented in the media, there is a massive incentive for overuse -- a fee-for-service incentive around both volume and misuse."

Providers in value-based payment models are typically able to track their attributed patients' utilization of skin substitutes; however, they generally lack the tools to control utilization, such as those used by managed care organizations through step therapy, for example. This challenge represents a larger problem for value-based providers.

"We need to continue to be mindful that in a fee-for-service environment, skin substitutes is a first-of-its-kind problem, but it's not the first fraud, waste and abuse problem we've seen in Traditional Medicare, where the vast majority of payments still are in fee-for-service," McDermott said. "It illustrates why we need to continue to modernize, to move to other types of systems that primarily are incentivizing better health outcomes for patients rather than more volume of services."

Not the first case of fraud, definitely not the last

Lacking proper controls to safeguard value-based providers from the skin substitute crackdown, some lawmakers are pushing for CMS to shield ACOs and other value-based care programs.

U.S. Representatives Vern Buchanan, Claudia Tenney, and Gregory Murphy called on CMS to protect ACOs from the negative impact of fraud, waste and abuse, as it did last year to address a spike in spending on urinary catheters.

The Biden administration finalized a rule in September 2024 that excluded certain catheter billing codes from ACO financial calculations due to significant, anomalous, and highly suspect (SAHS) activity. That activity included a substantial increase in spending on the codes, from $153 million to $3.1 billion, over two years. The top 15 billers of the suspicious claims also had their Medicare enrollment revoked.

However, the lawmakers said the policy did not go far enough to prevent the consequences of future instances of fraud, waste and abuse, such as the skin substitute problem.

"As Members of Congress committed to safeguarding Medicare's integrity and protecting vulnerable beneficiaries, we believe immediate action is critical to prevent such fraud from undermining value-based care models like ACO," they stated. "We urge CMS to consider implementing mechanisms for ACOs to exclude documented instances of fraud or improper claims and revisit SAHS criteria to enhance [fraud, waste and abuse] detection."

An outlier policy may be necessary, according to the National Association of ACOs (NACCOS). The group previously recommended an outlier policy to account for similar situations of anomalous spending, which would remove targeted services from ACO financial calculations.

At that time, NAACOs even pointed to a potential skin substitute issue. The group has also warned CMS about spikes in spending on diabetic supplies that could signal a similar case of possible fraud, waste and abuse.

These provider groups continue to call for change to protect value-based care and its participants from the unintended consequences of healthcare fraud, waste and abuse -- a top target for the Trump administration.

Jacqueline LaPointe is a graduate of Brandeis University and King's College London. She has been writing about healthcare finance and revenue cycle management since 2016.

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