MVA White Collar Defense, Investigations, and Regulatory Advice Blog

The Department of Justice recently announced, “[i]n the first [criminal] prosecution of its kind,” that husband and wife owners of wound graft companies were sentenced to 14.5 and 15 years imprisonment respectively for causing over $1.2 billion in false claims to be submitted to Medicare Part B and other federal health care programs for medically unnecessary wound grafts. The defendants pled guilty to conspiracy to commit health care and wire fraud and were ordered to pay more than $1.2 billion in restitution and forfeit approximately $410 million in fraudulent proceeds, including four luxury vehicles seized.

The defendants and a wound graft marketing company owned by one defendant also agreed to pay more than $300 million for their civil liability under the False Claims Act, which prohibits knowingly submitting false claims for payment to the government and allows for treble damages. The FCA allegations were originally brought by a whistleblower, as the qui tam provisions of the FCA permit private parties to sue on behalf of the government and share in any recovery.

The massive scheme had medically untrained sales representatives find elderly Medicare beneficiaries, often in hospice care, with any kind of wound. The sales representatives were directed to order only the largest sizes of expensive bioengineered skin substitutes available to treat these beneficiaries. In violation of the Federal Anti-Kickback Statute, one defendant referred the patients to Medicare providers owned by co-defendants for treatment. Both defendants instructed contract nurse practitioners to apply the sizes and quantities of grafts ordered by the sales representatives—independent of their medical judgment and regardless of medical necessity. One defendant admitted receiving $279 million in kickbacks from a wholesale graft distributor, which she used to pay tens of millions in kickbacks to the sales representatives. A company jointly owned by the two defendants received $130 million more in kickbacks from the same wholesaler.

The scheme resulted in “large grafts applied to small wounds, several grafts applied to single wounds, grafts applied to non-existent wounds and grafts applied to terminally ill patients receiving palliative care, some of whom died within days or the same day of the allograft application.”

HHS-OIG and CMS Note Dramatically Increased Costs for Skin Substitutes

The investigation and resolution of this matter is in line with a report issued in September 2025 by the Health and Human Services Office of the Inspector General, which raised “major concerns about fraud, waste, and abuse” related to government payment trends for skin substitutes. The OIG's report notes that Medicare Part B expenditures for skin substitutes, which are covered when reasonably necessary for treatment, has “skyrocketed over the last 2 years, surpassing $10 billion annually by the end of 2024.” In the report, OIG issued a call to action to “rein in the massive increases in” spending for skin substitutes and remove incentives for “inappropriate and even fraudulent billing.” With its increased focus on fraudulent wound care related to skin substitutes, DOJ has answered the call.

In October 2025, the Centers for Medicare & Medicaid Services (CMS) announced its intention to reduce Medicare waste for skin substitutes, According to CMS, prices for skin substitutes “can reach more than $2,000 per square centimeter.” In 2025, the CMS Fraud Defense Operations Center stopped almost $185 million in improper payments to providers billing for skin substitutes.

Effective January 1, 2026, under CMS’s CY 2026 Medicare Physician Fee Schedule (PFS) Final Rule, CMS changed most skin substitutes to a lower, flat-rate payment, treating them like standard supplies rather than expensive biologics. This shift is expected to result in a reduction in Medicare spending “by nearly 90% without compromising patient access or quality of care.”

While this change may reduce incentives for high-cost product selection, the risk of overutilization, such as using more quantities of product than is clinically necessary, still exists. So too does the risk of criminal and civil enforcement, since the statute of limitations is five years for health care fraud and wire fraud. For FCA violations, the statute of limitations can be as long as 10 years.

Takeaways

Given this first of its kind case, DOJ’s focus on health care fraud as announced in this Memo from May 2025, and DOJ’s increased use of the FCA to combat fraud, waste, and abuse generally and related to wound care specifically, providers should be on alert for civil and criminal enforcement actions. DOJ inquiries related to skin substitutes will likely focus on providers with significant billings for skin grafts in a search for medically unnecessary treatment and payment or receipt of kickbacks.

To protect against criminal and civil liability for false claims for payment related to skin substitutes, providers should:

• Review Policies and Procedures: Ensure that adequate clinical documentation is required both in procedures and in practice to support medical necessity for all skin substitute treatments.
• Ensure Internal Reporting Systems are in Place: Assure employees they should internally report any concerns related to skin substitutes without fear of retaliation.
• Conduct Internal Investigations: If a company identifies a potential problem or receives a subpoena, civil investigative demand, or some other outreach from the government related to skin substitute care, involve experienced legal counsel early to assist with an internal investigation and resolution to avoid significant consequences—including treble damages and possible indictment.