That Time CMS Paid $2,000 Per Square Centimeter for Fancy Band-Aids

Pop quiz: What costs more per square inch than Manhattan real estate, has "limited evidence of clinical value," and somehow convinced Medicare to spend $10 billion on it last year?

If you guessed "skin substitutes" - the fancy medical term for expensive wound care products - congratulations, you're more alert than everyone at CMS for the past six years.

In a press release dropped late Friday afternoon CMS casually announced they'll be slashing payments for skin substitutes by 90% starting January 2026. The reason? They've apparently just discovered that Medicare spending on these products exploded from $256 million in 2019 to over $10 billion in 2024. Not a typo.  That's a 3,800% increase. The kind of growth curve that makes cryptocurrency bros weep with envy.

I know several chevre who started wound care companies last few years and just this past year I was about to invest in one when a friend I have in the Gov told me this day was coming soon (My friend? He's getting a very nice Purim gift this year.). Just crazy to me how some people try to come down on snf owners for a few shekels here and there while the Gov spent billions on a simple and obvious misclassification. 

CMS is now projecting they'll save $19.6 billion in 2026 alone by reclassifying skin substitutes from "biologicals"  to "incident-to supplies".

Imagine Medicare is like a parent giving their kid money to buy school supplies.

The Old Way (Biologicals):

Mom says: "Here's money for biology lab supplies. Those are special science things, so I won't question the price."

Kid comes back with a pack of fancy stickers and says: "These are biological stickers. They cost $2,000."

Mom pays it. No questions asked. Because "biologicals" sounds important and scientific.

The New Way (Incident-to Supplies):

Mom says: "Wait a minute. Those are just stickers. Those are regular school supplies. Here's $20, not $2,000. And from now on, I'm checking the receipts."

At $2,000 per square centimeter, these products cost more than gold. Literally. Gold is currently around $60 per gram. Do the math on price per square centimeter and these wound care products were being valued like they contained unicorn tears and the fountain of youth. Fort Knox should've been storing skin substitutes instead of bullion. Better ROI.

The Case of the $4.3 Million Chutzpa

Here's where it gets truly spectacular. In September 2025, CMS's Fraud Defense Operations Center (which apparently woke up from a long nap) stopped $4.3 million in suspected improper payments to a single medical group practice.

The kicker? Virtually all of that $4.3 million was for wound care "purportedly provided to a single beneficiary who lacked evidence of prior wound treatment."

Let that sink in. Someone tried to bill Medicare for $4.3 million worth of wound care for ONE PATIENT who may not have even had wounds to begin with.

That's not healthcare fraud. That's performance art.

That's also more than most SNFs gross in a year. For one patient's imaginary wounds. And they almost didn’t catch it. Makes you wonder how many $4.3 million patients they didn't catch. Somewhere there's a guy with a yacht named 'Thank You Medicare’

How Does a 40x Spending Increase Go Unnoticed?

Medicare has billing systems, fraud detection algorithms, actuaries whose entire job is to spot spending anomalies, Medical Administrative Contractors reviewing claims, RAC auditors looking for improper payments, and an Office of Inspector General that writes reports nobody reads.

And yet, skin substitute spending went from $256 million to $10 billion and everyone just... shrugged?

The Fraud Defense Operations Center caught $185 million in improper payments in 2025 alone. Which means for years before that, they were just paying out. No questions asked. Claims rolling in for $2,000/sq cm products with "limited clinical evidence" and Medicare was signing the checks.

Where were the watchdogs? Having a six-year coffee break, apparently.

The Perverse Incentive Masterclass

Let's talk about what this means for SNFs, since pressure ulcers are unfortunately part of the reality of caring for immobile, elderly, sick patients.

Under the old payment structure, there was a perverse incentive baked right in: worse wound care = more billable surface area = more revenue.

A small pressure ulcer treated effectively? Maybe a few hundred in billing.

That same ulcer, poorly managed, expanding, requiring increasingly expensive "skin substitutes" with gold-plated price tags? Thousands. Tens of thousands. Apparently, in extreme cases, millions.

Now, I'm not saying SNFs were deliberately providing substandard wound care to maximize billing. Of course they weren’t. Snf owners are not monsters and even the very few who would do that - what are they going to do ? Tell their medical director to not treat light pressure wounds? 

The Bigger Picture (And Why You Should Be Worried)

If skin substitutes ballooned 40x and nobody noticed until they hit $10 billion, what else are we overpaying for?

This is ONE product category. One line item. One type of supply.

Medicare is a $900+ billion program. If we're getting robbed blind on wound care products, what's happening with DME? Biologics? Specialty drugs? Lab tests?

Instead of criticizing snf owners maybe the Gov should figure out some basic math? 

What Happens Now?

Starting January 2026, the party's over. Skin substitute payments drop 90%. CMS estimates this will save $19.6 billion in the first year alone.

Some wound care clinics will close. Some providers who built entire practices around these products will need to find new revenue streams. Some suppliers will go bankrupt.

And somewhere, probably in a conference room in Baltimore, CMS actuaries are asking themselves: "What took us so long?"

The answer, gentlemen, is that you were asleep at the wheel while someone drove off with $10 billion of taxpayer money.

But hey, at least you caught the guy trying to bill $4.3 million for one patient's invisible wounds.

Gold star for that one. In related news, if anyone knows a good wound care company for sale - cheap - asking for a friend who definitely didn't read this article too late.

The Shmooze is a newsletter for SNF operators who prefer their industry news with a side of reality. We call it like we see it, which is why we publish from behind an LLC in New Mexico. Subscribe for more stories about regulatory theater, financial shenanigans, and the occasional moment of actual competence in healthcare policy.