Medicare and Medicaid Programs; CY 2026 Payment Policies Under the Physician Fee Schedule and Other Changes to Part B Payment and Coverage Policies; Medicare Shared Savings Program Requirements; and Medicare Prescription Drug Inflation Rebate Program

We have carefully considered our policy objectives, which include: (1) ensuring a consistent payment approach for skin substitute products across the physician office and hospital outpatient department settings; (2) ensuring that appropriate HCPCS codes describe skin substitute products; (3) employing a uniform approach across products within the physician office setting, regardless of whether the product is synthetic or comprised of human- or animal-based material; and (4) providing clarity for interested parties on CMS skin substitutes policies and procedures. We proposed, starting January 1, 2026, to separately pay for the provision of certain groups of skin substitute products as incident-to supplies when, for those products that are coverable under Medicare's rules, they are used during a covered application procedure paid under the PFS in the non-facility setting or under the OPPS. This proposal does not apply to biological products licensed under section 351 of the PHS Act, which will continue to be paid as biologicals under the ASP methodology in section 1847A of the Act. While we considered proposing to pay separately for skin substitutes initially under just the PFS in non-facility settings consistent with current practice, one of our primary policy objectives is to ensure a consistent payment approach for skin substitute products across the physician office and hospital outpatient department settings; and so, we ultimately determined that the suite of products referred to as skin substitutes should be treated in a uniform manner across different outpatient care settings, to the extent permitted by applicable law. The physician, in consultation with his or her patient, decides the site of service for treatment. While many factors are considered as a part of that decision, substantial differences in payment for the application of the same skin substitute product in one site of service versus another, or between similar skin substitute products, should not be one of them. Establishing a consistent framework for how these products are treated within the non-facility and hospital outpatient settings would empower providers to make the best treatment decisions for their patients, ensure equitable access to needed services, and pay appropriately for these services. We also considered bundling payment for skin substitute products in both the PFS and OPPS as part of this proposal. While supplies are generally bundled into the payment of the service in both the physician office and hospital outpatient departments, for

many years skin substitute products have been paid separately in the physician office setting, where the majority of these products are currently applied. So, we have determined that bundling payment for skin substitute products with their administration procedures across both settings under this new proposal, before efforts are made to address improper utilization patterns, would be premature. Depending on the outcomes of this final policy, we may consider packaging skin substitute products with the related application procedures in both the hospital outpatient setting and non-facility setting in future rulemaking. We solicited comments on our proposal to separately pay for the provision of certain groups of skin substitute products as well as on our proposal to implement this policy in both the non-facility and hospital outpatient settings. For additional details on the OPPS proposal for skin substitutes, please see the CY 2026 OPPS/ASC proposed rule with comment period; the remainder of this policy proposal will focus on implementation under the PFS.

We received public comments on these proposals. The following is a summary of the comments we received and our responses.

Comment: Many commenters supported CMS' goal of aligning payment and coding policies across different sites of care. They agree that a consistent, site-neutral payment system empowers providers to choose the most clinically appropriate setting based on patient needs rather than financial incentives. Commenters noted this would reduce the confusion, administrative burden, and disparities in care caused by the current system. They see this policy as a way to establish a fair and uniform standard that centers treatment decisions around the patient.

Many commenters also supported CMS' proposal to pay for skin substitutes separately from the application procedure. Several stated that these products are separately reimbursable and add significant clinical value. They noted that separate payment ensures consistent treatment availability, preserves access for patients, and avoids disincentives for treating larger wounds. Several commenters expressed appreciation that CMS did not move forward with a previous proposal to bundle the products, which they believe would have harmed patients with large wounds. They regarded the proposed policy as a more clinically and operationally sound approach.

Several commenters specifically supported discontinuing the bundling of skin substitute payments in the Hospital Outpatient Department (HOPD) and Ambulatory Surgical Center (ASC) settings. The commenters suggested the current system, which bundles payment in the HOPD but pays separately in the office, has created a disincentive to treat larger wounds in facilities, pushing those cases disproportionately into the physician's office or even more expensive inpatient settings. They applauded the per-square-centimeter methodology for aligning payment with wound size and expanding access across all sites.

Response: We appreciate the commenters for their support.

Comment: Other commenters opposed the move away from bundled payments. MedPAC, for example, did not support unbundling skin substitutes in the facility setting, stating that paying for items separately undermines payment bundles, can lead to overuse, and shifts financial burden from providers to Medicare and its beneficiaries. Another commenter supported maintaining a bundled approach to align with longstanding policy and statutory authority.

Several commenters recommended that CMS delay any changes to the HOPD payment methodology. They suggested that CMS should first assess the impact of the payment reforms in the non-facility setting before applying them to the hospital outpatient setting to avoid unintended consequences, such as shifting care to more expensive settings.

Response: While we acknowledge the concerns about unbundling raised by commenters, ensuring a consistent payment approach for skin substitute products across the physician office and hospital outpatient department settings has been a long-stated policy objective. As noted previously in this section, we have determined that bundling payment for skin substitute products with their administration procedures across both settings under this new proposal, before efforts are made to address improper utilization patterns, would be premature. Depending on the outcomes of this policy, we may consider packaging skin substitute products with the related application procedures in both the hospital outpatient setting and non-facility setting in future rulemaking.

Comment: Many commenters warned that the proposed payment rate for the application codes create a new, major disparity between care settings. They pointed out the large gap between the proposed physician application payment rate of ~$150 in an office/mobile setting and the combined facility and physician facility setting payment rates of over $800 in an HOPD. They stated this disparity will create a strong financial incentive to shift patient care to the more expensive HOPD setting, which could strain hospital capacity, create access issues for rural and underserved patients, and cause physician offices and mobile practices to shutter. Several commenters highlighted the unique challenges and higher costs faced by providers serving rural and homebound patients. They recommended CMS offer financial incentives, enhance telemedicine reimbursement, and provide add-on payments or grants to ensure these vulnerable populations do not lose access to care. To achieve true site neutrality, they strongly suggested CMS increase the application fee for clinicians in non-facility settings to close this gap.

Other commenters supported the proposed RVUs and payment rates for the application procedure codes in both the HOPD and MPFS settings, finding them to be a fair assessment of clinical resource utilization.

Another commenter stated that CMS should increase the proposed APC payment rates for these procedures in the HOPD setting, as the proposal demotes some codes to lower-paying APCs, which exacerbates existing disincentives for treating wounds in the hospital.

Response: We acknowledge the disparities in the payment rates for the application codes between settings. As described in section II.B. of this final rule, we are open to exploring alternative data sources, including use of OPPS cost data, to inform PFS rate setting for certain services. We also recognize the possibility raised by interested parties that some of the excessive payment for the skin substitute products may have been useful in subsidizing costs associated with providing these services in beneficiaries' homes. We look forward to continued dialogue on this point as well as on the point of access to care for homebound and other beneficiaries for whom care is reasonable and necessary.

After careful consideration of the comments, we are finalizing our proposal to pay separately for the provision of certain groups of skin substitute products as well as our proposal to implement this policy in both the non-facility and hospital outpatient settings as proposed.

We proposed, under the PFS, to pay separately for the use of specific skin substitute products (that is, skin

substitute products that are not regulated as biological products under section 351 of the PHS Act) that are eligible for Medicare coverage during a covered application procedure in the non-facility setting as incident-to supplies in accordance with section 1861(s)(2)(A) of the Act. Supplies are a large category of items that typically are either for single use or have a shorter use life span than equipment. Supplies can be anything that is not equipment and include not only minor, inexpensive, or commodity-type items but also include a wide range of products used in outpatient settings, including certain implantable medical devices. “Incident-to supplies” refers to supplies that are furnished as an integral, although incidental, part of the physician's professional services in the course of diagnosis or treatment of an injury or illness, among other requirements at 42 CFR 410.26(b). Because a skin substitute must be used to perform any of the procedures described by a CPT code in the range 15271 through 15278, and the procedure of treating the wound and applying a covering to the wound is the independent service, skin substitute products serve as a necessary supply for these surgical repair procedures. We sought comments on our proposal to separately pay for provision of skin substitutes as incident-to supplies under the PFS in the non-facility setting.

We received public comments on this proposal. The following is a summary of the comments we received and our responses.

Comment: Many commenters opposed reclassifying skin substitutes, particularly amniotic and placental-derived products, as supplies. The commenters stated this classification is a misstep that diminishes the products' clinical value, calling the products advanced, life-changing biologic therapies, not simple bandages or dressings. Some stated CMS lacks legal authority, as skin substitutes do not meet the statutory definition of an “incident-to supply.” They stated the reclassification is legally, clinically, and definitionally incorrect, as these products are the primary intervention, not an incidental part of a service, and interact directly with body tissues.

Response: Section 1861(s)(2)(A) of the Act defines “medical and other health services” as services and supplies furnished incident to a physician's professional service that are commonly furnished in physicians' offices and provided either without charge or as part of a physician's bill. As stated previously in this section, supplies are a large category of items that typically are either for single use or have a shorter use life span than equipment. Supplies can be anything that is not equipment and include not only minor, inexpensive, or commodity-type items but also include a wide range of products used in outpatient settings, including certain implantable medical devices, including class III medical devices requiring premarket approval, which is the most rigorous review required of a skin substitute that is also a medical device. “Incident-to supplies” refers to supplies that are furnished as an integral part of the physician's professional services in the course of diagnosis or treatment of an injury or illness, among other requirements at 42 CFR 410.26(b). Because a skin substitute must be used to perform any of the procedures described by a CPT code in the range 15271 through 15278, and the procedure of treating the wound and applying a covering to the wound is the independent service, skin substitute products serve as a necessary supply for these surgical repair procedures.

Comment: Many commenters supported the reclassification of non-BLA skin substitutes as incident-to supplies. They see it as an essential, overdue, and rational approach to realign incentives away from overuse and toward more clinically appropriate care. They stated that this change is expected to curb the significant fraud, waste, and abuse that has plagued the current system.

Response: We appreciate the commenters for their feedback on our proposal to treat and pay for all covered skin substitute products as incident-to supplies. CMS agrees that this proposal will help to resolve issues such as exorbitant price increases and curb fraud, waste, and abuse.

Comment: Several major physician groups expressed concerns that paying for these high-cost supplies within the PFS relative value system would have a devastating impact on payments for all other physician services. These commenters argue that due to PFS budget neutrality, introducing billions of dollars in supply costs into the practice expense (PE) pool would distort relativity and inevitably trigger across-the-board reduction in RVUs for other services. Many commenters stated that even if unit costs decrease under the new pricing methodology, the overall magnitude of aggregate spending means inclusion in the PFS relative value system could have long-term consequences for payment adequacy of other unrelated services. These groups strongly suggested CMS to create a separate payment mechanism outside of the PFS relative value system to avoid this instability, similar to payment for Part B drugs.

Response: We recognize the significance of reclassifying these products as incident-to supplies under the PFS, especially considering the dramatic increases in spending on this category of products in recent years. However, we disagree that this change is inappropriate since, as previously articulated, we maintain that these products are more appropriately categorized as incident-to supplies rather than as drugs and biologicals. We also acknowledge the longstanding concerns many commenters have noted regarding the inclusion of disposable supplies, especially those with high costs, as part of payment under the PFS, especially relevant for PFS budget neutrality and relativity. However, we do not believe it would be consistent with current statutory authority for such concerns to drive the appropriate classification of particular kinds of products.

We would also point out that the PFS budget neutrality, as implemented on an annual basis consistent with the statute, adjusts RVUs to account for changes in pricing and coding, not overall changes in volume between years. Consequently, the assigning of codes describing the provision of these products' PE RVUs does not have a direct, initial impact on the calculation of other PE RVUs. Instead, the future changes in rates for these services will be incorporated into PFS relativity and budget neutrality once data become available. By grouping these products for payment purposes, we expect that market competition will likely result in lowering prices for most skin substitutes products. For example, once data becomes available for CY 2027 and is incorporated into PFS ratesetting, overall reductions in payment amounts for skin substitutes could have a positive result on PFS relativity and budget neutrality for other services paid under the PFS by CY 2028.

After careful consideration of the comments, we are finalizing our proposal to pay separately for the provision of skin substitutes as incident-to supplies under the PFS in the non-facility setting as proposed.

Skin substitutes have historically been paid separately in the non- facility setting as biologicals instead of supplies when used during a covered application procedure. Products CMS considers to be skin substitutes may also meet FDA's definition of a biological product, either directly or as an analogous product. However, section 1847A of the Act, which includes the controlling provisions for setting Medicare payment

for drugs and biologicals billed by a physician, generally refers to biologicals in ways that do not encompass most skin substitutes. While most skin substitutes are either medical devices regulated under the FD&C Act or products regulated solely under section 361 of the PHS Act, subparagraphs (H) and (I) of section 1847A(c)(6) of the Act only refer to biological products under section 351 of the PHS Act. Section 1847A of the Act also references section 1927 of the Act, which again refers to section 351 of the PHS Act when referencing biologicals. In addition, to operationalize the payment system, section 1847A of the Act includes extensive references to National Drug Codes, a type of drug identifier published by the FDA and generally not assigned to most skin substitutes, which further supports our proposal to stop utilizing 1847A payment methodologies for skin substitutes that are not licensed under section 351 of the PHS Act. For example, section 1847A(b)(4)(A) of the Act directs uses of the lesser of the average sales price or wholesale acquisition cost when determining the payment amount for a single-source drug or biological for all National Drug Codes assigned to the drug or biological. The methodology for calculating the volume- weighted average sales price is described in paragraph (6) of section 1847A(b) of the Act, which describes a process that again specifies the use of National Drug Codes. Because skin substitutes generally do not have National Drug Codes, CMS has operationalized this process for skin substitutes by allowing manufacturers of skin substitutes to self- select an Alternate ID to distinguish between different skin substitute products.\110\ However, the use of an alternative identification method is not required by the statute, and the calculation of a payment limit under section 1847A of the Act for these products is otherwise not possible.

\110\ https://www.cms.gov/files/document/frequently-asked-questions-faqs-asp-data-collection.pdf.

We note that section 351 and section 361 of the PHS Act are two distinct regulatory frameworks. Section 351 biological products must seek FDA pre-marketing approval (using clinical studies that are required by the applicable section 351 regulations) and are applicable to the prevention, treatment, or cure of a disease or condition. In contrast to the prerequisites for marketing products that fall under section 351 of the PHS Act, no FDA approval or clearance is required for marketing the self-determined 361 HCT/Ps. Section 361 products also do not receive an FDA license of approval for a specific prevention, treatment, or cure of a disease or condition and do not require controlled clinical trials to demonstrate effectiveness prior to marketing. The self-determined 361 HCT/Ps are also self-determined to be limited to intended uses that reflect homologous use for that particular product.

In light of our careful review of the applicable statutory provisions governing skin substitute products paid under the ASP methodology under 1847A of the Act, the FDA's regulatory frameworks used for these products, and the skyrocketing increase in Medicare spending for such products, we proposed to pay separately for skin substitute products (other than products licensed under section 351 of the PHS Act, which will continue to be paid as biologicals under the ASP methodology in section 1847A of the Act) that are eligible for Medicare coverage during a covered application procedure in the non- facility setting as incident-to supplies in accordance with section 1861(s)(2)(A) of the Act.

One purpose of the new policy is to limit some of the current profiteering practices occurring in this industry. For example, as reflected in the last several years of CMS' ASP pricing files, we have observed a dramatic increase in launch prices. It is unclear how these prices could be attached to realistic changes in resource costs as many of these new products are allegedly minimally manipulated tissues. Our policy is likely to disincentivize this practice, as well as several other novel industry practices that have come to our attention by preventing exploitation of skin substitute pricing under section 1847A of the Act, overuse of expensive skin substitute products, and waste resulting from use of more-expensive skin substitute products over clinically appropriate, less-expensive alternatives. Notably, there has not been significant growth in payments for skin substitutes in the OPPS, which unconditionally packages the payment for skin substitute products with their associated application procedures. We note that the relevant statutory provisions, when considered together, do not require all of these kinds of products to be paid as biologicals under section 1847A of the Act. Therefore, under this policy, unless a skin substitute is approved as a drug or as a biological product under section 351 of the PHS Act, in which case we would continue to pay for it consistent with section 1847A of the Act, we would consider it an incident-to supply for payment purposes under the PFS with the definitions and rates described below. For Medicare purposes, we proposed to codify the definition of “biological” as “a product licensed under section 351 of the Public Health Service Act” at Sec. Sec. 414.802 and 414.902. We sought comments on our proposal to limit the application of section 1847A of the Act to skin substitutes that are approved as a drug or as a biological product under section 351 of the PHS Act and our proposed edits to the regulations.

We received divided comments on our proposal to codify the definition of “biological” in regulation. The following is a summary of the comments we received and our responses.

Comment: Several commenters stated that CMS' proposal to narrow the definition of “biological” to only include products licensed under section 351 of the PHS Act is a misapplication of the law and conflicts with the Act. They contend that the Act itself provides a broader definition in section 1861(t)(1) of the Act, which includes products listed in the U.S. Pharmacopoeia (USP) or approved by hospital P&T committees, a definition that many skin substitutes meet, including section 361 products. Commenters state that if Congress had intended to limit the term “biological” to section 351 products in the payment statute (Section 1847A of the Act), it would have done so explicitly, as it has in other parts of the law. Furthermore, they noted that the Consolidated Appropriations Act of 2021 referred to these products as “drugs and biologicals,” signaling that Congress considers them as such for payment purposes. The commenters stated that for decades CMS has appropriately classified and paid for skin substitutes as drugs or biologicals under section 1847A of the Act. They stated that the proposal to abruptly reclassify them is an unexplained reversal of this long-standing policy and is therefore “arbitrary and capricious.”

Response: Section 1861(t)(1) of the Act states, in relevant part, that the term “drugs” and the term “biologicals” include only products that are included (or approved for inclusion) in the (USP), the National Formulary, or the United States Homeopathic Pharmacopoeia, or in New Drugs or certain products listed in the Accepted Dental Remedies, or as are approved by the pharmacy and drug therapeutics committee (or equivalent committee) of the medical staff of the hospital furnishing such drugs and biologicals for use in such hospital; subparagraph (t)(2) adds that the term “drugs” includes any drugs or biologicals used in certain anticancer

chemotherapeutic regimens in the definition. The definition of these terms does not include certain medical supplies. Reliance on this provision to determine that a skin substitute is a biological payable under section 1847A of the Act is problematic for several reasons. To begin, we note that this provision does not require that all products included in the listed compendia are deemed drugs and biologicals. Instead, it states that “drugs” and “biologicals” include only such drugs and biologicals as are included in the compendia. Second, only one of the listed compendia in section 1861(t)(1) of the Act that is still in publication: a combination compendium containing USP and the National Formulary (USP-NF), which contains standards for medicines, dosage forms, drug substances, excipients, biologics, compounded preparations, medical devices, dietary supplements, and other therapeutics.\111\ The compendia issued a statement in 2018 that it would no longer develop new monographs for biologics unless there is consensus from interested parties supporting its creation, including the support of FDA.\112\ As a result, very few of CMS's paid biologicals actually have product-specific monographs in that compendium. Instead of product-specific monographs, the USP primarily develops performance standards and general guidelines to support the quality assessment of biologics. This is also true in the case of skin substitutes. References to these types of products in the USP are not product-specific monographs. Instead, these references are general descriptions of product types. As the source and manufacture of products with biological activity can dramatically change their safety and efficacy, these general references are not sufficient to describe any product with specificity. Therefore, CMS relies on the language in section 1847A of the Act to authorize payment for products described therein.

\111\ https://www.uspnf.com/purchase-usp-nf.

\112\ https://www.usp.org/news/statement-on-monographs-for- biologics#:~:text=Rockville%2C%20MD%20%E2%80%93%20April%202%2C,About% 20UPS.

The Consolidated Appropriations Act, 2021, Public Law 116-260, division CC, section 401(c), amended section 1847A(f)(A) to state that, manufacturers of drug or biological including items, services, supplies, and products that are payable under Medicare Part B as a drug or biological that have not entered into a National Medicaid Drug Rebate Agreement are required to report ASP (and WAC) data to CMS. Under this policy, as finalized, skin substitute products (other than those approved via BLA under section 351 of the PHS Act) will no longer be payable as drugs or biologicals under Medicare Part B and will no longer be required to report ASP data to CMS.

Finally, as noted previously, we outlined our HCPCS Level II coding and payment policy objectives for skin substitutes in the CY 2023 PFS proposed rule (87 FR 46249) and stated we believed that our existing payment policies were unsatisfactory, unsustainable over the long term, and rooted in historical practice established two decades ago prior to significant evolutions in medical technology and practice. CMS also hosted a town hall \113\ to provide an opportunity for public input, including discussion of potential approaches to the methodology for payment of skin substitute products, and reviewed several years of comments in response to CY rules in 2023, 2024, and 2025 on this subject before developing this proposal to address our stated objectives.

\113\ CMS Skin Substitutes Town Hall, which was held virtually on January 18, 2023. More information regarding the CMS Skin Substitutes Town Hall such as links to recording and transcripts is available at https://www.cms.gov/medicare/payment/fee-schedules/ physician/skin- substitutes#:~:text=The%20CMS%20Skin%20Substitutes%20Town,Physician%2 0Fee%20Schedule%20(PFS).

Comment: Other commenters agreed with CMS' interpretation. The commenters supported the proposal to reserve payment methodology under section 1847A of the Act for products that have undergone the rigorous FDA Biologics License Application (BLA) process under section 351 and agreed that non-BLA products do not meet the statutory definition of biologicals contemplated for payment under section 1847A of the Act, making the “incident-to supply” classification a rational approach. They believe this accurately reflects the statutory definition of a biological and rightly rewards manufacturers who invest in the highest level of regulatory review. Other commenters requested that CMS clarify that skin substitute products do not fall under the discarded drug or inflation rebate policies.

Response: We appreciate the commenters for their support. We clarify that skin substitute products that are not regulated as drugs or biological products under section 351 of the PHS Act and that are paid as incident to supplies are not subject to the Medicare discarded drug policy. At this time, skin substitutes are excluded from Part B inflation rebates as described at Sec. 427.101(b)(5) and as finalized in the CY 2025 PFS final rule (89 FR 98235).

Comment: A commenter warned that continuing to pay for the few BLA- approved products under section 1847A of the Act while moving all others to a flat rate would create a perverse incentive for those manufacturers to continue increasing prices.

Response: As previously described, we believe that the payment methodology described in section 1847A of the Act applies to drugs and biological products approved under a BLA when they are provided in the non-facility setting. Further, such licenses are issued only after showing that the product is safe, pure, and potent and may justify a higher payment rate. Finally, between the longer time required to bring these products to market, potential rebate requirements, and the changes to ASP reporting described in section XX of this final rule, we believe opportunities for dramatic pricing increases will be significantly curtailed. However, we will continue to monitor pricing trends for products approved under a BLA.

Comment: A commenter requested that CMS codify in regulation that biological products licensed by the FDA under the section 351 BLA process are not considered skin substitutes, are not considered incident-to supplies under the proposed rule, and will continue to be eligible for separate payment under section 1847A of the Act (generally, ASP+6 percent).

Response: While products licensed under section 351 of the PHS Act may properly be used along with skin substitute application codes, they will continue to be separately paid as biological products using the methodology described in section 1847A of the Act.

CMS also received many comments on the growth in payments for this class of products.

Comment: Many commenters, including ACOs, primary care providers, and health systems, stated that they have witnessed an explosive and unsustainable growth in skin substitute spending, which they attribute to fraud, waste, and abuse. They report seeing products used in clinically questionable circumstances, often by third-party mobile wound clinics that operate without coordination with the patient's primary care team. The commenters identified the ASP-based payment limits as a primary driver of abuse, as it creates financial incentives to use more expensive products, regardless of

clinical need. They described a system where manufacturers can launch new, clinically undifferentiated products at inflated prices and offer deep discounts to providers, who then profit from the spread between their acquisition cost and the high Medicare reimbursement rate. The commenters provided examples of significant patient harm resulting from this misuse, including failure to treat the underlying causes of wounds, unnecessary applications, severe infections, sepsis, and even death. They noted a troubling pattern of skin substitutes being applied to vulnerable and terminally ill patients, including those on hospice, where such treatment is inappropriate.

Response: We appreciate the commenters for their input. We believe this policy will dramatically reduce these problematic behaviors in both the physician office and hospital outpatient settings. We also believe this policy has the potential to prevent these harmful practices from occurring in different settings of care, including hospice and home health.

Comment: Several commenters referenced analyses indicating that the vast majority of the spending is driven by a very small number of outlier providers. Commenters referenced one analysis by Tettelbach et al.\114\ that found that in 2023, fewer than 3 percent of providers accounted for nearly two-thirds of all Medicare spending on these products. The commenters suggested the problem is not broad utilization but isolated misuse by a few bad actors. Based on the concentration of abuse, some commenters stated that CMS should use targeted program integrity measures, such as audits of outlier providers, NPI-level analytics, and stricter enforcement--rather than implementing sweeping payment cuts that penalize all providers and risk harming patient access. Beyond targeted enforcement, commenters recommended systematic oversight mechanisms. A commenter suggested CMS recognize site accreditation through a self-regulatory organization (SRO) to verify adherence to standard of care, documentation protocols, and product handling, analogous to DMEPOS and CLIA accreditation models. The SRO would conduct inspections, publish outcomes dashboards, and impose sanctions. The commenters contend that slashing payment rates is not a fraud control measure and will disproportionately harm compliant providers and the patients who need these products.

\114\ Tettelbach W, Armstrong DG, Driver V, et al. Safeguarding access, fiscal responsibility and innovation: a comprehensive reimbursement framework for CAMPs to preserve the Medicare Trust Fund. J Wound Care. 2025;34(10):Ahead of Print. doi:10.12968/ jowc.2025.0396.

Some commenters caution that increased use of skin substitutes is not, in itself, a negative trend. They stated that the growth also reflects expanded access to care for previously underserved populations (like homebound patients) and increased provider awareness of the products' efficacy in healing chronic wounds.

Response: We agree that not all increased use of skin substitutes is improper. However, it is clear that the dramatic growth in spending is not statutorily required and comes without a clear, consistent, and corresponding benefit. The Agency has a responsibility to the public to be good stewards to the Medicare Trust Fund, so CMS has implemented a coordinated effort across several Centers, such as the Center for Medicare, the Center for Clinical Standards and Quality, and the Center for Program Integrity, to address this issue.

Comment: Several commenters offered feedback on skin substitute billing as it relates to value-based care programs such as the Medicare Shared Savings Program. These comments acknowledged support for the proposals relating to the changes in skin substitute payment policy, but expressed concern related to negative impacts to some ACOs who may be disproportionately impacted by skin substitute billing compared to the national trend. Some commenters also made recommendations for revisions to value-based care programs that could address skin substitute billing and similar future scenarios that may not be captured by the Significant, Anomalous, and Highly Suspect (SAHS) billing activity policy which was finalized in the calendar year (CY) 2025 Medicare Physician Fee Schedule (PFS).

Response: As the commenters referenced, on November 1, 2024, we issued the CY 2025 PFS final rule (89 FR 97710), which included policies discussed under the “Mitigating the Impact of Significant, Anomalous, and Highly Suspect (SAHS) Billing Activity on Shared Savings Program Financial Calculations in Calendar Year 2024 or Subsequent Calendar Years” section of the final rule (89 FR 98191). These policies give CMS the ability to determine that the billing of one or more HCPCS or CPT codes represents significant, anomalous, and highly suspect billing activity for a calendar year that warrants adjustment to calculations made under 42 CFR part 425. Generally, a level of billing for a given HCPCS or CPT code is considered SAHS billing activity when a given HCPCS or CPT code exhibits a level of billing that represents a significant claims increase, either in the volume or dollars, with national or regional impact, and represents a deviation from historical utilization trends that is unexpected and is not clearly attributable to reasonably explained changes in policy or the supply or demand for covered items or services. The billing level must be significant and represent billing activity that would cause significantly inaccurate and inequitable payments and repayment obligations in the Shared Savings Program if not addressed (89 FR 98195).

We assessed the impact of an increase in billing to Medicare for skin substitutes and determined that the billing activity for these services does not represent SAHS billing activity for Performance Year (PY) 2024. Skin Substitute billing can have varying impacts on ACOs' performance and could either contribute to increasing or decreasing shared savings and losses, dependent on ACO-level expenditures and national/regional billing activity impacts.

We established the SAHS billing policy to address certain unexplained billing anomalies that could impact program wide calculations, to be invoked in rare and extreme cases when CMS identifies a code that meets the high bar to be defined as SAHS billing activity (89 FR 98196). Payments that are not excluded under the SAHS policy are also reviewable at the ACOs' request if improper payments are identified after the initial determination is made under the reopening policy (42 CFR 425.315).

We will continue to monitor this area with our program integrity partners and to explore options that could mitigate extreme deviations in costs that are outside of the ACOs' control and not addressed through the SAHS policy.

Comment: Some commenters acknowledged that truncation in Medicare Shared Savings Program calculations greatly mitigates a significant amount of outlier billing for skin substitutes. A portion of these commenters also suggested that CMS should apply a lower stop loss truncation threshold in the Medicare Shared Savings Program to address skin substitutes.

Response: To minimize variation in catastrophically large claims, the Medicare Shared Savings Program truncates an assigned beneficiary's total annual Medicare Parts A and B FFS per capita expenditures at the 99th percentile of national Medicare Parts A and B FFS expenditures as determined

for the applicable performance year for assignable beneficiaries identified for the 12-month calendar year corresponding to the performance year. (42 CFR 425.605(a)(3) and 425.610(a)(4)(ii)).

For all benchmark years and performance years, CMS provides ACOs with the number of assigned beneficiaries with truncated expenditures, the total dollar amounts truncated, and the percentage of total annualized expenditures truncated. We also provide this truncation information for the National Assignable FFS population. We have examined the impact of the truncation policy on skin substitute expenditures and found that over 50 percent of PY 2024 Part B expenditures for skin substitutes were addressed by truncation. Skin substitute expenditures, on average for PY 2024, represent roughly 1 percent of total Parts A and B expenditures for ACOs, and with truncation applied, the average skin substitute expenditures equate to less than 0.5 percent of total Parts A and B expenditures for ACOs. This information indicates that truncation effectively mitigates large spending associated with skin substitute billing.

Comment: Some commenters also provided feedback requesting a formal process and direct channel for ACOs to report fraud.

Response: Medicare Shared Savings Program ACOs are encouraged to report potential fraud or abuse by submitting a complaint to the CMS Center for Program Integrity (CPI), Fraud Investigations Group (FIG), Division of Provider Investigations (DPI) at [email protected]. ACOs can also report potential fraud or abuse by submitting a complaint to the Office of Inspector General (OIG) website at https://oig.hhs.gov/fraud/report-fraud/, OIG hotline at 1-800-HHS-TIPS (1-800- 447-8477), TTY at 1-800-377-4950, by fax at 1-800-223-8164, or by mailing to: Office of Inspector General ATTN: OIG HOTLINE OPERATIONS, P.O. Box 23489, Washington, DC 20026. ACOs suspecting healthcare fraud, waste, or abuse are encouraged to visit the CMS Center for Program Integrity (CPI) website at https://www.cms.gov/medicare/medicaid-coordination/center-program-integrity for more information.

After careful consideration of public comments, we are finalizing our proposal to limit application of section 1847A of the Act to skin substitutes that are approved as a drug or as a biological product under section 351 of the PHS Act and our proposed edits to the regulations as proposed. 2. Payment Categories Based on FDA Regulatory Category

Paying separately for skin substitutes in the non-facility setting has led to dramatic price increases for these products, as noted previously in this section. Grouping similar products or services into a single billing code and using a single payment amount for them, as we do with many services under the OPPS, some services under the PFS, and all multiple-source drugs under section 1847A of the Act, incentivizes hospitals and prescribers to make the most cost-efficient, clinically effective treatment decision. However, we recognize that grouping dissimilar products and/or services to set payment rates can limit beneficiaries' access to appropriate care, especially when some groups encompass products and services with significant clinical and resource variability. In the case of skin substitutes, no single product among the wide range of products stands out as typical; so we have reviewed several methods to group or classify skin substitutes to determine which best reflects clinical and resource similarities between these products.

We proposed that only skin substitute products licensed under section 351 of the PHS Act will be considered drugs and biologicals for Medicare payment purposes. Furthermore, we proposed that, to reflect relevant product characteristics, we would group skin substitutes that are not drugs or biologicals (that is, anything that is not a section 351 product) using three CMS payment categories based on FDA regulatory categories (PMAs, 510(k)s, and 361 HCT/Ps) to set payment rates. We have previously noted in rulemaking that CMS has no obligation to categorize products based on the FDA's current regulatory framework (74 FR 60476); but, in this case, we have determined that the FDA regulatory categories provide an appropriate level of distinction for a heterogeneous category of products that exhibit clinical and resource variability and that categorizing products based on these categories can ultimately improve the accuracy of the relative value units under the PFS. Proposing a payment policy that aligns with FDA's current regulatory framework also provides for predictability and efficiency for purposes of Medicare payment. Payment for new products, as discussed below, could be achieved quickly and consistently by CMS' capacity to immediately recognize the FDA regulatory categories. a. 361 HCT/Ps

As described previously, 361 HCT/Ps are a subset of HCT/Ps that are regulated solely under section 361 of the PHS Act and the regulations in 21 CFR 1271 and listed in the FDA's eHCTERS. Currently, registered 361 HCT/Ps generally are dressings intended only to cover and protect a wound. They are not intended to act on the wound to mediate, facilitate, or accelerate wound healing. Their activity is typically limited to that of a physical covering or wrap. A structural tissue intended for wound care is generally limited to the homologous use of cover and protect in order to be a 361 HCT/P.\115\ Intended uses such as wound treatment, promotion or acceleration of wound healing, or serving as a skin substitute would generally be non-homologous uses of structural tissues. Instead, products for such intended uses (for example, the treatment of wounds) generally are subject to PMA or BLA requirements.

\115\ See Regulatory Considerations for HCT/Ps: Minimal Manipulation and Homologous Use, July 2020 (pg. 19).