Wachler & Associates Health Law BlogCY 2026 Physician Fee Schedule: Proposed Overhaul of Skin Substitutes
Recently, the Centers for Medicare & Medicaid (CMS) released the CY 2026 Physician Fee Schedule (PFS) Proposed Rule, introducing sweeping changes to Medicare Part B payment policy. Among the most significant updates is a restructuring of how Medicare pays for skin substitute products commonly used by wound care providers.
Skin Substitutes Reclassified as Incident-to Supplies
Historically, Medicare has paid for skin substitutes as biological products under the Social Security Act, using the Average Sales Price (ASP) methodology to determine reimbursement rates. However, CMS has raised concerns about increasing costs and utilization rates, noting that Medicare Part B spending on skin substitutes rose from millions in 2019 to billions in 2024.
To address that increase, starting January 1, 2026, CMS proposes that providers bill separately for skin substitutes that are not regulated as biologicals under Section 351 of the Public Health Service Act. Instead, CMS proposes to classify these products as incident-to supplies when used with a covered application procedure under the PFS in non-facility settings and under the Outpatient Prospective Payment System (OPPS) in the outpatient setting. However, Medicare will continue paying for Section 351-regulated biologicals using the current ASP methodology.
Facility and Non-Facility Price Consistency
CMS also proposes standardizing pricing for skin substitute applications across both facility (e.g., hospital) and non-facility (e.g., physician office) settings. Although CMS initially considered separate payment in the non-facility setting, CMS ultimately determined that a uniform payment approach better supports clinical decision-making. By reducing payment differences between care settings and product types, CMS hopes to ensure that treatment site choices focus on patient needs rather than higher reimbursements.
Categorization of Products Based on FDA Categories
To further address the rising costs related to separate payments for skin substitutes in the non-facility setting and skin substitutes altogether, CMS proposes categorizing these products based on FDA regulatory classifications. Specifically, CMS recommends grouping skin substitutes that are not regulated as drugs or biological products under section 351 of the Public Health Service Act into three payment categories aligned with FDA pathways: premarket approvals (PMAs), 510(k) clearances, and section 361 human cells, tissues, and cellular and tissue-based products (HCT/Ps). CMS believes this categorization will improve payment accuracy, better align valuation under the Physician Fee Schedule, and enhance predictability and administrative efficiency. Beginning in 2026, CMS also proposes a single national payment rate of approximately $125.38 per square centimeter across all three FDA categories, prior to geographic adjustments, based on proposed practice expense (PE) and malpractice (MP) relative value units (RVUs).
In Sum
Beginning January 1, 2026, if finalized, these changes will significantly alter how wound care providers are reimbursed for skin substitute products. Under the proposed rule, skin substitutes not regulated under section 351 of the PHS Act will be classified as incident-to supplies across both facility and non-facility settings. These products would be grouped into three payment categories based on FDA regulatory pathways: PMA, 510(k), and section 361 HCT/P. Payment rates for each category will be calculated using a volume-weighted average ASP, or the Mean Unit Cost (MUC) methodology if ASP is unavailable, and will initially be set at approximately $125.38 per square centimeter before geographic adjustments. CMS also proposes to codify the definition of “biological” to clarify eligibility for ASP-based reimbursement under the Social Security Act.
CMS is accepting public comments and requests for clarification on the proposed rule until September 12, 2025. Wound care providers should understand the proposed changes to skin substitutes regulation and reimbursement, and be prepared to take steps to strengthen compliance and adapt to these proposed changes if finalized.
For over 40 years, Wachler & Associates has represented healthcare providers and suppliers nationwide in a variety of health law matters, and our attorneys can assist providers and suppliers in understanding new developments in healthcare law and regulation. If you or your healthcare entity has any questions pertaining to healthcare compliance, please contact an experienced healthcare attorney at 248-544-0888 or wapc@wachler.com.