CMS Withdraws Prominent LCD for Skin Substitutes: What Healthcare Providers Need to Know

The Centers for Medicare & Medicaid Services (CMS) made a significant announcement and withdrew a highly anticipated coverage change, while moving forward with the 2026 Medicare Physician Fee Schedule (PFS) payment changes. This unexpected move has led to widespread confusion among healthcare providers, payers, and industry stakeholders.

What Happened?

CMS had been preparing to implement final Local Coverage Determinations (LCDs) for certain skin substitutes.  These changes were expected to clarify coverage lists, product categorization, and evidence requirements applicable to diabetic foot ulcers (DFU) and venous leg ulcers (VLU) for Medicare enrollees. 

However, just days before the changes were set to take effect, CMS A/B Medicare Administrative Contractors (MACs) withdrew the LCD for Skin Substitute Grafts/Cellular and Tissue-Based Products for the Treatment of DFU and VLU. The Medicare payment-component, such as the adjustment to a single payment rate methodology, remained in place. This split decision has created uncertainty about how organizations should proceed, as Medicare coverage and payment policies are closely intertwined.

Specific Impact on Skin Substitutes and CTPs

Medicare claims for skin substitute treatments will continue to be evaluated on a case-by-case basis under existing LCDs, and medical necessity standards. Documentation requirements remain unchanged and continue to be critical for compliance and reimbursement.

Payment Policy Changes Remain in Effect

Despite the LCD withdrawal, significant reimbursement changes finalized in the Medicare PFS are moving forward as planned. Effective January 1, 2026:

• Skin substitutes are reclassified as incident-to supplies, rather than biologicals, in the non-facility setting.
• Medicare payment for these products is no longer based on Average Sales Price (ASP); instead, Medicare will pay a flat rate of $127.14 per square centimeter.
• Application services remain separately reimbursed, for now.
• This change does not apply to biological products licensed under section 351 of the Public Health Service (PHS) Act, which will continue to be paid as biologicals under the ASP methodology in section 1847A of the Act.

These reforms were implemented in response to rapid market expansion, escalating prices, and a dramatic increase in Medicare Part B spending, from $250 million in 2019 to over $10 billion in 2024. 

Best Practice:  Providers and Clinics should take the following actions in response to these changes:

• Maintain rigorous medical necessity documentation. With Medicare coverage standards unchanged, thorough documentation remains essential. If your jurisdiction doesn’t have an active LCD, ensure your documentation meets or exceeds all Medicare guidance to demonstrate the reasonableness and medical necessity of the treatment provided.
• Reassess procurement and billing strategies. The updated fee schedule will significantly impact the financial viability of payment for skin substitutes.  When acquiring new inventory or phasing out current stock, keep in mind that high‑cost products purchased in 2025 are likely to face reduced reimbursement levels in 2026, potentially creating funding gaps.
• Monitor CMS updates. The recent change may not reflect CMS’ final action on this product, and guidance may evolve.  Continued attention to CMS guidance is important, particularly regarding PFS changes.
• Exercise caution with distributor communications. Some distributors may suggest that nothing has changed due to the LCD withdrawal. Providers and wound care clinics should conduct their own due diligence to ensure compliance with the new 2026 payment policy.

Communication and Compliance Challenges

With payment changes in effect, but coverage rules unchanged, providers must carefully review their billing and compliance protocols to avoid errors or denials. Patients may receive mixed messages about what services are covered, leading to frustration and potential delays in care. Clear, proactive communication with patients is essential to manage expectations and maintain trust.

What Should Organizations Do Next?

• Review CMS Guidance: Stay up to date with official CMS communications and clarifications.
• Update Policies: Adjust internal procedures to reflect the current state of coverage and payment rules, followed by revising policies to support your compliance efforts.
• Educate Staff: Ensure teams understand the changes and how they impact day-to-day operations.
• Communicate with Patients: Provide clear information about coverage and payment policies to avoid confusion.
• Consult Experts: Engage with legal, compliance, and reimbursement specialists to navigate the complexities.

In Summary: The withdrawal of the LCDs does not delay the 2026 payment policy. The new reimbursement model is fully in effect as of January 1, 2026. Understanding and preparing these changes is essential for compliance and financial stability.

If you have questions or need tailored guidance for your specific MAC jurisdiction or facility, please reach out to your BDO advisor.