A “quirk” in the Medicare law allows ‘skin’ bandage firms to charge, and have Medicare pay them, exorbitant prices. Are such quirks accidents or intentional? Medicare rules are so voluminous and obscure that few have an incentive to look carefully at the details. But the firms selling ‘skin’ bandages had an incentive. Entrepreneurs within these firms saw an opportunity and seized it. But they are what William Baumol called “destructive entrepreneurs.” Their energy and talent works against the general good.
Since patients are not paying, they have little incentive to reveal the fraud. So the taxpayers are robbed. In a system where the patients are the payers they would have an incentive to reveal fraud, and to seek alternatives to over-priced medical therapies.
But what of the poor, you ask? Susan Feigenbaum proposed an insurance system where patients would receive lump sum payments for different ailments. Then poor patients could be payers, and have the incentives of payer.
(p. 1) Seniors across the country are wearing very expensive bandages.
Made of dried bits of placenta, the paper-thin patches cover stubborn wounds and can cost thousands of dollars per square inch.
Some research has found that such “skin substitutes” help certain wounds heal. But in the past few years, dozens of unstudied and costly products have flooded the market.
Bandage companies set ever-rising prices for new brands of the products, taking advantage of a loophole in Medicare rules, The New York Times found. Some doctors then buy the coverings at large discounts but charge Medicare the full sticker price, pocketing the difference.
Partly because of these financial incentives, many patients receive the bandages who do not need them. The result, experts said, is one of the largest examples of Medicare waste in history.
Private insurers rarely pay for skin substitutes, arguing that they are unproven and unnecessary. But Medicare, the government insurance program for seniors, routinely covers them. Spending on skin substitutes exceeded $10 billion in 2024, more than double the figure in 2023, according to an analysis of Medicare data done for The Times by Early Read, a firm that evaluates costs for large health companies.
Medicare now spends more on the bandages than on ambulance rides, anesthesia or CT scans, the analysis found.
. . .
(p. 19) . . . experts in health care costs said the spike had been driven . . . by sellers and doctors taking advantage of Medicare’s pricing rules. The government will reimburse any price that a company sets for brand-new skin substitutes, even if it is far above the market average. The higher the price, the larger the doctors’ cut.
And the bigger the bandage, the more they can charge. For one patient in Nevada, Medicare spent $14 million on skin substitutes over the course of a year, according to billing records reviewed by The Times. The wound of a patient in Washington State persisted after Medicare paid $6 million for the coverings. A man in Texas got $1.3 million of bandages despite having no wound at all. Health executives trying to ferret out suspicious spending identified these patients and shared their stories with The Times.
As the Trump administration — and particularly the new Department of Government Efficiency run by Elon Musk — aims to shrink the federal purse, profligate Medicare spending is a ripe target, experts said.
Companies have billed Medicare for hundreds of thousands of urinary catheters that doctors never ordered. Other schemes have peddled urine tests and knee braces. In 2023, a federal watchdog agency flagged skin substitute spending as wasteful for both taxpayers and Medicare enrollees, who ultimately pay the costs with higher premiums.
“It’s the patients, it’s the taxpayers — unfortunately everyone is footing a part of the bill for this outsized spend,” said Dana Rye, an executive with Duly Health and Care, a Chicago-based medical group where payments for skin substitutes have risen 1,400 percent since 2022.
. . .
Five years ago, the most expensive skin substitute cost $1,042 per square inch, while some were as cheap as $45. Today, the three most expensive products on the market each cost more than $21,000. (Samaritan Biologics, a company in Memphis that sells the three products, did not answer questions about why they cost so much.)
Companies can set such high prices because of a quirk in Medicare pricing rules, industry experts said. For the first six months of a new bandage product’s life, Medicare will set the reimbursement rate at whatever price a company chooses. After that, the agency adjusts the reimbursement to reflect the actual price paid by doctors after any discounts.
To circumvent the reimbursement drop, some companies simply roll out new products.
In April 2023, Medicare began reimbursing $6,497 for every square inch of a bandage called Zenith, sold by Legacy Medical Consultants, a company in Fort Worth, Texas. Six months later, Zenith’s reimbursement fell to $2,746.
That month, October 2023, Medicare began reimbursing $6,490 for a new Legacy product, a “dual layer” bandage called Impax.
Marketing materials for the two products use identical photographs and similar language. The company describes both products as providing “optimal wound covering and protection during the treatment of wounds.”
Since 2022, spending on Zenith and Impax has exceeded $2.6 billion, according to Early Read’s analysis.
. . .
A cottage industry of doctors and nurses make house calls to treat wounds. Some skin substitute companies pitch themselves to wound care doctors by offering a cut of the rising bandage prices.
Dr. Caroline Fife, a wound care doctor from Texas who often writes about industry excesses, shared on her blog last year an email she received from an undisclosed skin substitute company. The company boasted that other doctors had developed “a healthy revenue stream” from its bandages and that a patch smaller than a credit card “would generate a little over $20,000 for your practice.”
Some companies offer doctors a “bulk discount” of up to 45 percent, according to doctor interviews and contracts reviewed by The Times. But doctors then collect a Medicare reimbursement for the full price of the product.
For the full story, see:
Sarah Kliff and Katie Thomas. “‘Skin’ Bandages Cost Medicare, And Doctors Get a Cut of Billions.” The New York Times, First Section. (Sun., April 13, 2025): 1 & 19.
(Note: ellipses added.)
(Note: the online version was updated April 14, 2025, and has the title “Medicare Bleeds Billions on Pricey Bandages, and Doctors Get a Cut.”)
The article by William Baumol praised in my initial comments is:
Baumol, William J. “Entrepreneurship: Productive, Unproductive, and Destructive.” The Journal of Political Economy 98, no. 5, Part 1 (Oct. 1990): 893-921.
The article by Susan Feigenbaum praised in my initial comments is:
Feigenbaum, Susan. “Body Shop’ Economics: What’s Good for Our Cars May Be Good for Our Health.” Regulation 15, no. 4 (Fall 1992): 25-31.
