By Sinead Baldwin
The healthcare industry’s use of amniotic tissue and skin substitute products has surged over recent years. However, regulatory (and payer) scrutiny is being applied at an increasing rate, with potential exposure to administrative reviews, civil penalties, or even criminal liability. Understanding the risks and compliance expectations is critical for organizations and practitioners navigating this space. This blog post provides a comprehensive breakdown of emerging trends, enforcement actions, and key compliance challenges surrounding amniotic tissue and skin substitute products. The two most robust sources of enforcement are the FDA and payers.
FDA Warning Letters to Suppliers
The FDA is at the forefront of regulating amniotic tissue and related wound care products. Whenever the agency identifies possible statutory or regulatory violations under the Federal Food, Drug, and Cosmetic Act (FD&C Act), it issues a “Warning Letter.” This formal communication outlines the FDA’s concerns and provides the recipient with a limited timeframe to address those issues.
Several cases in recent years highlight the growing regulatory focus in this area:
Case Studies of FDA Warning Letters
A Warning Letter was issued to a company marketing creams and other products alleged to be “unapproved new drugs.” The FDA also flagged them as “misbranded drugs,” emphasizing violations of labeling and marketing regulations. Some of these products were marketed as aiding in wound healing, intensifying regulatory concerns.
This year, the FDA flagged a supplier manufacturing products derived from human amniotic fluid and umbilical cord material. Allegations centered on the unauthorized marketing of these products, which were distributed to third-party medical centers, pain clinics, wellness facilities, and physicians.
These examples serve as cautionary tales. While FDA Warning Letters begin as administrative actions, unresolved issues or serious violations often escalate to civil or criminal enforcement involving the Department of Justice (DOJ). Penalties may include substantial fines, injunctive relief, or even imprisonment.
CMS Contractor Audits and Claim Denials
The Centers for Medicare & Medicaid Services (CMS) contractors — including Medicare Administrative Contractors (MACs), Unified Program Integrity Contractors (UPICs), and the Supplemental Medical Review Contractor (SMRC) — are actively conducting audits of amniotic tissue and skin substitute claims, as are many commercial payers, which can be expected to activate their Special Investigative Units (SIUs) to squeeze utilization and launch clawbacks. These audits often result in coverage denials and (even worse) clawbacks, with contractors citing medical necessity concerns or documentation deficiencies. This can be especially punishing for providers who actually pay in advance for the grafts!
Common Reasons for CMS Denials:
- Not Aligning with LCD Guidelines:
When Local Coverage Determinations (LCDs) outline coverage criteria for specific products, claims failing to meet required documentation standards are quickly denied.
- Homologous Use Misapplication:
The FDA approves some amniotic tissue products for homologous use, meaning their function matches their effect on the body. However, using these products for wound healing beyond their approved purpose is classified as non-homologous use and warrants further FDA approval, including evidence of safety and efficacy.
- Insufficient Evidence:
Some applications of amniotic tissue products are considered investigational and fall short of CMS’ “reasonable and necessary” standard for coverage. Without peer-reviewed evidence validating their use for wound healing, claims are deemed unsubstantiated.
- Document Cloning & Lack of Individualization:
Claims suggesting cloned documentation or failing to reflect patient-specific treatment plans are frequently flagged as insufficient or non-compliant.
- Failure to Explore Alternatives:
When providers fail to justify why conventional wound care methods, such as sutures, dressings, or skin flaps, were not viable, coverage denials often follow.
- Insufficient Documentation of Product Use:
Providers must document the precise amount of amniotic material administered and account for any waste. Failure to provide these details frequently leads to CMS rejecting claims.
Best Practices for CMS Compliance
Healthcare providers must ensure thorough, individualized documentation and remain updated on LCD and FDA guidelines to minimize risk during CMS audits. Rigorous attention to detail in patient records and proper documentation protocols are crucial to avoiding payment denials. Even better, having a set of policies and procedures in place that are designed to anticipate the regulatory pushback will help with audits and clawbacks!
Even more predictable is the Medicare coverage limitations in 2025 that will only allow use of a few manufacturers’ skin grafts (ones that are FDA approved). Further, Medicare is more and more requiring photo documentation.
DOJ Actions Against Non-Compliance
Non-compliance with FDA or CMS requirements has also triggered numerous investigations and enforcement actions by the DOJ. These actions range from civil False Claims Act cases to criminal prosecutions, with steep penalties for providers and suppliers found guilty of wrongdoing.
Civil False Claims Act Investigations
Medicare contractors are required to escalate cases involving potential fraud to the DOJ. Violators can face treble damages and additional penalties for each fraudulent claim submitted. Many investigations begin with the DOJ issuing a Civil Investigative Demand (CID), a request for documentation and testimonies. Providers must take immediate action and seek legal counsel when faced with a CID, as these investigations frequently result in both civil and criminal liabilities.
Criminal Enforcement
Criminal cases often arise from egregious violations, with examples highlighting the risks of misrepresentation in amniotic tissue marketing and usage.
A physician assistant falsely marketed an amniotic fluid product as containing stem cells when it did not. Despite being informed of the product’s acellular state, the defendant continued promoting it as containing mesenchymal stem cells, resulting in a six-year prison sentence.
A Texas-based physician assistant was found guilty of conspiracy to commit healthcare fraud, alongside 12 counts of healthcare fraud, for administering unapproved amniotic fluid treatments.
Navigating the Path Forward
The regulatory landscape for amniotic tissue and skin substitute products is increasingly complex. Non-compliance—whether intentional or due to oversight—carries substantial risks, including financial penalties, reputational damage, or criminal charges. Healthcare providers and suppliers must remain diligent in their adherence to FDA and CMS requirements, maintain meticulous documentation, and stay informed of evolving guidelines.
For those facing regulatory audits, DOJ investigations, or FDA Warning Letters, consulting experienced healthcare law professionals is essential. Proactive legal and compliance strategies can help mitigate liability and ensure ongoing adherence to industry standards. Having policies and procedures in place that anticipate the clear prosecutorial paths chosen by regulators can be game changing.
Navigating these challenges is no easy task, but with careful planning and a commitment to regulatory excellence, healthcare providers can balance innovation with compliance, ensuring both patient safety and business resilience.
