Amniotic Allograft Fraud: Is It Legitimate Wound Care or Expensive Snake Oil?

Takeaway: Wound care fraud is now one of the key enforcement priorities of the Department of Justice. An aging population, combined with Medicare’s pricing policies, nurtured an opportunity for Amniotic Allograft Fraud to explode.

Approximately 8.8 million Americans suffer from chronic wounds (wounds that are present for four weeks or more without signs of healing), with those numbers expected to continue to increase as the population ages.[1] Diabetic Foot Ulcers make up a large portion of those wounds. These wounds can require amputation and can even result in death.[2] This leads to a desperate population, which presents a unique opportunity for fraud and abuse for those who prey on fragility.

Enter amniotic allografts. Amniotic allografts are wound patches that are made from dehydrated amniotic membranes.  These products are often marketed as providing growth factors that support the healing of wounds or other claims that these allografts improve wound healing.[3] However, most of the allografts on the market have not undergone any clinical studies supporting these claims.

While making these unsupported claims, some manufacturers continued to pump newer and more expensive skin substitutes onto the market and incentivized medical providers with “spread pricing.” [4] This resulted in the amount spent per quarter on skin substitutes by Medicare ballooning from $389 million in Q3 2022 to $2.8 billion two years later in Q3 2024.

Until recently, Medicare allowed manufacturers to set the initial price for the allografts and then required manufacturers to report their average sales price (ASP), including all discounts provided.[5] Once established, the allografts were reimbursed at ASP plus 6 percent.[6] Before an ASP is established, Medicare reimburses allografts at the weighted acquisition cost (WAC), which is set by the manufacturer, plus 6 percent.[7] It takes at least one quarter for an ASP to be established for an allograft, creating a window during which providers could receive spread pricing from a manufacturer and still receive full WAC reimbursement from Medicare. Moreover, many manufacturers did not comply with the ASP reporting requirements, meaning that they continued to be reimbursed at the WAC set by the manufacturer.[8]

The combination of unsupported medical promises to patients and spread-based kickbacks to providers led to $1.2 billion fraud by Alexandra Gehrke and Jeffrey King.[9] Between 2022 and 2024, companies owned by Gehrke and King purchased amniotic allografts from a yet to be identified wholesale graft distributor. They instructed their sales teams to purchase the largest possible allografts regardless of the size or nature of the wound and contracted with nurse practitioners to apply those grafts regardless of whether they were medically necessary.

In exchange for purchasing the grafts from the manufacturers, three companies owned by Gehrke received nearly $300 million in kickbacks from the distributor, and a company owned by King and Gehrke received an additional $100 million in kickbacks from the same distributor. Both King and Gehrke were sentenced to 14-plus years for their roles in the fraud. The associated False Claims Act case, brought by a whistleblower, settled but remains under seal while the government continues to investigate other involved parties.

In its sentencing memo, the government advised the court they were looking into other similar schemes throughout the country. Accordingly, this may be the first of many settlements in this area.[10]

 

[1] https://www.allaboutseniors.org/seniors-and-chronic-wounds-a-growing-concern-in-the-united-states

[2] https://www.fiercebiotech.com/sponsored/defining-moment-wound-care

[3] See https://www.fda.gov/inspections-compliance-enforcement-and-criminal-investigations/warning-letters/nuvida-medical-llc-707745-09042025, https://www.fda.gov/inspections-compliance-enforcement-and-criminal-investigations/warning-letters/skye-biologics-holdings-llc-654466-12162024, and https://www.fda.gov/inspections-compliance-enforcement-and-criminal-investigations/warning-letters/frontier-biologics-llc-686059-11012024.

[4] https://oig.hhs.gov/reports/all/2025/medicare-part-b-payment-trends-for-skin-substitutes-raise-major-concerns-about-fraud-waste-and-abuse/

[5] https://oig.hhs.gov/reports/all/2023/some-skin-substitute-manufacturers-did-not-comply-with-new-asp-reporting-requirements/

[6] https://www.medicaleconomics.com/view/hhs-oig-we-ve-got-major-concerns-about-massive-increases-in-medicare-spending-for-skin-substitutes.

[7] See https://palmettogba.com/jmb/did/by6r9y8858

[8] Id.

[9] https://www.justice.gov/opa/pr/wound-graft-company-owners-sentenced-12b-health-care-fraud-and-agree-pay-309m-resolve-civil

[10] https://www.law360.com/whitecollar/articles/2422848?nl_pk=9a1c285d-7f31-4d1d-9932-85afd260c2cf&utm_source=newsletter&utm_medium=email&utm_campaign=whitecollar&utm_content=2026-01-07&read_main=1&nlsidx=0&nlaidx=0