This is The Investigative Journal’s Sunday Deep Dive, our flagship weekly investigation. Every factual claim below is anchored to a public record — a federal filing, a court document, or agency data — and linked throughout. Matters described as charges are allegations only; the defendants are presumed innocent unless and until proven guilty. Where an individual has been convicted, that is noted.
The number that should have set off alarms was not a fraud figure. It was a line in Medicare’s own claims data. Spending on wound-care products known as skin substitutes rose from $256 million in 2019 to more than $10 billion in 2024 — a nearly fortyfold increase in five years, according to the Centers for Medicare & Medicaid Services. Medicare enrollment grew only modestly over the same window. Wounds did not multiply fortyfold. The money did.
When the Justice Department announced its 2026 National Health Care Fraud Takedown on June 23 — 455 defendants and more than $6.5 billion in alleged false claims — one of the categories at its center was the same one federal auditors had been flagging for two years. The Investigative Journal tracked the sweep across five daily editions of DOJ Watch and a Saturday Week in Review. This is the deeper story its filings point to: not a single takedown, but a Medicare pricing rule that paid out billions before enforcement caught up — and the narrow, technical design flaw that made the boom possible until, quite suddenly, regulators closed it.
A rule that paid close to whatever the seller charged
To understand the money, start with how Medicare priced these products. Skin substitutes are bioengineered wound coverings, many derived from human placental tissue — amniotic membrane allografts — used to treat chronic wounds such as diabetic foot ulcers. For payment purposes, CMS treated them like prescription biologics. In non-institutional Part B settings, providers were reimbursed at 106 percent of a product’s average sales price, or ASP, the Department of Health and Human Services Office of Inspector General reported in a September 2025 evaluation.
That formula works when an average sales price exists. For a brand-new product with no reported ASP — a new billing code — the inspector general noted that Medicare “typically uses Wholesale Acquisition Costs (WACs) or payment invoices to determine a payment amount.” In plain terms: for a novel skin substitute, the government would pay based on a price the manufacturer itself set, then update it quarterly. A seller could bring a product to market at a high list price, collect reimbursement pegged to that price, and, records indicate, refile at escalating figures quarter after quarter.
The consequence was a gap between what a provider paid for a graft and what Medicare paid the provider — a margin the inspector general’s report called, bluntly, the “spread.” Under the system, the OIG found, “Medicare often pays providers for skin substitutes at amounts much higher than the providers’ purchase prices, and providers keep the ‘spread.’” That single sentence, buried in a technical evaluation numbered OEI-BL-24-00420, describes the engine. The larger the spread, the more attractive the product; the more attractive the product, the more units billed. The rule did not merely tolerate that incentive. It manufactured it.
When the spread became a kickback
A spread is a margin. It becomes a crime when it is used to buy referrals. The clearest illustration on the public record is not an allegation but a conviction.
In December 2025, the Justice Department announced the sentencing of Alexandra Gehrke and her husband, Jeffrey King, both of Phoenix, in what it called “the first prosecution of its kind.” According to court documents, from November 2022 through May 2024 — roughly 18 months — the couple and their co-conspirators submitted approximately $1.2 billion in false and fraudulent claims, including more than $960 million to Medicare, TRICARE, and the veterans’ program CHAMPVA. Those programs paid out roughly $615 million.
The mechanics track the pricing rule precisely. Gehrke’s companies bought amniotic allografts from a wholesale distributor and billed Medicare for applying them. She received more than $279 million in what prosecutors described as illegal kickbacks from that distributor in exchange for ordering its grafts; a company co-owned by King received an additional $130 million. Medically untrained “sales representatives” were directed to find elderly patients — many in hospice — with wounds of any kind, and to order only the largest graft sizes. Nurse practitioners, the department said, were instructed to suspend their medical judgment and apply whatever was ordered. The result, according to the filings, was large grafts applied to small wounds, multiple grafts on single wounds, and grafts applied to terminally ill patients receiving palliative care, some of whom died within days or the same day as the application.
Gehrke was sentenced to 15.5 years in prison and King to 14 years. The government seized a Ferrari, three Mercedes-Benz vehicles, roughly $97 million from 28 bank accounts, life-insurance annuities exceeding $21 million, and gold and silver bars. Those are findings, entered against defendants who pleaded guilty. They matter here because they map the terrain the pricing rule created: a product with a large spread, a distributor willing to share it, and a marketing apparatus built to convert frail patients into billable claims.
One distributor, two takedowns
The Gehrke case was not the end of that thread. It was, the record now suggests, one node in a larger network — and the June 2026 takedown pulled on the same string.
Among the wound-care cases the Justice Department unsealed on June 23, prosecutors charged 11 defendants across six federal districts in connection with amniotic wound allograft schemes. In the District of Arizona, they charged the vice president of sales of an allograft company in what they described as a nationwide kickback and fraud scheme. From roughly December 2021 through June 2024, the department alleged, providers billed Medicare more than $4 billion for that single company’s allografts, resulting in more than $2 billion in payments. The company, prosecutors said, did not manufacture the grafts at all. It acquired them from tissue banks and relabeled them for sale “at a 2,000% mark-up,” charging up to $1,450 per square centimeter — then allegedly paid kickbacks of about 40 percent of that amount, letting marketers and providers pocket an estimated $500 to $600 per square centimeter. The charged executive is alleged to have received more than $24 million, spent in part on a $135,000 Maserati. These are allegations; the defendant is presumed innocent.
The department itself drew the connective line, noting that the June charges followed the 15.5- and 14-year sentences obtained the prior year in the same broader scheme. In other words: the distributor whose grafts allegedly moved through Gehrke’s marketing operation appears to sit at the center of a $4 billion billing pattern that the government is still unwinding. The 2025 takedown had already flagged the same roughly $4 billion figure. The relationships radiate outward from one supply chain into district after district.
Other June cases show the same template in different hands. In the Southern District of Texas, prosecutors charged a nurse practitioner in a $906 million allograft scheme, alleging she billed Medicare more than $1 million per patient on average and used the proceeds toward a Ferrari 296 GTS, an $865,000 Bulgari necklace, and the construction of a $4.6 million beach resort in the Philippines. In the Middle District of Florida, three defendants were charged in a $118 million allograft scheme in which a nurse practitioner allegedly funded a luxury box at an NFL stadium and more than $400,000 in fine art. Each of those matters is an allegation awaiting adjudication. Read together, they describe not a handful of rogue clinicians but a business model — one the reimbursement rule underwrote.
The auditors saw it coming
None of this arrived without warning. The inspector general had issued a report in March 2023 identifying significant gaps in manufacturers’ compliance with ASP reporting requirements for skin substitutes. When spending kept climbing anyway, the office went back and analyzed Part B and Medicare Advantage claims for 2023 and 2024. The September 2025 evaluation is a catalog of red flags.
Part B expenditures for skin substitutes in non-institutional settings surpassed $10 billion annually by the end of 2024. Costs for enrollees reportedly treated at home ran four times as high as those treated in an office. And despite Medicare Advantage covering more than half of all Medicare enrollees, utilization and spending under those managed-care plans — which negotiate prices and manage utilization — were a small fraction of what traditional fee-for-service Medicare paid. That contrast is telling: where a payer had tools to police the spread, the spending largely did not materialize. The problem was not that patients in traditional Medicare were fortyfold sicker. It was that traditional Medicare paid close to whatever it was billed.
The OIG’s conclusion was unusually direct for the genre: “Action is urgently needed to rein in the massive increases in Medicare Part B spending for skin substitutes.” The independent Medicare Payment Advisory Commission had also urged CMS to examine the category’s runaway growth in its September 2025 comment on the payment rule. The warnings were on the record. The billing continued while they went unheeded.
Closing the barn door
The fix, when it came, was structural rather than prosecutorial — and that is the point. In its Calendar Year 2026 Physician Fee Schedule final rule, CMS stopped treating skin substitutes as biologics priced off ASP and began paying for them as “incident-to” supplies at a single flat rate — roughly $127 per square centimeter, replacing a system in which some products had reached more than $2,000 per square centimeter. The agency estimated the change would cut spending on these products by nearly 90 percent and reduce gross fee-for-service outlays by $19.6 billion in 2026 alone. A flat rate eliminates the spread. With no premium to keep, there is nothing to share as a kickback and nothing to inflate quarter over quarter.
The scale of what the loophole cost ordinary beneficiaries is captured in one figure from the Justice Department’s own takedown announcement: had CMS not realigned the payment, the department estimated, the Part B premium increase driven by allograft billing alone would have cost every Medicare beneficiary in the country an extra $11 a month. Fraud against Medicare is not a victimless abstraction. It is a line item on tens of millions of seniors’ premiums.
Yet the reform also frames the harder question, the one that runs through the whole week’s enforcement news. The government recovers only a fraction of what it loses. In the entire 2026 takedown, prosecutors reported seizing about $182 million in cash and assets against $6.5 billion in alleged fraud. CMS’s fraud-defense operation says it stopped nearly $185 million in improper skin-substitute payments during 2025 — a meaningful sum, and a rounding error against $10 billion in annual spending. The Gehrke and King forfeitures, real as the Ferrari and the gold bars were, will not make Medicare whole for $615 million in paid claims. Enforcement is a rear-view mirror. It counts money that has already left the Treasury and claws back the sliver that can still be found.
That is the recovery gap, and skin substitutes illustrate why it opens in the first place. The spread was not smuggled past regulators; it was written into the payment formula and updated on schedule. The fraud cases now moving through district courts in Arizona, Texas, and Florida are the back end of a story whose front end was a policy design that paid first and asked questions later. Prosecutions punish the people who exploited the rule. Only the rule change stops the next ones — and it took tens of billions of dollars in cumulative spending, an inspector general’s repeated warnings, and two record takedowns to get there.
CMS Administrator Mehmet Oz framed the shift toward prevention in the department’s own terms: stopping fraud “before a single dollar leaves the building is smarter” than chasing it afterward. On skin substitutes, the building had already been emptied of roughly $10 billion a year before the door was locked. The reform is the right lesson learned late. The open question — for the durable medical equipment, genetic-testing, and telehealth categories that fill the rest of the takedown’s pages — is whether Medicare will read the next spread on its books before it becomes the next $10 billion, or after.
Right of reply: The June 2026 charges described above are allegations; the defendants are presumed innocent unless and until proven guilty. The allograft distributor at the center of the Arizona cases was not named by the Justice Department and is not identified here; the individuals charged had not entered public responses to the 2026 charges as of this writing. Alexandra Gehrke and Jeffrey King were convicted on their own guilty pleas. This report is based solely on public records and government filings.
This story touches on patient harm and the deaths of vulnerable and terminally ill patients. Readers who work in wound care or hospice settings and have information about billing practices can contact HHS at 1-800-HHS-TIPS.