Some wound care practices hold skin substitute grafts under a consignment agreement rather than purchasing them outright. The manufacturer or distributor places product on the shelf and invoices the practice only when a unit is applied to a patient. That billing-on-use model creates its own audit exposure: the claim has to connect to a specific unit that was received, stored within its shelf life, and still in date on the day it was used, not just to a clinical note that says a graft was applied. When the consignment agreement and the inventory records behind it were never built with that trace in mind, the gap surfaces at the worst time.
What the Consignment Agreement Should Address
A consignment agreement is a commercial contract, but a reviewer reads it as an audit document too. It should state the point at which title to the product transfers from the manufacturer or distributor to the practice, since that point can also determine when the unit becomes billable. It should describe the return process for unused product, including whether product nearing its expiration date can be swapped for a fresher lot before it lapses. It should assign responsibility for expired or damaged product, whether the supplier credits the practice, absorbs the loss, or bills for product that expired on the shelf, and identify which price list governs a given unit, since consignment pricing can change between the date product is placed on the shelf and the date it is used.
Receiving, Storage and Lot Records
The records that let a reviewer tie a billed claim to an actual unit start before the skin substitute graft is applied. A receiving record should capture the product name, the lot or batch number, the expiration date, the quantity received, and who accepted the delivery. A storage log should show where that lot was kept and whether it was maintained under the conditions the manufacturer requires, since skin substitute products can carry specific temperature and handling instructions. At the point of use, the clinical note and the claim should carry forward the same lot number and expiration date recorded at receiving, not a generic product name. A reviewer who cannot match receiving, storage, and application to the same lot has no way to confirm the billed unit was the unit on the shelf.
A billed skin substitute claim stands or falls on one specific lot: received, stored in date, and applied before it expired.
When Expired Product Reaches an Audit
Product applied after its labeled expiration date, or billed off a lot number that cannot be matched to a receiving record, reads to a reviewer as a question about whether the service billed was provided as described, not as a paperwork gap. That kind of finding can support recoupment across every claim tied to that lot or time period, not just the one unit in question. Practices that catch an expired or mismatched unit internally, before a reviewer does, are in a different position than practices that discover it for the first time in response to a document request. See Extrapolated Overpayments in Wound Care Audits for how a sample of flagged claims can be projected across a full billing period.
Discount Questions the Arrangement Raises
Consignment and bulk arrangements can carry discount or rebate terms on top of the base price list, and a reviewer who requests purchasing records may ask how those terms were reported. This article does not address how a discount affects Medicare payment or price reporting for skin substitutes. Medicare changed how it pays for these products effective January 1, 2026, and the mechanics of that change, including how a discount interacts with it, should be confirmed against the current CMS rule and the Local Coverage Determination in the practice's MAC jurisdiction before any pricing question is answered.
Why Early Legal Counsel Is Critical
It is critical that wound care practices retain experienced healthcare defense counsel before responding to a document request covering consigned skin substitute inventory. Early legal review can confirm which records exist, identify gaps in the receiving and lot-tracking file before a reviewer does, and help frame a response that does not concede more than the record supports. Delaying that review until after a request has been answered can foreclose arguments that were otherwise available.
How Health Law Alliance Can Help
Health Law Alliance has represented 2,500+ clients nationwide. The firm defends wound care practices and clinics, podiatrists and physician groups, mobile wound care providers, and advanced wound care centers in MAC, UPIC and RAC audits of skin substitute and debridement claims. If your practice has received a request covering consignment or inventory records, contact Health Law Alliance's wound care audit defense attorneys for a free, confidential consultation before you respond.
