https://www.kerrisdalecap.com/wp-content/uploads/2019/03/iRhythm-Technologies-Inc.-IRTC.pdf iRhythm faces reimbursement cuts of 30-60% in the near future. Close to all of iRhythm’s revenue is derived from its Zio XT Extended Holter patch, and the vast majority of that is not through the sale of the device to physicians and hospitals, but by billing third party payors for the scanning analysis and report, which are performed at an iRhythm Independent Diagnostic and Testing Facility (IDTF). The level of reimbursement for that step of the process, like any medical procedure, is dependent upon the Current Procedural Terminology (CPT) codes under which the procedure is reimbursed. CPT codes are overseen by the American Medical Association (AMA) and medical procedures can be associated with a few different types of CPT codes, depending on the level of recognition they receive from the AMA and the relevant specialty societies. iRhythm generates almost all its revenue through billing third party payors for CPT code 0297T, the letter “T” indicating that the reimbursement code is a Category III tracking code. The AMA describes Category III codes as “temporary alphanumeric codes for new and developing technology, procedures and services,” a description that certainly fit the Zio patch when its temporary CPT code was first approved in July of 2011. But that was 8 years ago. The CPT system provides for automatic sunset of Category III reimbursement codes 5 years after implementation, whereupon they can expire, be renewed for a further five years if they are still “developing,” or be transitioned to Category I “permanent” codes if the underlying procedure has become more widespread and supported by literature. Notwithstanding at least some success on both the utilization and literature fronts in the 2013 to 2015 period, the temporary CPT codes associated with the Zio patch were renewed in February of 2016 and are currently slated to be reconsidered by the CPT Editorial Panel in early 2021. Given the recent explosion in the utilization of extended Holter monitors and the literature supporting their use, the relevant CPT codes will almost certainly be transitioned to Category I codes for use in the 2023 calendar year. Because Category I codes receive special scrutiny from the AMA’s Relative Value Scale Update Committee (RUC), reimbursement rates for procedures typically drop by about a third when they move from Category III to Category I, according to several former RUC members we’ve spoken with. In the case of the 0297T code, we expect that the reimbursement rate cut will be even more draconian than average, and is closer at hand than 2023. With respect to the magnitude of the reimbursement cut, we expect that the current $311 rate that CMS Contractor Novitas Solutions pays for 0297T in Houston (where iRhythm’s IDTF is not coincidentally located) will decline to the $150-200 range in a best case scenario, on par with the Category I reimbursement rate CMS confers upon cardiac Event Monitoring. Novitas accounts for the vast majority of iRhythm’s CMS revenue (in a classic case of contractor shopping, iRhythm originally located its diagnostic Kerrisdale Capital Management, LLC | 1212 Avenue of the Americas, 3rd Floor | New York, NY 10036 | Tel: 212.792.7999 | Fax: 212.531.6153 4 and testing facility in the region where it negotiated the most favorable reimbursement). In a worst case scenario, iRhythm could see the reimbursement rate for 0297T fall to $45-50, similar to a Holter monitor reimbursement rate, which is what the vast majority of CMS contractors reimburse for the code at the current time. Commercial payor reimbursement rates, which are typically more generous than Medicare reimbursement rates, tend to use the CMS fee schedule as a reference, and a drop in Medicare reimbursement generally presages a similar magnitude decline in commercial payor reimbursement. Regarding the timing of the transition to a Category I code, iRhythm competitor BioTelemetry Inc (BEAT) has stated that it wants the extended Holter procedures transitioned to a permanent Category I code as soon as practicable. While there is some specialty society politics that BioTel has to navigate in the course of getting its application to the CPT Editorial Panel, we would expect a 2019 application to be easily approved by the Panel in the current year, implying a 2021 implementation of the newly transitioned code and the inevitable reimbursement reduction. BioTelemetry’s extended Holter accounts for less than 5% of its total revenue, and based on conversations with industry participants, management is pushing for a Category I code to exert pressure on iRhythm, its newest competitor. BioTel has also been on the receiving end of a massive reimbursement cut on its MCT monitoring in the past and would like to clarify the long-term pricing for the product in order to assess its own strategic direction in the new vertical. Finally, even with no action from the AMA on CPT code changes, we expect that iRhythm’s extraordinary success in attaining coverage and favorable reimbursement rates from payors is in the process of backfiring. It’s worth noting that Category III codes are “contractor priced.” In other words, CMS does not set the price in its physician fee schedule, but each Medicare Administrative Contractor (MAC) sets or negotiates a price with the provider. iRhythm, with its IDTF in Houston performing all the scanning and reporting procedures, has benefited from the regional MAC – Novitas Solutions – generously reimbursing the Zio codes. No other MAC in the country reimburses for the procedure as generously, and most MACs have taken the view that not much differentiates the Zio from a traditional Holter monitor beyond the presence of some solid-state memory that can hold 14 days’ worth of heart rhythm data (~500MB). As such, in 39 of 50 states, 0297T would be reimbursed at rates 33-89% lower than $311. While MACs don’t fiddle with pricing very much, we’ve found that large price changes tend to occur following abnormally large changes in procedure utilization. Our discussion with a former Novitas medical director who was involved in the original Zio reimbursement discussions confirmed that the MACs have analytics-based screens meant to flag procedures with abnormally large increases in utilization. Given the 300% cumulative increase in iRhythm’s revenues from CMS for the 3 years ending 2018 (3 year utilization changes being one of CMS’s primary triggers for review), we would expect that the alarm has already sounded at CMS or Novitas (or both) on a code that is being reimbursed disproportionately well compared to very similar procedures.
Yawn. Just a fear mongering investor trying to make a few bucks through their twitter blog. Nice try. Author using all the right complex lingo, trying to con the layman investor into believing that he/she is a genius and correct on their stock call. But that's really all this is. Zio will continue to grow, potentially expanding the addressable market, reimbursement will remain steady, and that will be that. Move right along, greedy investors -- go find your next scam elsewhere.
Here we go again... https://apple.news/AvS0KQEcLTrSSbIk6F6MGng Between March 13, 2019 and March 27, 2019, certain analysts began publicly questioning (a) the sustainability of third party reimbursements to the Company attributable to sales of its Zio XT Extended Holter patch device, (b) whether the Company’s and management’s statements about the total addressable market for iRhythm products may have been misleading, and (c) whether the Company and management may have used “cookie jar” style accounting in accruing for bad debt expense and contractual allowances.
here we go again... https://apple.news/AvS0KQEcLTrSSbIk6F6MGng Between March 13, 2019 and March 27, 2019, certain analysts began publicly questioning (a) the sustainability of third party reimbursements to the Company attributable to sales of its Zio XT Extended Holter patch device, (b) whether the Company’s and management’s statements about the total addressable market for iRhythm products may have been misleading, and (c) whether the Company and management may have used “cookie jar” style accounting in accruing for bad debt expense and contractual allowances.
So I take it, probably a bad idea to come aboard with all the pending reimbursement cuts? *sigh* sounded like a good gig
