Dive Brief:

• Hillrom will finalize its $375 million acquisition of cardiac wearables maker Bardy Diagnostics, ending a months-long fight to back out, which resulted in a Delaware judge ordering the company to move forward with the transaction.
• The move reverses course for Hillrom. After the Delaware ruling was made July 9, the company vowed to appeal the decision in the state's Supreme Court. "Following the Delaware Court of Chancery's ruling two weeks ago, we thoroughly explored and assessed a variety of strategic options. We have now concluded that the best path forward for our company and for our shareholders is to complete the transaction under the previously announced terms," CEO John Groetelaars said during a Friday earnings call. Hillrom expects the deal to close in the coming weeks.
• Hillrom's BardyDX fight is not the only story putting the company in the spotlight lately. Last week, The Wall Street Journal and Bloomberg reported that Baxter is in early talks to acquire the company. Hillrom was silent on that chatter during the call. However, Groetelaars emphasized the company's connected care portfolio throughout the call, which has become the focus of Baxter's M&A strategy and a business segment BardyDx adds to.

Dive Insight:

Hillrom opened 2021 with plans to acquire BardyDx, part of a run on cardiac wearables companies that included Philips' $2.8 billion purchase of BioTelemetry and Boston Scientific's $925 million pickup of Preventice Solutions. However, the cardiac wearables space was thrown into uncertainty shortly after that spate of deals when Medicare rates for long-term cardiac monitoring were significantly reduced by Novitas Solutions, which sets regional rates as a Medicare Administrative Contractor.

Novitas' January rates cut reimbursement for BardyDx's Carnation Ambulatory Monitor device, the company's only product, from $365 per monitoring patch to between $40-$50, according to Delaware court documents.

Hillrom then notified BardyDx that it was canceling the deal on Feb. 21, three days before the acquisition was set to close, citing material adverse effect that altered the original terms. That led BardyDx to challenge Hillrom's decision one week later.

While Novitas' January rate cuts were ultimately increased in April, they were still hundreds of dollars below historical rates.

Hillrom's fight to back out of the deal was shot down by a Delaware judge, and the company was ordered to complete the transaction. After the judge's ruling, Hillrom said it planned to appeal the decision.

The company's quick change in tune is due to new information of BardyDx's recent performance, according to Groetelaars.

"We were in litigation for several months with Bardy. We didn't have visibility to their performance during that period," Groetelaars said Friday. "But a few weeks ago, we got visibility to it, and we were extremely impressed."

BardyDx is growing revenue at "well over" 50% year over year and growing two or three times the market rate, according to the CEO.

What has not changed over this time, however, are Medicare reimbursement rates. The Centers for Medicare and Medicaid Services did not propose national pricing for long-term cardiac monitoring in the proposed calendar year 2022 Physician Fee Schedule, which was a key option for companies looking to work around Novitas' reduced rates.

CMS may still finalize national pricing, but there are no guarantees the agency will make this move or that finalized rates will be meaningfully different than Novitas'. Companies in the space, which now includes Hillrom, are now left to continue negotiations with Novitas, negotiate better pricing with and move to another MAC, or continue to work with CMS on national pricing.

"We are hopeful that a more positive reimbursement rate will follow for calendar year '22," Groetelaars said. "No promises yet. We haven't factored in that kind of upside into our outlook. But there is reason to have hope that could be in the cards for the next calendar year."

Hillrom brought in $718 million of revenue in its third quarter, down 6% on a reported basis compared to the company's third quarter of 2020. Excluding a one-time COVID-19 bump in sales in the same period last year, the company grew revenue by 13% on a reported basis.