Hillrom steps back from $375M BardyDx deal on reimbursement setback

Dive Brief:

Hillrom on Monday issued a statement saying conditions to close its planned $375 million acquisition of Bardy Diagnostics have not been met, signaling an intent to renegotiate or walk away from the deal. Hillrom cited an unexpected reimbursement rate reduction for BardyDx's cardiac monitoring platform by a Medicare contractor as the reason.
BardyDx advised Hillrom that it has filed a complaint in Delaware's Chancery Court.
Analysts at Baird said Hillrom's move to delay or adjust the terms of the transaction "prudent" given the reimbursement setback.

Dive Insight:

Remote patient monitoring has attracted a surge of investment activity during the pandemic, with medtech players jumping into the market through acquisitions. In addition to Hillrom's BardyDx purchase, announced in January, Philips in December agreed to acquire BioTelemetry for $2.8 billion, and Boston Scientific in January said it would buy Preventice Solutions for $925 million.

A steep drop in Medicare reimbursement for extended use of wearable heart monitoring devices, however, has clouded the outlook for the market. CMS late last year declined to set a national reimbursement rate for long-term EKG use, deferring decision-making to its regional Medicare Administrative Contractors (MACs). The plan published by MAC Novitas Solutions in January to cut reimbursement for the service from about $300 to around a range of $40 to $80 dealt a blow to the fast-growing space.

Shares of iRhythm, considered by Wall Street analysts to be the leader in the cardiac monitoring market, lost nearly a third of their value on news of the Novitas decision. Novitas is the MAC covering the region where iRhythm processes most of its claims. Last week, iRhythm CEO Michael Coyle said he as well as competitors in the space have met with Novitas representatives since the new rates were published, but he does not know if reimbursement for long-term cardiac monitoring devices will be increased.

Hillrom's deal to acquire BardyDx is valued at $375 million plus potential future payments based on achieving certain commercial milestones. When it announced the plan, Hillrom said the acquisition would give the company a higher-growth revenue stream with a product that complements its current cardiology offerings. BardyDx's Carnation ambulatory monitoring (CAM) patch is designed to help physicians identify specific arrhythmias and uses advanced algorithms to process the EKG signal. Hillrom already makes cardiac stress testing systems, Holter monitors to detect irregular heart rhythms, and resting EKG devices.

In its update Monday on the acquisition, the Chicago-based company said the unexpected Novitas reimbursement rate reduction constituted a "company material adverse effect," meaning closing conditions for the BardyDx deal have not been satisfied.

"Today’s news implicitly seeking to delay and/or potentially adjust the transaction should not surprise. Clearly not the course Hillrom or shareholders anticipated when the Bardy deal was announced on January 19 but given the recent change in circumstances this seems a prudent decision," Baird analysts wrote in a note to clients Monday.