Dive Brief:

• iRhythm Technologies slightly beat Wall Street's revenue expectations in the third quarter despite pricing challenges that have plagued the cardiac monitor maker all year. However, executives said COVID-19 pressures that began in the third quarter will continue through the end of 2021, forcing the company to lower full-year guidance.
• CEO Quentin Blackford, who took over iRhythm in October, told investors that customers had a "significant increase in staffing issues" and lower patient volumes starting in June, which caused capacity constraints and limited iRhythm's ability to open new accounts or expand existing accounts. "How and when these issues get resolved is difficult to predict. But we believe the impact on our business will persist throughout the end of the year before potentially normalizing," the new CEO said during a Thursday earnings call.
• The pandemic challenges add to iRhythm's already ongoing Medicare pricing saga. On Tuesday, CMS declined to set a national price for long-term cardiac monitoring, a decision largely expected. While the lack of national pricing is a loss for the company, CMS did leave the door open for national pricing as soon as next year and may have given a glimpse as to where a national rate may end up, which likely led to a nearly 60% stock price jump Wednesday.

Dive Insight:

Heading into this year, iRhythm was the clear market leader of a space bullishly-backed by Wall Street. The cardiac monitoring space was seen as having big growth potential due to the rapid increase in use of wearables, an underpenetrated patient population and a run of M&A.

However, iRhythm has had a rather tumultuous 2021. 

After CMS passed on national pricing last December and kicked the decision to Medicare Administrative Contractors, iRhythm's reimbursement rate was cut by nearly $250 in January to a range of $40 to $50, causing the company's stock to free fall.

Novitas Solutions, the MAC that processes the majority of iRhythm's Medicare claims, eventually upped its reimbursement rate to $115 in April, more than double the January rate but still about $200 below iRhythm's historic price.

The company also had two leadership changes in 10 months. Mike Coyle took over the company from long-time CEO Kevin King in January, but Coyle then left the company in June amid the pricing turmoil. Blackford took over the role in October, leaving his position as chief operating officer of continuous glucose monitor maker Dexcom.

During this time, iRhythm's stock price fell from $251 on Jan. 28 to as low as $41.91 on Aug. 19.

iRhythm's luck may have turned, if only briefly, over the last few days.

The CMS pricing move is confusing, however.

While CMS passed on setting a national price, the agency also "finalized" a $200.15 supply price for long term external cardiac monitors, which is about $85 more than Novitas' current total rate.

CFO Doug Devine said on the Thursday call that the supply price will not factor into 2022 rates as Novitas still has the ultimate power to set rates where it pleases. Devine added that the supply price gives a signal as to where a national rate from CMS may end up, a giant question looming over the company's future.

CMS did not close the door on future price setting, instead asking in the final rule for more pricing information. Blackford told investors Thursday that conversations with CMS and the MACs are ongoing. 

While Devine was a little more optimistic about whether the $200 mark is a signal to a potential future price, Blackford did not offer any in-depth comments.

"I think this is certainly encouraging …  But to try to speculate exactly where [a price] lands from a final rule position when there isn't one today in terms of national coverage is something that we just won't do at this point in time," Blackford said.

Investors' worries seemed temporarily relieved Wednesday as the stock price jumped by 59%. The stock was down about 6% Thursday and nearly 9% when the market opened Friday.

There is no deadline for when Novitas will set 2022 Medicare rates, and any national pricing decision from CMS will not come until late 2022.

Other questions now remain for the company given CMS put out the $200 figure. First, will the price have any impact on a potential 2022 rate adjustment by Novitas?

Truist Securities analysts wrote that the "~$200 supply cost could represent a guidepost for MAC pricing in 2022 as well as a bar for national pricing, which we see coming in 2023."

Second, how will the figure impact commercial contracts?

iRhythm said on past earnings calls that commercial payers negotiated contracts at or close to historic rates. Since the $200 is still well below past prices, commercial payers may have a specific mark to negotiate down to.

Blackford said that there is "nothing from a commercial perspective that gives me any concern at this point in time," noting the majority of commercial customers have not asked to renegotiate contracts and are past the point those requests are typically made.

Q4 pandemic pressures

iRhythm has dealt with pricing pressure all year, but the company has still been able to increase revenue. In the third quarter, iRhythm grew revenue year over year by 18.7% to $85.4 million.

The quarter was dragged by the pandemic slightly and those challenges are expected to continue through the end of the year. As a result, iRhythm lowered its 2021 revenue guidance to a range of $317 million to $319 million, compared to a previous range of $320 million to $330 million.

Blackford said the primary reason is staffing shortages causing capacity constraints, an issue that has come up across the medical device industry in quarterly results.

The new guidance range still represents year-over-year revenue growth of about 20%.

Analysts predict the COVID-19 slowdown is a temporary setback

"Our sense is management is factoring some conservatism into fourth-quarter expectations given the uncertainties around COVID, but we remain bullish on its underlying market and fundamentals, especially as it heads into 2022 and beyond," William Blair analysts wrote.