Dive Brief:

• iRhythm CEO Michael Coyle said Thursday that while the company has met with a regional Medicare rate negotiator since rates for extended external EKG monitoring were significantly cut in January, he does not know if those rates will be increased to previous levels.
• iRhythm and other companies in the space have met twice with Novitas Solutions, a Medicare Administrative Contractor, since the new rates were published, according to Coyle. iRhythm shared data regarding the value and clinical effectiveness of using the devices for long-term EKG monitoring; however, no hints were given as to where final rates may end up.
• Wall Street analysts were in agreement that the news of the two meetings and details provided throughout the earnings call left them optimistic. William Blair analysts wrote that the "updates seem to increase the likelihood that Novitas will update its extended wear [EKG] rates to a more supportive level, though the ultimate rate and timing of this announcement is admittedly still unknown."

Dive Insight:

Novitas Solutions, the MAC covering the region where iRhythm processes the majority of claims, dropped prices for long-term EKG use from about $311 to around a range of $40 to $80, casting uncertainty over the future of what was a much-hyped market by analysts.

The rate drop came after CMS established permanent Medicare codes for the service but did not set a national rate, kicking the decision to the MACs. Following Novitas' decision, iRhythm's stock price sank by roughly 32% and has continued to drop since. iRhythm's stock has dropped from $251 on Jan. 28 to $147.73 on Thursday.

At the time of the cuts, iRhythm said that Novitas likely used existing codes for 48-hour monitoring now that the temporary codes for long-term use no longer existed.

Coyle, who on Thursday conducted his first earnings call as the new CEO, said that Novitas is providing them with "a lot of focus and attention" but there is no timeline for when changes, if any, will be made.

About 25% of the company's business comes from CMS claims, according to Coyle. Questions also remain regarding how other revenue streams will be impacted. Commercial payers are setting similar rates to the previous levels, but they are aware of Novitas' decision and future rates could be impacted by where the final rate ends up as the current lower rates are below the cost of providing the service, Coyle said.

The American College of Cardiology and the Heart Rhythm Society advocated for a stronger rate in letters to Novitas, which William Blair said was an encouraging sign as "these types of society endorsements can carry meaningful weight with Medicare contractors, especially since their statement likely suggests Novitas's decision could negatively impact patient access to a clinically proven offering."

iRhtyhm still has options despite the cuts. If Novitas decides to increase rates in the future, they can be retroactively applied, which the MAC has done before, according to Coyle. The company also has 12 months to submit a claim with Novitas and most other payers, giving some window of time for negotiations to continue.

J.P. Morgan analysts wrote that iRhythm can also pursue a national pricing route through CMS in the calendar year 2022 Physician Fee Schedule or process claims through another MAC with more favorable pricing; although, these options would likely mean a revenue hit in 2021.

William Blair and J.P. Morgan analysts wrote that all the updates from the call were a positive sign that rates will be increased, if not end up near historical levels, and they were bullish on iRhythm going forward.

While 2021 and the final month of the fourth quarter provided some setbacks from CMS and the coronavirus pandemic, iRhythm grew revenue year over year by 23.6% to $265 million in 2020. The company reported a net loss of $43.8 million last year, compared to a loss of $54.6 million in 2019.

iRhythm did not provide any revenue guidance for 2021 due to the uncertainty regarding reimbursement and the continued impact of the pandemic.

The cardiac monitoring space has attracted large medtechs over the past several months, with major iRhythm competitors being bought up — Philips acquired BioTelemetry for $2.8 billion in December, Boston Scientific bought Preventice Solutions for $925 million in January and Hillrom acquired Bardy Diagnostics for $375 million last month.

Coyle said that he was surprised to see all of the company's main competitors get picked up, but added that it shows strength in the market and could even benefit iRhythm as more attention is given to the space.