iRhythm Technologies is grappling with a hazy road ahead after a regional Medicare rate setter cut reimbursement for longer-term cardiac monitoring by roughly $200, leading the once-market leader to pull services out of the fee-for-service program.

The unexpected news pushed iRhythm's stock price down nearly 40% Monday. The company has now seen a 12-month run, where the stock price more than tripled, erased in just a few months.

Wall Street is now questioning the company's value. Some analysts still contend that the company can grow its business and volumes in the long-term, while others are more cautious. "This is a really challenging period ahead, and the dust has not settled," said Baird analyst Mike Polark.

The latest blow came after Novitas Solutions, a Medicare Administrative Contractor, updated rates for shorter- and longer-term cardiac monitoring on Saturday at $103 and $115, respectively. While higher than the $40-$50 range posted in late January, they were still well below the historical $311 range.

CMS had approved permanent pricing codes for the cardiac monitoring services but did not establish a national price, passing the decision to the regional MACs.

iRhythm CEO Michael Coyle, who took over Jan. 12, said during a fourth-quarter earnings call that iRhythm and others in the space met with Novitas to discuss potential revisions.

But revised codes posted Saturday still surprised the industry and analysts.

The pricing updates have decimated iRhythm's stock price. After more than tripling between January 2020 and January 2021, the stock has dropped by more than 68% compared to its position Jan. 28, the day before Novitas posted the first batch of new rates.

After iRhythm announced it would not provide Zio XT services through Medicare fee-for-service, the company is left with few options. CMS claims made up roughly 27% of 2020 revenue for iRhythm, and the long-term monitoring makes up roughly 95% of the company's total business. 

One potential move is to try another MAC and hope for a more favorable rate. Coyle said Monday it's engaged with other MACs in the last few weeks, but the CEO offered no specifics about those interactions.

However, Polark noted this would require the company to move or build new testing facilities in the new MAC regions and significantly higher rates are far from guaranteed.

The company can also work with CMS to establish a more favorable national price in the upcoming Physician Fee Schedule. Coyle said iRhythm met with the agency in March to discuss this option but added that this does not guarantee any decision will come this year.

Furthermore, CMS may set a national price similar to Novitas' rate, leaving iRhythm and others in the space with even fewer options, according to Polark. The analyst added that if Novitas rates are revised upward or national pricing is established higher than Novitas rates, the difference is likely to be in the range of tens of dollars, not hundreds.

J.P. Morgan analysts were optimistic that, eventually, the current Novitas rates will be reversed, arguing the device benefits patients and can lower costs.

"The problem now is that the near-term is uncertain, and we don't have a high degree of confidence that Medicare will enact better national rates in the proposed PFS schedule in July," they wrote.

J.P Morgan and William Blair analysts still argue iRhythm has potential for long-term success with volume growth outside of Medicare users.

William Blair noted volume grew by 9% in the first quarter of 2021 compared to the previous year, beating expectations of 5%, suggesting "potential for underlying growth to accelerate as we move past these headwinds and iRhythm benefits from several other investments in 2021 and beyond."

Still, William Blair contends lost Medicare revenue and other ripple effects from the rate change into the commercial segment could cost iRhythm hundreds of millions of dollars in the coming years.

The analysts estimate that iRhythm will lose sales of about 166,000 Zio XT units in 2021 and 344,000 in 2022. Based on these projections, William Blair revised 2021 revenue estimates to $272 million and 2022 to $298 million, a drop from previous projections of approximately $77 million and $128 million, respectively.

J.P. Morgan made less severe revisions, lowering 2021 revenue projections by about $52 million and 2022 by about $23 million.

Another unknown is what other players in the space will do next. Preventice Solutions and Biotelemetry, now owned by Boston Scientific and Philips, are not as exposed to the price changes. Preventice and Biotelemetry have 10-15% of business made up by long-term monitoring, whereas iRhythm has 95% and BardyDx has a similar amount.

Polark said that Preventice and Biotelemetry may follow iRhythm's lead and withdraw from Medicare. However, Polark added that the companies, which have more product categories in cardiac monitoring, may see iRhythm's exit as "an opportunity to gain shares."

BardyDx has a similar problem to iRhythm as their business is also largely made up of long-term monitoring. Furthermore, after being bought up by Hillrom in January, the deal is now being challenged by Hillrom, which claims that conditions of the deal cannot be met due to the lowered Novitas rates.