iRhythm plunges after Novitas publishes updated reimbursement rates (update)

Apr. 12, 2021 6:14 AM ETiRhythm Technologies, Inc. (IRTC), BAXBAX, IRTCBy: Joshua Fineman, SA News Editor9 Comments

Update 10:05am: Updates shares, adds Oppenheimer analyst comment.
iRhythm (NASDAQ:IRTC) plummeted 37% after Novitas on Saturday published Medicare reimbursements rates for its ECG monitoring devices that were well below estimates and the earlier rates.
The reimbursement rates for codes 93243 and 93247 at $103 and $115 respectively are well below the around $300 that Novitas was historically paying.
iRhythm said in a statement that it won't provide its Zio XT service to the Medicare fee for service segment if the rates remain unchanged. iRhythm said it's preparing an operating plan to discontinue serving the Medicare segment with Zio XT that it expects to begin implementing in 2Q.
“We are extremely disappointed that Novitas did not reflect the appropriate clinical and economic value of long-term continuous ECG monitoring and Zio XT, which is evident to our commercial and direct bill customers who have negotiated pricing consistent with the AMA RUC recommendations," Mike Coyle, iRhythm President and CEO, said in the statement. "Unfortunately, at these rates we will be unable to offer the Zio XT service to the Medicare fee for service segment."
Oppenheimer analyst Suraj Kalia said IRTC's business business model is "in jeopardy" and the company's gross margin for FY21 is at risk by at least about 1000 basis points. Kalia made the comments in a note before an 8:30am conference call that IRTC hosted.
iRhythm shares plunged 33% on Jan. 29 when Novitas originally published some reimbursement rates, which Baird called "a massive slash on the face in the most important MAC jurisdiction for iRhythm."
Baird analyst Mike Polark cut the price target to $80 from $170.
"The updated rate from Novitas landed in the zone of our previously published thinking." Polark wrote in a note. "However, it is well below what we believe stock had built in and, therefore, likely a significant disappointment."
The shares have since dropped another 21% through Friday's close and iRhythm said on its earnings call at the end of February that it had meetings with Novitas and expected an update from company.
For the year ended December 31, 2020, Medicare represented 27% of iRhythm’s overall revenue, with a small percentage of that 27% attributable to Zio AT and Zio XT for wear of less than 48 hours, which services are priced nationally and not impacted by the updated Novitas rates.
Baird analyst Polark in a Jan. 31 note said he expected Medicare eventually landing at "one hundred something," and potentially $150 at the midpoint. Oppenheimer's Kalia last month said he expected a $100-$150 rate after negotiations.
Yesterday, Hillrom Holdings (NYSE:HRC), which has been trying to exit a a planned $375m purchase of Bardy Diagnostics Inc., also a maker of ECG monitoring devices similar to iRhythm, said the Novitas release reconfirmed its position that a "Company Material Adverse Effect" has occurred under the acquisition agreement with BardyDx.