[INSP, LIVN, NYXH] Sleep Apnea: Codes, Coverage, & Value Accretion

• Moreover, we view INSP’s 2021 approval of a two-incision approach, rather than the original three that was used to create and value CPT 64582, as more of a significant deviation from the underlying procedure description than Inspire V’s integrated pulse generator and sensing lead, and yet we are unaware of any significant claim denials or payer pushback from that experience.
• Given that average procedure times have fallen materially since the hypoglossal code was first created, we would not be surprised if the AMA / CMS were to reevaluate its Relative Value Unit (RVU) allocations in the next few years, risking a ~15% cut in the base rate, by our math. Alternatively, INSP could request only an “editorial revision” for the code’s description to make it more applicable, though we suspect AMA would take the opportunity to resurvey code inputs as well.
• INSP could also seek a new temporary billing code to describe Inspire V, which would be priced by each individual Medicare Administrative Contractor (MAC), though we would have already expected to see movement on such an effort if that were indeed the plan.
• While CPT 64568 did previously serve as the “base procedure” for INSP’s hypoglossal “add-on” service when it first came to market under temporary Category III code 0466T (2017-2022) [i.e., 64568 + 0466T], we think payers and specialty societies are unlikely to view that code as a more ideal option than the permanent hypoglossal code that was designed to replace it.
• Mitigating our confidence in this outcome, however, is the ongoing reluctance of INSP to directly confirm its billing plans for Inspire V, as well as the fact that LIVN appears to be targeting CPT 64568 for its own hypoglossal obstructive sleep apnea (OSA) implant [Aura 6000], expected to receive FDA approval by mid-2025.
• This would likely follow NYXH’s Genio device for the same indication, where approval seems likely by 1Q25, though we suspect the company is targeting an historic neurostimulator replacement code [CPT 61886: $882].
• It should be noted that current MAC coverage policies do not list CPT 64568 or CPT 61886 as a covered code for de novo hypoglossal OSA implants, citing only the hypoglossal-specific CPT 64582 following its creation in 2022, meaning that any manufacturer seeking to use those codes would likely need to secure updated billing articles, if not a full coverage policy reconsideration.
• Billing article updates can likely be accomplished in 1-2 quarters following FDA-approval, whereas a full coverage policy review may take 1-2 years.

Procedure Billing Codes & Payment Rates

Recall that each billing code is intended to describe the physician work and cost inputs (e.g., time, capital) associated with a particular procedure, rather than a device. It was for this reason that, following INSP’s initial FDA approval in 2014, a temporary “add-on” code [0466T: ~$400] was created – effective Jan. 1, 2017 – to describe the additional work associated with the company’s hypoglossal OSA implant, beyond what was captured by base code CPT 64568 [2017: $677], which had to that point been used for vagus nerve stimulation in epilepsy treatment [Description (2017): Incision for implantation of cranial nerve (eg, vagus nerve) neurostimulator electrode array and pulse generator].

Accordingly, physicians performing INSP services were paid $677 for the “incision” and ~$400 for the “insertion of chest wall respiratory sensor electrode” and its “connection to pulse generator,” for a total of nearly $1,100.

As the typical five-year expiration of this temporary code approached, the AMA agreed to create a single “primary procedure” code [CPT 64582] for identifying hypoglossal nerve stimulation services, effective Jan 1., 2022, while also changing the description of the base cranial nerve code [CPT 64582] to what it is today, shown below.

The new hyoglossal nerve code was then reviewed by the AMA’s RVU Update Committee (RUC) in January 2021 before having its payment rate set by CMS in November 2021 [$888]. The corresponding payment rate represented a ~15% YoY decline for INSP’s OSA services, but a ~40% premium relative to the standalone vagus nerve code, with that delta staying largely constant through to today.

As explained by the AMA at the time of the code’s creation (our emphasis):

“The RUC thoroughly discussed CPT code 64568…and agreed that the use of this vagus nerve code only represents part of the work involved in hypoglossal nerve stimulator services and does not address the distal inspiratory sensor, which is for a completely different site and incision, as well as a completely different disease process and patient population…Hypoglossal nerve services are very different than the vagal nerve service in terms of patient population, work intensity, and risk.”

In other words, not only did the AMA agree that the CPT code set required a distinction to be made based on the anatomical differences between the two procedure types, but also the “intensity” of the associated work. Such a finding is key insofar as any procedure’s RVU allocation – and therefore its payment – is largely a function of its Intensity of Work Unit Time (IWPUT) x total minutes. That RVU allocation is then multiplied by the Physician Fee Schedule (PFS) Conversion Factor, developed each year by CMS, to come up with a dollar payment amount.

By way of example, if two services have identical intra-service durations but different “intensity” levels, the one with the greater IWPUT would have a higher RVU allocation, and therefore reimbursement rate.

For the above example we selected the intra-procedural IWPUT for INSP’s CPT 64582 and the vagus / cranial nerve CPT 64568, respectively, which also highlights the importance of the surgical time assessments that the AMA RUC and CMS assign to any given code. This is particularly the case given that – at the time such assignments are made – most services are relatively young, with physicians still early in the learning curve. As they grow more comfortable and procedure times fall, however, their compensation on a per-minute basis should increase commensurately. It is for this reason that CMS – with the assistance of the AMA – aims to reassess RVU allocations once every five years, though that is often not the case in practice.

Investors will likely note that: (A) clearly this reassessment target is not always met, as it has now been 14 years since CPT 64568 was reviewed; and (B) the 140 intra-service minutes for INSP’s CPT 64582 would appear markedly higher than management commentary, which cites the current Inspire IV procedure time at 60-90 minutes, whereas the new Inspire V device is expected to reduce that to 45-60 minutes.

For (A) above, we would note that CPT 64568 is a relatively low volume service, with just ~250 Medicare fee-for-service (FFS) claims last year, compared to ~5,600 for CPT 64582.

For (B), it is important to recall two key considerations:

• The initial RUC analysis for INSP’s code took place in Jan. 2021, with just ~500 services having taken place the prior year across ~30 different providers, indicating limited experience; and
• This relative value assessment was just prior to FDA approval of a revised procedural approach in March 2021, reducing the total number of associated incisions from three to two and procedure times by an average of 20%.

We have therefore assembled the below estimates for the typical INSP procedure times by year, based on management commentary, along with the average Medicare payment rate and how that translates into compensation on a per minute basis.

LIVN has not provided the same level of detail for its epilepsy device billing under CPT 64568, and – as noted above – neither CMS nor the AMA has reevaluated the code’s physician time during this period, but we repeat this exercise using the intra-service minutes for INSP’s procedure to demonstrate the per-minute reimbursement rate under different case times, should our expectations prove incorrect and the company ends up billing under this code as well.

This shows how the median 30% decline in procedure times cited by management can result in a physician payment level that stays relatively constant, even if Inspire V cases must bill under this lower paying code.

To give a fuller picture, the below chart shows the per-minute rate for every procedure duration from 40 to 140 minutes under the reimbursement rates associated with both the current CPT 64582 and a hypothetical CPT 64568.

Service Descriptions / Vignettes

Equally important to determining whether any given service is appropriately described by a particular code is the procedure’s “vignette,” established by the AMA, which outlines the step-by-step processes involved in the associated intervention and – by extension – the physician work used to establish RVU allocations and payments.

We provide the full vignette for INSP’s current code below, while emphasizing each step and the elements that are no longer present following the company’s approval of a two-incision approach in 2021. Beyond that, it is at this point unclear to us which, if any, procedure steps would not be required for the Inspire V device.

As is clear above, the current code’s procedure time assumptions are inclusive of three intra-service incisions, tunneling between the upper chest and the lateral chest wall, and sensor connection / testing, none of which is applicable to Inspire device models developed after March 2021.

While the newly approved Inspire V device eliminates the standalone respirator pressure sensing lead and instead houses that capability within the implantable pulse generator itself, it maintains the broader two-incision approach that has to this point been deemed acceptable by payers without a meaningful increase in claim denials.

When comparing this with the topline description of CPT 64582 [Open implantation of hypoglossal nerve neurostimulator array, pulse generator, and distal respiratory sensor electrode or electrode array], we note that a respiratory sensor functionality is still being implanted via an open methodology, but the hardware’s capabilities are now incorporated into the pulse generator.

This would therefore seem to leave the term “electrode” as the outstanding unknown in terms of whether payers interpret that to mean a physical standalone lead that is distally located or if it can refer to its broader functionality in the chest. Similar to the transition from three incisions to two, however, we suspect they will generally accept that perspective, with CPT 64582 continuing to strike us as a more appropriate code option than the cranial / vagus nerve set that describes an entirely distinct anatomical structure.

It is also important to highlight that there is no centralized authority that determines whether a given service may or may not be billed under a specific procedure code. It is instead up to each individual provider to select the code they feel is most appropriate relative to the service performed. Once a claim is submitted, each payer – both Medicare and commercial – has discretion to accept or reject its use.

It is for this reason that instructions from medical specialty societies – in this case the American Academy of Otolaryngology (AAO) – are highly relevant, as both providers and payers tend to follow their recommendations, and we await their guidance on not only Inspire V, but also NYXH’s Genio and LIVN’s Aura 6000, with the latter two expected to receive FDA approval by 1Q25 and mid-year, respectively. Unfortunately, there is no standard timeframe for when / if such public recommendations are provided.

Coding ≠ Coverage

Finding a permissible code, even if it has a defined payment amount, does not necessarily imply that payers will accept that code or the manner in which it is used, and in cases like hypoglossal nerve stimulation for the treatment of OSA, the permissible billing codes are already established by each individual MAC.

More specifically, CPT 64582 is the only code that is endorsed across all seven MAC jurisdictions for this purpose, with the previous cranial / vagus nerve code that had been used by INSP for 2017-2021 no longer recognized.

In fact, the only code outside of the unique hypoglossal set that appears in these policies – at least for three of the seven MACs – is CPT 61886 [Insertion or replacement of cranial neurostimulator pulse generator or receiver, direct or inductive coupling; with connection to 2 or more electrode arrays]. However, each of these three contractors makes clear – as does the AMA itself – that this is only to be used for the replacement of a neurostimulator device, as opposed to an initial implant.

With that being the case, providers / manufacturers seeking to bill under one of these alternative codes – as seems to be the case for LIVN with CPT 64582 and for NYXH with CPT 61886 – have two choices for securing coverage of their use for hypoglossal OSA implantation, where we view the latter as the more probable approach.

• Billing & Coding Article Changes: This can be accomplished via inclusion of these codes in MAC billing and coding articles, and can effectively take place at the contractors’ discretion, as there is no requirement to give notice or accept public comments. Practically speaking, however, we suspect this would take 3-6 months following FDA approval, even if the MACs were open to the possibility, given the time needed to review an application, meet with stakeholders, and author / publish an update.
• Full Coverage Reconsideration: This would involve the MACs revisiting their existing LCDs to allow for the inclusion of newly approved technologies, as current policies are all reliant on data from INSP alone. Unlike the above approach, MACs are required to give public notice and accept / respond to comments, and as such the process typically take 5-7 months from the time an initial proposal is released. That draft policy would itself likely only be released 6+ months post-FDA approval given the need to review an application, parse the relevant clinical literature, consult with stakeholders, and author a coherent draft.