Lantheus (LNTH): Pylarify Hospital Rates Likely Down ~45%, Despite CMS Error
Key Takeaways: Consistent with our pre-rule expectations [see here], hospital outpatient rates for LNTH’s Pylarify appear set for a ~45% YoY decline in CY25 following CMS’s final rule. While enactment of “separate payments” for all high-cost diagnostic radiopharmaceuticals improves upon current policy that pays nothing once a product’s transitional pass-through (TPT) payment expires, CMS’s decision to base the amounts on Mean Unit Cost (MUC) likely implies facility profits falling from 60%+ to 0%. Margins for competitors will likely remain at ~60% until their own TPTs expire [TLX (3Q25), NVS (4Q25), privately-held Blue Earth (4Q26)]. Importantly, agency rate tables differ from the rule text, and would suggest current rates / margins will continue into 2025, though we suspect this is an error that will be corrected in the coming days / weeks.
With Pylarify’s TPT [$5.7K] set to expire YE24, drug-specific payments under existing policy would have gone to zero, absent this change, and hospitals compensated only for the imaging procedure [~$1.5K] during which these products are used. When accounting for Pylarify’s ~$3.1K costs, this would have left facility margins deeply negative.
The agency’s decision to continue providing “separate payment” for all diagnostic radiopharmaceuticals with costs > $630 is therefore a positive policy outcome, but the use of MUC nevertheless implies significant YoY erosion in facility payment levels, which will likely go from $5.7K to $3.1K, covering hospital costs but little else. Moreover, with TPT rates for competitor prostate specific membrane antigen (PSMA) products remaining in place across most of 2025 and 2026, their own margin profile is meaningfully improved relative to Pylarify, risking market share for LNTH.
We should also note that this shifting incentive structure comes as CMS utilization data shows a decline in LNTH hospital share from 86% in CY22 to 65% in 2023, albeit with the overall size of the market growing as well. Importantly though, all of the below products enjoyed TPT status in those years, with LNTH being the only one that will lose this for 1H24, before being joined by TLX in July and NVS in October.
Investors will recall that LNTH and other manufacturers had strenuously advocated against CMS’s use of hospital-reported MUC following the July proposal, arguing that it would be more appropriate to rely on cost data they had themselves been reporting throughout their TPT period. In response, however, CMS notes the following [emphasis ours]:
“There are very few manufacturers reporting ASP for their products currently, and of those few, the ASP values that we have generally do not align with the ASP we would expect based on the cost data submitted to CMS by hospitals…To maintain a consistent payment methodology for CY25, we believe it is appropriate to treat all non-passthrough diagnostic radiopharmaceuticals with claims data the same and pay using MUC, without exception, such as for products with recent TPT expiration.”
As evidenced in CMS’s Cost Statistics Files, the delta between MUC and current payment levels can be significant:
We highlight both the text of CMS’s rule itself and its published MUC data only because there appears to be a significant discrepancy with the actual CY25 payment rates the agency has published for each product [see Addendum B]. In fact, rather than its stated intention to “pay using MUC, without exception,” the published rates would suggest that the agency will instead pay exactly the same amounts – down to the penny – as is currently the case in 4Q24.
This compares with the CY25 proposal, where the mean unit costs included in CMS’s data files were identical – again, to the cent – with the code specific draft payment rates included in Addendum B, which one would expect to see for a payment methodology based on MUC.
Given typically significant changes in the aggregate data sets CMS uses for ratesetting, as well as QoQ fluctuations in hospital-reported information, it is highly improbable – in our view – that the result for each of these products would be identical to 4Q24, particularly given the significant declines outlined in the MUC-based CY25 proposal released in July.
We therefore suspect that the rates included in CMS’s Addendum B payment tables were published in error, as has been the case in previous rulemakings, and would expect to see these updated (without fanfare) in the coming weeks. In fact, the proposal itself was subject to similar revisions across both of the relevant files included with each rulemaking, coming two weeks after the draft’s publication on July 10.
With this in mind, we are using the relevant MUC data published by CMS to project anticipated PSMA payment rates over the course of CY25, rather than the dollar payment amounts we would ordinarily use from Addendum B, as we would expect the two to be reconciled in the next 1-2 weeks.
