[MDT, BSX, LIVN, CVRX] Medtech Medicare Rule Puts & Takes

MDT & Otsuka / ReCor [Modest Positive]: Renal Denervation (RDN)

After voicing its apparent support for establishing TPT payments for MDT’s Symplicity Spyral and Otsuka / ReCor’s Paradise in its July proposal, CMS’s finalization should provide improved facility margins for covered services, but the reimbursement decision itself does not impose any coverage requirements on either the agency or Medicare Administrative Contractors (MACs). This likely remains a necessary step for a meaningful inflection point in utilization, and we suspect the coverage process will take longer than many investors anticipate.

Regarding the TPT itself, however, one area where MDT fell short is its request that CMS establish a joint “device category code” to facilitate add-on payments for both radiofrequency (i.e., Symplicity) and ultrasound (i.e., Paradise) modalities, deciding instead to make a clear delineation between the two, as supported by Otsuka / ReCor.

In short, with Symplicity’s $16K price point more than 30% less that Paradise’s $23K, combination coding would have allowed hospitals to conflate the two products in their charge data and, as noted by Otsuka / ReCor, “lead to their undercharging for one technology and overcharging for the other.” Such flexibility would have given MDT additional room for price increases and / or improved facility margins. Under CMS’s final decision, however, both will likely need to operate within the established $16K baseline.

The more important element for RDN market penetration remains coverage and, despite expectations by some that this is likely to be established in the near-term, that belief likely needs to be tempered by ongoing capacity constraints at CMS.

As outlined in the agency’s most recent National Coverage Determination (NCD) Wait List, which shows formally submitted and accepted coverage requests that the agency is unable to begin due to staff limitations, there is currently a backlog of nine NCDs that must be completed, some of which have been pending since 1H23. Importantly, each NCD takes 9-10 months to complete, and there are an additional four cover analyses that are already under review, which is roughly consistent with CMS’s average over the last 10 years.

To be clear, CMS is not obligated to proceed through this list in chronological order, and – per established guidelines – typically “prioritizes these requests based on the magnitude of the impact on the Medicare program and its beneficiaries.” It is therefore possible that RDN’s indication for the treatment of an estimated ~30M Medicare patients with uncontrolled hypertension will lead to its being expedited, but it should be noted that other currently waitlisted items also boast large patient populations (e.g., colorectal cancer screening, diabetes / insulin pumps).

We therefore think at least some of these pre-existing requests will be initiated before the agency turns its attention to RDN, where addressing even just those two topics would imply an RDN start date in mid-2025. This would initiate a 9-10 month process before a finalized coverage policy takes effect in ~2Q26.

The relevance is that, with TPT reimbursement limited to the three years from Jan. 1, 2025 to YE27, actual coverage of RDN services along such a timeline would mitigate ~50% of the pass-through benefit period.

This is notable in that, as with other novel technologies, there is a clear correlation between the establishment of defined coverage criteria and the aggregate percentage of services that actually receive payment. Using Inspire Medical’s (INSP) hypoglossal nerve sleep apnea product as an example, which was approved by FDA in 2014 and received unique billing code procedures in 2017, it did not secure broad Medicare coverage until 2Q20, at which point we see a clear inflection point in allowed services. Prior to that point, roughly 80% of all claims were denied payment.

CVRX [Positive] & LIVN [Negative]: Neurostimulator Payments

As noted in our pre-rule expectations, the Barostim System (CPT 0266T) had been assigned to a New Technology APC for CY24, which is typically reserved for either new products lacking cost / claims data, those with low volumes, or those undergoing a significant coding change (e.g., transition from temporary Cat III to permanent Cat I coding, loss of TPT). For CVRX, this grouping was based on its historically low volumes, high costs, and its TPT expiration at YE23.

Considering that such assignments typically last 2-3 years, allowing CMS to collect claims data that can be used for future grouping under a more traditional clinical APC, it unsurprising that CMS would extend this assignment for an additional year.

Looking forward, however, investors will also be aware that CVRX recently received American Medical Association (AMA) endorsement of a transition from its current temporary Cat III code to permanent Cat I, with a Jan. 1, 2026 effective date. While this process does typically involve an erosion of physician payments – which we will first see in CMS’s CY26 rulemakings next summer – the change will also allow CVRX to argue that its New Technology APC facility payments should be extended for a third year in CY26. This is in addition to improved coverage prospects, given that – definitionally – Cat I codes are designed for services that are “consistent with current medical practice” whose efficacy has been well validated in clinical literature.

Alternatively, the transition could prompt CMS to pursue the creation of a new neurostimulator payment group to which several other low volume / high cost procedures would be assigned, as industry has repeatedly requested and that we estimate would result in hospital payments of ~$43K, or ~40% above the current maximum of $30.4K. That said, the agency’s final rule language on this possibility did not strike us as particularly supportive, writing that “we believe that the five level APC structure for the series continues to remain appropriate.”

The case history of LIVN’s vagus nerve stimulation (VNS) code CPT 64568 is largely the inverse of CVRX. While it does have similarly low volumes, it has nearly a decade of claims data at this point and has endured no meaningful coding / reimbursement changes, while also remaining well within CMS’s “2x Rule” that defines the upper and lower cost thresholds for clinical APC assignments. We therefore suspect that it will remain in this $30K grouping unless / until the agency restructures the broader neurostimulator APC family.

BSX [Positive]: Agent DCB Catheter

CMS’s reversal of its initial skepticism of BSX’s TPT application will likely allow for a ~65% improvement in facility payments relative to the agency’s initial proposal, but our cost estimates – which we should note are more generous than those put forward by BSX itself – also suggest that margins are likely to remain negative. Whereas we have assumed that typical Agent DCB cases imply ~$11.6K in hospital costs, the company puts this closer to $18.9K, albeit based on an evaluation of services at just a single facility.

That being said, we remind investors that procedure APC assignments are based on the “2x Rule,” which states that no service within a given grouping can have geometric mean costs greater than 2x those of the lowest cost procedure within that same APC. Services exceeding this limit are reassigned to the next highest APC. For CY25, CMS has assigned the Agent DCB service code (0913T) to APC 5192, which has a payment rate of $5,702 and a 2x threshold of $9,761. The next level up would be APC 5193, which has a CY25 payment rate of $11,341 (+98%).

Using either our own cost estimate ($11,622) or those from BSX ($18,936) would exceed this upper limit by 19% and 94%, respectively, and even BSX’s minimum estimate ($13,125) would breach this threshold by more than 30%. We therefore suspect BSX will continue to advocate for APC reassignment in future rulemakings and – based on our analysis at least – they have a point.