Reimbursement Questions Nail NeuroMetrix

OKLAHOMA CITY -- NeuroMetrix (NURO) is suffering, hurt by a likely reimbursement decision that was supposed to bring relief instead.

At a long-awaited panel meeting held last week, the American Medical Association sought to determine the appropriate coverage for nerve studies using NeuroMetrix's NC-Stat device. While the AMA has yet to issue its formal ruling, some analysts who attended the meeting foresee a worst-case scenario ahead.

"The meeting's dynamics lead us to believe that the most likely outcome would be the granting of a Category III CPT code to tests performed with NC-Stat," Punk Ziegel analyst Juan Sanchez wrote on Monday. "When a Category III code is given to a particular test, Medicare and Medicaid providers don't reimburse."

While "commercial payers may choose to reimburse or not," Sanchez added, "in the case of NC-Stat, one must assume that the level of reimbursement would be minimal under this scenario."

Sanchez downgraded NeuroMetrix from accumulate to sell as a result. His firm seeks to do business with the companies it covers.

Shares of NeuroMetrix plummeted 36% to a 52-week low of $6.81 on the report.

For NeuroMetrix, the news could hardly be worse. Last quarter, NeuroMetrix relied on disposable NC-Stat "biosensers" for some 89% of its revenue. The company depended on the NC-Stat devices themselves for another 8% of sales.

At this point, short sellers have piled into NeuroMetrix. They have sold 30% of NeuroMetrix's stock short in anticipation of a decline.

"They've got nothing left," insists one short seller. "Their other big product suffers from the same issue as the NC-Stat. Many Medicare intermediaries have already ruled that they won't reimburse for such a device unless it is used by trained ophthalmologists.

"That severely limits their market since most ophthalmologists won't use it."

NeuroMetrix encountered similar resistance with NC-Stat. The company primarily markets the device to general care physicians, who use it to perform electronic nerve studies in their offices. Last quarter, that group accounted for some 70% of the company's customer base.

Neurologists have cried foul, however, attacking both the accuracy of NC-Stat tests and the qualifications of those who use them. Neurologists are far less likely to use the tests themselves, and account for just a fraction of the specialists who buy the devices.

Even before last week's meeting, some regional Medicare carriers had ruled against covering the tests. Commercial insurers, including heavyweight UnitedHealth (UNH), have gone on to do the same.

In a newly adopted coverage decision, set to take effect later this month, UnitedHealth portrayed the NC-Stat as an "unproven" test supported by "inadequate clinical evidence." The health insurer will cover the tests only when they are conducted alongside traditional needle studies, which are performed by the specialists who have long shunned NC-Stat devices.

Such setbacks have taken a heavy toll on NeuroMetrix already. The company once enjoyed explosive growth, as primary physicians embraced their one-of-a-kind devices. But its business has steadily eroded -- with sales falling another 26% last quarter alone -- due to reimbursement concerns.

NeuoroMextrix clearly counted on a better outcome to last week's meeting. So did bullish analysts, who welcomed the resolution that the meeting might provide.

They offered several possibilities in advance, ranking a Cat-III non-coverage decision as the least likely of all. While analysts did not expect Medicare to pay the same rate for NC-Stat tests as it does for invasive needle studies -- although it has done so in the past -- they assumed that the agency would offer something. At worst, one analyst predicted, Medicare might adopt a steep -- but manageable -- 55% cut.