Business Context and Reporting Period
This Form 8-K was filed by Second Sight Medical Products, Inc. (referred to in metadata as Vivani Medical, Inc.) on October 30, 2015. The report addresses a significant regulatory event concerning the Centers for Medicare and Medicaid Services (CMS) final rule for the Medicare hospital outpatient prospective payment system (OPPS) for calendar year 2016.
Key Financial Metrics and Reimbursement Rates
- 2016 OPPS Payment Rate: CMS established a New Technology Ambulatory Payment Class (APC) 1599, Level 48, with a payment rate of $95,000 for the Argus II Retinal Prosthesis System and associated procedure, effective January 1, 2016.
- Device Cost: The full cost of the Argus II device is $144,058.
- 2015 Reimbursement Context: In 2015, Medicare's national average reimbursement for the implant procedure was $3,123, with device costs covered via a "pass-through" category. However, "charge compression" often resulted in hospitals receiving less than the full device cost.
- Historical Claims Data: CMS based the 2016 rate on only two qualifying claims from 2014, which showed an average cost of approximately $95,866.
- Medicare FFS Exposure: For the first nine months of 2015, Medicare Fee-For-Service (FFS) claims accounted for approximately 13% of all Argus II implants worldwide.
Material Changes and Impact
The new $95,000 reimbursement rate represents a material negative change compared to the company's target and potentially lower than rates hospitals received in 2015 under the pass-through mechanism. The filing states that if CMS does not revise this decision, the rate will have a material negative impact on the company's short- and medium-term cash flow, financial position, and results of operations. The long-term impact remains uncertain and depends on the mix of Medicare FFS, Medicare Advantage, private insurance, and non-U.S. business.
Outlook, Management Commentary, and Risks
- Management Action: The company scheduled a meeting with CMS for November 18, 2015, to share additional data and request a rate increase. They also plan to submit formal comments on the final rule by December 29, 2015.
- Requested Rate: The company and others have requested a reimbursement rate of $150,000 to appropriately cover hospital costs.
- Risk to Patient Access: Management expressed concern that the $95,000 rate may be insufficient for hospitals and ambulatory surgery centers to continue providing the technology to patients with retinitis pigmentosa, potentially affecting access to care for traditional Medicare FFS beneficiaries.
- Scope of Impact: The rule directly affects only traditional Medicare FFS claims. Medicare Advantage, commercial insurance, and non-U.S. plans are not governed by this rule and may negotiate independent contracts.
Investor Verification Checklist
- Verify the outcome of the November 18, 2015, meeting between the company and CMS regarding the 2016 payment rate.
- Monitor the submission and acceptance of the company's formal comments on the final rule due by December 29, 2015.
- Assess the proportion of revenue derived from Medicare FFS versus other payers to gauge the severity of the potential cash flow impact.
- Confirm whether hospitals are successfully adjusting billing practices to mitigate "charge compression" issues in future claims.
- Review subsequent filings for any updates on the 2016 reimbursement rate or changes in the company's financial guidance.