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Understanding Abiomed’s Changing Payment Structure Plans for Impella

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Jul. 25 2017, Updated 9:06 a.m. ET

Impella franchise demand

Abiomed (ABMD) reported a ~100% reorder rate in fiscal 4Q17, amounting to around $103.3 million, which was 34% higher on a YoY (year-over-year) basis. With the gradual increase in demand, hospitals in the US have started stocking up on Abiomed’s Impella 2.5 and Impella CP heart pumps.

At the end of fiscal 4Q17, there were around 3.4 units per site of average combined inventory of Impella 2.5 and Impella CP devices, which is slightly higher than the previous quarter’s inventory of around 3.3 units per site. At the end of fiscal 4Q16, hospitals held only 2.9 units per site.

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Payment structure

Initially, Impella devices were reimbursed by CMS (Centers for Medicare and Medicaid Services) under the DRG (Diagnosis Related Group) code, 216. However, in the last 18 months, the American Hospital Association Coding Clinic and CMS have allotted dedicated DRGs related to the use of Impella in different settings.

If Impella is used in a cath lab, it is usually reimbursed under the DRG code 216 to 221. If it is used to provide care in intensive care unit, Impella reimbursement is secured under the DRG 215 code. When used for biventricular support, Impella devices are reimbursed under the DRG 1 and 2 codes, while the DRG 268 and 269 codes are used to reimburse when patients are shifted to specialized heart recovery hospitals.

The allocation of dedicated DRGs has made payment structures far more systematic—an important factor considered by hospitals when using medical devices. Hence, the changing payment structure for the Impella franchise should help Abiomed compete more effectively with other cardiovascular players like Medtronic (MDT), Abbott Laboratories (ABT), and Stryker (SYK).

Notably, the Vanguard Small-Cap Growth ETF (VBK) has about 0.39% of its total portfolio in Abiomed.

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