Organogenesis preps 'heart breaking' cuts as Medicare slashes reimbursement

Medicare's decision to slash the cost of wound-care products is shoving the regenerative medicine company Organogenesis toward a major restructuring, with the CEO conceding to staffers that "heart breaking" cuts will be required to adjust to the new price schedule.

According to someone close to the company, Canton, MA-based Organogenesis is reviewing some major layoffs to its staff after Medicare issued final rules that will "bundle" their wound-healing regenerative medicine Apligraf at a reduced price of $1,371. Bundling is a process in which Medicare comes up with a price for covering a single episode of care, capping its exposure. But the reduced reimbursement for Organogenesis, says the source, will force cuts across most company units--from R&D to process engineering and sales.

A spokesperson for the company tells FierceBiotech that the biotech is looking at "every possible permutation," including an adjustment in their "price and personnel." But, she added, no final decisions on layoffs have been made yet.

In a staff memo, obtained by FierceBiotech, Organogenesis CEO Geoff MacKay said that he and the executive team have been hammering out a plan to adjust for the Medicare decision, signaling deep cost cuts ahead.

"There is a solution for Apligraf," MacKay noted in his memo, "which we have been working on through the weekend, which includes more competitive pricing of Apligraf in the wound care market. However, the downside to this is a one-time adjustment to significantly lower revenues due to a lowering (of) the product price. In the coming days, weeks and months, we will need to adjust the cost structure of the company to reflect this new reimbursement reality. This will be very difficult to accomplish and will result in heart breaking cuts."

Company spokesperson Angelyn Lowe tells FierceBiotech that the reorganization is being forced by Medicare's decision to reimburse Apligraf at the lower rate beginning Jan. 1, which is well under the current $1,700 price. At the top level of bundling Medicare will pay $2,200 to treat a wound of 100 square centimeters or more. A single application of Apligraf covers 44 square centimeters of a wound, meaning at least two are needed. And that will dictate a significantly lower reimbursement for the company.

"Patients with the largest wounds will be hurt the most," she says, as products like Apligraf are being priced out of the market. And that includes patients most at risk of an amputation.

One of the key objections Organogenesis has made to Medicare is that Apligraf was approved by the FDA, just like Shire's ($SHPG) Dermagraft. But Medicare is bundling the products alongside other, less expensive therapies that were "cleared" by the agency using the 510(k) or the Human Cells, Tissues, and Cellular and Tissue-Based Products approach, which is less demanding and less expensive to accomplish.