Kerrisdale targets iRhythm in short attack, claiming tenuous reimbursements

Kerrisdale says newer devices offer additional features compared to the Zio patch, which was developed by the 2014 Fierce 15 company and first cleared by the FDA in 2009. (Nasdaq)

Short seller Kerrisdale Capital has launched a new attack on iRhythm Technologies, manufacturers of the Zio heart monitor patch, based on what it describes as a looming crisis over the reimbursement structure for its main product.

Describing iRhythm’s revenue base as “exceedingly generous, but increasingly fragile,” the firm said that the rapid growth of the patch’s use over the past few years has not only attracted competition from other device companies, but that it could also lead to cutbacks in Medicare and commercial reimbursements.

The Zio patch—a single-lead, water-resistant ECG worn over the heart, used to help diagnose occasional arrhythmias over periods as long as two weeks—is currently reimbursed via a temporary CPT code, with a permanent code expected to be established for 2021, Kerrisdale said in its report (PDF).

“In the process, we anticipate reimbursement levels for the Zio patch will fall by over a third, and potentially more than 50%,” the firm wrote.

In addition, most of the company’s revenue is based on billing for performing analyses of the scans and delivering ECG reports from iRhythm’s own diagnostic facilities, where the patch is mailed for study after use. The Zio is not able to upload data to another device on its own.

Zio heart monitor
iRhythm's Zio patch (iRhythm)

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iRhythm, a 2014 Fierce 15 company, and its Zio patch have been referred to as “the new standard” for remote cardiac monitoring. Studies have shown that the device was able to identify 57% more arrhythmias and was much more likely to provide a definitive diagnosis than the traditional multilead Holter monitor, which is worn around the neck for 24 to 48 hours.

In addition, 94% of patients reported preferring to wear the Zio patch compared to Holter monitoring. iRhythm says their simpler product also encourages patient adherence.

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However, the Zio patch was first cleared by the FDA in 2009, and Kerrisdale says that superior devices have hit the market since then, including ones with features that allow data to be uploaded to the cloud much faster.

Kerrisdale aims to drive down the value of iRhythm’s stock and profit from the bets and put options it has placed against the company. Shortly after the release of the report, iRhythm’s stock was trading down about 3%, at just over $84.