Pacific Edge shares (NZX: PEB) (ASX: PEB) shares dived 74% today in Australia on the news that the Americans will no longer pay for their major product. Or, perhaps more accurately, that Medicare will not longer pay for it. This has a substantial knock on effect. It's usual - not absolute, but usual - that private insurance will agree to pay for anything that Medicare will pay for. So, losing Medicare as a customer can mean losing private sector insurers as well - and without those two there's really not much of a market left.
Well, OK, there's the non-American market of course but in terms of medical testing that's paltry compared to the American. Simply because the US does so much more testing and preventive medicine than anywhere else.
The actual news release here: “Cancer diagnostics company Pacific Edge (NZX, ASX: PEB) today announces Medicare coverage of Cxbladder tests in the US market is expected to cease from 17 July 2023. This development follows the finalization of a Local Coverage Determination (LCD) (L39365) by Novitas, the Medicare Administrative Contractor (MAC) with jurisdiction for Pacific Edge's laboratory in Hershey Pennsylvania.
The finalized LCD, which includes Cxbladder and tests provided by other companies, specifically notes the Cxbladder tests Triage, Detect, Monitor, Resolve and Detect+ as ‘not considered medically reasonable and necessary', the threshold required for coverage under the US Social Security Act. A number of other companies are also affected by the LCD.”
We do like that last line - we might be doomed but others affected as well!
Pacific Edge share price from ASX
Now of course there are legal options here, appeals and so on. This is the American bureaucracy we're talking about here, nothing is final until the last judge opines.
From the report: “In the year ended March 2023 (FY 23), tests for Medicare
and Medicare Advantage were ~60% of US commercial tests, or ~13,800 tests, and generated ~$15.3 million, or 77.3%, of FY23 total operating revenue. Post 17 July 2023 all of these tests are expected to be impacted by this determination from Novitas.” The problem here being that that's the revenue and test traffic determined directly by the Medicare decision. There's also a possible knock on effect from those private sector insurers who may or may not keep paying for tests which Medicare suggests aren't worth it. That is, it's possible for more than this 77% of revenue to disappear.
The third, and gripping, hand here is that succh tests are mainly done on the elderly and most of the elderly are gaining their health care insurance through Medicare. So that full impact, well, we just don't know. But let's say that it doesn't look good - and 74% down may or may not be enough.