Medicare and Medicaid Payment Policy For Skin Substitutes

MiMedx Group, Inc. (NASDAQ: MDXG) applauds the Centers for Medicare and Medicaid Services' (CMS) new methodology for the reimbursement of skin substitutes in the hospital outpatient setting, which was released on November 27, 2013. Under the new Hospital Outpatient Prospective Payment System (OPPS) Final Rule, CMS will package the reimbursement for certain products used in advanced wound care with the related surgical procedure into a two-tier payment system. Additionally, the MiMedx allograft, EpiFix®, was extended pass-through status through 2014, which means it will retain the current payment methodology for one more year. CMS states that pass-through payments are intended to facilitate the adoption of certain new products for a period of at least two, but not more than three years. EpiFix® will retain this status for 2014, which will be the third and final year.

"We think that CMS has made very rational decisions that balance all the variables to protect their Medicare patients, manufacturers and our tax dollars. These changes were absolutely necessary to correct cost disparities and graft wastage in advanced wound care," said Parker H. Petit, Chairman and CEO."MiMedx has been an advocate of these changes and has lobbied Congress to support CMS in this initiative. We have spent considerable time with congressional members explaining to them the excessive wastage that has transpired in this area of healthcare. We believe this new two-tier reimbursement policy will reduce excessive spending and broaden patient access to advanced wound care, which will benefit Medicare recipients. We applaud CMS for making this policy change."

A vast number of patients in the U.S. suffer from chronic wounds. Two of the largest categories of chronic wounds are diabetic foot ulcers (DFUs) and venous leg ulcers (VLUs). Approximately 1 million patients per year in the U.S. are reported to be suffering from DFUs and just under 900,000 U.S. patients each year are reported to suffer from VLUs. A recently published paper indicates that the median size of a DFU is approximately 1.35 square centimeters (sq. cm) and the median size of a venous leg ulcer is approximately 2.32 sq. cm. This published paper also indicates that 77% of DFUs and 66% of VLUs are 5 sq. cm. or less.

"The MiMedx EpiFix® allograft is extremely cost effective because it comes in sizes ranging from 1.5 square centimeters (sq. cm.) on up," stated Petit. "Our two major competitors have considerable waste factors associated with the use of their grafts. Each of these products is offered in only one size, approximately 40 sq. cm. each. It is quite evident that these products are significantly larger than these median wound sizes; in fact, they are 15 to 20 times larger. Consequently, the remainder of the graft is discarded or wasted since it is a single use product only."

"CMS has also extended the pass-through status of EpiFix®, which means that the method of reimbursement will remain unchanged through 2014, as it will continue to be reimbursed under the Average Sales Price (ASP) methodology, which is ASP + 6%. Therefore EpiFix® will continue to receive reimbursement in 2014 on a per square centimeter basis. In 2015, in the Hospital Outpatient and Ambulatory Surgical Center, the Company expects EpiFix® will be reimbursed as a part of a packaged rate in the higher tier of the two-tier system," added Petit.

"The publications presenting the clinical results of our competitors' two products and EpiFix® show that the clinical healing rates for wounds treated with EpiFix® are 40 to 60 percent higher than the healing rates of our competitors' products. Our strong clinical results and cost effective approach have enabled MiMedx to quickly gain market share. We believe the new reimbursement changes will enable us to continue that progress," added Bill Taylor, President and COO.

In the new system, CMS is dividing the skin substitutes into two groups for packaging purposes: high cost skin substitutes and low cost skin substitutes. Skin substitutes with an ASP amount above the weighted average of $32 per sq. cm. are classified in the high cost group and those at or below the weighted average per sq. cm. are classified in the low cost group. The 2014 packaged rate for the low cost skin substitutes applied to DFUs and VLUs smaller than 100 sq. cm. is $409.41, and for the high cost skin substitutes is $1371.19. As noted above, EpiFix® continues pass-through status for 2014, and it will be reimbursed on an ASP + 6% method. It is worth noting that if EpiFix® were bundled in 2014, it would fall into the high cost packaged rate.

Taylor continued, "The size-appropriateness of our grafts, higher healing rates and fewer required applications to achieve wound closure have already enabled us to gain market share quickly. The DFU market for products such as EpiFix® is in excess of $2 billion annually. Knowing that the VLU prevalence rate is nearly as high as the DFU rate, only with slightly larger wounds, we estimate the combined total DFU and VLU market for our EpiFix® products to be in excess of $4 billion annually. To achieve our revenue guidance for 2014, we only need to capture 2.5% of that total possible DFU and VLU market, and that is excluding revenue from our other product lines."