CMS Reaffirms LifeVest Coverage

Good news for resuscitation devices maker ZOLL Medical (ZOLL) as the Centers for Medicare and Medicaid Services (“CMS”) has reaffirmed the existing coverage policy for the company’s flagship LifeVest wearable defibrillator for all indications.

The agency made no changes to the current coverage policy for the device. The company’s shares rallied as much as 30% following the news.

The news represents a major boost for ZOLL Medical as the CMS, in August 2011, considered changes to the Medicare coverage for wearable cardioverter defibrillators, leading to significant reimbursement risk for LifeVest (given the potential for reimbursement rate cuts).

However, the existing CMS coverage policy (initiated in 2005) for these devices received positive support from all major cardiology-focused professional societies (including Heart Rhythm Society, American Heart Association and American College of Cardiology) as well as nationally recognized physicians during the public comment period. The CMS announcement removes a major headwind from the stock.

LifeVest is a lightweight device which is worn outside the body (rather than implanted in the chest) by patients at risk of sudden cardiac arrest (“SCA”), an abrupt loss of cardiac function. SCA is one of the major causes of unexpected deaths. According to the American Heart Association, more than 700 people die from this condition each day in the U.S. Early defibrillation raises the chance of survival significantly from just 5% to over 50%.

LifeVest continuously monitors the heart with electrodes (electric conductors) to detect life threatening heart rhythms. On detection of an abnormal rhythm, the device sends an electric shock to the heart to restore its normal rhythm. LifeVest has an impressive 98% first treatment shock success rate for resuscitating patients with SCA.

The LifeVest business, which has been ZOLL Medical’s lifeblood, is growing at a solid quarterly run rate with revenues propelling 52% year over year in the most recent quarter. LifeVest has been already prescribed to over 50,000 patients at high risk of SCA by their physicians.

ZOLL Medical is a leading player in the global market for external defibrillators, which is worth more than $1 billion. The company is the innovator of a wide range of product features that have become the standard of care in the external defibrillator industry.

We believe that ZOLL Medical’s wide product range coupled with its expansion initiatives should push growth moving forward. However, it operates in a highly competitive U.S. defibrillation market and competes with Physio-Control, a wholly-owned unit of Medtronic (MDT - Analyst Report) and Philips (PHG - Analyst Report).

Moreover, the North American emergency medical services (“EMS”) market remains sluggish due to tight budgets for equipment purchases. We currently have an Outperform recommendation on ZOLL Medical. The stock currently retains a Zacks #3 Rank, which translates into a short-term “Hold” recommendation.

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