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Boston Scientific Corporation (BSX - Analyst Report) has reasons to cheer as two private insurance players – Minnesota-based HealthPartners and Michigan-based Priority Health – have decided to reimburse coverage for bronchial thermoplasty (“BT”) performed using the Alair BT system.
This decision comes on the heels of the Centers for Medicare and Medicaid Services ("CMS") acknowledging the benefit of the treatment earlier this year. As a result, effective January 1, 2012, Medicare has been reimbursing the Alair catheter through a "pass-through" payment when the procedure is performed in an outpatient hospital setting, in addition to reimbursing the BT procedure. We had expected the positive reimbursement decision from CMS would encourage private insurers to provide reimbursement for this procedure.
The Alair BT system provides long lasting and improved asthma control for adult patients suffering from severe asthma who have not benefited from currently approved inhaled medications. Alair was inducted in Boston Scientific’s portfolio with its acquisition of Asthmatx in October 2010. Asthma is one of the most common ailments in the world requiring a costly treatment process. As per National Center for Health Statistics, more than 24 million Americans are afflicted by it.
The product received approval from the US Food and Drug Administration (FDA) and has been available in the US since mid-2010. Alair has been available in the UK since June 2011 and in other European countries since September 2011. Although many private insurers have approved BT on a case-by-case basis, the latest coverage decision from Priority Health and HealthPartners will bring their full membership, totaling about 2 million people, under reimbursement.
Favorable reimbursement decision has been based on positive data with respect to Alair’s effectiveness under RISA (Research in Severe Asthma) and AIR (Asthma Intervention Research) studies. Moreover, findings from the AIR2 trial showed persistence of safety and effectiveness of BT after two years. Results from the AIR2 trial after one year also demonstrated positive outcome with respect to reduction in asthma attacks (by 32%), emergency room visits for respiratory symptoms (84%) and days lost from work (66%).
We believe that a favorable decision from CMS as well as two private players should encourage better acceptance of Alair going ahead. The company is banking on the product to strengthen its offering of pulmonary devices and should contribute to growth and diversification of the Endoscopy business in future.
However, the current scenario is challenging for Boston Scientific with its core segments struggling for growth. The company is not alone in this struggle and its peers Medtronic (MDT - Analyst Report) and St Jude Medical (STJ - Analyst Report) are also witnessing similar challenges. Given the situation, the company is working on reviving its top line by expanding its product portfolio, either through pipeline development or strategic acquisitions.
The stock carries a Zacks #3 Rank (“Hold”) in the short term. Over the long term, we have a Neutral recommendation on Boston Scientific.