Polynovo Ltd (ASX: PNV) shares have returned from a trading halt with a bang.
At one stage today, the ASX 200 stock was up as much as 26% to $1.66.
The medical device company's shares have faded since then but remain up almost 9% to $1.43 in late afternoon trade.
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Why is this ASX 200 stock rocketing?
Investors have been scrambling to buy Polynovo's shares following the release of an update on the impacts of proposed changes to U.S. Medicare Reimbursement for outpatient wound care.
It notes that under the existing reimbursement model, physicians are paid a percentage of the price for each skin substitute used in outpatient wound care. As you might expect, this has dis-incentivised the selection of lower priced products and has favoured expensive products, driving significant Medicare outlays and making it harder for cost-effective options to compete.
However, the Trump administration is proposing a new plan to lower reimbursements to a fraction of what some companies currently earn.
It notes that the Centers for Medicare & Medicaid Services (CMS) proposed flat reimbursement for outpatient skin substitutes of US$806 per square inch. This fundamental change is designed to remove the economic incentive for surgeons to use higher-cost products and to create a more level, value-oriented market.
Positive impacts
These changes could be good news for the ASX 200 stock as both NovoSorb BTM and MTX products are profitable under the proposed flat rate.
In addition, the company believes that the removal of price-based incentives may reduce the presence of higher-cost competitors, benefiting clinically robust, cost-effective products.
Furthermore, physicians' decision-making will increasingly focus on proven clinical outcomes, where PolyNovo products compete strongly.
Commenting on the news, Polynovo's acting CEO, Dr Robyn Elliott, said:
The majority of PolyNovo's current business has to date been inpatient product application. Outpatient product application, the focus of the CMS proposed changes, is a significant potential growth area for PolyNovo's products. We are currently assessing the optimal commercial model for accessing this market opportunity.
The ASX 200 stock's chair, David Williams, adds:
PolyNovo is well positioned to benefit from changes to the U.S. outpatient reimbursement landscape. We have always placed importance on quality as well as value and the proposed new flat reimbursement will suit our value-oriented offering. There are a number of things to play out before it is clear what the full benefit for PolyNovo will be with plastic surgeons and podiatrists, but I am excited by the possibilities. In particular, we are very keen to bring our technology to help American serviceman and women, veterans and others with chronic wounds exacerbated by diabetes.
The CMS proposal is currently under consultation, with a decision expected in November for a 1 January 2026 start.
