It was good news for Dexcom in January when the Centers for Medicare and Medicaid Services announced they would reimburse for Dexcom’s — and initially only Dexcom’s — continuous glucose monitor. Now the rollouts to Medicare patients are starting, although the company isn’t exactly rolling in that government money. In fact, CEO Kevin Sayer said on a recent earnings call that they’ve yet to see a check from CMS.
“I walk down to (interim CFO) Kevin Sun's office pretty much every morning and say ‘Have we got paid yet?’” Sayer said. “So we're … not even three weeks out on the first ones, and once we get that first adjudication and find out, then we'll hopefully kick it up a little bit. But these will be the first thing we ever paid with the CGM code through the Medicare system. So it'll be a big deal for us.”
There’s no doubt that reimbursement is a positive for Dexcom, and the company already has a lot of demand from Medicare patients — Sayer says they have 20,000 patients in the pipeline without having done any serious promotion in the Medicare segment.
But at least at first, the company will be selling its devices for cheaper in the Medicare bundles than they do in their private sector business.
“The gross margins will not be as good with the Medicare patients, we've talked about that before, because we have the bundle where we have to add the strips and the other supplies,” Sayer said. “And as we've said earlier, we're accepting the Medicare pricing. We'd like to get better. But it is what it is and we'll take it. We're hoping that if we can develop an efficient process that maybe the operating margins on the Medicare patients will become lower, because this will be something routine and we can just do it in lockstep.”
Medicare’s monthly pricing model will help the company in the long run, but the initial price Medicare pays Dexcom for the sensor, transmitter, and receiver will be close to cost, Sayer said.
Dexcom has designs on widening those margins with future technology releases. For instance, Dexcom’s upcoming G6 platform will offer a 10-day rather than a 6-day sensor, which means patients will need to use fewer sensors, but they’ll still pay the same bundled price.
“In the early phases, profitability will be pretty tough, but over time we think it will be fine,” Sayer said. “And it's our job, quite frankly, to get the cost of the devices down to whereby we can make money there, and we will.”
In one sense time is of the essence for Dexcom in the Medicare space. Right now, as the only device to clear CMS’s standards, the company has a virtual monopoly in the Medicare space. But even when competitors clear that hurdle, Sayer said he expects Dexcom to be the CGM of choice, noting that in Europe, where multiple devices are reimburseable, the company is doing well, with many patients reportedly switching from Abbott’s Freestyle Libre offering over to Dexcom.