Cyberonics shares fall on potential payment cut

Houston-based Cyberonics markets the Vagus Nerve Stimulation, a pacemaker-shaped device that is implanted in the chest and sends electrical signals to nerves in the neck. The government's Medicare program, which provides health care coverage to 44 million seniors, pays for the device when it is used to treat epilepsy.

Analysts reported Thursday that Medicare has recommended cutting payments to physicians for implanting and replacing the wires that connect the device to the patients' nervous system.

Shares of Cyberonics fell $4.65, or 18.5 percent, Thursday to close at $20.45.

Stanford Group Co.'s David Blaszczak said Medicare officials on Wednesday discussed cutting payments for the procedure by 52 percent, from over $14,000 to $6,600. Medicare noted the government has been incorrectly paying a higher rate for the procedure for years.

Cyberonics Chief Financial Officer Greg Browne said the company announced the proposed payment cut to investors last week. He added that Medicare does not pay Cyberonics directly for the wires, but instead reimburses hospitals, which purchase them from the company.

While the wires, called leads, account for a small part of Cyberonics' revenue, Blaszczak said the lower payment rate could dissuade doctors from installing the nerve stimulator in the first place.

Medicare is scheduled to release its final decision in November, and it will take effect in 2009.