Under CMS' proposal for packaging in 2014, products like Dermagraft, Apligraf, and new products like Grafix, will become significantly disadvantaged, as all these products cost $1,500 or more. Under the current reimbursement system, hospitals are reimbursed $250 to $500 for the cost of the medical procedure, and are separately reimbursed for the cost of the graft for a total reimbursement of $2,000 to $2,225. The proposed bundled payment of $874 falls far short of the cost of the graft alone. We believe it will be difficult for these manufacturers to reduce their prices sufficiently to be attractive to caregivers in a bundled care environment. Two dermatology KOLs we've spoken with believe that the cost of manufacturing these grafts is in excess of $1,000. As we see it, that's going to create a very challenging sales environment for these two market leading products or new products like Grafix, and a major shift toward cheaper and similar efficacy products.

CMS moving to a "pay for performance" model could eventually cap the entire reimbursement for "healing a DFU or VFU" to something like $3,000 or $4,000. Above we noted that Apligraf is eligible for reimbursement up to six times in the course of treating a VLU. Things are going to change in our view. The leading products are on their way out. Less
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