What happened

Shares of LivaNova (NASDAQ:LIVN) were down 14.7% at 11:52 a.m. EST after the Centers for Medicare and Medicaid Services (CMS) issued a proposed decision memo over coverage for its Vagus Nerve Stimulation (VNS) therapy system for treatment-resistant depression.

So what

CMS doesn't currently cover LivaNova's VNS therapy, but agreed to review its coverage decision earlier this year based on evidence that VNS therapy is helping patients with treatment-resistant depression, especially in Europe.

Unfortunately for LivaNova, rather than reversing its policy and covering VNS therapy, CMS took a middle-ground approach, proposing that the company run a placebo-controlled clinical trial following patients for at least a year, which -- if it yields positive results -- could lead to CMS covering the medical device.

LivaNova estimates there's a lot of pent-up demand from patients in the government programs, so the decision not to cover the therapy immediately is clearly a big lost opportunity. On the bright side, CMS' proposed decision puts LivaNova a step closer to getting coverage eventually, albeit a few years from now.

Man with eyes closed holding his head

Image source: Getty Images.

Now what

As the government is apt to do, CMS will take comments on its proposal before issuing a final decision. But investors should keep in mind that the agency already took comments before issuing this proposal, so it's unlikely that the proposal will change much.

A final ruling from CMS is expected on or before Feb. 17, 2019, at which point LivaNova can get started on setting up a clinical trial to prove its VNS therapy is worthy of CMS coverage.

Brian Orelli and The Motley Fool have no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.