What happened

Shares of healthcare company iRhythm Technologies (NASDAQ:IRTC) dropped by 16% in June after it announced that CEO Michael Coyle would be stepping down. Coyle will stay on with the company to assist in the leadership transition, but this was just the latest in a series of negative stories that have crushed the stock this year.

IRTC Total Return Level Chart

IRTC Total Return Level data by YCharts

So what

2021 has been tough for the medical device maker, which is down more than 70% year to date. Its share price dropped by more than 30% in January after Medicare reimbursement rates were slashed for the company's cardiac monitoring devices. That could seriously jeopardize demand for iRhythm's core offering.

Person angry on the phone as stock portfolio falls

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The stock tanked again in April after iRhythm announced that sales would be down $13 million in the first quarter due to the reimbursement change, and warned that it might be forced to discontinue some services if those rates weren't revised upward.

IRTC Total Return Level Chart

IRTC Total Return Level data by YCharts

The Medicare pricing issue remains unresolved, and it's not clear if there will be any opportunity to negotiate changes. As it stands, the new pricing impacts about 27% of iRhythm's sales. Had the current Medicare reimbursement rates been in effect during 2020, iRhythm's revenue for the year would have been nearly 16% lower.

Now what

Coyle is said to be leaving for personal reasons, but iRhythm will be forced to find a new leader while it's also in the midst of crafting a strategic response to its difficulties. The company recently announced that the FDA had cleared improvements to its monitor hardware and its AI software, both of which should improve users' ability to diagnose arrhythmias. iRhythm is working with the Centers for Medicare and Medicaid Services as well as the administrative contracting company that initially triggered the reimbursement revision. Management hopes to achieve better pricing in 2022, and it's forecasting growth for 2021 despite these challenges.

iRhythm isn't profitable, but it has enough cash to keep operating at its current burn rate for a few years. It's currently trading at a price-to-sales ratio of 6.4. From that valuation, the stock could tumble much further unless there is a significant change to either reimbursement rates or a strategic pivot. There might be more opportunity now for new investors in the wake of the recent share price declines, but there's still plenty of risk in this story.

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