After an internal audit of its accounting practices discovered problems that will force the company to restate five years' worth of financial records, MiMedx Group (NASDAQ:MDXG) shareholders were dealt more bad news today when Blue Cross/Blue Shield parent Health Care Service Corp. announced it will no longer cover the company's injectable amniotic-tissue products. The news sent shares tumbling 11.1% today.
Health Care Service Blue Cross/Blue Shield operations cover 15 million people in Illinois, Montana, New Mexico, Oklahoma, and Texas. The decision to stop paying for the amniotic-tissue products stems from the company's decision that the products are "experimental, investigational and/or unproven for all indications." The shift in coverage is retroactive to Aug. 1.
It's the latest blow in a series of disappointments. MiMedx Group started coming under heavy fire last year from short-sellers accusing it of sketchy accounting. After initially disputing the allegations, the company launched an internal probe that's since resulted in the exit of its CEO, CFO, and COO, a delay in its filings with the Securities and Exchange Commission, and the need to restate financials all the way back to 2012 because of problems with "two distributors for which certain implicit arrangements modified the explicit terms of the contracts, impacting revenue recognition during specified periods."
An investigation by the Department of Veteran Affairs resulted in three members of MiMedx speakers group being indicted in South Carolina for healthcare fraud and conspiracy in May and it's unclear if other people could end up under scrutiny.
In a bid to restore investors' confidence, the company's board recently hired a turnaround consultant to serve as interim CEO. It's also hired a chief compliance officer.
The company hasn't said yet when it will file its restated financials or what the exact figures will be when it does refile those documents. Until we know for certain how much sales were possibly inflated, valuing MiMedx shares is too difficult, especially now that payers are beginning to balk at covering certain products.