Aroa to hit right note as US skin substitute rules set for change

• Healthcare analysts say Aroa Biosurgery positioned to benefit from upcoming changes to US wound care market
• Centers for Medicare & Medicaid Services set to overhaul how skin substitutes are reimbursed, removing price driven incentives
• Changes could create ‘low-cost, high efficacy’ environment Aroa had sought for its Symphony product to treat hard-to-heal wounds

New Zealand’s Aroa Biosurgery (ASX:ARX) is well positioned to benefit from upcoming changes to the US wound care market, according to healthcare analysts.

The Centers for Medicare & Medicaid Services (CMS) is set to overhaul how skin substitutes are reimbursed, removing price-driven incentives that have long favoured expensive products over proven effectiveness.

Wilson’s Advisory senior research analyst – healthcare & biotechnology Dr Shane Storey told Stockhead the US skin substitute market had escalated in recent years because reimbursement in physician office settings (POs) was tied to average selling prices.

“This created perverse incentives to favour expensive products (regardless of efficacy) and even fraudulent activity, over-charging CMS,” Storey said.

“The unwitting creation of this ‘wild west of wound care’ drove an exodus of patients away from HOPDs (hospital outpatient departments), where reimbursement was a fixed bundled payment.”

However, the CMS will reimburse skin substitutes at a flat rate of US$125 per cm², regardless of whether the treatment is provided in a hospital outpatient department or a physician’s office.

Storey said patients with chronic conditions, such as those requiring wound care, were often managed in multidisciplinary clinics, with podiatrists frequently playing a key role.

Policy confirmation is expected in November with the changes coming into effect from January 1, 2026.

Storey said while eligibility for payment in the HOPD seemed straightforward, only a handful of incumbent products in the PO category would remain eligible for CMS payment from 2026.

“Fewer again will have viable margins at the proposed rate (we understand the industry is lobbying hard for higher rates),” he said.

Focus on evidence and product efficacy

The CMS plans to introduce a tiered pricing system that reflects the quality of clinical evidence and product effectiveness, in line with US Food and Drug Administration (FDA) standards.

Storey said products with the strongest support — those approved through a Premarket Approval (PMA) or Biologics License Application (BLA) and backed by randomised clinical trials in human patients — would receive the highest reimbursement.

Next in line would be products cleared under the 510(k) pathway. Finally, he said, lower-tier payments would apply to the many “minimally manipulated” products made from human cells or tissues that were not currently regulated by the FDA and were available under Section 361 of the Public Health Service Act.

“Ultimately, CMS wants to move to a tiered pricing system that parallels FDA’s view on evidence quality and product efficacy,” Storey said.

CMS changes could strike the right note for Aroa’s Symphony

Storey said the proposed CMS changes to how skin substitutes were reimbursed would create the “low-cost, high efficacy” environment Aroa had sought for its Symphony product, for hard-to-heal wounds such as diabetic ulcers.

Symphony has a small presence in HOPDs.

“Aroa held back from launching Symphony in the PO setting because it couldn’t win whilst ‘wild west’ conditions prevailed,” Storey said.

The company is now awaiting results from a 120-patient randomised trial in diabetic foot ulcers later this year, with positive data set to strengthen clinical evidence and support CMS eligibility in PO settings.

“Aroa is mulling potential strategies to reposition the Symphony business,” Storey said.

He said equally competitors like Mimedx and Organogenesis, which relied heavily on high-priced products, may struggle under the new rules and could even look to partner with Aroa.

Morgans says Aroa a ‘potential winner’

Morgans’ senior healthcare analyst Scott Power told Stockhead that the CMS changes could transform the wound care landscape for products used in PO settings.

“Aroa is well placed given their product suite sits better in that area and they are a potential winner,” Power said.

“It is levelling the playing field as taking away that incentive to use a more expensive product even though it may not necessarily be effective.”

Power said it was also worth noting that why CMS policy changes were due in November could change.

“We are dealing with a government department, so the question is will it come in November, or will it be delayed?” Power said.

“From my point of view it’s a question of timing of the announcement and then the impact of commercial sales and revenue and Aroa is potentially best placed of the three listed players in Australia.”

Effect on other ASX wound care players

The analysts believe the two other ASX wound care companies PolyNovo (ASX:PNV) and Avita Medical (ASX:AVH) would be less affected to a CMS overhaul of how skin substitutes were reimbursed due to different product focuses.

“The bulk of PolyNovo’s products are for burns patients and in hospital settings,” Power said.

Storey said the change might tempt PolyNovo to relaunch its SynPath product for chronic wound care.

“Importantly though, the CMS change is not a free kick,” he said.

“Anyone seeking to do well from it will need to have invested in randomised controlled trials and developed the appropriate reimbursement coding and selling infrastructure.”

Storey said the Avita RECELL system, a spray-on skin technology, was not classified as a skin substitute in the chronic wound care context.

Consequently, the proposed CMS reimbursement changes were unlikely to impact Avita’s operations.

Earlier this year, reimbursement for RECELL in the HOPD setting transitioned from transitional pass-through (TPT) status to permanent reimbursement codes.

This shift indicates that RECELL’s reimbursement access is separate from, and unaffected by, CMS’s proposed rule.

Storey said Avita’s other products Permeaderm (a dermal template) and Cohealyx (a wound dressing), were marketed in conjunction with RECELL.

“Both are in the evidence development phase, with modest sales expectations in the medium term,” he said.

“The CMS changes are considered immaterial for Avita.”

At Stockhead, we tell it like it is. While Aroa Biosurgery is a Stockhead advertiser, the company did not sponsor this article.