iRhythm reported its Q2 results just over a week ago. With a 50% year-on-year growth, and a 76% gross margin things are looking really rather peachy. But there is a potential pothole or two in the road ahead. That’s why these 12 words in the press release are more important than the raw numbers:

“…our CPT code change application was accepted by the AMA for review…”

To be more specific, iRhythm is looking to change the CPT code for its devices from a category III code to a category I. Category III codes are used for experimental tests and treatments. As such, they are usually fleeting, temporary, short-lived. And as Kerrisdale Capital noted, that can create a real vulnerability for companies – like iRhythm – that depend on them. Nailing a category I code means you’ve cleared a big, big hurdle. Category I codes are what medical devices want to be when they are all grown up.

So, the AMA’s review is good and necessary for iRhythm. But, it doesn’t mean the company is home and dry yet. Under the current CPT codes (0295T-0298T, if you really must know…) the total Medicare reimbursement for using the Zio XT is about $90 a patient. They key question is this: Will the AMA review keep the reimbursement the same, increase it, or decrease it? Because that’s going to make a big difference to both adoption by cardiologists, and margins for iRhythm. And the answer to that question is, I suspect, down to lobbyists and lawyers as much as anybody else…

A quick disclaimer…Don’t take this as investment advice, because that’s not what it is, that’s not what I do.