BG Medicine (BGMD) Skyrockets

Shares of BG Medicine (BGMD) exploded on Friday, beginning a climb at the opening bell from $1.12 a share to $1.58 a share, a 45 percent gain. The initial run retreated some, but gains were still close to 30 percent by 2 pm. The massive gain came on equally significant volume, soaring past 10 million shares by early afternoon, more than quadruple its average volume and more than a third of the company’s total float.

BGMD Boosted by CMS Revision

Potentially spurring this feeding frenzy by investors was the announcement that the Center for Medicare and Medicaid Services (CMS) was revising the national limitation amount for BG Medicine’s Galectin-3 blood test. Galectin is a protein that acts as a biomarker that can play an active role in heart failure. Detecting its presence can potentially help doctors anticipate heart failure and take action.

The government agency raised the national limitation amount (NLA) for the Galectin-3 blood test to $30.01 from the $17.80 level it was at for 2013. The NLA is a cap for Medicare and Medicaid reimbursements that’s based on regional fee schedules, and the dramatic rise here could mean a major increase in revenue for BG Medicine.

However, this news is already a few weeks old, making it unclear what is driving the immediate spike in value. The rapid rise has the look of a potential short squeeze given the absence of any concrete news items on Friday, but the real factors driving this huge upswing will most likely remain speculative for the near term.

Heart Failure a Major Cost-Driver for Health Care System

Heart failures cost the American health care system an estimated $32 billion in 2013. With nearly 1 in 4 of heart failure patients on Medicare getting readmitted each year, something that costs the system $15 billion per annum. Patients with elevated Galectin-3 levels are two to three times more likely to be readmitted within 30 days, regardless of their clinical status when they are discharged.

Hospital readmissions have been a considerable focal point in the debate over reducing health care costs, and the Affordable Care Act included legislation to reduce payments to hospitals with excessive readmissions. As such, the market for tests and treatments that can reduce readmissions could be entering a new marketplace where they’re more in favor than in the past, when doctors and hospitals tended to profit from readmissions and had little financial incentive to avoid them.