The Reimbursement Code Shift and Operational Failures That Sent Inspire Medical's Stock Plummeting – What Investors Should Do Now?

The recent 32% plunge in Inspire Medical (INSP) shares has sent shockwaves through the medical device sector, driven by a perfect storm of reimbursement code changes and operational missteps. While the short-term pain is undeniable, the long-term story for this sleep apnea therapy innovator remains nuanced. Investors must weigh the immediate fallout against the company's resilience, strategic pivot to Inspire V, and the potential for a 2026 Medicare reimbursement boost.

The Short-Term Shock: Reimbursement Chaos and Operational Failures

Inspire's stock collapse began in August 2025, triggered by two Medicare Administrative Contractors (MACs)-Noridian and CGS-removing CPT code 64568, the critical billing code for its Inspire V hypoglossal nerve stimulation system. This code shift forced procedures back to the older, lower-reimbursement code 64582, slashing potential revenue per procedure. Compounding the issue, Inspire admitted to operational failures: delayed software updates, inadequate training for Medicare claims processing, and a backlog of Inspire IV devices that stifled demand for the newer Inspire V. These missteps led to an 80% EPS guidance cut and a class-action lawsuit alleging securities fraud.

The fallout was immediate. By late December 2025, the stock had dropped another 18% in a single day as confusion over reimbursement clarity persisted. Analysts at Stifel noted that the code reversal created "a material headwind for 2026 revenue visibility," eroding investor confidence.

The Long-Term Lens: Strategic Resilience and 2026 Catalysts

Despite the turbulence, Inspire's fundamentals remain intact. The company's third-quarter 2025 results showed revenue of $224.5 million-a 10% year-over-year increase-and reaffirmed full-year revenue guidance. More importantly, the Inspire V transition is gaining traction: 75% of U.S. centers are now prepared to adopt the newer system, which reduces surgical time by 20% and offers enhanced clinical outcomes.

A critical long-term catalyst emerged in late 2025: the U.S. government finalized 2026 Medicare reimbursement rules, increasing payment rates for Inspire's procedures by 50% under the reinstated CPT code 64568. This boost directly enhances facility fees for hospitals and ambulatory surgical centers, potentially reversing the revenue drag from the earlier code shift. Analysts at Piper Sandler and Oppenheimer have upgraded the stock, citing this development as a "game-changer" for Inspire's ASP (average selling price) and growth trajectory.

What Investors Should Do Now

For investors, the key lies in balancing risk and reward. The short-term risks are clear:
1. Reimbursement Uncertainty: While the 2026 rules provide clarity, delays in MAC adoption of the new code could persist.
2. Operational Execution: Inspire must prove it can resolve software and training issues to avoid further disruptions.
3. Inventory Glut: Excess Inspire IV stock could continue to weigh on margins until the Inspire V rollout accelerates.

However, the long-term opportunity is compelling:
- Reimbursement Tailwinds: The 50% Medicare rate increase in 2026 could drive revenue growth of 15–20% annually.
- Inspire V Adoption: With 75% of centers now ready, the transition to the newer system is on track to dominate 2026 procedures.
- Analyst Optimism: Stifel and Truist have maintained "Buy" ratings, while Wolfe Research raised its price target to $150, reflecting confidence in Inspire's recovery.

Strategic Recommendations

1. Hold for the Long-Term: Investors with a 12–18 month horizon should consider holding or accumulating shares, given the 2026 reimbursement boost and Inspire V's potential.
2. Hedge Short-Term Volatility: Given the lawsuit risks and operational uncertainties, consider hedging with options or limiting exposure until Q1 2026 results confirm the company's recovery.
3. Monitor Key Metrics: Watch Inspire's Inspire V adoption rate, Medicare claims processing updates, and inventory turnover in upcoming earnings reports.

In conclusion, Inspire Medical's stock plunge reflects a mix of short-term pain and long-term promise. While the reimbursement code shift and operational failures have caused immediate damage, the company's strategic pivot to Inspire V and the 2026 Medicare rules present a compelling case for patient investors. As always, due diligence on execution risks is critical-but for those who can stomach the volatility, the path to value creation may be clearer than it appears.