Inspire Medical Systems NYSE: INSP reported first-quarter 2026 revenue growth and improved profitability metrics compared to the prior-year period, but management emphasized that coding and reimbursement uncertainty and the rollout of the federal WISeR prior authorization program created meaningful disruption during the quarter and drove a reduced full-year outlook.
First-quarter results and estimated disruption
Revenue increased 1.6% year over year to $204.6 million, which Chief Financial Officer Matt Osberg said was “primarily driven by increased market penetration.” However, Osberg said Inspire estimates that coding and reimbursement challenges and the WISeR program “adversely impacted revenue by approximately $20 million” in the quarter.
Despite the headwinds, Chairman and Chief Executive Officer Tim Herbert said the company was “pleased with the team's execution,” highlighting revenue growth and “improved adjusted operating income and operating cash flow compared to the prior year period.” Osberg added that operating margin and adjusted operating margin improved, “primarily driven by gross profit expansion due to a higher sales mix of Inspire V systems.”
Diluted EPS was a loss of $0.39 and adjusted diluted EPS was $0.10. Osberg also pointed to a highly unusual reported tax rate: the effective tax rate increased to 571.2%, which he attributed primarily to “tax shortfalls related to our stock-based compensation” caused by a decline in the stock price at vesting compared to the grant date. The adjusted effective tax rate, excluding stock-based compensation effects, was 25.7%.
Operating cash flow was $12.8 million, up $20 million from the prior-year quarter, “primarily driven by improved working capital,” Osberg said. Inspire ended the quarter with no debt and $400 million in cash and investments.
Coding and reimbursement: short-term workarounds and a longer-term CPT plan
Management devoted significant time to the ongoing effort to establish consistent coding and reimbursement practices for the Inspire V procedure. Herbert said the long-term solution is to establish “a new CPT code for a single-lead Inspire system,” but he described it as a lengthy process and said that if approved, it is expected to become effective on Jan. 1, 2028.
In the interim, Herbert said Inspire is “establishing short-term remedies for the various payers to bridge until the new CPT code is in place.” He said the company has inventory of Inspire IV systems for centers concerned about reimbursement for Inspire V, describing Inspire IV as “an extremely effective therapy with clear coding and reimbursement.”
For Medicare patients, Herbert said the Centers for Medicare & Medicaid Services announced the creation of a C-code to be used with Inspire V procedures, and Medicare Administrative Contractors are beginning to incorporate it into local policies. He said this provides “a reliable solution for hospitals and ambulatory surgical centers,” and noted that “the facility payment is equal to the Inspire IV CPT code 64582.”
For physician coding under Medicare, Herbert said MACs currently list CPT 64582 without use of a modifier, and “the majority of Medicare cases this year have been billed without the use of a modifier.” In response to analyst questions, Herbert clarified that the MAC local coverage determinations identify 64582 and remain “silent” on modifiers; he added that no MAC currently identifies the use of a modifier for Inspire V cases, though he acknowledged the company will continue to monitor the risk of future changes.
On the commercial side, Herbert said payers continue to list CPT 64568 for Inspire V procedures. He also referenced non-binding guidance, including an American Hospital Association newsletter recommending an unlisted CPT code (64999), but said unlisted codes require manual reviews and additional support and that “many centers and payers may be reluctant” to use them. Herbert stressed that commercial cases are prior authorized, meaning the billing code is approved before the procedure, which “significantly” reduces payment uncertainty for centers.
Still, Herbert said the uncertainty has reduced the number of patients in the pipeline, including fewer prior authorization submissions to commercial payers during the quarter. He said the company expects that trend to reverse later in the year as customers gain confidence, and Inspire is increasing support with proactive education, prior authorization and billing assistance, and expansion of its field reimbursement team.
WISeR program delays and expectations for easing later in the year
Herbert described WISeR as a government initiative requiring AI-reviewed prior authorization for Medicare cases in six pilot states that began in mid-January 2026. He said the program created prior authorization delays for traditional Medicare procedures in those states and was a headwind to first-quarter revenue.
Looking ahead, Herbert said Inspire expects the WISeR headwinds to “abate in the remainder of the year” as the company and customers gain experience, though he noted variability among the six states’ systems. In Q&A, Herbert said Inspire believes “the majority of those patients exist,” but cautioned that delays can lead to frustration, underscoring the need to move quickly to improve the process.
Updated 2026 guidance and expected quarterly cadence
Osberg said Inspire revised its full-year 2026 revenue outlook to $825 million to $875 million, incorporating updated assumptions for continued coding and reimbursement uncertainty and the WISeR program. He said the company expects the estimated adverse impact from these factors to rise to roughly $40 million to $50 million in the second quarter, reflecting a one-quarter lag between changes in prior authorization rates and revenue.
For the full year, Osberg said Inspire is estimating the total impact of coding/reimbursement uncertainty and WISeR to be $120 million to $150 million, while noting that quantifying the effects involves “high level assumptions” and “inherent uncertainty,” and the ultimate impact could differ materially depending on how quickly clarity develops.
The company also updated profitability expectations, now forecasting:
- Adjusted operating margin: 2% to 4%
- Diluted EPS: $0.07 to $0.62
- Adjusted diluted EPS: $0.75 to $1.25
Osberg said the changes primarily reflect lower expected revenue, “partially offset by continued actions to reduce operating expenses.” The updated outlook assumes an effective tax rate of 65% to 70% and an adjusted effective tax rate of 27% to 29%, weighted-average diluted shares outstanding of about 29.4 million, and capital expenditures of $40 million to $45 million.
For the second quarter, Osberg projected a 9% to 11% year-over-year revenue decline and an adjusted operating loss of $10 million to $15 million. He said Inspire expects sequential improvement in revenue and adjusted operating income after the second quarter, with the fourth quarter expected to be the strongest of the year.
When asked whether the guidance reduction was entirely attributable to reimbursement and WISeR, Osberg said those factors represent the “main part” of the revenue reduction, while acknowledging a smaller remaining gap influenced by “a number of different things,” including an impact from GLP-1 adoption that is “harder to put your finger on.” He also said the company did not introduce new assumptions related to competition in its revised outlook.
Commercial organization, product mix, and clinical updates
On the commercial organization, Herbert said changes in territory counts reflected “a combination” of planned realignment and other field adjustments. Osberg said Inspire ended the quarter with 284 U.S. territories and 288 U.S. field clinical representatives, and the company is optimizing through “targeted territory consolidation.” He added that Inspire hired 13 field clinical reps in the quarter and has reached its goal of a one-to-one ratio of territory manager to field clinical rep.
Regarding the Inspire IV versus Inspire V mix, both Herbert and Osberg said the first-quarter mix was predominantly Inspire V and was similar to the fourth quarter. Herbert said the company has sufficient inventory of Inspire IV to support U.S. centers that prefer it due to reimbursement considerations, as well as implants in Europe and Asia, but he added that once centers convert to Inspire V, “they kind of want to stay there” and are seeking confidence in coding and reimbursement.
Herbert also highlighted several clinical and evidence-generation milestones discussed during the call. He said Inspire will present full results from the Inspire V trial conducted in Singapore at the SLEEP 2026 conference in June, including data related to the accelerometer-based sensing technology and the safety and efficacy of the Inspire V implant. He said the Inspire ADHERE trial is complete and that data from the 5,000-patient cohort will also be presented at the conference. Herbert further discussed planned presentations evaluating cardiovascular outcomes using claims databases and referenced an independent study from Virginia Commonwealth University that he said showed significantly lower odds of multiple cardiovascular and respiratory events in the Inspire cohort with at least two years of follow-up.
In addition, Herbert said the PREDICTOR manuscript—an Inspire-led 600-patient study evaluating alternative screening options to drug-induced sleep endoscopy for a subset of eligible patients—has been accepted by a major medical journal and is expected to be published in the coming weeks. He also cited the company’s 2025 patient experience report, noting 2024 revision and explant rates of 1.7% and less than 1%, respectively.
Management reiterated that it views the current disruption as temporary and said it is prioritizing revenue-generating activities and disciplined cost management while making targeted investments, with Herbert saying the company believes several projects can begin to deliver returns in the second half of 2026 and accelerate in 2027.
About Inspire Medical Systems NYSE: INSP
Inspire Medical Systems, Inc is a medical technology company specializing in implantable neurostimulation devices for the treatment of obstructive sleep apnea (OSA). The company's flagship offering, the Inspire® system, delivers targeted stimulation of the hypoglossal nerve to maintain airway patency during sleep, providing an alternative therapy for patients who are intolerant of or inadequately managed by continuous positive airway pressure (CPAP) devices.
The Inspire system comprises an implantable pulse generator, a sensing lead that monitors breathing patterns, and a stimulation lead that activates the hypoglossal nerve.
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