IN THE COURT OF CHANCERY OF THE STATE OF DELAWARE

BARDY DIAGNOSTICS, INC., a

Delaware corporation,

 Plaintiff/

 Counterclaim Defendant,

 v.

HILL-ROM, INC., an Indiana corporation, 

and BARCELONA MERGER SUB, INC.,

a Delaware corporation,

 Defendants/

 Counterclaim Plaintiffs.

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C.A. No. 2021-0175-JRS

MEMORANDUM OPINION

Date Submitted: June 4, 2021

Date Decided: July 9, 2021

Brad D. Sorrels, Esquire, Andrew D. Cordo, Esquire, Jessica A. Hartwell, Esquire, 

Lindsay K. Faccenda, Esquire, Benjamin M. Potts, Esquire, Nora M. Crawford, 

Esquire and Jeremy W. Gagas, Esquire of Wilson Sonsini Goodrich & Rosati P.C., 

Wilmington, Delaware and David J. Berger, Esquire and Steven Guggenheim, 

Esquire of Wilson Sonsini Goodrich & Rosati, P.C., Palo Alto, California, Attorneys 

for Plaintiff/Counterclaim Defendant Bardy Diagnostics, Inc.

Michael A. Pittenger, Esquire, T. Brad Davey, Esquire, Matthew F. Davis, Esquire 

and Aaron R. Sims, Esquire of Potter Anderson & Corroon LLP, Wilmington, 

Delaware and Richard T. Marooney, Esquire, Alvin Lee, Esquire, Kenneth Fowler, 

Esquire, Julia Barrett, Esquire and Matthew Bush, Esquire of King & Spalding LLP, 

New York, New York, Attorneys for Defendants/Counterclaim Plaintiffs Hill-Rom, 

Inc. and Barcelona Merger Sub, Inc.

SLIGHTS, Vice Chancellor
1

Hill-Rom, Inc. (“Hillrom”) and its merger subsidiary, Barcelona Merger Sub, 

Inc. (“Merger Sub”), committed in an Agreement and Plan of Merger 

(the “Agreement”) to acquire Bardy Diagnostics, Inc. (“Bardy” or the “Company”), 

a medical device startup, by merger (the “Merger”).

1

 After the parties signed the 

Agreement, but before closing, the Medicare program, through an authorized agent, 

announced that the rates Medicare would pay for Bardy’s signature medical device 

would be dramatically reduced. Soon after, Hillrom gave notice to Bardy that it 

would not close the Merger. According to Hillrom, it was excused from closing 

because, between signing and closing, Bardy suffered a Material Adverse 

Effect (“MAE”) as defined in the Agreement. This litigation followed.

The usual refrain from sellers in “busted deal” cases is that the buyer 

developed an acute case of “buyer’s remorse” after signing and then sought to exploit 

contractual exits to avoid closing.2 The court often joins the “buyer’s remorse” 

chorus when it sees evidence that the buyer actually worked, through deliberate 

1 I refer throughout this Opinion to “Hillrom” in the singular, as Merger Sub is a shell entity 

created by Hillrom solely to effectuate the transaction.

2 See, e.g., Snow Phipps Gp., LLC v. Kcake Acq., Inc., 2021 WL 1714202, at *12 (Del. Ch. 

Apr. 30, 2021) (noting the buyer suffered from “buyer’s remorse”); Hexion Specialty 

Chems., Inc. v. Hunstman Corp., 965 A.2d 715, 721–36 (Del. Ch. 2008) (same). 
2

indolence or sabotage, to facilitate the demise of the transaction so that it could avoid 

the deal it struck.

3

 This case is different. 

In January 2020, Hillrom, a publicly-held, global medical technology 

company, expressed interest in acquiring Bardy, a startup medical device company 

that, then and now, had a single product offering on the market: a long-term 

ambulatory electrocardiogram (“AECG”) device (known alternatively as a longterm Holter device, or “LTH”) called the Carnation Ambulatory Monitor (“CAM”) 

patch. The CAM patch is a single-use, bandage-size patch designed to be secured 

to a patient’s chest and worn for up to 14 days, during which it records 

electrocardiographic data to detect heart arrhythmias. That data is received by Bardy

via the cloud (where it is also stored) and then interpreted at one of Bardy’s 

independent diagnostic testing facilities (“IDTF”) by trained ECG technicians who 

create a proprietary report for review by the patient’s physician. More comfortable 

and accurate than comparable devices, Bardy’s best-in-class technology fueled the 

Company’s explosive growth, and Hillrom came to view Bardy as an inorganic way

to enter the fast-growing extended AECG device market. 

3 See Snow Phipps, 2021 WL 1714202, at *12 (concluding the record showed the acquirer 

“set on a course of conduct predestined to derail Debt Financing and supply a basis for 

terminating the agreements.”); Hexion, 965 A.2d at 721–36 (observing that, following the 

seller’s disappointing quarterly results, the buyer curated a contrived insolvency opinion 

based on overly pessimistic inputs to dissuade lenders from financing the acquisition). 
3

Bardy operated under several revenue models to monetize the CAM patch, 

with its largest tied to servicing Medicare patients. Medicare sets its rates for 

reimbursement of medical devices and related services through use of Current 

Procedural Technology (“CPT”) codes. The Centers for Medicare & Medicaid 

Services (“CMS”), an arm of the federal Department of Health and Human Services, 

develops and administers Medicare’s reimbursement policy, overseeing adoption 

and pricing of CPT codes for medical services. In certain situations, however, CMS 

assigns Temporary Category III CPT codes to new services and then delegates 

pricing authority to local Medicare Administrative Contractors (“MACs”)—private 

entities operating within designated regions and vested with authority to set pricing

for certain CPT codes. 

Though prices set by MACs operate with the same legal force as those set by 

CMS, the means and methods by which MACs arrive at their pricing decisions is—

unlike CMS—notoriously opaque. The reimbursement rates attached to the 

temporary CPT codes assigned to the CAM patch have always been set by a MAC,

Novitas Solutions, Inc. (“Novitas”), which for years consistently priced the device 

at around $365 per patch. 

As Hillrom and Bardy began their negotiations in early 2020, both parties 

understood that CMS was expected to set a permanent national rate for the CAM 

patch’s CPT codes, and both expected the rate to be higher than the rate Novitas had 
4

previously set. The designation of a national rate for extended AECG devices was 

viewed as a positive development for those operating in the AECG space, not only 

because the reimbursement rate was likely to increase but also because the 

permanent CPT codes would signal to prescribing physicians that the devices had 

matured into the “standard of care” for the diagnosis of cardiac arrythmias. 

To the surprise of Hillrom, Bardy and others in the AECG space, CMS elected 

not to set the anticipated higher reimbursement rates, or any reimbursement rate, for 

the CAM patch’s CPT codes, delegating that authority (again) to the MACs. Hope

was not lost, however, as Hillrom and Bardy both expected that, in the worst-case 

scenario, Novitas would set reimbursements for the CAM patch at historic rates. 

Novitas had not yet issued its decision on pricing when, in early January 2021,

Hillrom signed the Agreement to acquire Bardy. To shift the risk of any decline in 

revenue attributable to lower reimbursement rates onto Bardy, the Agreement 

contemplated an earnout regime that tied the ultimate purchase price to certain 

revenue targets, which were invariably affected by a change in the rate at which 

Bardy was reimbursed for its services by Medicare. The Agreement also contained 

an MAE clause, which excused Hillrom from its obligation to close if the Company 

experienced an MAE, as defined in the Agreement. 

On January 29, Novitas announced a new rate (the “January Novitas Rate”) 

for the CPT codes governing the CAM patch: $42.68 for Texas and $49.70 for 
5

New Jersey (the sites of Bardy’s two IDTFs). Novitas’ drastic reduction in Medicare 

reimbursement rates came without warning and hit both Bardy and Hillrom like a 

Tyson right uppercut. The approximately 86% decline in the reimbursement rate 

was disorienting.4

 After the dust settled and everyone’s eyes rolled back into place, 

the parties agreed to operate on the premise that Novitas had made a mistake. 

Industry players, including Bardy (with Hillrom’s support), undertook a coordinated 

effort to educate Novitas on the error of its ways. 

Novitas did not act with dispatch, however, and Hillrom’s appetite to close on 

the Merger soured as hope for a Novitas correction waned. On February 21, 2021, 

three days before the Merger was scheduled to close, Hillrom informed Bardy that 

it believed an MAE had occurred, thereby excusing its obligation to close. Bardy

filed its Complaint a week later, on February 28, 2021, seeking specific performance 

of the Agreement and money damages for Hillrom’s unexcused delay. Hillrom 

counterclaimed alleging that an MAE had occurred or, in the alternative, the purpose 

of the Agreement had been frustrated. 

On April 10, 2021, Novitas increased the January Novitas Rate by nearly three 

times, to roughly $133 (the “April Novitas Rate”), still less than half of the historic 

rate. Bardy remains optimistic that either Novitas or CMS will increase 

4 “Everyone has a plan until they get punched in the mouth.” Mike Tyson. 
6

reimbursement rates further. In the meantime, it maintains that its unit economics 

are strong and it continues to project record-breaking growth. For its part, Hillrom 

believes Bardy will run out of cash before it turns a profit. Thus, by Hillrom’s lights, 

Bardy is either conjuring litigation-driven optimism or is unknowingly dancing in

quicksand. Either way, Hillrom remains adamant that the April Novitas Rate was 

and is an MAE.

The matter was tried over the course of three days. After carefully considering 

the evidence, I am satisfied this is not a case of “buyer’s remorse.” Hillrom remained

optimistic about Bardy’s potential even after CMS and Novitas delivered 

disappointing news, and it stood ready to close if either Novitas or CMS restored 

reimbursement rates to historic levels. Rather than work to skuttle the deal, Hillrom 

encouraged Bardy’s efforts to convince Novitas to change its mind. When that did 

not happen, Hillrom invoked contractual exits in good faith. 

Of course, the fact Hillrom did not act in bad faith does not mean it has 

properly refused to close on the basis of the Agreement. Good faith does not excuse 

a breach of contract. After carefully considering the evidence, I am satisfied Hillrom 

did not carry its burden to prove that Bardy suffered an MAE given its failure to 

prove the durational significance of the April Novitas Rate. Even if an MAE

occurred, the April Novitas Rate was carved out from the definition of MAE as a 

“Healthcare Law.” Though the Agreement sets forth an exception to this carve-out 
7

for events that disproportionately affect Bardy relative to similarly situated 

companies operating in the same industries, the preponderance of the evidence 

reveals the April Novitas Rate did not disproportionately impact Bardy. For the 

same reasons the Company did not suffer an MAE, Hillrom’s invocation of the 

frustration of purpose doctrine is misplaced. 

Given these factual findings, Bardy is entitled to specific performance and 

prejudgment interest on the deal price, but its claim for indemnification under the 

Agreement fails. My reasoning follows.

I. BACKGROUND

The trial record comprises 824 trial exhibits,5 live testimony from six fact and 

five expert witnesses,6 deposition testimony from 13 fact and five expert witnesses7

and 38 stipulations of fact.8

 The following are the facts proven by a preponderance 

of the credible, competent evidence, with the parties’ respective burdens of proof in 

mind.

5 D.I. 74.

6 D.I. 68 (Joint Pre-Trial Stip. and Order) (“PTO”) ¶¶ 49–52.

7 D.I. 71–72.

8 I cite to the joint trial exhibits as “JX __,” the trial transcript as “Tr. __ (witness name)”; 

and depositions lodged as evidence as “(Name) Dep. __.”
8

A. The Parties

Plaintiff, Bardy, is a Delaware corporation that makes and sells AECG

monitors and provides related diagnostic services. It operates IDTF facilities in 

Houston, Texas and New Providence, New Jersey.9

 

Defendant, Hillrom, is an Indiana corporation with its principal place of 

business in Chicago, Illinois.10 Defendant, Merger Sub, is a Delaware corporation 

and a wholly-owned subsidiary of Hillrom.11 

B. Bardy’s Business

In 2013, Gust Bardy, M.D., a cardiac electrophysiologist, founded Bardy to 

overcome challenges commonly faced in ambulatory cardiac monitoring 

(“ACM”).

12 For Dr. Bardy, the Company was a labor of love formed in memory of 

his wife, who had passed away the year before from complications associated with 

poorly diagnosed cardiac rhythm disorders.13

9 PTO ¶¶ 7, 9.

10 PTO ¶ 10.

11 PTO ¶ 12.

12 PTO ¶ 8.

13 Tr. 15:2–16:21 (Bardy); see also JX 62 at 7 (providing a picture of Dr. Bardy’s wife 

captioned “[t]he reason the company was founded”).
9

Bardy currently manufactures and markets a single product called the CAM 

patch, which belongs to a category of ACM products sometimes referred to as longterm ambulatory electrocardiogram (AECG) or long-term Holter (LTH) devices.

14 

Bardy’s CAM patch is a single-use, bandage-size patch designed to be affixed to a 

patient’s chest and worn for up to 14 days,15 during which it records 

electrocardiographic data.16 That data is uploaded to Bardy via the cloud and read 

at one of Bardy’s two IDTFs by trained ECG technicians who create a proprietary 

report for review by the patient’s physician.17 

Bardy’s CAM patch is, by all accounts, exceptional.18 Two separate head-tohead studies published in the American Heart Journal conclude that the CAM patch 

detects arrhythmias with accuracy superior to both traditional Holter monitors and 

other extended AECG monitors, including the monitor developed by Bardy’s

14 PTO ¶ 13; JX 396.

15 PTO ¶ 13.

16 JX 337 at 14–15; JX 386 at 2.

17 PTO ¶ 13; JX 62 at 27–31, 72; JX 337 at 15. 

18 See JX 204 at 3 (Hillrom’s Dr. Johannes de Bie noting, “I have little doubt that the 

[Bardy] solution (CAM+IDTF) is currently the clinically best solution for [extended 

AECG] for the diagnosis of infrequent arrhythmias and that it is not easy to copy.”); 

see also (Blanchard) Dep. 46:3-11 (explaining that Dr. de Bie is Hillrom’s “chief scientist 

expert, ECG person”); Tr. 36:11–38:14, 84:19–24 (Bardy) (agreeing with Dr. de Bie’s 

assessment); id. at 104:2–17 (LaViolette) (same).
10

competitor, iRhythm Technologies, Inc. (“iRhythm”), called the “Zio XT” patch.19 

AECG monitors like the CAM patch are also more patient-friendly, comfortable and 

inconspicuous than traditional Holter monitors.20 Bardy has fortified its competitive 

moat with intellectual property; indeed, the CAM patch incorporates technology 

covered by 80 patents—more than the rest of the industry combined.21

Bardy is also developing several other products, including an insertable 

cardiac monitor (“ICM”) it expects to bring to market in 2023.22 An ICM is a device 

that is inserted below the skin in a patient’s chest for continuous, long-term biometric 

monitoring.23 Unlike current ICMs, Bardy’s product will have a rechargeable 

battery, superior signal quality and enabled cloud-based analysis.24 The ICM market 

is “a billion dollar category” with a reimbursement structure distinct from the CAM 

19 See JX 40 at 2; JX 54 at 4, 7; JX 62 at 15; JX 397 at 2.

20 JX 509 at 4; JX 54 at 4. For example, unlike older technology, the CAM patch does not 

require lead wires or a recording device attached to a belt or lanyard, making for a more 

comfortable user experience. See PTO ¶ 13. 

21 Tr. 18:12–20:10 (Bardy); see also JX 204 at 3 (Hillrom’s chief scientist expert observing 

that the CAM patch “is not easy to copy.”).

22 PTO ¶ 14; Tr. 32:1–2, 63:13–17 (Bardy); id. at 105:5–20, 105:21–106:9 (LaViolette).

23 JX 331 at 16; JX 94 at 52–58.

24 Tr. 29:5–31:11 (Bardy); id. at 105:5–20 (LaViolette); JX 62 at 42; JX 194.
11

patch.25 Bardy is also developing next-generation patches that it hopes will allow it 

to serve different market segments at lower cost as “the only company in the world 

with the entire spectrum of monitoring technologies at [its] disposal.”26

For now, the CAM patch comprises 100% of Bardy’s revenue.27 That revenue 

is principally derived from either of two models: “split billing” or “fee for service.”28 

Split Billing

Under the split billing model, Bardy provides the CAM patch to a physician 

for free, and the physician applies the patch to a patient.29 The bill is then “split” 

into two components. In the “professional component,” the physician bills the 

insurer for the application of the patch and the interpretation of Bardy’s report.

30 In 

the “technical component,” Bardy bills the insurer for the data analysis and 

preparation of the resulting report.

31 If a patient is insured under Medicare, then 

25 Tr. 105:23–106:9 (LaViolette); see also (Bardy) Dep. 174:13–175:2 (describing ICM 

potential to be “a much bigger business than our dermal monitoring business [i.e., the CAM 

patch]”).

26 Tr. 32:3–15, 58:19–24 (Bardy).

27 See (Bardy) Dep. 99:4–6, 242:19–21.

28 Tr. 154:4–18 (Querry).

29 JX 110 at 8; Tr. 238:18–239:17 (Querry).

30 Tr. 238:18–239:17 (Querry).

31 Id.; see also JX 110 at 8 (Hillrom presentation describing mechanics of technical fees).
12

Medicare reimburses Bardy at the rate that has historically been set by Novitas.32 

In 2020, the Novitas reimbursement rate was $365 per patch. Over the eight-year 

period before the Merger, “that rate had remained largely unchanged, give or take a 

couple of dollars.”33

If a patient is insured by a commercial (private) third-party payor, then 

Bardy’s reimbursement rates are determined through negotiation with each payor.34 

When determining whether to contract with a commercial payor, Bardy considers if 

it (i) can obtain a higher payment by negotiating a fixed rate, or (ii) should remain 

non-contracted and charge a percentage of its “usual and customary” rates as an “outof-network” provider.35 Bardy’s largest commercial payors in 2020 were Horizon 

BCBS (roughly 28% of Bardy’s patients), United Health Care (9%) and 

Aetna (6%).36

In 2020, the split billing model accounted for roughly two-thirds of Bardy’s 

revenue.37 Because it is the more profitable of its two models, Bardy projects that 

32 PTO ¶¶ 16–19.

33 Tr. 170:19–23 (Querry).

34 Id. at 157:5–7 (Querry).

35 Id. at 157:15–159:4 (Querry); id. at 251:20–252:6 (Burke).

36 Tr. 157:18–158:14 (Querry).

37 Id. at 155:1–156:4, 170:19–23 (Querry); JX 700 at 2.
13

split billing will account for an increasing proportion of its revenue in the years to 

come.

38

Fee-For-Service Billing

Bardy earns the balance of its revenue through its so-called “fee for service” 

model, under which Bardy sells its CAM patch and IDTF services to physicians and 

hospitals for a negotiated flat fee.39 The healthcare provider then bills the insurer 

under a “global” rate that incorporates both the professional and technical 

components.40 The healthcare provider’s profit is the delta between the flat fee paid 

to Bardy and the reimbursement received under the global rate.41 

C. Bardy’s Competition

The AECG market in which Bardy operates is comprised of Bardy and three 

main competitors: iRhythm, BioTelemetry and Preventice.42 iRhythm is Bardy’s 

“main” and “most logical” competitor.43 Like Bardy, iRhythm derives nearly all its 

38 Tr. 156:5–12 (Querry); JX 613 at 8.

39 PTO ¶ 20; Tr. 235:1–237:15 (Querry).

40 JX 110 at 8.

41 (Burke) Dep. 59:6–10.

42 PTO ¶ 21.

43 Tr. 125:13–14 (LaViolette); id. at 159:5–13 (Querry); see also (McClanahan) 

Dep. 98:14–99:6 (noting that Hillrom specifically looked at iRhythm’s growth rates and 

margin expectation when it was assessing Bardy’s value).
14

revenue from its extended AECG patch.44 BioTelemetry and Preventice offer AECG 

patches that are lower cost and lower quality, but both companies focus primarily on 

MCOT devices that target different patients than those who will benefit from 

extended AECG monitors.45

D. Overview of the ACM Medicare Reimbursement Landscape

As mentioned, reimbursement rates under Medicare are set for specific CPT 

codes tied to particular services. CMS, an arm of the federal Department of Health 

and Human Services, develops and administers Medicare’s reimbursement policy, 

overseeing the adoption and pricing of CPT codes for medical services.46 

CMS sets prices informed by its “Triple Aim,” which seeks to promote: (1) the 

health of each individual patient beneficiary; (2) health for populations, including 

managing healthcare disparities; and (3) lower costs.47 To better achieve these goals, 

44 See Tr. 159:5–13 (Querry); JX 631 at 39–40 (estimating iRhythm derives 96% of its 

revenue from its AECG patch product).

45 See Tr. 511:22–512:7 (Frank) (noting extended AECGs constitute “a very small part” of 

BioTelemetry’s business); id. at 159:14–160:3 (Querry) (listing modalities offered by 

BioTelemetry and Preventice); see also id. at 32:21–33:6 (Bardy) (explaining MCOTs are 

not interchangeable with extended AECGs).

46 JX 635 at 5–9 (describing what CPT codes are and how they are developed).

47 Tr. 313:12–314:15 (Renbaum).
15

CMS is moving toward a “forward-looking preventative care approach”48 focused 

on doing “the right thing for the right patient at the right time.”49 

In certain situations, CMS assigns Temporary Category III CPT codes to new 

services and then delegates pricing authority to local MACs.50 From a devicemaker’s perspective, there is no practical difference between a MAC-set price and a 

CMS-set price: a MAC’s price bears the full weight of CMS’s authority and it is 

illegal to bill a Medicare patient above the rate set by an authorized MAC.51 

When a service with a temporary CPT code is more widely utilized,

stakeholders typically petition the CPT Editorial Panel to set permanent Category I 

codes, signaling to physicians that a service has become part of the “standard of 

care” that can be billed at predictable reimbursement rates for Medicare patients.52 

When a Category I code is proposed, the American Medical Association’s ResourceBased Relative Value Scale Update Committee (the “RUC”), working with CMS, 

develops a pricing recommendation after a detailed review of costs, including 

48 (Kohler) Dep. 119:23–120:15; see also Tr. 626:18–22 (Kohler).

49 Tr. 320:13–18 (Renbaum).

50 Id. at 625:10–12 (Kohler); JX 635 at 5–9.

51 42 U.S.C. § 1395w-22; Tr. 169:6–170:1, 171:18–172:3 (Querry); id. at 311:5–12 

(Renbaum).

52 Tr. 303:20–304:5 (Renbaum); id. at 116:7–117:3 (LaViolette); id. at 160:9–23 (Querry); 

JX 635 at 6–10.
16

equipment, supply and clinical labor.53 CMS can choose to accept the RUC’s 

recommendation, adjust pricing based on its own analysis or delegate pricing to 

MACs.54 

Though MAC prices are functionally equivalent to CMS prices, the processes

by which these entities determine their final prices could not be more different. 

MACs are regarded by industry participants as “black boxes”—they do not explain 

their reasoning when they set rates and can change their rates at any time.55 CMS’s 

rate-setting process, by contrast, is transparent and “iterative,” building upon prior 

analyses and input from stakeholders.56 While CMS does not disclose the matters it 

is considering while it studies a proposed rule,57 it does explain its reasoning at the 

53 Tr. 310:7–302:1 (Renbaum); JX 635 at 9.

54 JX 635 ¶ 18.

55 Tr. 371:20-372:11 (Renbaum); id. at 634:14–636:1 (Kohler); id. at 241:5–22 (Querry); 

JX 632 ¶ 25 (Hillrom’s expert explaining “the processes by which the MACs determine 

pricing are comparatively less transparent” and “the price set by any one MAC may not be 

as intellectually defensible from a valuation perspective as the rates set by CMS, whose 

standard, methodical rate-setting process” is more transparent); JX 671 at 2.

56 Tr. 312:9–313:11, 350:17–24, 360:3–362:7 (Renbaum); JX 671 at 6–7.

57 Tr. 360:3–363:9 (Renbaum); see also id. at 639:3–24 (Kohler) (describing the 

“big blank” in the timeline between a RUC recommendation and CMS proposed rule 

during which there are “questions back and forth” between CMS and stakeholders that

“[w]e don’t see” because “[i]t’s not public information”).
17

time the rule is published.

58 This contrast in processes is well known to everyone 

involved with Medicare reimbursement.59

E. Hillrom Explores an Acquisition of Bardy

Hillrom had long wanted to enter the ACM space and viewed the extended 

AECG segment in particular as an “expanding category” with significant growth 

potential.60 In 2019, Hillrom engaged a consultant, Health Advances LLC, to 

perform market research and to evaluate a potential strategic transaction in the ACM 

space.61 

In January 2020, Bardy investor and board member, Paul LaViolette,

discussed Bardy’s business with Hillrom CEO, John Groetelaars.62 Following this 

discussion, Hillrom determined that Bardy’s “differentiated technology” would 

complement Hillrom’s existing short-term Holter business,63 making it a “good 

58 Tr. 640:1–24 (Kohler).

59 Id. at 363:3–9 (Renbaum).

60 Id. at 521:11–522:22 (Frank); JX 110 at 4 (Hillrom strategic assessment highlighting 

“High Growth Segment” in the “What We Like” row); (Blanchard) Dep. 24:7–10.

61 Tr. 509:18-512:1 (Frank); JX 23; JX 28 at 4, 7; JX 48; (Blanchard) Dep. 66:9–20;

(Kucheman) Dep. 40:7-10.

62 PTO ¶ 22; Tr. 95:17–20 (LaViolette).

63 JX 365 at 3, 9; Tr. 489:11–22 (Frank); JX 366 at 2 (describing strategic rationale for the 

Merger); (Kucheman) Dep. 18:5–22, 42:13–23, 83:18–84:8 (explaining Bardy “would help 

to diversify the preexisting diagnostic cardiovascular product line . . .”); (Blanchard) 
18

strategic fit” for an acquisition.64 Hillrom also viewed Bardy’s ICM

(in development) as “ha[ving] the potential to revolutionize disease treatment and 

early diagnosis.”65 Although Bardy was not for sale, both sides grew increasingly 

interested in a transaction as discussions progressed.66

Of course, Hillrom knew Bardy was a typical venture-backed startup in the 

sense that it was focused in the near term on growth, not profitability. Indeed, 

Hillrom knew that: Bardy had never turned a profit; it was projected to incur 

significant losses in 2021; and the acquisition was not projected to be accretive until 

FY 2023 at the earliest.

67 Since its inception, Bardy’s management has been laserfocused on aggressively increasing revenue, expanding infrastructure and personnel, 

Dep. 43:3–44:10; see also JX 149 at 15, 21 (internal Hillrom document explaining strategic 

rationale for the Merger); JX 63 at 8 (same).

64 (McClanahan) Dep. 20:13–21:14; (Roehrich) Dep. 28:6–24; see also JX 109 at 5

(internal Hillrom investment memorandum explaining strategic rationale of the Merger); 

JX 157 at 3–5, 31 (same); JX 173 at 3, 16 (same).

65 JX 340 (internal email from Groetelaars stating, “[t]he ICM is the type of bold innovation 

that this company needs a little more of and it is necessary that we acquire it and then 

support the development and commercialization of it.”); see also Tr. 609:12–611:8 

(Groetelaars) (acknowledging the email).

66 PTO ¶ 23; Tr. 109:8–18 (LaViolette); id. at 509:8–11 (Frank).

67 JX 365 at 19; Tr. 490:13–22 (Frank); see also JX 41 at 41 (internal Hillrom presentation 

acknowledging Bardy’s financial profile entails near-term losses); Tr. 62:11–15 (Bardy)

(explaining that Bardy has never turned a profit); id. at 102:9–103:19 (LaViolette) (same); 

id. at 153:4–11 (Querry) (same).
19

and developing new technologies.68 Their efforts have paid dividends; Bardy’s 

revenue has grown exponentially, from $1.4 million in 2017 to over $26 million 

in 2020.69 This revenue expansion has been fueled by a compounded annual growth 

rate of 243% from 2018 through 2020, with enrollments (i.e., demand) for CAM 

patches increasing 91% in 2020.70 

Hillrom further appreciated that Bardy’sfuture profitability was, in significant 

part, dependent on Medicare rates for extended AECG devices, and that prices for 

devices such as Bardy’s were subject to change due to the anticipated shift to 

Category I CPT codes.71 But Hillrom viewed the risk of a significant change in 

Medicare reimbursement rates as low and, given Bardy’s dynamic growth, Hillrom 

believed it “could absorb” Bardy’s short-term lack of profits because the Company 

would serve as “a platform for [future] growth.”72

68 Tr. 153:12–154:1 (Querry); id. at 102:11–22 (LaViolette).

69 Tr. 150:15–23 (Querry).

70 Id. at 151:4–20 (Querry).

71 See Tr. 512:15–516:3 (Frank) (acknowledging that a change in Medicare reimbursement 

rates for LTH devices would have impact Bardy more than Biotelemetry); JX 48 at 10–11 

(observing that the “[s]ustained attractiveness” of an ACM acquisition was contingent on 

“Category I shift ha[ving] minimal LTH reimbursement reductions”). Hillrom recognized 

in public disclosures that its own business faced “significant uncertainty” from, among 

other things, “changes in Medicare, Medicaid, and other governmental medical program 

reimbursements[.]” JX 8 at 7–8; Tr. 583:15–24 (Groetelaars).

72 (Blanchard) Dep. 93:6–94:4, 143:10–144:10.
20

F. CMS Issues its Proposed Fee Schedule

The CPT Editorial Panel of the AMA recommended Category I codes for 

extended AECG monitoring effective in January 2021.73 The RUC subsequently 

met to approve a pricing recommendation for the codes,

74 but it did not receive 

invoices for use in its cost build-up because IDTFs generally bill directly to Medicare 

rather than selling patches to physicians.75 Thus, when the RUC ultimately 

recommended an increase in Medicare reimbursement to $438.94 per patch, it had 

relied not on actual costs but on the weighted mean of payment for these services to 

CMS, which it viewed as a “reasonable proxy.”76

On August 4, 2020, CMS published its proposed physician fee schedule for 

2021, which proposed adopting permanent “Category I” codes for long-term AECG 

monitors, including separate codes for 2-to-7 day tests and 7-to-14 day tests (the 

“Proposed Fee Schedule”).

77 It also proposed national rates for the diagnostic 

component of those two codes of $451.24 and $463.92, respectively, for the territory 

73 JX 635 at 10–12.

74 Tr. 302:10–303:1, 304:13–305:6 (Renbaum); JX 13 at 41.

75 Tr. 303:20–304:12 (Renbaum); JX 13 at 40–41; see also Tr. 185:19–188:3 (Querry) 

(describing Bardy’s effort to come up with a similar cost build-up using Bardy’s invoices 

for direct sales as “confirmatory” of historical rates); JX 498.

76 Tr. 306:8–307:6 (Renbaum); JX 13 at 41–42; JX 70 at 2–3.

77 JX 70.
21

that encompassed Bardy’s New Jersey IDTF.

78 CMS noted, however, that it had not 

received traditional invoices for the devices to support its cost analysis and would 

“continu[e] to gather more data to come to a final decision.”79

G. Hillrom Conducts Diligence into Bardy

Approximately three-weeks following the release of CMS’s published fee 

schedule, on August 25, 2020, executives from Hillrom and Bardy met again to 

discuss a potential acquisition.80 During the meeting, and again in a subsequent 

September presentation, Bardy laid out its financial model for 2021–2025, which 

incorporated increased revenue and gross margins based on CMS’s proposed rates.81 

Bardy also saw an “[o]pportunity to reset commercial rates higher commensurate 

with [the proposed rise in] new Medicare rates.”82

Following preliminary due diligence, on September 1, 2020, Hillrom

submitted an initial offer to acquire Bardy for $400 million.83 On September 24, 

2020, Hillrom sweetened the offer when it submitted a non-binding initial indication 

78 PTO ¶ 28; JX 93 at 8.

79 Tr. 307:1–308:17 (Renbaum); JX 70 at 2–3.

80 PTO ¶ 25.

81 JX 95 at 8, 76–85; JX 153 at 4.

82 JX 153 at 15, 30.

83 PTO ¶ 25; Tr. 112:1–24 (LaViolette); JX 111.
22

of interest (“IOI”) to acquire Bardy for $450 million plus potential earnouts.84 Bardy

accepted Hillrom’s IOI and the parties proceeded with more rigorous due 

diligence.85

By all accounts, the due diligence process was “extensive [and] disciplined.”86 

Hillrom prepared various financial models, all of which contemplated dilution in the 

two years post-acquisition.87 Though Hillrom identified BioTelemetry, iRhythm 

and Preventice as points of comparison against Bardy,

88 it focused on iRhythm as 

Bardy’s closest comparable and carefully evaluated iRhythm’s public disclosures, 

stock price and other metrics during due diligence.89

84 JX 137 at 7.

85 PTO ¶ 26.

86 (Blanchard) Dep. 164:12-16; see also Tr. 167:23–168:11 (Querry) (describing at a high 

level what Hillrom’s diligence process entailed).

87 (McClanahan) Dep. 50:3-23 (“Q. Do you recall seeing any models of an acquisition of 

Bardy by Hill-Rom where the year 1 or 10 year zero return was positive? A. Not that 

I recall. Q. Approximately how many different models of a potential acquisition of Bardy 

by Hill-Rom did you look at over the entire course of the M&A process? A. Quite a few.

I can’t recall a specific number, though. . . . Q. More than 20; is that a fair estimate? 

A. That could be.”); JX 108; JX 123; JX 157 at 3, 17–23; JX 173 at 19–24.

88 JX 365 at 12.

89 See JX 157 at 22 (focusing on iRhythm’s profit & loss history and forecast comparable); 

JX 337 at 28 (Board deck singling out for comparison iRhythm’s revenue multiple); JX 272 

at 3 (M&A Committee member tying deal element to iRhythm’s share price); JX 367 at 14 

(1/11/2021 Hillrom Board approval deck noting iRhythm trading multiple); (Roehrich) 

Dep. 45:6–12 (noting that Hillrom “looked at what iRhythm, as another company in this 

space, had put out publicly”), 91:14–92:7 (explaining Hillrom based its views on pricing 
23

Among Hillrom’s key goals in due diligence was to “validate” whether the 

reimbursement rates in the Proposed Fee Schedule would be finalized or 

“meaningfully impacted” through the comment period.90 Hillrom tasked its in-house 

reimbursement expert, Kari Roehrich, with leading an “entire workstream dedicated 

to reimbursement for [Bardy].”91 Beyond Hillrom’s own in-house expertise, 

Roehrich and her team reviewed analyst reports, monitored public comments, relied 

on the advice of their outside advisors at King & Spalding and Health Advances and

received input from healthcare consultant, David Parr.92

On October 5, 2020, Muller Consulting & Data Analytics submitted a 

comment to the Proposed Fee Schedule that advocated for reimbursement rates of 

$66.25 for the 2-to-7 day code and $8.66 for the 7-to-14 day code.93 Following this 

changes in part on “everything we had . . . read from iRhythm analysts”); (Blanchard) 

Dep. 277:13–19; (McClanahan) Dep. 98:4–99:6 (noting that Hillrom looked specifically at 

iRhythm’s growth rates and margin expectation when they were assessing the future value 

of Bardy).

90 See JX 110 at 5 (listing as a point “requir[ing] validation” that “[r]eimbursement rate 

changes for [extended AECG] announced in August of 2020 are not meaningfully impacted 

through the ‘comment period’ and are stable in 2021 and beyond”); see also Tr. 168:8–11 

(Querry) (confirming that there were questions about reimbursement during “[a]lmost . . . 

every interaction with the Hillrom team”).

91 JX 141 at 2; JX 169; see also Tr. 527:12–17 (Frank) (acknowledging Hillrom had internal 

and external experts evaluating reimbursement rates).

92 Tr. 527:18–528:19, 533:7–12 (Frank); id. at 581:12–582:9, 600:5–601:1 (Groetelaars); 

JX 169; JX 197 (Parr email to Hillrom); JX 246.

93 Tr. 529:1–15 (Frank); id. at 593:15–595:11 (Groetelaars); JX 150 at 3; JX 170.
24

announcement, Parr warned Hillrom that historical Novitas “payment is at risk” and 

“[p]rojections built off one or two outlier payors [Novitas and Palmetto] are a huge 

red flag.”94 Even though this was not the first warning regarding reimbursement 

rates Hillrom received from its outside advisors,95 Hillrom chose to view the risk 

differently.

96

Ultimately, Roehrich’s investigation culminated in a report where she 

recommended that, because “CMS has yet to finalize the 2021 Physician Fee 

Schedule,” Hillrom should wait to “close/sign[] [the Merger until] after the 

publication of the Fee Schedule to eliminate any negative impacts to CMS pricing 

(and therefore valuation).”97 The recommendation for delay was intended to “give 

94 JX 197 at 1–2; (Roehrich) Dep. 85:18–92:7.

95 See JX 51 at 109 (Health Advances identifying in May 2020 risk that reimbursement for 

extended AECG could “switch[] to Category I with a significant reduction in value (>20-

30%).” (emphasis added)); see also JX 165 at 11 (Health Advances report stating on 

reimbursement changes: “Anticipate modest (~5-10%) declines in LTH revenue, but 

feedback is divergent on impact and exact details are still uncertain”).

96 See Tr. 529:1–19 (Frank) (characterizing Muller Report as an outlier); see also

(Roehrich) Dep. 85:18-92:7 (discussing Parr’s view as detailed in JX 197, and noting that 

the Hillrom team was “generally interested” in Parr’s opinion but concluded any pricing 

change would be “modest”). Following the December CMS decision, Parr again warned 

that because Novitas was the “highest priced MAC contractor, there may be risk that their 

pricing moves more to the mid-range once [] codes are permanent.” Tr. 533:7–534:21 

(Frank); JX 246. Hillrom’s management again dismissed these concerns; indeed, as Frank 

testified, having heard Parr’s warnings, Hillrom declined to hire him as a permanent 

advisor. Tr. 478:5–9, 536:14–537:7 (Frank).

97 JX 205 at 8, 70; see also JX 249 at 7, 65 (identifying as the first item among the Merger’s 

“[k]ey weaknesses and threats / issues” in Hillrom’s 11/18/20 diligence recap: “CMS has 
25

[Hillrom] certainty as to what CMS national pricing would look like for the new 

CPT codes.”98 Hillrom decided to follow that recommendation and to wait for 

CMS’s final fee schedule before executing any agreement.99

H. CMS Announces Its Final Rule but Defers to MAC Pricing

On December 1, 2020, as Hillrom’s diligence was ongoing, CMS issued the 

2021 Final Fee Schedule, in which it adopted permanent Category I codes for 

extended AECG patches but delegated pricing for those codes to the regional MACs 

“for CY 2021” with a stated intent to return to the decision in future rulemaking.

100 

CMS explained that its deferral was motivated by its desire to collect further data 

reflecting cost information for the patch devices.101 The upshot was that, for the 

yet to finalize the 2021 Physician Fee Schedule . . . . Recommending deal close / signatures 

after the publication of the Fee Schedule to eliminate any negative impacts to CMS pricing 

(and therefore valuation)”); JX 195 at 2 (identifying “[r]eduction in CMS proposed rates 

in final CMS Fee Schedule for 2021” as a “Key Risk” and recommending “Final closing 

after publication of CMS Fee Schedule for 2021” as potential “[m]itigation”).

98 (Roehrich) Dep. 112:1–113:2; see also Tr. 538:23–539:8 (Frank) (agreeing that 

Roehrich’s recommendation to wait for certainty on CMS pricing was grounded in her fear 

that there could be a reduction in CMS’s proposed rates in the final CMS schedule for 

2021); (Blanchard) Dep. 181:6–15.

99 Tr. 472:2–5 (Frank).

100 PTO ¶ 28; JX 349; JX 350 at 3; Tr. 308:18–311:4 (Renbaum); JX 233; JX 357 at 8.

101 Tr. 337:24–338:17 (Renbaum).
26

time being, Novitas would remain responsible for setting the prevailing

reimbursement rates for the CAM patch’s CPT codes.

102

In the wake of the prolonged uncertainty provoked by CMS’s decision,103

Hillrom went back to the drawing board with its internal and external reimbursement 

experts to evaluate likely outcomes of a Novitas-set rate.104 Given Novitas’ 

historically stable pricing for long-term AECG tests, Hillrom concluded the most 

likely scenario was that Novitas would revert (or “crosswalk”) to the 2020 

Category III rates.105 Based on that expectation, Bardy refreshed its September 

forecast by using the 2020 rates, which resulted in estimated revenue of $57 million 

for 2021 and $89 million for 2022 (declines of $7 million and $11 million, 

respectively).106 Both before and after the announcement of the 2021 Final Fee 

102 PTO ¶¶ 15–16, 32.

103 Tr. 117:4–118:18 (LaViolette); JX 278 at 2; see also Tr. at 477:18–478:4 (Frank) 

(acknowledging pricing had been kicked back out to the MACs); id. at 597:11-600:3 

(Groetelaars) (“Q: Nothing was certain until the rates were published; right? A: That’s 

correct.”).

104 Tr. 531:20–532:3 (Frank); id. at 581:12–18 (Groetelaars) (agreeing Hillrom “had the 

advice of outside experts and consultants to understand the various mechanics and the 

decision dates that were to occur around reimbursement”); JX 246; JX 392; JX 434. 

105 Tr. 597:19-598:16 (Groetelaars); JX 254 at 29. The Bardy team agreed that Hillrom’s 

assumption of stable rates was “reasonable.” Tr. at 129:14–24 (LaViolette); id. at 170:14–

171:17, 209:2–10, 210:5–8 (Querry); id. at 67:24–68:3 (Bardy) (stating he “did not see any 

risk in December of 2020 that reimbursement rates would decrease in 2021.”).

106 Tr. 172:4–174:6 (Querry); JX 254 at 36–37.
27

Schedule, Bardy was careful not to represent that Novitas would set any particular 

rate, as both parties agreed that the price ultimately set by Novitas or CMS was

“unknowable” ex ante.

107 

I. Hillrom Renegotiates the Merger

Days after the December announcement of the 2021 Final Fee Schedule, 

Hillrom terminated the IOI so that it could renegotiate the deal’s financial terms.

108 

The “most material” reason for renegotiating was CMS’s refusal to adopt a national 

Medicare reimbursement rate, introducing risk that the CAM patch would 

107 See Tr. 171:8–11 (Querry) (“No, I didn’t [represent to anyone what the rates would be]. 

I mean, we couldn’t. It was really unknowable at that point in time.”); id. at 586:4–7 

(Groetelaars) (agreeing no representation was made before or in the Agreement as to 

Novitas rates); JX 254 at 27–33.

108 See JX 275 (email to Bardy setting out revised proposal for the Merger following CMS’s 

December announcement).

Remainder of Page Intentionally Left Blank
28

be priced below the level proposed (but never adopted) by CMS.

109 Hillrom wanted 

to shift more economic risk to Bardy to address that possible outcome.

110

The mechanism by which Hillrom shifted that risk was to propose a different 

earnout.111 Lower reimbursement rates would lower Bardy’s revenue. Hillrom thus 

proposed, and the parties ultimately agreed, that (i) Hillrom would pay a lower upfront purchase price of $375 million (down from $450 million); and (ii) Hillrom 

would pay contingent earnout consideration linked to estimated CAM patch revenue

for 2021 and 2022, structured as follows:112

109 Tr. 601:11–17 (Groetelaars); see also id. at 607:15–608:6 (Groetelaars) (acknowledging 

that, in JX 296, Groetelaars wrote to the Hillrom board of directors after CMS’s December 

announcement and explained that, in light of the announcement, Hillrom would need to 

renegotiate the Merger’s financial terms); id. at 117:4–18, 119:13–122:13, 145:10–20 

(LaViolette) (“The December outcome . . . allowed for some of the uncertainty from earlier 

in the year to persist. And so Hillrom approached us and said they were uncomfortable 

with that level of uncertainty. They were not willing to, as a result, stand behind the terms 

of the agreed LOI and wanted to change them”); JX 234; JX 296 at 3; (Blanchard) 

Dep. 214:19–215:15 (explaining CMS decision was the “perfect . . . door opener” for 

Hillrom to renegotiate: “[o]h, by the way, look what I found on due diligence”).

110 Tr. 118:14–18 (LaViolette); see also id. at 482:7–14 (Frank) (“In my view, we adjusted 

down the upfront payment of the consideration commensurate with [] the fact that rates 

were back in the MAC jurisdictions or the MAC sort of setting.”).

111 See PTO ¶ 29; Tr. 118:14–18 (LaViolette); JX 418 at 1 (Hillrom CEO Groetelaars 

identifying the earnout as a risk-sharing tool that limited Hillrom’s downside after Novitas 

announced a reimbursement rate decrease for Medicare patients).

112 PTO ¶ 30; Tr. 175:14–176:15 (Querry); JX 317 at 2–3; JX 254; JX 376 § 1.14.
29

Earnout Level

(% of Revenue)

2021 Revenue Targets 2022 Revenue Targets

50% <$45 million < $70 million

100% ≥ $45 million ≥ $70 million

150%(2021)/125%(2022) ≥ $57 million ≥ $89 million

If Bardy hit its projected revenue targets ($57 million and $89 million), then 

Hillrom would pay to Bardy’s stockholders 100% of the revenue for those two years 

and pay a 50% and 25% premium to those revenues, respectively. If Bardy missed

its revenue targets by a modest amount (no more than $12 million and $19 million

in 2021 and 2022, respectively), then Hillrom would still pay 100% of the revenue 

to Bardy’s stockholders but no premium. Thus, Hillrom had no expectation of 

retaining any revenue for those years if Bardy grew as (or slightly slower than) 

expected. Conversely, if Bardy missed those revenue targets by a significant amount

for whatever reason (including a change in reimbursement rates), Hillrom would pay 

only 50% of the revenue for those years.113

While Hillrom priced into the deal some risk that Novitas would decrease 

Medicare reimbursement rates,114 it nevertheless viewed a change in reimbursement 

rates as unlikely. On January 11, 2021, for example, in a presentation to Hillrom’s 

Board seeking approval of the Agreement, Hillrom’s deal team did not include 

113 Tr. 176:2–15 (Querry).

114 See JX 418 at 1 (Hillrom CEO Groetelaars acknowledging that the earnout shifted onto 

Bardy risk of lower Medicare reimbursement rates).
30

among the “key risks” a lower reimbursement rate.

115 Nor did Hillrom’s financial 

models incorporate a significant decrease in Medicare reimbursement rates.116

In any event, even assuming a Novitas rate reversion to $365, Hillrom’s Board 

was advised that Bardy was not expected to be value accretive until FY 2023, and 

Hillrom did not expect positive returns on invested capital in the first two years of 

owning Bardy.

117 The presentation to Hillrom’s Board also referenced iRhythm’s 

trading multiple (and no other companies) as a “relevant data point” to consider in 

evaluating Bardy’s valuation.118 With this data in hand, Hillrom’s Board decided to 

forge ahead with the Merger prior to Novitas’ announcement of Medicare’s 

reimbursement rate.

115 JX 365 at 17; see also id. at 14 (“Price anticipated to remain close to / at current rates.”); 

Tr. 612:1–17 (Groetelaars) (stating that the risk was considered “retired,” meaning 

“nothing to be concerned about.”); but see JX 337 at 26 (identifying “[s]trong 

reimbursement” as among the “[k]ey assumptions” of Hillrom’s financial model); JX 197 

at 1–2 (warning Hillrom that historical Novitas “payment is at risk” and “[p]rojections built 

off one or two outlier payors [including Novitas] are a huge red flag.”).

116 Tr. 489:4–10 (Frank); JX 365 at 19; see also Tr. 172:4–23 (Querry); (explaining Bardy’s

projections also did not incorporate a significant decrease in Medicare reimbursement 

rates); JX 254 at 38.

117 Tr. 519:4–16 (Frank); JX 335 at 5; JX 356 at 3; JX 123 at 11; JX 337 at 29; JX 313 at 7; 

(McClanahan) Dep. 144:9-145:5 (explaining Hillrom did not present ROIC for first two 

years in JX 313 at 7 because Hillrom “knew it would be negative”), 168:12–17 

(acknowledging acquisition would be EPS dilutive for first three years).

118 (McClanahan) Dep. 165:11–166:5; JX 337 at 28 (singling out iRhythm’s trading 

multiple in slide titled “Valuation Considerations”). 
31

J. Hillrom and Bardy Sign the Agreement

On January 15, 2021, the parties executed the Agreement, which set the price 

of Hillrom’s acquisition of Bardy at $375 million plus potential earnouts.119 The 

Agreement does not contain any representations or warranties covering 

reimbursement rates or Bardy’s projected revenue.120 It also contains broad 

integration and “non-reliance” language.121 

Relevant here, the Agreement conditioned Hillrom’s obligation to 

consummate the Merger on (a) the non-occurrence of a Company MAE; (b) the 

truthfulness of Bardy’s representations and warranties (the “Bring-Down 

Condition”); and (c) Bardy’s compliance with certain covenants contained in the 

Agreement. The applicable provisions of the Agreement are discussed below.

The MAE Clause

Under the Agreement, Hillrom is not obligated to close and can terminate the 

Agreement if a “Company Material Adverse Effect” has occurred.122 As is common, 

119 JX 378.

120 Tr. 586:4–7 (Groetelaars); see generally JX 376 art. 2.

121 JX 376 § 2.32; Tr. 586:8–588:2 (Groetelaars).

122 JX 376 §§ 2.7, 5.1(c), 6.1(b). Specifically, Bardy represented in Section 2.7 of the 

Agreement that “[s]ince December 31, 2019, there has been no Company Material Adverse 

Effect.” Id. § 2.7.
32

the Agreement defines a “Company Material Adverse Event” in three parts.

123 

The “definition starts with a general statement of what constitutes an MAE,” then 

“carves out certain types of events that otherwise could give rise to an MAE,” and 

then creates “exceptions to the carve-outs.”124

The base MAE is defined as “any fact, event, circumstance, change, effect or 

condition that, individually or in the aggregate, has had, or would reasonably be 

expected to have a material adverse effect on . . . the Business of the Acquired 

Companies, taken as a whole.”125 The Agreement defined Bardy’s “Business” to 

mean its:

Collective[] engage[ment] . . . in the design, development, manufacture, 

production, assembly, marketing, promotion, distribution, sale, clinical 

use and other commercialization activities involving certain currentlymarketed and in-development cardiac digital health, diagnostic, data 

management and remote patient monitoring devices (including 

ambulatory cardiac monitors), technologies and services (including 

independent diagnostic testing, interpretation and cardiac monitoring 

services).126

The Agreement lists several carve-outs from the definition of a Company 

MAE. Relevant here, the Agreement carves out: (1) “any condition or change in 

123 Akorn, Inc. v. Fresenius Kabi AG, 2018 WL 4719347, at *51 (Del. Ch. Oct. 1, 2018), 

aff’d, 198 A.3d 724 (Del. 2018).

124 Id.

125 JX 376 at 88.

126 Id. at 5.
33

economic conditions generally affecting the economy or the industries or markets in 

which the Acquired Companies operate” and (2) “any change in any Law (including 

any COVID-19 Measures and any Health Care Law) or GAAP or any interpretation 

thereof.”127

The Agreement then provides for an exception to those carve-outs. 

Specifically, the Agreement states that a carved-out event can nonetheless constitute 

an MAE “to the extent such matter has a materially disproportionate impact on the 

Acquired Companies as compared to other similarly situated companies operating 

in the same industries or locations, as applicable, as the Business.”128 

The Bring-Down Condition and the Covenants

In Section 5.1(a), the Agreement provides that, as a condition precedent to 

Hillrom’s obligation to close, certain representations and warranties “must have 

been true and correct . . . as of the date of this Agreement and must be true and 

correct as of the Closing Date . . . except . . . as would not have a Company Material 

Adverse Effect.”129 Section 5.1(b) of the Agreement further provides that, as a 

condition precedent to Hillrom’s obligation to close, Bardy “must have performed 

and complied with in all material respects the covenants and obligations under this 

127 Id. at 88–89.

128 Id. at 89.

129 Id. § 5.1(a).
34

Agreement required to be performed or complied with by it prior to Closing.”130

Finally, Section 5.1(c) of the Agreement contains a stand-alone closing condition 

that “No Company Material Adverse Effect shall have occurred.”131

The Termination Clause 

Under Section 6.1(b), the Agreement may be terminated “upon a material 

breach of any representation, warranty, covenant, or obligation” that Bardy “set forth 

in this Agreement such that the conditions set forth in Section 5.1(a) 

or Section 5.1(b) are incapable of being satisfied and, if such breach is curable, such 

breach is not cured prior to the expiration of twenty (20) days following [Bardy’s] 

receipt of written notice thereof from [Hillrom].”132 Otherwise, Hillrom was 

obligated to close within three business days after the closing conditions were 

satisfied.

133 

The Remedies Provisions

In Section 9.11 of the Agreement, the parties agreed that specific performance 

was not exclusive of an award of damages in the event of a breach of the 

130 Id. § 5.1(b).

131 Id. § 5.1(c).

132 Id. § 6.1(b).

133 Id. §§ 1.3, 4.3(a).
35

Agreement.134 In Section 7.3, the parties further agreed that, after closing, Hillrom 

would “indemnify, defend and hold harmless the Equityholders . . . from, and will 

reimburse the Equityholder Indemnified Parties for, all Adverse Consequences 

suffered or incurred by the Equityholder Indemnified Parties, to the extent arising 

out of or related to a breach or non-fulfillment by Parent or Merger Sub[.]”135 

“Adverse consequence” is defined to include any “expense, loss, liability, Tax or 

other damages” and “reasonable and out-of-pocket legal and other professional fees, 

costs, [and] other dispute resolution expenses[.]”136

K. Hillrom Refuses to Close After Novitas Announces New Rates

On January 29, 2021, two weeks after the Agreement was signed, Novitas 

announced pricing for the new CPT codes applicable to extended AECG monitoring: 

$42.68 for Texas and $49.70 for New Jersey (the January Novitas Rate).

137 Given 

Novitas’ historically steady $365 per patch reimbursement rate for the category, the 

drastic rate cut was devastating news. Under Bardy’s split-billing model, Bardy

could not profitably serve Medicare patients at the January Novitas Rate.138

134 Id. § 9.11.

135 Id. § 7.3.

136 Id. at 81.

137 PTO ¶ 32.

138 Tr. 69:24–70:3 (Bardy).
36

Dr. Bardy described the new rates as “[m]ass murder of the elderly,”139 and the 

parties on both sides were “shocked” by Novitas’ pricing decision.140

Initial feelings of shellshock gave way to disbelief: Bardy, Hillrom and other 

industry participants concluded that Novitas must have made a mistake.141 With this 

premise in mind, Bardy, iRhythm, BioTelemetry and Preventice launched an intense 

effort to educate Novitas on how appropriately to value long-term AECG patches.142 

Hillrom, for its part, supported the effort and made available to Bardy, at Hillrom’s 

expense, the former medical director of Novitas to provide insight on effective 

messaging.

143 As one Bardy employee put it, the meetings with Novitas represented 

Bardy’s “one shot” to persuade Novitas that its drastically reduced proposed rates

were unjustified and unsustainable.

144

139 Id. at 50:4–17 (Bardy).

140 Id. at 566:21 (Groetelaars); id. at 492:21 (Frank); id. at 139:3–140:4 (LaViolette); 

id. at 264:9–12 (Burke); JX 412 at 1 (then-Bardy CEO Kevin Hykes reacting to the news 

with a single word: “Stunning”); JX 526 at 9 (observing that the January Novitas Rate 

“activated the immune system of the [extended AECG industry”). 

141 Tr. 177:15–178:14 (Querry); id. at 492:18–493:11 (Frank); id. at 566:19–567:2 

(Groetelaars); see also JX 526 at 9 (observing that the January Novitas Rate “activated the 

immune system of the [extended AECG industry.”). 

142 PTO ¶ 33; Tr. 73:23–77:7 (Bardy).

143 Tr. 217:8–13, 231:21–24 (Querry).

144 (Hykes) Dep. 253:11–15.
37

While the January Novitas Rate rattled Hillrom, its CEO, Groetelaars, took 

solace in the fact that Hillrom had insisted on a risk-shifting earnout in the signed 

Agreement, commenting in an internal email: “Good thing our deal has a risk share 

element in it and that our ASP is not as high. . . less downside risk.”145 Others on 

his team were less sanguine. Hillrom’s Chief Financial Officer responded to the 

announcement of the January Novitas Rate (on the day of) by observing, “seems like 

an MAE to me.”146 Hillrom promptly engaged outside counsel to evaluate its options 

under the Agreement.147 

Notwithstanding the uncertainty prompted by the January Novitas Rate,

previously announced acquisitions of Bardy competitors proceeded apace to closing. 

Without any indication that Novitas would adjust the January Novitas Rate, Philips 

closed its acquisition of BioTelemetry (originally signed on December 18, 2020) and 

Boston Scientific closed its acquisition of Preventice (signed on January 21, 

2021).148 Hillrom came to view the announcement of the January Novitas Rate 

differently. On February 21, 2021, Hillrom notified Bardy that the January Novitas 

145 JX 418 at 1; see also Tr. 567:5–568:11 (Groetelaars) (explaining his reaction to the

news as one grounded in his understanding that the earnout was a “risk-sharing 

mechanism”).

146 JX 421.

147 JX 449 at 2.

148 JX 725; JX 726; JX 727; JX 728.
38

Rate constituted an MAE under the Agreement, which relieved Hillrom of its 

obligation to close the Merger.

149 Exactly one week later, on February 28, 2021, 

Bardy initiated this lawsuit.150

On April 10, 2021, nearly two months after its initial decision and having met 

with the leading extended AECG device makers, Novitas announced revised 

reimbursement rates in New Jersey of $120.49 and $133.47, and in Texas of $103.44 

and $114.57 (the “April Novitas Rate”).

151 These adjusted rates represent a nearly 

three-fold increase from the rates set in the January Novitas Rate, but still mark a

63.5% decrease from Novitas’ 2020 rate of $365. 

L. Bardy Negotiates with Commercial Payors Following the Novitas 

Announcements

Meanwhile, Bardy engaged with commercial payors to set rates for the new 

Category I codes.152 Because commercial payors “deal with thousands of different 

providers,” they typically “are not aware of the policy changes” affecting particular 

devices and rely upon providers like Bardy to alert them to changes and amend 

149 JX 562.

150 D.I. 1.

151 PTO ¶ 38; JX 520 at 5–22; JX 546.

152 Tr. 245:17–22, 252:7–13 (Burke).
39

contracts as necessary.153 With one exception,154 all of Bardy’s contracted payors 

have agreed to new rates for the Category I codes in line with their 2020 rates.155 

The likely explanation for the apparent stability of Bardy’s commercial pricing,

notwithstanding lower Medicare rates, is that commercial payors focus first and 

foremost on the value of the service when negotiating price.

156

153 Id. at 252:14–23, 285:7–286:1 (Burke).

154 One commercial payor, Cigna, has sought to use the January Novitas Rate and an 

assignment clause in its existing contract as leverage to negotiate for significantly lower 

reimbursement. Tr. 256:11–14 (Burke); id. at 158:7–14 (Querry); JX 555; JX 704. Bardy’s 

seasoned Vice President of Payor Relations, Dan Burke, testified credibly that: Cigna 

(his former employer) had always been a “challenging” payor for Bardy; its 2020 rates 

were significantly below average; he did not expect Cigna to terminate its contract; Cigna

had not invoked the 60-day termination process but instead sought to further engage to 

reach adequate terms; Cigna’s communications were typical “posturing”; and Cigna was 

“fishing” for lower rates with all of the extended AECG providers. Tr. 246:11–247:18, 

253:18–254:4, 256:4–10, 257:3–258:20, 259:5–261:22 (Burke).

155 Tr. 252:24–255:2 (Burke); JX 704; JX 627; JX 497; JX 558; JX 620. iRhythm has 

likewise maintained similar pricing levels with commercial payors notwithstanding the 

Medicare rate decrease. JX 665 at 8–9 (iRhythm investor call April 12, 2021).

156 Tr. 250:1–16, 253:6–9, 261:23–262:9 (Burke) (explaining that, as a proxy for value, 

commercial payors look to (1) what providers rendering the same service are paying innetwork and (2) what their spend is with the device provider as an out-of-network 

provider); see also id. at 251:1–19 (Burke) (asserting Medicare rates are not a factor in 

negotiations with commercial payors); id. at 156:21–157:12 (Querry) (same); 

id. at 320:19–321:20 (Renbaum) (explaining commercial insurers are “focused on 

themselves and each other,” not Medicare, when negotiating rates).
40

Once rate negotiations are finalized, commercial payors are “unlikely” to 

amend contracts until there is another CPT coding change.157 For that reason, Bardy

does not expect any of its commercial payors to renegotiate their contracts within 

the next 12 months.158

M. Bardy’s Growth Continues

Despite the turbulence introduced by the Novitas rate reductions and this 

ensuing litigation, Bardy has continued to grow, setting new records for CAM 

enrollment and new CAM orders.

159 In Q1 2021, CAM enrollments increased 13% 

over Q4 2020 and 85% year-over-year, while CAM orders increased 12% over 

Q4 2020 and 89% year-over-year.160 In April 2021, Bardy performed even better, 

157 Tr. 285:7–286:1 (Burke); id. at 320:19–321:20 (Renbaum) (“[O]nce they negotiate 

contracts and have them signed, they’re just—they’re done. They put them away and they 

move on. They’re working on hundreds, maybe thousands, of contracts all year long. 

So once they’re done with [] straightforward one or two CPT code contracts, they’re happy 

to put those away and move on with their jobs.”).

158 Tr. 285:19–286:1 (Burke).

159 Tr. 202:7–203:5 (Querry) (“[O]ur focus as a business is on growth. . . . This is where 

we are today in our business. We’re in this growth phase.”); id. at 190:23–191:23 (Querry); 

JX 702 at 3–5.

160 Tr. 190:23–191:23 (Querry); JX 702 at 3–5 (Bardy Q1 financial update).
41

exceeding 21,000 orders in a month for the first time ever.161 These numbers are on 

target with Bardy’s September 2020 forecast provided to Hillrom pre-Merger.162

Notwithstanding this growth, Bardy’s revenue declined approximately 11% 

in Q1 2021 compared to Q4 2020 because of the rate change, although that revenue 

was still up 56% over Q1 2020.

163 Bardy expects its growth to continue, and its unit 

economics with respect to Medicare beneficiaries remains profitable.

164

N. Industry Participants Continue to Engage with Novitas and CMS

Dissatisfied with Novitas’ current rates, industry participants in extended 

AECG monitoring continue to press for upward pricing revisions. iRhythm has 

stated publicly that it is continuing a “multi-pronged approach to activating the 

specialty physician societies, including the AMA, the ACC and HRS, our individual 

physician customers and patients to directly engage decision-making authorities in 

the clinical importance of long-term continuous ECG monitoring.”165 iRhythm’s 

strategy included meeting with CMS in mid-March to discuss pricing 

161 Tr. 192:8–15 (Querry).

162 Id. at 195:14–19, 197:1–12 (Querry).

163 Id. at 192:18–193:11 (Querry).

164 Id. at 189:12–21 (Querry).

165 JX 646 at 6.
42

methodologies, including those that were used by the RUC and other alternatives.166 

And more “meetings are being scheduled [and] have been scheduled” to speak with 

“multiple constituents both among the MACs as well as with CMS” in the coming 

months.167 iRhythm expects to have an initial indication of whether CMS will set 

national rates for 2022 when CMS publishes its proposed rule in July or August this 

year.

168

For its part, Bardy has engaged with a decisionmaker at Novitas, Dr. Andrew 

Bloschichak, to discuss the medical, public health and related economic challenges 

that extended AECG monitoring solve, including the benefits of the CAM patch 

specifically.169 Bardy believes that rates for long-term AECG monitoring will 

continue to change to better reflect its clinical and economic value.

170

166 Id. at 8.

167 JX 823 at 14; see also Tr. 832:17–833:5 (Noether) (recounting iRhythm’s public 

announcement that it was pursuing “three different mechanisms to attempt to secure higher 

reimbursement for the LHM”).

168 JX 823 at 5.

169 Tr. 51:20–52:2, 56:7–57:23 (Bardy); JX 716; JX 717.

170 Tr. 51:20–52:2, 56:7–57:23 (Bardy).
43

O. Procedural History

 As noted, Plaintiff filed its Complaint on February 28, 2021, seeking specific 

performance of the Agreement.171 Defendants answered and counterclaimed for 

declaratory judgment on April 6, 2021.

172 After pretrial briefing,173 a three-day trial 

was held from May 5 through 8.

174 The parties simultaneously submitted opening 

post-trial briefs on May 19, 2021,

175 and replies on May 27, 2021.176 The Court 

heard closing arguments on June 4, 2021, after which the matter was deemed 

submitted for decision.177

II. ANALYSIS

Bardy asserts Hillrom’s failure to close the Merger breached the Agreement; 

Hillrom counterclaims for a declaratory judgment that its obligation to close is 

171 D.I. 1.

172 D.I. 52.

173 D.I. 65–66.

174 D.I. 85–87.

175 D.I. 82 (Hillrom Post-Trial Opening Br.) (“Defs.’ Post-Trial Opening Br.”); D.I. 83 

(Bardy’s Opening Post-Trial Br.) (“Pl.’s Post-Trial Opening Br.”).

176 D.I. 90 (Hillrom Post-Trial Reply Br.) (“Defs.’ Post-Trial Reply Br.”); D.I. 91 

(“Pl.’s Post-Trial Reply Br.”).

177 D.I. 98 (“Post-Trial Oral Arg.”).
44

excused. Hillrom offers two separate but related grounds to justify its 

nonperformance, one contractual and one grounded in our common law.

178

First, in its showcase argument, Hillrom asserts that the January Novitas Rate 

and April Novitas Rate both constituted an MAE under the Agreement. Though the

Agreement’s MAE contains carve-outs for events generally affecting the market and 

changes in “Law,” Hillrom asserts neither carve-out applies and, even if they did, 

the MAE’s disproportionate-impact exception to those carve-outs renders the 

Novitas rate decrease an MAE nonetheless.

Second, Hillrom invokes the frustration of purpose doctrine, which “provides 

an escape for an acquirer if the target experiences a catastrophe during the executory 

period.”179 According to Hillrom, the frustration of purpose doctrine operates to

excuse its obligation to close here because the value of Bardy is so diminished that 

the Merger’s essential purpose—“to acquire something of value”—is frustrated. 

Both of Hillrom’s theories turn on the Court finding as fact that Bardy’s 

business has suffered materially. But Hillrom’s MAE argument, unlike its 

178 I note that Hillrom did not brief and so waived its counterclaims that Bardy breached 

covenants and representations in the Agreement (i) by improperly holding Medicare claims

without seeking reimbursement; and (ii) in connection with its ongoing discussions with 

one commercial payor regarding its contracted reimbursement rate for the CAM patch. 

Emerald P’rs v. Berlin, 726 A.2d 1215, 1224 (Del. 1999) (“Issues not briefed are deemed 

waived.”).

179 Akorn, 2018 WL 4719347, at *57 (internal quotations omitted).
45

frustration of purpose argument, is predicated, as a practical matter, on the Court’s 

acceptance of its proffered interpretation of the bargained-for language contained in 

the Agreement. 

“The primary goal of contract interpretation is to attempt to fulfill, to the 

extent possible, the reasonable shared expectations of the parties at the time they 

contracted.”180 “If, on its face, the contract is unambiguous, extrinsic evidence may 

not be used to interpret the intent of the parties, to vary the terms of the contract or 

to create an ambiguity.”181 Because it happens so often, this court barely takes notice 

when parties to a contract agree that the contract is unambiguous but disagree in 

litigation as to what the purportedly unambiguous language actually means. 

“Of course, dissensus regarding a contract’s meaning among its signatories does not 

an ambiguous agreement make; ‘a contract is ambiguous only when the provisions 

in controversy are reasonably or fairly susceptible of different interpretations or may 

have two or more different meanings.’”182 

180 Comrie v. Enterasys Networks, Inc., 837 A.2d 1, 13 (Del. Ch. 2003) (internal quotations 

omitted).

181 S’holder Representative Servs. LLC v. Gilead Scis., Inc., 2017 WL 1015621, at *16 

(Del. Ch. Mar. 15, 2017) (internal quotations omitted).

182 Pearl City Elevator, Inc. v. Gieseke, 2021 WL 1099230, at *9 (Del. Ch. Mar. 23, 2021) 

(quoting Rhone-Poulenc Basic Chems. Co. v. Am. Motorist Ins. Co., 616 A.2d 1192, 1196 

(Del. 1992)); see also Greenstar IH Rep, LLC v. Tutor Perini Corp., 2019 WL 6525206, 

at *9 (Del. Ch. Dec. 4, 2019) (holding that a “contract is unambiguous when the 
46

When undertaking to construe a contract, our Supreme Court has instructed 

that the trial court must consider “[t]he basic business relationship between [the] 

parties” so that it can “give sensible life” to the agreement.

183 Accordingly, I begin 

the analysis by reviewing the context in which the parties negotiated the Agreement 

before turning to the contractual language. “With the Agreement’s commercial 

context in hand, and mindful that my understanding of the parties’ contractual 

relationship cannot overwrite an unambiguous contract,”184 I then proceed to analyze 

whether the Novitas rate adjustments constitute an MAE as defined.

A. The Basic Business Relationship Between These Parties

Both parties agree that Hillrom’s interest in Bardy was sparked by the 

Company’s growth prospects and its best-in-class LTH device, the economics of 

which depended in significant part on the rate at which Medicare priced its 

product.185 The parties also agree that Hillrom, as a sophisticated healthcare 

agreement’s ordinary meaning leaves no room for uncertainty, and the plain, common, and 

ordinary meaning of the words . . . lends itself to only one reasonable interpretation.”). 

183 See Chi. Bridge & Iron Co. v. Westinghouse Elec. Co. LLC, 166 A.3d 912, 926–27 

(Del. 2017).

184 Pearl City, 2021 WL 1099230, at *9.

185 JX 365 at 3, 9; Tr. 489:11–22 (Frank); JX 366 at 2 (describing strategic rationale for 

Merger); JX 51 at 24 (presentation to Hillrom’s board explaining Bardy had developed a 

“[b]est in class device”); JX 204 at 3 (Hillrom’s Dr. Johannes de Bie remarking, “I have 

little doubt that the [Bardy] solution (CAM+IDTF) is currently the clinically best solution 

for [extended AECG] for the diagnosis of infrequent arrhythmias and that it is not easy to 
47

operator, knew that the price-setting process for devices within the same CPT codes

as the CAM patch was underway during the Merger negotiations and that the 

methodology by which Novitas arrived at its pricing determination was opaque, 

rendering it “not [] as intellectually defensible from a valuation perspective as the 

rates set by CMS.”186 The parties dispute, however, whether and to what extent they 

intended to allocate the risk of Novitas making a downward adjustment to the 

reimbursement rate for the relevant CPT codes within the Agreement.

As an initial matter, Hillrom argues the Court should not concern itself with

how the parties allocated risk in the contract because that allocation is “irrelevant” 

when interpreting an MAE clause.

187 Hillrom quotes Vice Chancellor Laster in 

Akorn, Inc. v. Fresenius Kabi AG for the proposition that such inquiries “would 

replace the enforcement of a bargained-for contractual provision with a tort-like 

concept of assumption of risk, where the outcome would turn not on the contractual 

language, but on an ex-post sifting of what the buyer learned or could have learned 

copy”); see also (Blanchard) Dep. 46:3–11 (noting that Dr. de Bie is Hillrom’s 

“chief scientist expert, ECG person”); Tr. 36:11–38:14, 84:19–24 (Bardy) (agreeing with 

Dr. de Bie’s assessment); id. at 104:2–17 (LaViolette) (same).

186 JX 632 ¶ 25 (Expert Report of Charlotte L. Kohler, submitted on behalf of Hillrom); 

accord JX 671 ¶ 2 (Rebuttal Expert Report of Adi Renbaum, agreeing with Kohler that 

Novitas’ methodology is not as “intellectually defensible” as CMS’s).

187 See Defs.’ Post-Trial Opening Br. at 48.
48

in due diligence.”188 While Hillrom quotes Akorn accurately, it misses 

Vice Chancellor Laster’s point. The seller in Akorn was urging the court to discount 

the buyer’s MAE claim because the buyer knew, or should have known, of the events 

giving rise to the MAE through its due diligence. The court correctly rejected that 

argument.189 The court then explained that “[t]he proper way to allocate risks in a 

contract is through bargaining between parties.”190 

In the very first sentences of Chicago Bridge, Chief Justice Strine wrote on 

behalf of our Supreme Court: “In giving sensible life to a real-world contract, courts 

must read the specific provisions of the contract in light of the entire contract. That 

is true in all commercial contexts, but especially so when the contract at issue 

involves a definitive acquisition agreement addressing the sale of an entire 

business.”191 That language is unequivocal. Here, it demands that the Agreement’s 

188 Akorn, 2018 WL 4719347, at *60.

189 See id. (rejecting a general MAE clause regime that would result in widespread “ex-post 

sifting of what the buyer learned or could have learned in due diligence”).

190 Id. (quoting Wal-Mart Stores, Inc. v. AIG Life Ins. Co., 872 A.2d 611, 624 (Del. Ch. 

2005), aff’d in part, rev’d in part on other grounds, 901 A.2d 106 (Del. 2006)).

191 Chi. Bridge, 166 A.3d at 913–14; see also GMG Cap. Invs., LLC v. Athenian Venture 

P’rs I, L.P., 36 A.3d 776, 778 (Del. 2012) (“‘In upholding the intentions of the parties, a 

court must construe the agreement as a whole, giving effect to all provisions therein.’ 

The meaning inferred from a particular provision cannot control the meaning of the entire 

agreement if such an inference conflicts with the agreement’s overall scheme or plan.” 

(quoting E.I. du Pont de Nemours and Co., Inc. v. Shell Oil Co., 498 A.2d 1108, 1113 

(Del. 1985))).
49

MAE provision should not be read, as Hillrom suggests, in isolation. Rather, the 

Court must situate the MAE provision within the broader contractual scheme and 

commercial context. Like man, under Delaware law, no contractual provision is “an 

island, entire of itself.”192

According to Hillrom, even if the Court chooses to consider the Agreement’s 

risk allocation scheme, it is clear the parties did not intend to allocate the risk of a 

Medicare reimbursement rate reduction because neither party perceived there to be 

any such risk. Hillrom emphasizes that none of the MAE’s carve-outs “include 

any language whatsoever mentioning reimbursement rates,” making it “fantastical 

to believe that these sophisticated parties intended to carve out significant changes 

in reimbursement rates from the Company MAE definition.”193

The preponderance of the evidence supports Hillrom’s contention that, at the 

time of signing, neither party viewed the risk of a Medicare price shift comparable 

to the January Novitas Rate as substantial. A January 11, 2021 presentation to 

Hillrom’s Board seeking approval of the Agreement listed seven “key risks,” and 

192 See John Donne, Devotions Upon Emergent Occasions, Meditation XVII 575

(Henry Alford ed., 1839) (1624) (“No man is an island, entire of itself; every man is a piece 

of the continent, a part of the main; if a clod be washed away by the sea, Europe is the less, 

as well as if a promontory were, as well as if a manor of thy friend's or of thine own were; 

any man's death diminishes me, because I am involved in mankind, and therefore never 

send to know for whom the bell tolls; it tolls for thee.”).

193 Defs.’ Post-Trial Opening Br. at 2 (emphasis in original).
50

lower reimbursement rates was not among them.194 Witnesses on both sides testified 

to their shock and dismay at Novitas’ sudden, dramatic shift in reimbursement rate 

pricing.

195 The parties’ surprise makes sense given that Novitas had for eight years 

priced the CAM patch’s CPT codes consistently at around $365 in the relevant 

regions. That does not mean, however, that these sophisticated parties decided to 

ignore entirely the risk of a Medicare rate adjustment in the Agreement. In this 

regard, Hillrom’s story that “no one ever contemplated a rate decrease” simply does 

not square with the preponderance of the evidence.

196 

Hillrom had no fewer than five internal and external advisors reviewing 

reimbursement issues,

197 some of whom warned that, because Novitas was the 

highest-priced MAC contractor, “[p]rojections built off one or two outlier payors 

[including Novitas] are a huge red flag” and may be subject to material change.198 

194 JX 365 at 17. 

195 (Burke) Dep. 154:10 (testifying that the January Novitas Rate was “unfathomable”); 

Tr. 68:7–10 (Bardy) (stating he was in “disbelief” over Novitas’ sudden rate shift); JX 412 

at 1 (then-Bardy CEO Kevin Hykes reacting with a single word: “Stunning”); Tr. 492:21 

(Frank) (stating the January Novitas Rate “was a shock”); id. at 566:21 (Groetelaars) 

(“I was really shocked.”).

196 Defs.’ Post-Trial Opening Br. at 3 (emphasis added).

197 Tr. 531:20–532:3 (Frank); id. at 581:12–18 (Groetelaars) (agreeing Hillrom “had the 

advice of outside experts and consultants to understand the various mechanics and the 

decision dates that were to occur around reimbursement”); JX 392; JX 434.

198 JX 197 at 1–2 (advising Hillrom that the “[Novitas reimbursement rate] is at risk in my 

opinion . . . .”); see also JX 150 at 1, 12–14 (Muller report submitted to CMS proposing 
51

It was also no secret that the methodology by which MACs such as Novitas calculate

reimbursement rates is notoriously murky, making pricing predictions less 

reliable.199 Indeed, Bardy’s CFO, Mark Querry, testified credibly that he received 

questions from Hillrom about reimbursement during “[a]lmost . . . every interaction 

with the Hillrom team” throughout due diligence.200 And yet, Hillrom went forward 

with signing the Agreement even after CMS declined to set a national rate because 

it lacked specific device cost information—cost information to which Hillrom had 

access both before and after the CMS decision was announced in December 2020.201

Medicare reimbursement rates between $60 and $100 for the CAM patch’s CPT codes); 

(Roehrich) Dep. 85:18–92:7 (acknowledging Hillrom was aware of the Muller Report and 

received Parr’s warning concerning reimbursement rates, and further stating that Hillrom 

was aware other MACs paid in the range of $45 to $60, though Hillrom attributed that to 

low claim volume). As noted, this was not the first such warning Hillrom received from 

its outside advisors. See JX 51 at 109 (Health Advances identifying in May 2020 the risk 

that reimbursement for extended AECG could “switch[] to Category I with a significant 

reduction in value (>20-30%).” (emphasis added)); see also JX 165 at 11 (Health 

Advances report stating with respect to reimbursement changes: “Anticipate modest (~5-

10%) declines in LTH revenue, but feedback is divergent on impact and exact details are 

still uncertain”).

199 Tr. 371:20-372:11 (Renbaum); id. at 634:14–636:1 (Kohler); id. at 241:5–22 (Querry); 

JX 671 at 2. 

200 Tr. 168:8–11 (Querry).

201 See, e.g., JX 391 (Hillrom DCF setting out CAM patch cost); JX 173 at 22; JX 153 

(Bardy financial model provided to Hillrom); Tr. 167:23–268:7 (Querry) (describing 

Hillrom’s diligence as requiring “a lot of discussions around the topic of reimbursement, 

the topic of revenue forecasting, and the topic of cost, and cost of sales in particular.”).
52

Hillrom’s contention that the parties ignored the risk of a reimbursement rate 

reduction (notwithstanding advisors’ warnings) is also belied by the Agreement’s 

plain text. Specifically, the Agreement contains an earnout provision pegged to 

revenue targets.

202 Under this scheme, lower Medicare reimbursement rates for the 

CAM patch lowers Bardy’s revenue, which in turn lowers the price Hillrom would

ultimately pay to Bardy stockholders under the Agreement’s earnout.

203 Hillrom 

understood this. Indeed, upon announcement of the January Novitas Rate, Hillrom’s 

CEO, John Groetelaars, immediately remarked internally, “Good thing our deal has 

a risk share element to it [through the earnout] and that our ASP is not as high . . .

less downside risk.”204 Groetelaars’ kneejerk reaction to the January Novitas Rate—

appreciation of Hillrom’s foresight in negotiating the earnout—contradicts

Hillrom’s argument that a material downward adjustment of the CAM patch’s 

Medicare reimbursement rate was so beyond the pale that neither side bothered to 

allocate that risk beyond the MAE.

205

202 JX 376 § 1.14.

203 See id.

204 JX 418 at 1; Tr. 567:5–568:8 (Groetelaars).

205 Hillrom’s Frank testified at trial that, had Hillrom “wanted to offload risk on the 

Medicare purchase price” through the earnout, it “would have structured the earnout to say 

exactly that.” Tr. 481:22–482:2 (Frank). But, as explained, the earnout’s revenue-based 

payout did function to offload risk onto Bardy should the proposed Medicare rate 

adjustments stick. It is perfectly rational for the parties to have allocated that risk through 
53

Of course, the fact the parties allocated the risk of a Medicare rate adjustment 

through an earnout provision does not mean the adjustment cannot also trigger an 

MAE when it comes to fruition. Thus, while Bardy’s proffered “big picture” 

provides a more accurate depiction of the parties’ contemporaneous understanding 

of the Agreement (and the risk allocation memorialized therein), any resolution of 

the MAE dispute ultimately must be grounded in the language of the contract 

itself.206 To be sure, full appreciation of how the parties understood the commercial 

context of the Agreement, and how that informed their contract design, does lead to 

some understanding of why the MAE provision did not expressly address

fluctuations in Medicare reimbursement rates. But, in the final analysis, “Delaware 

has long adhered, and continues to adhere, to the objective theory of contracts.”207 

“While [our courts] have recognized that contracts should be read in full and situated 

in the commercial context between the parties, the background facts cannot be used 

earnouts built on contingent revenue milestones; Bardy’s revenue projections were 

dependent in significant part on Medicare’s reimbursement rate. See JX 440 at 3 (Hillrom’s 

internal DCF valuation after Novitas’ rate change); JX 613 at 26, 28 (Bardy’s projections 

based on lower Medicare rates).

206 For example, the earnout would adjust Hillrom’s purchase price if an event affecting 

Bardy only reduced its revenue to zero indefinitely, but no party can reasonably dispute 

the occurrence of an MAE in that event (provided, of course, that such an event was 

covered by the MAE’s contractual language). 

207 Solomon v. Fairway Cap., LLC, 2019 WL 1058096, at *9 & n.89 (Del. Ch. Mar. 6, 

2019) (citing Eagle Indus., Inc. v. DeVilbiss Health Care, Inc., 702 A.2d 1228, 1232–33 

(Del. 1987)).
54

to alter the language chosen by the parties within the four corners of their 

agreement.”208 Accordingly, “[a]s is the Delaware way, I turn to the words the 

parties agreed to in their contract as the best evidence of their intent.”209

B. The April Novitas Rate Does Not Constitute an MAE

The parties agree that, under the Agreement, Hillrom would have no 

obligation to close and may terminate the Agreement in the event of a Company 

MAE.

210 The parties vigorously dispute, however, whether an MAE has actually 

occurred. 

To review, the Agreement’s MAE reads in relevant part:

“Company Material Adverse Effect” means any fact, event, 

circumstance, change, effect or condition that, individually or in the 

aggregate, has had, or would reasonably be expected to have a material 

adverse effect on . . . the Business of the Acquired Companies, taken as 

a whole; provided, however, that . . . none of the following, alone or in 

combination, will constitute, or will be considered in determining 

whether there has occurred, and no event, circumstance, change, effect 

or condition resulting from or arising out of any of the following, alone 

or in combination, will constitute, a Company Material Adverse Effect: 

. . . 

(ii) any condition or change in economic conditions generally affecting 

the economy or the industries or markets in which the Acquired 

Companies operate (including increases in the cost of products, 

208 Town of Cheswold v. Cent. Del. Bus. Park, 188 A.3d 810, 820 (Del. 2018) (internal 

quotations and footnote omitted).

209 Pearl City, 2021 WL 1099230, at *12.

210 JX 376 §§ 2.7, 5.1(a), 5.1(c), 6.1(b).
55

supplies, materials or other goods purchased from third party 

suppliers); . . . 

(v) any change in any Law (including any COVID-19 Measures and 

any Health Care Law) or GAAP or any interpretation thereof; 

provided, that, with respect to a matter described in any of the foregoing 

clauses (ii)-(vii), any such fact, event, circumstance, change, effect or 

condition may be taken into account in determining whether or not there 

has been a Company Material Adverse Effect to the extent such matter 

has a materially disproportionate impact on the Acquired Companies as 

compared to other similarly situated companies operating in the same 

industries or locations, as applicable, as the Business.211 

This provision, like “[t]he typical MAE clause[,] allocates general market or 

industry risk to the buyer, and company-specific risks to the seller.”212 “From a 

drafting perspective, the MAE provision accomplishes this by placing the general 

risk of an MAE on the seller, then using [carve-outs] to reallocate specific categories 

of risk to the buyer.”213 “The principal purpose of carve outs from the definition of 

material adverse events or changes seems to be to remove systemic or industry risk 

from the MA[E] condition, as well as risks that are known by both parties at the time 

of the agreement.”214 “A standard exclusion from the buyer’s acceptance of general 

211 Id. at 88–89 (emphasis in original) (formatting added).

212 Y. Carson Zhou, Essay, Material Adverse Effects as Buyer–Friendly Standard,

91 N.Y.U. L. Rev. Online 171, 173 (2016) [hereinafter Zhou, Material Adverse Effects].

213 Akorn, 2018 WL 4719347, at *49.

214 Id. at *49 n.531 (quoting Albert Choi & George Triantis, Strategic Vagueness in 

Contract Design: The Case of Corporate Acquisitions, 119 Yale L.J. 848, 867 (2010)).
56

market or industry risk returns the risk to the seller when the seller’s business is 

uniquely affected.”215

When seeking to avoid closing by invoking an MAE clause, the buyer bears 

the initial “burden to prove the Seller suffered an effect that was material and 

adverse.”216 Upon carrying that burden, the burden then shifts to the seller (or target)

“to prove that the source of the effect fell within [a carve-out].”217 If the target

carries that burden, then the buyer must prove, under the operative MAE provision, 

that the target’s “performance was disproportionate to [similarly situated companies 

operating in its industry], bringing the case within an exclusion” to the carve-outs.218

Bardy raises at the threshold a textual argument that the April Novitas Rate is 

not an “event” that affects the “Business” as defined in the Agreement. I take up 

that issue first before considering whether, in fact, an MAE “has, or would 

reasonably be expected to have,” occurred.219

215 Id. at *49.

216 AB Stable VIII LLC v. Maps Hotels & Resorts One LLC, 2020 WL 7024929, at *51 

(Del. Ch. Nov. 30, 2020); see also Snow Phipps, 2021 WL 1714202, at *29 (explaining the 

party claiming an MAE “b[ears] the initial, heavy burden of proving that an event had or 

would reasonably be expected to have a material adverse effect on [the target]”).

217 AB Stable, 2020 WL 7024929, at *51; Snow Phipps, 2021 WL 1714202, at *29.

218 Akorn, 2018 WL 4719347, at *59 n.619; JX 376 at 88–89.

219 JX 376 at 88–89.
57

The April Novitas Rate Was an “Event” Impacting Bardy’s 

“Business”

Under the Agreement, a general MAE occurs where “any fact, event, 

circumstance, change, effect or condition that, individually or in the aggregate, has 

had, or would reasonably be expected to have a material adverse effect on . . . the 

Business of the Acquired Companies.”220 In this regard, when defining the 

“Business,” the parties stipulated that Bardy and its subsidiary:

are collectively engaged . . . in the design, development, manufacture, 

production, assembly, marketing, promotion, distribution, sale, clinical 

use and other commercialization activities involving certain currentlymarketed and in-development cardiac digital health, diagnostic, data 

management and remote patient monitoring devices (including 

ambulatory cardiac monitors), technologies and services (including 

independent diagnostic testing, interpretation and cardiac monitoring 

services).

221

Bardy makes two arguments as to why the Novitas rate adjustments did not 

affect its “Business” as contemplated in the Agreement. First, it quotes then-Vice 

Chancellor Strine in In re IBP, Inc. Shareholders Litigation to argue that the Novitas 

rate adjustments were not “events” under the Agreement because an MAE “is best 

read as a backstop protecting the acquiror from the occurrence of unknown events,” 

and the risk of a change in reimbursement rates was not “unknown” at the time the 

220 Id.

221 Id. at 5.
58

parties signed the Agreement.222 On this point, Bardy’s attempt to render the 

Agreement’s language dead letter by pointing in the abstract to the theoretical 

underpinnings of the typical MAE regime cannot be countenanced. With rare 

exception, Delaware law requires courts to enforce contracts as written.223 

As previously discussed, in Akorn, the seller argued that an event could not 

qualify as an MAE because it was discoverable during diligence.224 Vice Chancellor 

Laster expressly rejected that argument, stating: 

[the party] goes too far by transforming “unknown events” into “known 

or potentially contemplated risks.” . . . The IBP decision interpreted a 

broad MAE clause that did not contain lengthy lists of exceptions and 

exclusions, and then-Vice Chancellor Strine did not suggest that he was 

prescribing a standard that would govern all MAE clauses, regardless 

of what the parties specifically bargained for in the contract.225

222 Pl.’s Post-Trial Opening Br. at 40 (quoting In re IBP, Inc. S’holders Litig., 789 A.2d 

14, 68 (Del. Ch. June 15, 2001) as corrected (Del. Ch. June 18, 2001) (emphasis added)).

223 See, e.g., Abry P’rs V L.P. v. F & W Acq. LLC, 891 A.2d 1032 (Del. Ch. 2006) 

(Strine, V.C.) (holding Delaware policy will not abide by a contractual limitation of a 

remedy where the fraudster intentionally misrepresents a fact embodied in a contract).

224 Akorn, 2018 WL 4719347, at *60.

225 Id. As Professor Robert Miller points out, then-Vice Chancellor Strine’s full quote in 

IBP is better understood when placed into its proper context. Robert T. Miller, Material 

Adverse Effect Clauses and the COVID-19 Pandemic, 7 n.30 (Univ. Iowa Coll. L. Legal 

Stud. Rsch. Paper, No. 2020-21, 2020) [hereinafter Miller, COVID-19]; see AB Stable, 

2020 WL 7024929, at *56–57 & n.204–06 (Del. Ch. Nov. 30, 2020) (citing favorably to 

Professor Miller’s COVID-19 article). The full quote in IBP reads: “Merger contracts are 

heavily negotiated and cover a large number of specific risks explicitly. As a result, even 

where a Material Adverse Effect condition is as broadly written as the one in the 

Agreement, that provision is best read as a backstop protecting the acquiror from the 

occurrence of unknown events that substantially threaten the overall earnings potential of 

the target in a durationally-significant manner.” IBP, 789 A.2d at 68. The second sentence 
59

Here, as in Akorn, the parties structured the MAE definition to incorporate carveouts and exceptions to allocate risk. The parties could have written the MAE to 

include only “unknown facts, events, circumstances, changes, effects or conditions”; 

they did not. Instead, they chose to adopt a broadly-worded general MAE and 

qualify that language with a list of carve-outs. 

“It is not the court's role to rewrite the contract between sophisticated market 

participants, allocating the risk of an agreement after the fact, to suit the court’s sense 

of equity or fairness.”226 The Agreement allows no room for Bardy’s argument that 

an “event” under the Agreement’s MAE can only be an unanticipated event. That 

construction, therefore, is rejected.

Second, Bardy asserts that, by confining an MAE to changes only to Bardy’s 

“Business,” the parties intended that only those events that affected the nature of 

in the quote is clearly intended to be read in contrast to the first, pitting “unknown events” 

against “specific risks.” A more precisely framed contrast with “specific risks” would be 

“unspecified risks or events,” which is language more consistent with what then-Vice 

Chancellor Strine described as a “backstop” provision. Miller, COVID-19, at 7 n.30. 

226 Wal–Mart Stores, 872 A.2d at 624; see also DeLucca v. KKAT Mgmt., L.L.C., 2006 

WL 224058, at *2 (Del. Ch. Jan. 23, 2006) (Strine, V.C.) (“[I]t is not the job of a court to 

relieve sophisticated parties of the burdens of contracts they wish they had drafted 

differently but in fact did not. Rather, it is the court’s job to enforce the clear terms of 

contracts.”); Allied Cap. Corp. v. GC–Sun Hldgs., L.P., 910 A.2d 1020, 1030 

(Del. Ch. 2006) (Strine, V.C.) (explaining that Delaware courts “will not distort or twist 

contract language” because, in doing so, “the reliability of written contracts is undermined, 

thus diminishing the wealth-creating potential of voluntary agreements”). 
60

Bardy’s operations could qualify as MAEs. Unlike the agreements in leading

Delaware MAE cases—which define a material adverse effect by reference to “the 

business, financial condition, or results of operations of the Company and its 

Subsidiaries, taken as a whole”227—the parties’ chosen definition of Bardy’s 

“Business” makes no reference to the Company’s financial condition but instead 

focuses on the Company’s operations. According to Bardy, because changes to 

reimbursement rates affect only Bardy’s revenue and not its operations, those 

changes cannot constitute an MAE because they do not affect Bardy’s “Business” 

as defined. Hillrom responds that the Novitas rate decreases affect the Company’s 

“sales,” “marketing,” and “other commercialization activities” for ambulatory 

cardiac monitors and associated devices. Accordingly, says Hillrom, the rate 

decreases affect the Company’s operations. 

The term “MAE Objects” was coined to describe the “object that must be 

materially adversely changed in order to result in a [MAE] under the agreement.”228 

227 See AB Stable, 2020 WL 7024929, at *62 (emphasis added); Akorn, 2018 WL 4719347, 

at *56 (same); Hexion, 965 A.2d at 737 (same); see also Snow Phipps, 2021 WL 1714202, 

at *28 (MAE definition included “the financial condition, business, properties or results of 

operations of the Group Companies, taken as a whole.”); IBP, 789 A.2d at 65 

(MAE definition included “the condition (financial or otherwise), business, assets, 

liabilities or results of operations of [IBP] and [its] Subsidiaries taken as whole.”).

228 Robert T. Miller, Canceling the Deal: Two Models of Material Adverse Change Clauses 

in Business Combination Agreements, 31 Cardozo L. Rev. 99, 115 (2009); see also 

AB Stable, 2020 WL 7024929, at *62 & n.128–30 (recognizing Miller’s “MAE Objects” 
61

This list is carefully crafted by the deal parties,

229 and in this case, the MAE Objects 

identified in the Agreement apparently differ from those most frequently found in 

agreements containing MAE clauses.

230 As a matter of contract construction, the 

Court must respect the parties’ bargain by giving meaning to the precise words they 

have chosen for their agreement.231 With that said, there are some commonly

employed MAE Objects that simply cannot be construed in isolation; for example, 

it is difficult to conceive how a negative “result of operations, assets, or liabilities” 

could not affect the separate MAE Object concerning an “adverse change in financial 

condition.”232

term as “useful” and concluding the MAE definition’s omission of the term “prospects” 

was “generally favorable to the seller.”).

229 See Snow Phipps, 2021 WL 1714202, at *28 n.370 (citing Lou R. Kling & Eileen T. 

Nugent, Negotiated Acquisitions of Companies, Subsidiaries and Divisions § 11.04[9] 

(2020 ed.)).

230 See Miller, Canceling the Deal, 31 Cardozo L. Rev. at 116 (documenting the frequency 

with which MAE Objects appear in a sample of contract MAE definitions). Based on 

Miller’s sample, the terms that most frequently appear, in order, are “business,” “financial 

condition,” “results of operations,” “assets,” “liabilities,” “properties,” “condition 

(other than financial),” “operations” and “prospects”; none of those terms appear in the 

Agreement’s definition of Business. Id.

231 Solomon, 2019 WL 1058096, at *9. 

232 See Miller, Canceling the Deal, 31 Cardozo L. Rev. at 116; see also Hexion, 965 A .2d 

at 741 (“It is a maxim of contract law that . . . a contract should be read so as not to render 

any term meaningless.”); Pasternak v. Glazer, 1996 WL 549960, at *3 (Del. Ch. Sept. 24, 

1996) (“An interpretation of a contract that renders one or more terms redundant is not 

preferred over a construction that gives effect to each of the agreement's terms.”); but see 

U.S. West, Inc. v. Time Warner Inc., 1996 WL 307445, at *15 (Del. Ch. June 6, 1996) 
62

In this case, it is not reasonable to construe the definition of “Business,” and 

its identified MAE Objects, so narrowly that it would remove a sudden and dramatic 

decrease in what Bardy can charge for its services from the reach of the Agreement’s 

MAE clause. Per the Agreement, the “Business” is “collectively engaged” in the 

enumerated MAE Objects, including “commercialization activities.” “Engage” is 

defined in Black’s Law Dictionary to mean “to employ or involve oneself; to take 

part in; to embark on.”233 A vernacular definition of “commercialize” is “to manage 

on a business basis for profit; to develop commerce in; to exploit for profit; to debase 

in quality for more profit.”234 Bardy’s “engage[ment]” in “commercialization 

activities,” then, is dependent in part on its revenue and its profit margin on CAM 

patch sales. The Novitas rate decrease, therefore, affects the Company’s “Business”

under a plain reading of that term’s definition. 

(“While redundancy is sought to be avoided in interpreting contracts, this principle of 

construction does not go so far as to counsel the creation of contract meaning for which 

there is little or no support in order to avoid redundancy.”).

233 Engage, Black’s Law Dictionary (11th ed.); accord Engage, Cambridge English 

Dictionary, https://dictionary.cambridge.org/dictionary/english/engage (last visited 

June 22, 2021) (“to become involved, or have contact, with someone or something”).

234 Commercialization, Merriam-Webster, https://www.merriam-webster.com/dictionary/

commercialization (last visited June 22, 2021); accord Commercialization, Cambridge 

English Dictionary, https://dictionary.cambridge.org/dictionary/ english/

commercialization (last visited June 22, 2021) (“the organization of something in a way 

intended to make a profit”).
63

This reading is supported by other provisions of the Agreement. Specifically, 

the Agreement carves out from an “event” otherwise qualifying as an MAE:

the failure of the Company to meet any estimate of revenues, earnings 

or other financial projections, performance measures or operating 

statistics (provided that the facts and circumstances underlying any 

such failure not otherwise excluded from this definition of Company 

Material Adverse Effect will be considered in determining whether 

there has occurred a Company Material Adverse Effect) . . . .235

This carve-out would be superfluous had the parties intended to exclude any nonoperations related events affecting Bardy’s defined “Business” from the general 

MAE in the first instance, contrary to principles of contract construction well-settled 

under Delaware law.

236 Placed in proper context, then, Bardy’s proposed 

construction of “Business” is unreasonable. 

*****

Having determined the Novitas rate decrease was an “event” affecting 

Bardy’s “Business,” the question remains whether the rate decrease was also an 

MAE under the Agreement. I endeavor to answer that question next.

235 JX 376 at 88; see also Robert T. Miller, What Do Exceptions in MAE Definitions 

Except?, BUS. L. TODAY (May 20, 2021) https://businesslawtoday.org/2021/05/what-doexceptions-in-mae-definitions-except/#_ftnref3 (cautioning courts to interpret MAE 

exceptions by reference to the actual MAE event, as opposed to the knock-on effects of 

those events).

236 See NAMA Hldgs., LLC v. World Mkt. Ctr. Venture, LLC, 948 A.2d 411, 419 

(Del. Ch. 2007), aff’d, 945 A.2d 594 (Del. 2008) (“Contractual interpretation operates 

under the assumption that the parties never include superfluous verbiage in their agreement, 

and that each word should be given meaning and effect by the court.”).
64

The Novitas Rate Decrease Was Not an MAE

Under the Agreement’s MAE provision, Hillrom’s burden was to prove that

the Novitas rate decrease was a “fact, event, circumstance, change, effect or 

condition that . . . has had, or would reasonably be expected to have a material 

adverse effect” on the Business.237 “There is no ‘bright-line test’ for evaluating 

whether an event has caused a material adverse effect.”238 Rather, “[t]o assess 

whether a financial decline has had or would reasonably be expected to have a 

sufficiently material effect, this court will look to ‘whether there has been an adverse 

change in the target’s business that is consequential to the company’s long-term 

earnings power over a commercially reasonable period.’”239

Absent evidence to the contrary, “a corporate acquirer may be assumed to be 

purchasing the target as part of a long-term strategy.”240 Because neither party 

attempted to proffer contrary evidence here, a “material adverse effect” under the 

Agreement must be understood from “the longer-term perspective of a reasonable 

237 JX 376 at 88.

238 Snow Phipps, 2021 WL 1714202, at *30 (quoting Channel Medsystems v. Boston 

Scientific Corp., 2019 WL 6896462, at *34 (Del. Ch. Dec. 18, 2019)).

239 Akorn, 2018 WL 4718347, at *52 (quoting Hexion, 965 A.2d at 738).

240 Hexion, 965 A.2d at 738.
65

acquiror.”241 To prove the materiality of the April Novitas Rate, therefore, Hillrom 

was obliged to prove that the event “substantially threaten[s] the overall earnings 

potential of the target in a durationally-significant manner,” as opposed to causing 

only a “short-term hiccup in earnings.”242 

Distilled to prima facie elements, in order to prevail on its claim that it was 

excused from closing by the occurrence of an MAE, Hillrom was obliged to prove

by a preponderance of the evidence that (1) the April Novitas Rate’s effect on 

Bardy’s “earnings potential,” at the time Hillrom invoked the MAE clause, would

“reasonably be expected” to constitute an MAE; and (2) the April Novitas Rate,

at the time Hillrom invoked the MAE clause, would “reasonably be expected” to 

endure for a “durationally significant” period. Given that the MAE in this case is a 

government-set price, Hillrom’s burden on the second element was to prove that it 

reasonably expected neither Novitas nor CMS would readjust Medicare 

reimbursement rates for the relevant CPT codes any time soon.

243 

241 IBP, 789 A.2d at 68; Frontier Oil v. Holly Corp., 2005 WL 1039027, at *34 (Del. Ch. 

Apr. 29, 2005); Hexion, 965 A.2d at 738; Akorn, 2018 WL 4719347, at *53; Channel 

Medsystems, 2019 WL 6896462, at *34.

242 IBP, 789 A.2d at 68; Channel Medsystems, 2019 WL 6896462, at *24; Akorn, 

2018 WL 4719347, at *53.

243 By necessity, the party seeking to prove an MAE has occurred must convince the court 

(by a preponderance of evidence) to see the future the way it sees the future in order to 

demonstrate durational significance. Not an easy task . . . ever. As explained below, when 

future outcomes rest in the hands of unpredictable actors, the burden to prove durational 
66

For the sake of advancing the analysis, I will assume that Hillrom has proven 

the April Novitas Rate (as the current prevailing rate) would reasonably be expected 

to have a material adverse effect on Bardy at the time it refused to close the 

Merger.

244 Even with that ground ceded, Hillrom failed credibly to advance its claim 

of durational significance because the preponderance of the evidence does not 

significance becomes nearly insurmountable. Such is the state of the evidentiary record 

confronting Hillrom. 

244 I note that both parties submitted expert evidence regarding the impact of the 

April Novitas Rate on Bardy’s value. Both expert analyses were flawed. Hillrom’s expert, 

Lucy Allen, did not create her own valuation model but instead worked off Hillrom’s 

internal models to arrive at a discounted cash flow (“DCF”) valuation of Bardy at less than 

zero. JX 631. Even assuming DCF is the proper methodology to value a startup like Bardy

(a point the parties dispute), Allen’s conclusion that Bardy is worth less than nothing is 

incredible on its face. The evidence of record uniformly shows the CAM patch is an 

exceptional, patent-protected product. See JX 204 at 3 (Hillrom’s Dr. Johannes de Bie, 

remarking that “I have little doubt that the [Bardy] solution (CAM+IDTF) is currently the 

clinically best solution for [extended AECG] for the diagnosis of infrequent arrhythmias 

and that it is not easy to copy.”); Tr. 36:11–38:14, 84:19–24 (Bardy) (agreeing with 

Dr. de Bie’s assessment). And Bardy employee, Querry, testified credibly that the CAM 

patch continues to have profitable unit economics for Medicare patients. Tr. 189:12–21 

(Querry). In the shadow of this testimony, as is often the case when one swings for the 

fences, Allen failed to make contact altogether. Bardy’s expert, William Jeffers, included 

in his valuation expected synergies resulting from the Merger when, under the MAE’s plain 

language, the target should be valued as a standalone entity. See JX 376 at 88 (defining an 

MAE by asking whether it “would reasonably be expected to have a material adverse effect 

on . . . the Business of the Acquired Companies, taken as a whole,” as opposed to the 

combined company. (emphasis added)); see also Akorn, 2018 WL 4719347, at *56 

(examining substantively identical language and concluding that “the plain language of the 

definition of an MAE makes clear that any MAE must be evaluated on a standalone basis”); 

Tr. 406:9–16 (Jeffers) (admitting that he had “not analyzed whether [the] rates have had or 

would have a material impact on Bardy as a stand-alone business.”). By expanding his 

focus beyond the target, Jeffers, like Allen, failed to deliver useful evidence. 
67

support the contention that neither Novitas nor CMS will increase the April Novitas 

Rate within a commercially reasonable period. 

a. Hillrom Failed to Prove the April Novitas Rate Will Endure for a 

Commercially Reasonable Period

As noted, to establish an MAE’s durational significance, the party invoking 

the MAE clause must prove by a preponderance of the evidence that the target 

suffered a material adverse effect for a “commercially reasonable period,” as judged 

from the perspective of a “reasonable acquiror.”245 Our courts have observed that 

“one would expect [a] commercially reasonable period to be measured in years 

rather than months.”246 While that general guidance is useful, our courts have 

stopped short of prescribing specific time periods when assessing “durational 

significance,” and for good reason. Like most matters of law that exist in the realm 

of “reasonableness,” the determination of what is a “commercially reasonable

period” is contextual and necessarily fact intensive. It will turn on the target 

company’s unique characteristics and the broader business dynamics in which the 

target operates.

245 IBP, 789 A.2d at 68.

246 Frontier Oil, 2005 WL 1039027, at *34; Hexion, 965 A.2d at 738; Akorn, 2018 

WL 4719347, at *53; Channel Medsystems, 2019 WL 6896462, at *25.
68

When Hillrom acquired Bardy, it understood the Company to be a startup in 

a medical device segment where rapid growth was prioritized over profits.

247 

Indeed, prior to any reimbursement rate change by Novitas, Hillrom’s internal 

projections uniformly estimated Bardy would not likely turn a profit before FY 

2023.248 While a decrease in reimbursement rates means slimmer margins and an 

increased burn rate, Hillrom does not argue that a meaningful rate reversion back to 

historic (or near historic) levels by FY 2023 would constitute an MAE from the 

perspective of a reasonable acquiror.

249 Instead, Hillrom rests its durational

significance argument on two factual predicates: (1) the new reimbursement rate will 

not be revisited by Novitas or CMS until 2026, at the earliest, and (2) even if the rate 

247 JX 110 at 4 (8/31/2020 Hillrom investment memorandum on Bardy highlighting 

“High Growth Segment” in the “What We Like” column, while flagging in the “What We 

Don’t Like” column “Financial profile – High growth top line with significant losses 

through 2021”).

248 JX 365 at 19; Tr. 490:13–22 (Frank); (McClanahan) Dep. 50:3-23 (“Q. Do you recall 

seeing any models of an acquisition of Bardy by Hill-Rom where the year 1 or 10 year zero 

return was positive? A. Not that I recall. Q. Approximately how many different models 

of a potential acquisition of Bardy by Hill-Rom did you look at over the entire course of 

the M&A 15 process? A. Quite a few. I can’t recall a specific number, though. . . . Q. More 

than 20; is that a fair estimate? A. That could be.”); JX 108; JX 123; JX 157 at 3, 17–23; 

JX 173 at 19–24.

249 See Defs.’ Opening Br. at 45 (arguing that an MAE would occur if the rate were to 

rebound to $250 in two years); see also JX 665 ¶ 29 (Hillrom expert rebuttal report 

modeling a CY 2023 rate adjustment up to $300 to support her conclusion that an MAE

had occurred).
69

were to be revised before then, there is no evidence it would be restored to historic 

levels.250 

Using Hillrom as a proxy for a “reasonable acquiror,” its own internal models 

did not project Bardy to be profitable until FY 2023.

251 In other words, Hillrom was 

prepared to own and operate the Company for three years without returns. It has 

also acknowledged that five or more years is “durationally significant.”252 With 

these markers in mind, it is reasonable to peg a two-year lag (conservatively) 

between the April Novitas Rate and a revised reimbursement rate to historic (or near 

historic) rates as a commercially reasonable period, meaning that Bardy can operate 

under the April Novitas Rate for two years without suffering an MAE.

253 

The question remains whether there is evidence that either Novitas or CMS 

will revise the April Novitas Rate within the next two years. On this point, both 

250 Hillrom maintains that Bardy is on the brink of insolvency and will need to secure new 

financing by August or September 2021. Defs.’ Post-Trial Opening Br. at 39. But Bardy

has always relied on outside cash infusions to operate given its status as a growth company 

that is not cash-flow positive. The record indicates that Bardy continues to grow and have 

access to capital, as evidenced by its recently completed $15 million debt financing. 

Tr. 203:1–207:16 (Querry).

251 JX 365 at 19; Tr. 490:13–22 (Frank).

252 See Defs.’ Post-Trial Opening Br. at 39–45; Defs.’ Post-Trial Reply Br. at 1, 19.

253 This conclusion is further buttressed by Bardy’s continued growth notwithstanding the 

lowered Medicare reimbursement rates. See Tr. 190:23–192:8–15, 195:14–19, 197:1–12 

(Querry) (describing Bardy’s growth post-April Novitas Rate); JX 702 at 3–5 (Bardy’s

Q1 2021 financial update).
70

parties retained experts offering diametrically opposed views regarding the 

durability of the April Novitas Rate. Hillrom’s expert, Charlotte Kohler, opined that 

CMS would not establish a national fee schedule for the CAM patch’s CPT codes 

anytime soon.

254 She further opined that Novitas is unlikely to revisit, much less

materially increase, its rate decisions any time “within the foreseeable future.”255 

Even if either CMS or Novitas were to intervene sooner, Kohler says, the rates would 

not meaningfully change.256

Kohler’s testimony was not persuasive on several fronts. First, Kohler admits 

she has no firsthand experience with CMS rulemaking.257 Rather, her background

is in consulting on various unrelated healthcare-related matters, including 

reimbursement compliance.258 The practical implications of her lack of relevant 

experience were on full display when she stated definitively in her initial report that 

254 JX 632 ¶ 15. According to Kohler, CMS will not deviate from its preset rate schedule 

at least until the RUC meets again in October 2024 to consider pricing. See Tr. 668:23–24 

(Kohler) (opining that CMS would not “see any burning need to go outside the normal 

process”); id. at 347:6–23 (Renbaum) (noting that the RUC is scheduled to review the 

relevant CPT codes in October 2024).

255 JX 632 ¶ 15; Tr. 623:11–17, 668:17–24 (Kohler).

256 JX 632 ¶ 15.

257 Tr. 623:11–17, 668:17–24 (Kohler).

258 See JX 640; JX 632 ¶¶ 1–8.
71

Novitas would not adjust the January Novitas Rate only to be told months later that 

Novitas did just that when it announced the upwardly-adjusted April Novitas Rate.

259

Second, Kohler’s testimony that CMS would see no “burning need” for a rate 

revision sits in tension with Hillrom’s proffered justification for refusing to close the 

Merger, namely that the April Novitas Rate has cast Bardy into an existential 

crisis.260 While the potential ruin of only one socially valuable company may not 

provide sufficient impetus to spur CMS into action, the impact of the rate increase 

was felt throughout the LTH cardiac monitoring industry. Indeed, iRhythm, an 

indisputably comparable market participant, initially announced that it would no 

longer serve Medicare patients in reaction to the April Novitas Rate before reversing 

that decision during trial.261 iRhythm’s stock price has fallen by 68% since the 

January Novitas Rate was first announced.262 The parties do not dispute that LTH

259 See JX 632 ¶¶ 15, 62 (Kohler stating she believed it unlikely Novitas would take further 

action after the January Novitas Rate and that CMS would ultimately price reimbursement 

for the CAM patch’s CPT code at approximately $60).

260 See Defs.’ Post-Trial Opening Br. at 69 (“[T]he April Novitas Rate caused Bardy’s 

value to drop into the negative. That means that it would be economically irrational to 

continue operating the business, such that the transaction would make little sense.” 

(emphasis in original)).

261 JX 646 at 5, 9. 

262 JX 631 ¶ 35. Hillrom argues that the further drop in iRhythm’s stock price following 

the announcement of the April Novitas Rate indicates the market’s belief that the 

April Novitas Rate will have a significant, long-term effect on iRhythm’s business. 

Defs.’ Post-Trial Opening Br. at 38. That may be true, but reimbursement rates are 
72

is a rapidly growing healthcare category holding significant promise for patients—

something CMS cares deeply about.263 And LTHs “are not commodities where they 

are all the same”; device differences can “lead to false diagnoses or inadequate 

diagnoses and miscategorize heart rhythm disorders,” creating “a large public health 

problem, [that is] [] costly as well.”264 The preponderance of the record evidence 

thus demonstrates that there is an urgent need for a revision of the April Novitas 

Rate. That Kohler refused to acknowledge, much less meaningfully account for, this 

need diminished her credibility. 

Finally, Kohler admits that Novitas allows no visibility into its rate-setting 

process and that it follows “no rules” as it determines when and at what amounts to 

set reimbursement rates.265 Yet this did not stop Kohler from stating rather 

undeniably driven in significant part by proprietary information concerning the cost of 

certain inputs to extended AECG devices. Public markets have little insight into those 

costs and are reacting to a price set by a MAC with notoriously opaque pricing 

methodologies that, judging by the quickly revised January Novitas Rate, are also prone to 

error. That the parties agreed expert testimony on this topic was justified is further 

indication that repricing analysis is complex and technical. Taken together, these 

considerations lead me to place little weight on the market’s sentiment on future Medicare 

reimbursement rate adjustments as measured by fluctuations in iRhythm’s stock price.

263 JX 335 at 12; Tr. 522:2–5 (Frank) (acknowledging that extended AECG is a highgrowth category); id. at 313:17–314:15 (Renbaum).

264 Tr. 22:16–23:18 (Bardy).

265 Id. at 622:21–623:21, 634:14–635:16 (Kohler); see also JX 632 ¶ 25 (Kohler stating in 

her report that “[t]he processes by which the MACs determine pricing are comparatively 

less transparent than the process used by CMS. The MACs do not publish proposed rates 

and invite public comment, for example. There are also no published rules for how often 
73

definitively that Novitas would not revisit the April Novitas Rate any time soon.266 

The lack of meaningful factual foundation for this bodement makes it no more useful

than a Zoltar-told fortune. 

Bardy’s expert, Adi Renbaum, opined that Novitas or CMS will likely revisit 

setting a national reimbursement rate during the upcoming 2021 rulemaking cycle 

and, at the latest, by 2023.267 In contrast to Kohler, Renbaum’s opinion was 

informed by her extensive experience engaging with both CMS and the MACs on 

health policy and pricing new codes.

268 She correctly predicted the January Novitas 

Rates would be revised in short order after they were announced.

269 And she predicts 

now that the April Novitas Rate will be revised again (if not by Novitas, then 

by CMS) for three principal reasons.

270

First, CMS’s decision to “crosswalk” a price of $400+ and subsequently 

delegate to the MACs temporary pricing authority pending submission of further 

- if ever - MACs must review the pricing they have set . . . . For these reasons, the price 

set by any one MAC may not be as intellectually defensible from a valuation perspective 

as the rates set by CMS ”).

266 JX 632 ¶ 15; Tr. 623:11–17, 668:17–24 (Kohler).

267 JX 635 at 3.

268 See Tr. 293:24–298:15, 315:10–316:12 (Renbaum); JX 635 ¶¶ 5–8 (detailing 

Renbaum’s experience).

269 Tr. 299:11–17 (Renbaum).

270 See id. at 300:5–301:4 (Renbaum).
74

information signals that CMS will take up the issue again soon.

271 In this regard, 

Renbaum found significant that, in its final rule, CMS stated it had deferred its 

pricing decision “for 2021,” indicating that CMS would defer for that year only.272

Second, Renbaum opines that it is unlikely CMS will ignore the “significant” 

number of Medicare claims for this service.

273 As noted, under CMS’s “triple aim,” 

its decision-making process is guided by: (1) the health of each individual patient; 

(2) the health of the population, including managing healthcare disparities and other 

problems; and (3) costs.274 With these “aims” in mind, CMS is focused on 

facilitating patient access to new, promising therapies and diagnostic modalities.

275 

As already discussed, the preponderance of the evidence demonstrates that the 

April Novitas Rate has threatened patient access to LTH devices like the CAM patch

271 Id. at 307:13–308:17 (Renbaum) (explaining CMS’s decision to cross-walk makes 

“clear they’re continuing to gather more data to come to a final decision. And so this is an 

interim . . . decision they made . . . . [T]hey’re working on this, and they’re going to work 

on it until it’s resolved.”). 

272 Id. at 309:6–310:10, 311:20–312:8 (Renbaum); JX 350 at 3.

273 Tr. 300:3–18 (Renbaum) (“I believe in 2018, the Medicare claims volume was over 

about 150,000 for the year of utilization of this service, which is significant. And so it’s 

on Medicare’s radar to address, and that’s part of why the CPT codes were created in the 

first place.”). 

274 Id. at 313:19–23 (Renbaum).

275 Id. at 313:7–13 (Renbaum).
75

by challenging the commercial viability of devices in that category.

276 Given the 

dynamic growth in demand for LTH devices, Renbaum believes “this is not 

something [CMS] can take [its] eye off and just say we’ll deal with it . . . in the future 

sometime. This is something that’s in front of [CMS], and I expect that they’re going 

to be discussing it in the [next] proposed rule.”277

Third, and relatedly, the April Novitas Rate has received considerable 

attention, not only from affected industry players but also from clinicians who are 

concerned about their ability to continue to provide this service to patients in need.

278 

iRhythm, for example, has stated publicly that the April Novitas Rate remains 

“below [its] cost to deliver the service” and it is continuing a “multi-pronged 

approach to activating the specialty physician societies, including the AMA, the 

ACC and HRS, our individual physician customers and patients to directly engage 

decision-making authorities in the clinical importance of long-term continuous ECG

276 See JX 646 at 5, 9 (iRhythm CEO stating after announcement of the April Novitas Rate: 

“Now that the rates that have been posted are as low as they are, obviously, we’re not going 

to be able to serve in that segment.”); but see JX 823 at 5–6 (iRhythm announcing it would 

reenter the Medicare market, though it was continuing to engage with Novitas and believed 

its pricing model for the service flawed). I note that iRhythm’s reentry into the market 

after its prior announcement that it could not serve Medicare patients at the April Novitas 

Rate could be interpreted to mean iRhythm is confident prices will be revised upwards 

soon.

277 Tr. 314:7–15 (Renbaum).

278 Id. at 300:5–301:4, 312:9–313:11 (Renbaum).
76

monitoring.”279 Renbaum believes that public pressure, combined with the 

category’s increasing importance to patients, makes it likely that the current MAC 

rates will not endure. 

Renbaum’s testimony was credible and her conclusion—that either CMS or 

Novitas will intervene within two years to course-correct the CAM patch’s 

reimbursement rate—is reasonable. While Hillrom argues Novitas is unlikely to 

change the April Novitas Rate because, in the past, it has maintained its pricing

decisions for extended periods, recent history proves Novitas is both agile and 

susceptible to mispricing CPT codes. Indeed, Novitas’ recently erratic pricing 

behavior “is indicative of the nuances in the evolution of payment policy; it is not a 

static process and has flexibility to change when warranted.”280 In unprecedented 

times, history makes for a poor guide. Novitas’ recently erratic pricing behavior 

thus limits the utility of its historical pricing habits when predicting whether it will 

re-revise its rates.

279 JX 646 at 5–6.

280 JX 671 ¶¶ 4–5. The April Novitas Rate was even further removed from the RUC’s 

pricing recommendation to CMS of $440. See JX 70 at 2; Tr. 307:2–10 (Renbaum). 

Another methodology employed to estimate the extended ECG’s supply price yielded a 

value of $416.85, while a series of invoices submitted by stakeholders suggested a price 

of $595. JX 70 at 2.
77

Hillrom also makes much of the fact that the April Novitas Rate was the 

product of a considered, months-long process with industry input.

281 According to 

Hillrom, Novitas’ announcement of the April Novitas Rate after it gathered data and 

input from the industry means the CAM patch’s new pricing is the new normal.

To be sure, the April Novitas Rate is the disappointing end-result of a full 

court press by LTH device makers. One witness even testified that the meetings 

with Novitas that occurred between the January Novitas Rate and the April Novitas 

Rate were Bardy’s “one shot” to persuade the MAC to raise its rates.282 But that 

sentiment came in the midst of crisis: by all accounts, the January Novitas Rate was 

clearly a “mistake” that drastically underpriced extended AECG monitors.283 That 

mistake made the need for a pricing readjustment urgent and Novitas responded 

quickly. But its “black box” decision-making process makes it extremely difficult 

to predict what next steps are probable. Given this dynamic, it is just as likely as not 

that Novitas’ decision to more-than-double prices with the April Novitas Rate was 

simply a band-aid to stop the bleeding as it further considers how properly to price 

281 Defs.’ Post-Trial Opening Br. at 42–43.

282 (Hykes) Dep. 253:11–15.

283 Tr. 177:15–178:14 (Querry); id. at 492:18–493:11 (Frank); id. at 566:19–567:2 

(Groetelaars).
78

the relevant CPT codes.284 Indeed, Novitas continues to engage with industry 

participants, including iRhythm, to discuss the appropriate pricing for extended

AECG devices.285 If Novitas believed it had already considered all relevant 

evidence and had made a final, informed decision, then there would be no reason for 

it to continue engaging in these discussions.

Hillrom has likewise failed to carry its burden to prove that CMS will not 

intervene in the near future. In August 2020, CMS indicated that the reimbursement 

rate for extended AECGs like the CAM patch would increase to between $400 

284 See JX 823 at 4 (iRhythm CEO stating on Q1 2021 earnings call that “[t]hrough our 

conversations [with Novitas], we have learned that Novitas used a valuation methodology 

based on assumed cost inputs. Unlike our experience with NICE in the UK or with our 

commercial payers in the UK, [as] well with our commercial payers, the overall impact on 

health care costs was not directly considered in this analysis.”); see also JX 632 ¶ 25 

(Hillrom expert explaining that the MAC pricing process was “not [] as intellectually 

defensible from a valuation perspective as the rates set by CMS.”).

285 JX 823 at 3, 5–6 (“Since Novitas published updated rates on April 10 this year, we have 

had discussions with them to better understand their analysis and to propose an alternative 

costing method. The model we have shared with them has been successfully applied in 

other areas of the CMS physician fee schedule and we believe is a more appropriate 

methodology for establishing rates for the long-term continuous ECG Category I codes.

Novitas has been open to discussing this approach.”); Tr. 832:17–833:5 (Noether) 

(iRhythm said it was pursuing “three different mechanisms to attempt to secure higher 

reimbursement for the LHM”).
79

and $465.

286 Sophisticated industry players, including Hillrom, believed that 

outcome to be reasonable—even likely—and counted on its occurrence.287 

In a surprise move, CMS delegated its pricing authority to the MACs on an 

interim basis as CMS collected more data. Hillrom does not dispute (indeed, its 

lawsuit is premised on the fact) that the April Novitas Rate’s significant departure 

from Novitas’ historical reimbursement rates has created turbulence in a growing 

market serving an increasing number of patients. Though Hillrom channels its 

expert to argue CMS will not act without a RUC recommendation (not scheduled to 

occur before October 2024), it argues in the next breath that Bardy and the industry 

have been decimated by the change in reimbursement rates.

288 Its position simply 

does not square with evidence of the extended AECGs’ rapid segment growth and 

CMS’s public health mission; indeed, the entire reason CMS considered moving 

extended AECGs’ CPT codes into Category I is because it viewed these devices as 

offering important diagnostic support for its beneficiaries.

289 In the face of CMS’s 

286 PTO ¶ 28; JX 93 at 8.

287 See JX 195 at 2. Both parties assumed in their models the ~$464 national rate, and had 

to revise those assumptions once CMS declined to adopt its proposed fee schedule. 

Tr. 172:4–23 (Querry); JX 254 at 38; Tr. 489:4–10 (Frank); JX 365 at 19.

288 See Defs.’ Post-Trial Opening Br. at 33–40. 

289 JX 635 at 5–9 (explaining why a CPT code would move from Category III to 

Category I); Tr. 300:5–18 (Renbaum) (same).
80

well-documented “triple aim,” and Renbaum’s credible testimony on how that 

agency operates, Hillrom has failed to carry its burden to prove that it reasonably 

expected CMS would not prioritize the CAM patch’s CPT codes and revisit the 

April Novitas Rate within the next two years. 

Having found that the preponderance of the evidence does not support 

Hillrom’s contention that neither CMS nor Novitas will revisit the April Novitas 

Rate within a commercially reasonable period, the question remains whether these 

regulators are likely to revise the reimbursement rate meaningfully upward such that 

an MAE would not reasonably be expected to have occurred. Hillrom says no; 

Bardy says yes and, more to the point, Bardy says Hillrom has not proven otherwise. 

Here again, Bardy has the better of the evidence. 

b. Hillrom Failed to Prove the April Novitas Rate Will Not Be 

Meaningfully Revised Upwards

Hillrom asserts that CMS pricing is dictated by cost of goods sold.

290 CMS 

deferred setting a national price because it did not have adequate information on the 

direct cost of the CAM patch itself.291 Because Bardy can turn a profit at the 

290 Defs.’ Post-Trial Opening Br. at 40–41.

291 PTO ¶ 28; JX 350 at 3.
81

April Novitas Rate, Hillrom reasons syllogistically that the CAM patch’s unit 

economics confirm that the April Novitas Rate is here to stay.

292

Hillrom’s cynicism regarding the regulators’ inclination to revisit and increase 

the April Novitas Rate is striking when set against its position prior to the 

announcement of the January Novitas Rate—informed by Hillrom’s extensive 

diligence on reimbursement rates and knowledge of the CAM patch’s cost 

structure—that a downward revision to the historic reimbursement rate was unlikely 

and unjustifiable.

293 Though Novitas’ black box methodology makes its pricing 

decisions difficult to predict, CMS’s pricing methodology was then, and is now,

relatively transparent.294 Neither party argues there has been any change in how 

CMS prices a device and, as a sophisticated healthcare operator with a team of 

experts dedicated to analyzing reimbursement risks, Hillrom well understands the 

way in which CMS determines the price of a device.295 

292 See Defs.’ Post-Trial Opening Br. at 43; Defs.’ Post-Trial Reply Br. at 1 (citing 

Tr. 657:13–658:1 (Kohler)).

293 See JX 141 at 2 (stating Hillrom has “an entire workstream dedicated to [investigating] 

reimbursement for [Bardy]”); JX 391 (including CAM patch margins in Hillrom DCF); 

JX 170 (Groetelaars agreeing there is “little merit to the argument” iRhythm’s AECG 

“should be valued solely based on direct inputs”).

294 See JX 632 ¶¶ 25, 31–36; JX 635 ¶ 30.

295 See JX 110 at 5 (listing as a point “requir[ing] validation” that “[r]eimbursement rate 

changes for [extended AECG] announced in August of 2020 are not meaningfully impacted 

through the ‘comment period’ and are stable in 2021 and beyond”); see also Tr. 168:8–11 
82

Based on its “extensive, disciplined” diligence,296 Hillrom decided that the 

rationale justifying the CAM patch’s then-current pricing was sound.

297 

For example, Hillrom stated internally in October 2020 that the extended AECG

device: 

is a service and a device and must therefore be reimbursed as a complete 

package. Using CMS’ own words, the organization develops [relative 

pricing for CPT codes] by “considering the direct and indirect practice 

resources involved in furnishing each service,” with (a) direct expenses 

including things like clinical labor, medical supplies, and equipment, 

and (b) indirect expenses covering items like labor and office 

expenses.298

(Querry) (confirming that there were questions about reimbursement during “[a]lmost . . . 

every interaction with the Hillrom team”). As noted, Hillrom’s team included outside 

advisors. Tr. 527:18–528:19, 533:7–12 (Frank); id. at 581:12–582:9, 600:5–601:1 

(Groetelaars); JX 169; JX 197; JX 246 (reiterating Parr’s view that “CMS is sometimes 

hesitant about new categories if not enough invoices were submitted or [sic] from a broad 

group of suppliers, as they do not want the few invoices presented to CMS to be for a list 

price and then find out later that discounts are being offered in the market and they are 

‘overpaying’”).

296 (Blanchard) Dep. 164:12-16; see also Tr. 167:23–168:11 (Querry) (describing 

Hillrom’s extensive diligence process).

297 It is undisputed that all sides saw no justification for reimbursement rates below $365, 

and were shocked upon announcement of the January Novitas Rate. Tr. 50:4–17, 67:24–

68:3 (Bardy) (seeing little risk in December 2020 that reimbursement rates would decrease 

in 2021, and expressing shock at Novitas’ price revision); JX 253 (Bardy presentation to 

Hillrom days after CMS announced its final fee schedule stating “[w]e do not expect MAC 

rates to decline, nor do most analysts.”); JX 218 at 1; JX 365 at 17 (January presentation 

to Hillrom’s board not identifying reimbursement as among “key risks”); see also 

Tr. 566:21 (Groetelaars) (expressing surprise at the January Novitas Rate); id. at 492:21 

(Frank) (same); id. at 139:3–140:4 (LaViolette) (same); id. at 264:9–12 (Burke) (same);

JX 412 at 1 (then-Bardy CEO Kevin Hykes reacting to the news with a single word: 

“Stunning”). 

298 JX 170 at 2–3.
83

Hillrom’s CEO, Groetelaars, agreed with this assessment, stating, “[i]t is highly 

unusual for reimbursement to change materially from [CMS’s] proposal to [CMS’s]

final [rate]. I’m not even aware of an instance where a significant change has 

occurred in the past.”299 Hillrom’s pre-litigation characterization of CMS pricing as 

more holistic jibes with Renbaum’s credible testimony that CMS accounts in its 

pricing for such things as “health outcomes of the different services.”300 

Now in litigation, Hillrom disclaims that view, contending that CMS’s 

proposed rate is irrelevant and the April Novitas Rate has reset future pricing 

expectations indefinitely. That argument runs contrary to CMS’s indisputably 

“iterative” rate-setting process, which builds on (rather than abandons) past 

analyses.301 There is no reason to believe that Novitas’ cryptic process, which 

evidently yields mistaken outcomes, would meaningfully affect CMS’s independent 

review of the relevant CPT codes. And while Novitas’ historically stable $365 rate 

was somewhat of an outlier among other MACs, that did not prevent CMS from 

299 Id. at 1.

300 Tr. 344:23–345:1 (Renbaum). I note that Hillrom did not address whether the costs for 

research and development of a product (as opposed to simply costs of goods sold) factor 

into CMS’s assessment.

301 JX 671 ¶ 11; Tr. 312:11–24 (Renbaum).
84

“crosswalking” a rate significantly higher than even Novitas’ rate in its proposed 

rule.302

In sum, Hillrom assessed the case for a $400+ reimbursement rate on a CAM 

patch to be strong pre-signing, and it offers no reason to believe the ground 

supporting that case has shifted in the interim. The only change to which Hillrom 

points is the April Novitas Rate. But the way in which Novitas arrived at that rate 

is unclear; it revised the rate once in dramatic fashion and continues to engage in 

conversations concerning flaws in its pricing methodology.

303 Nothing about 

Bardy’s fundamental business or the strength of its technology has changed. Indeed, 

it continues to grow apace notwithstanding the challenges brought on by the April 

Novitas Rate and this litigation.304 After careful consideration, I am satisfied the 

302 See JX 197. Though some advisors warned Hillrom that the CAM patch’s CPT codes 

may be revised significantly downwards, the preponderance of the evidence supports 

Hillrom’s assessment that these reports were “outliers” and the rationale for higher, 

historical prices were sound. Tr. 529:1–19 (Frank) (viewing Muller Report as outlier); 

(Roehrich) Dep. 85:18–92:7 (discussing JX 197, Hillrom’s team was “generally interested” 

in Parr’s opinion but concluded any pricing change would be “modest”); JX 251 at 3 

(12/4/2020 Bardy presentation to Hillrom expressing that it did not expect MAC rates to 

decline, a view shared by most analysts); Tr. 479:2–13 (Frank) (agreeing that Hillrom did 

not anticipate a dramatic pricing change).

303 See JX 823 at 3, 5–6; Tr. 832:17–833:5 (Noether). 

304 Tr. 190:23–191:23, 202:7–203:5 (Querry); JX 702 at 3–5 (Bardy Q1 2021 update 

showing continued growth in enrollments and unit orders).
85

record supports the assumptions underlying Bardy’s pro forma model calculating 

the clinical value of its service to justify the historic $365 Novitas rate or above.

305

Returning to Hillrom’s burden, it is insufficient to show the effect of the April 

Novitas Rate might be durationally significant, as “a mere risk of an MAE cannot be 

enough.”306 Because Hillrom has failed to prove that it reasonably would have 

expected that CMS would not meaningfully increase the current Medicare 

reimbursement rates for the relevant CPT codes, it has likewise failed to prove that 

the current state of those rates constitutes an MAE. 

*****

For reasons explained, Hillrom has failed to carry its burden to prove that an 

event had or would reasonably be expected to have an effect sufficiently material 

and adverse to qualify as an MAE at the time it refused to close the Merger. The 

analysis, therefore, could end here. For the sake of completeness, however, I take 

up the remaining links of the analytical chain and conclude that they too require a 

Plaintiff’s verdict.

305 See Tr. 186:5–188:3 (Querry) (explaining pro forma model calculating value of the 

clinical service as a stand-in); JX 498.

306 Akorn, 2018 WL 4719347, at *65; see also Snow Phipps, 2021 WL 1714202, at *30 

(same).
86

The April Novitas Rate is a “Health Care Law” Carved Out From an 

MAE

Per the Agreement, “any change in any Law (including . . . any Health Care 

Law) . . . or any interpretation thereof” cannot, alone or in combination, constitute 

an MAE.

307 The Agreement defines “Law” as “any” regulation or rule issued by 

“any” Governmental Body, including “any authorized contractor engaged by any 

governmental, legislative, executive or judicial agency . . . or regulatory body.”308

This exception squarely encompasses changes in the Medicare reimbursement rates 

set by Novitas.309

CMS is a federal agency within the federal Department of Health and Human 

Services—a cabinet-level executive branch agency. Among CMS’s regulatory 

functions is the issuing of Physician Fee Schedules and other payment regulations.310

These responsibilities are prescribed by federal statute and clearly listed under the 

“Regulations and Policies” section of the CMS website.311 Medical device suppliers 

307 JX 376 at 88–89.

308 Id. at 95, 98.

309 To reiterate, Bardy bears the burden of proving this exception applies by a 

preponderance of the evidence. See AB Stable, 2020 WL 7024929, at *51. 

310 Pl.’s Post-Trial Opening Br. at 52

311 42 U.S.C. §1395w–4(b)(1); Medicare Fee-For Service Payment Regulations (2018), 

https://www.cms.gov/regulations-and-guidance/regulations-and-policies/medicare-feefor-service-payment-regulations (last visited June 4, 2021).
87

like Bardy are obligated to adhere to these rates; failure to do so is referred to as 

“balance billing” or “surprise billing” and is generally forbidden under federal law 

for Medicare-participating providers and suppliers.312 The parties do not 

meaningfully disagree that any schedule of fees set by CMS that governs payments 

to doctors or other suppliers for Medicare services, while colloquially referred to as 

“rates” or “prices,” are regulations or rules as contemplated by the Agreement.

313

Here, the Medicare reimbursement rates in question are not presently set 

directly by CMS. Rather, they are determined by Novitas in its capacity as a MAC, 

which operates as CMS’s authorized contractor (hence the moniker “Medicare 

Administrative Contractor”).

314 Hillrom correctly highlights that the Social Security 

Act considers the promulgation of fee schedules by the Secretary of the Department 

of Health and Human Services as “regulation[s],” but it is mistaken in assuming that 

this classification is limited to situations where CMS itself sets the rate. 

312 42 U.S.C. § 1395cc(a)(1)(A).

313 Tr. 310:16–311:8 (Renbaum); id. at 668:6–16 (Kohler); id. at 169:6–170:1 (Querry).

314 42 U.S.C.A. §1395kk-1 (granting authority to MACs for payment functions, including 

the “[d]etermination of payment amounts”); Patwardhan v. United States, 2014 

WL 1093049, at *1 (C.D. Cal. Mar. 18, 2014) (“CMS delegates certain functions to its 

[MACs], including determining the amount of the payments to be made to provide[r]s as 

required by the Medicare statute.”). 
88

CMS regularly delegates the setting of reimbursement rates, among other 

functions, to MACs.315 Indeed, Hillrom acknowledges that CMS has never set a 

national rate for the CPT codes applicable to the CAM patch; Novitas has always

determined the amount to be paid to Bardy in the regions where it operates.

316 Bardy

could not ignore MAC pricing or seek to negotiate higher reimbursement rates from 

Medicare any more or less than it could ignore or negotiate CMS pricing; the price 

is the price.317 As an “authorized contractor engaged by” CMS, Novitas acts 

unilaterally on behalf of, and with the full authority vested in, CMS.318 Because 

reimbursement rates are regulations when set by CMS, it follows that the rates set 

by MACs, as CMS’s “authorized contractors,”319 must also be classified as such. 

Accordingly, Bardy has proven that Novitas’ reimbursement rate revisions in 

315 See Tr. 310:16–311:8 (Renbaum).

316 Defs.’ Post-Trial Opening Br. at 17.

317 Tr. 311:9–12 (Renbaum).

318 42 U.S.C. §1395w–4(b)(1) (requiring Fee Schedules to be established “by regulation”); 

JX 349 (CMS Decision in Federal Register); Tr. 310:16–311:8 (Renbaum); see also

42 U.S.C.A. §1395kk-1 (granting authority to MACs for payment functions, including the 

“[d]etermination of payment amounts”); Patwardhan, 2014 WL 1093049, at *1 (describing 

the nature of CMS’s delegation authority vis-à-vis MACs).

319 JX 376 at 88–89.
89

January and April 2021 fall under the Agreement’s MAE exception for changes of 

Law.

320

The April Novitas Rate Did Not Have a “Disproportionate Impact” on 

Bardy

Even if an event otherwise constituting an MAE is contractually carved out 

by the parties, the Agreement provides that any such event may nevertheless qualify 

as an MAE “to the extent such matter has a materially disproportionate impact on 

[Bardy] as compared to other similarly situated companies operating in the same 

industries or locations, as applicable, as [Bardy].”321 Hillrom bears the burden to 

prove that the April Novitas Rate had a “materially disproportionate impact” on 

Bardy.

322

Thinking, again, in terms of prima facie elements, in order to prove that the 

“materially disproportionate impact” exception applies, Hillrom was obliged to 

320 I note that Bardy also has a strong argument under another carve-out to the MAE, 

namely that a Company MAE cannot be based on an event “generally affecting the 

economy or the industries or markets in which [Bardy] operate[s].” JX 378 at 89. On its 

face, a change to the Medicare reimbursement rate for a particular CPT code would appear 

not to discriminate against any particular company, but rather would cut across the 

“market” for extended AECG devices. The parties, of course, dispute how broadly 

(or narrowly) the “market” should be defined. I need not adjudicate this dispute in this 

context, however, as I have concluded that the change-in-Law carve-out, without an 

applicable exception, defeats Hillrom’s MAE claim.

321 Pl.’s Post-Trial Opening Br. at 38.

322 PTO ¶ 91; IBP, 789 A.2d at 68. 
90

prove (1) the universe of “similarly situated” companies “operating in the same 

industries or locations” as Bardy, and (2) that Bardy, as compared to those

businesses “similarly situated,” suffered a “materially disproportionate impact” from 

the April Novitas Rate. I address each element in turn.

a. iRhythm is the Only Company “Similarly Situated” to Bardy

The MAE clause limits the universe of companies by which to assess the 

proportionality of an event’s impact to “similarly situated companies operating in 

the same industries or locations . . . .”323 This language differs from language 

interpreted in other Delaware MAE cases, where the carve-out exceptions 

contemplated disproportionate impact on “comparable entities operating in the 

[same] industry . . . .”324 Here again, well-settled canons of contract interpretation 

require that the Court give effect to every word in the contract in order to avoid

“surplusage.”325 The additional qualifier—“similarly situated”—bounds the 

323 JX 376 at 89 (providing that exclusions can be “taken into account” only “to the extent

that such matter has a materially disproportionate impact on [Bardy] as compared to other 

similarly situated companies operating in the same industries or locations, as applicable, 

as [Bardy]” (emphasis added)). 

324 Snow Phipps, 2021 WL 1714202, at *35; see also Akorn, 2018 WL 4719347, at *51 

(construing disproportionate impact exception that provided: “to the extent such effect, 

change, event or occurrence has a disproportionate adverse affect [sic] on the Company 

and its Subsidiaries, taken as a whole, as compared to other participants in the industry in 

which the Company and its Subsidiaries operate . . . .”). 

325 GRT, Inc. v. Marathon GTF Tech., Ltd., 2012 WL 2356489, at *4 (Del. Ch. June 21, 

2012).
91

universe of such companies to a subset “operating in the same industries or 

locations.” Thus, I must determine what makes a company “similarly situated” 

before turning to whether Bardy was “disproportionately impacted” by the 

April Novitas Rate as compared to others in “the same industries.”

Hillrom argues that a company is “similarly situated” if it competes with 

Bardy for the same customers in the ambulatory cardiology market.326 It identified 

two potential groups as “similarly situated” to Bardy: leading ambulatory cardiology 

players (i.e., iRhythm, BioTelemetry and Preventice) and a larger set of purportedly 

peer companies comprising other clinical diagnostic providers with more limited 

share.327 Bardy counters that a company is “similarly situated” only if it is a 

“close comparator” to the Company, which, by Bardy’s lights, leaves only 

iRhythm.328 

The Agreement does not provide any criteria by which to assess whether a 

company is “similarly situated” to Bardy. Of course, the similarity of a company’s 

326 Defs.’ Post-Trial Opening Br. at 61.

327 Id. I note that Hillrom urges the Court to follow the approach taken in Akorn to identify 

“similarly situated companies,” but fails to acknowledge that the provision at issue in 

Akorn used substantively broader language to define the universe of comparators. 

See Akorn, 2018 WL 4719347, at *51, *58 (reviewing an MAE disproportionate-impact 

exclusion where the universe of comparators was defined as “other participants in the 

industry in which [the seller] operate[s]”).

328 Pl.’s Post-Trial Opening Br. at 56.
92

situation is factually relative by design; under a plain reading of the MAE exception, 

the words “similarly situated” reference company characteristics related to the 

“matter” the exception is addressing.

329 In my view, because the rate changes at 

issue affect specific categories of products in the ambulatory cardiology monitoring

market, a comparator company’s relevant characteristics include operational scale 

(i.e., revenue), developmental maturity and, most importantly, product portfolio 

(i.e., relative product mix and sophistication).330 

Neither party disputes that iRhythm is “similarly situated” for purposes of 

interpreting the disproportionate impact exception.

331 I agree. iRhythm is the only 

other market player that, like Bardy, derives the vast majority of its revenue from a 

single product—its LTH device (the Zio XT patch).332 Further, like Bardy, iRhythm 

has yet to turn a profit, signaling it also currently prioritizes growth over 

profitability.333 While iRhythm is publicly traded, Bardy maintains healthy access 

329 JX 376 at 89.

330 See Genesco, Inc. v. The Finish Line, Inc., 2007 WL 4698244 (Tenn. Ch. Dec. 27, 2007) 

(holding that inclusion of “similarly situated” language should prompt the court to consider 

issues of relative product mix in deciding which companies were similarly situated).

331 See Pl.’s Post-Trial Opening Br. at 56; Defs.’ Post-Trial Reply Br. at 3, 28.

332 JX 631 at 39–40 (estimating iRhythm derives 96% of its revenue from its patch 

product); Defs.’ Post-Trial Reply Br. at 30. While it also sells MCOT services, these 

account for a negligible portion of its current revenue. 

333 Tr. 204:8–205:13 (Querry); id. at 442:22–24 (Jeffers).
93

to capital to fuel its expansion.

334 The only substantive distinction between iRhythm 

and Bardy is operational scale: iRhythm’s revenue is more than nine times greater 

than Bardy’s.

335 Even still, iRhythm’s product mix has left it similarly dependent 

on (and affected by) the April Novitas Rate.

336

BioTelemetry and Preventice, by contrast, rely predominantly on MCOT 

devices for their revenue, with only 9% and 15% of their annual revenue coming 

from LTH devices, respectively.

337 What LTH devices they do sell, they source 

from third parties.338 

Where the “matter” or “event” alleged to be an MAE is a change in a specific 

product’s Medicare reimbursement rates tied to particular products and related 

services, product mix is patently the most important factor in determining a 

comparator firm’s “situational” position relative to Bardy.

339 Preventice’s 

334 Tr. 203:22–207:16 (Querry).

335 Defs.’ Post-Trial Reply Br. at 30.

336 See JX 665 ¶ 10 (showing iRhythm stock price dropping by 68% since January 

following announcement of the April Novitas Rate).

337 Id. at 48; JX 636 ¶ 64.

338 JX 636 at 5–6.

339 Hillrom implicitly recognizes this when it used only iRhythm’s revenue multiples to 

value Bardy. JX 365 at 20; see also (McClanahan) Dep. 98:14–99:6 (noting that Hillrom 

specifically looked at iRhythm’s growth rates and margin projections when assessing the 

future value of Bardy).
94

significantly lesser reliance on LTH relative to Bardy and iRhythm (15% compared 

to 100% and 96%, respectively) weighs heavily against finding that Preventice is 

“similarly situated.”340 The same holds true for BioTelemetry.341

Hillrom proffers the composition of the consortium loosely formed to 

advocate for a revision of the January Novitas rate—BioTelemetry, Preventice, 

Bardy and iRhythm—as evidence of companies “similarly situated.” In the same 

vein, Hillrom points to its pre-litigation Board documents to show that it considered 

BioTelemetry and Preventice as competitive with Bardy and iRhythm at the time of 

the Merger.342

But Hillrom’s arguments show merely that each of these companies compete 

for customers and have a shared interest in getting paid as much as the market will 

bear for their products and services.343 The Agreement’s MAE clause, however, did 

not delimit the reach of its “disproportionate impact” exception to companies 

340 Hillrom also maintains that Preventice is more like Bardy than iRhythm because it is 

privately-held with revenue numbers closer to iRhythm than Bardy. Defs.’ Post-Trial 

Opening Br. at 30. But Preventice’s revenue drivers are fundamentally different, and the 

company operates at break-even, indicating its exposure to fluctuations in LTH Medicare 

rates is limited based not only on its product mix but also on its stage of corporate 

maturation. 

341 See JX 636 ¶ 64 (noting that LTH comprises ⁓10% of BioTelemetry sales); JX 665 at 48

(same). 

342 Defs.’ Post-Trial Opening Br. at 29–30.

343 JX 665 (showing BioTelemetry and Preventice trace between 9% to 15% of their 

revenue from LT-ECG and are thus market players with skin in the game).
95

operating in the same “market.” Rather, it required an assessment of whether the 

impact caused by “such matter” was “materially disproportionate” relative to 

“similarly situated companies operating in the same industries.”344 In my view, that

language calls for a more granular parsing of a company’s situation than mere 

participation in the LTH market. 

Indeed, the market assessments highlighted by Hillrom demonstrate how 

Bardy differed from BioTelemetry and Preventice in salient ways, including its 

reputation as a best-in-class “pure player” that fields only LTH technology, its 

relative financial immaturity and its small size.345 Companies seeking to make a 

strategic acquisition within a market inevitably survey multiple potential targets, 

each of which often bring meaningfully different qualities and synergies to the table. 

That Hillrom also assessed the potential of other players with marginal skin in the 

LTH game does not render them “similarly situated” as contemplated by the 

Agreement’s exception to the MAE carve-outs.

I acknowledge that, at first glance, there might appear to be circularity in a 

reading of “similarly situated” that limits the disproportionate impact exception to 

companies that share a similar product mix with the target and, therefore, might be 

344 JX 376 at 88–89.

345 JX 51 at 24 (presentation to Hillrom’s board describing Bardy as having a “[b]est in 

class device”).
96

expected to suffer similar impacts from external events affecting the featured 

product(s). That figment disappears, however, after more careful observation. As a 

one-product company that operates in a high-growth, heavily regulated market, it is 

not surprising that Bardy bargained for a narrower, more target-friendly exclusion 

to the MAE carve-outs.

346

*****

Having determined that iRhythm is the only “similarly situated” company 

operating in the same industry as Bardy, I next consider whether it was 

disproportionately impacted by the April Novitas Rate relative to iRhythm.

b. Bardy Was Not “Disproportionately Impacted” By the April 

Novitas Rate

As noted, a carved-out event may nevertheless qualify as an MAE “to the 

extent such matter has a materially disproportionate impact” on Bardy.

347 Before 

turning to the evidence on this point, I pause to parse two aspects of the parties’ 

346 Chi. Bridge, 166 A.3d at 926–27 (holding that, to understand a contract, “[t]he basic 

business relationship between [the] parties” be considered so that the court may “give 

sensible life” to the Agreement). I note that one could easily envision a scenario where 

iRhythm and Bardy were impacted very differently by the April Novitas Rate, even though 

both are heavily reliant upon their offerings in the LTH space. For instance, if iRhythm 

had elected to focus its sales on providers who treat only patients insured by commercial 

carriers, or to filter its mix so that a greater percentage of revenue was derived from higher 

paying commercial carriers, the impact on Bardy relative to iRhythm would likely be 

disproportional. 

347 JX 376 at 88–89.
97

chosen contractual phrasing. First, the Agreement provides that the carve-out’s 

exception applies “to the extent” “such matter” impacts the target disproportionately. 

That language, plainly read, indicates that Bardy only agreed to assume the risk of 

an event where the delta of its impact on the target’s business, as compared to others 

“similarly situated,” is, itself, material. For example, if the risk “adversely affects 

all [similarly situated] companies operating in the seller’s industry, but the average 

adverse effect is only a 10% diminution in cashflows while the seller’s cashflows 

are reduced by 50%, then the question will become whether a 50% - 10% = 40% 

reduction in cashflows constitutes a Material Adverse Effect on the company.”348

Second, the Court must understand what the parties intended by the term

“impact.” The proportionality of an event’s “impact” could be understood by 

measuring its effect on the target relative to other comparables delimited in the 

MAE. Under that company-specific reading, the “impact” of the April Novitas Rate

would be measured holistically by analyzing how the April Novitas Rate affected 

Bardy’s business vis-à-vis iRhythm. Alternatively, “impact” could be understood 

by reference to the event itself, requiring an analysis of whether the event’s effect in 

absolute terms discriminated against the target as compared to others “similarly 

situated.” From that frame, the April Novitas Rate would “impact” all companies 

348 Miller, COVID-19, at 5–6; see also AB Stable, 2020 WL 7024929, at *56–57 & n.204–

06 (citing favorably to Miller’s COVID-19 article).
98

the same as an across-the-board cut to reimbursement rates; in other words, the 

reduction in the reimbursement rate could not, by definition, be “disproportionate” 

because all companies selling covered devices would experience an identical drop 

in revenue per unit.

While the latter reading of “impact” has some intuitive appeal given its 

congruence with the broader theory of MAEs as mechanisms to shift market risk 

onto the buyer and individual risk onto the seller,349 it does not comport with other 

provisions in the Agreement.350 Specifically, the Agreement carves out from its

definition of MAE events “generally affecting the economy or the industries or 

markets in which [Bardy] operate[s].”351 If the parties intended “impact” to be 

measured by the absolute effect of the event itself, then the carve-out for broad 

market events would be redundant (as, by definition, events “generally affecting” 

the “markets” would “impact” all players equally). Thus, while the Agreement 

could have more clearly defined “impact,” when reading the Agreement holistically, 

“impact” must be measured by reference to an event’s relative, overall effect on 

349 Akorn, 2018 WL 4719347, at *49 (“The typical MAE clause allocates general market 

or industry risk to the buyer, and company-specific risks to the seller.” (quoting Zhou, 

Material Adverse Effects, at 173)).

350 See GMG Cap. Invs., 36 A.3d at 779 (“In upholding the intentions of the parties, a court 

must construe the agreement as a whole, giving effect to all provisions therein.”).

351 JX 376 at 89. 
99

other companies. Under this reading, even though the April Novitas Rate applies 

equally to all companies selling LTH devices under the relevant CPT codes, its 

“impact” is “disproportionate” only where one company’s suffering is outsized 

compared to “other similarly situated companies operating in the same industries or 

locations” as Bardy.

Not surprisingly, the parties disagree about which financial metric should 

serve as the defining benchmark for the analysis. Bardy focuses on revenue and 

volume of sales, which it contends are the most relevant factors to a growth-oriented 

company like Bardy and formed the bases for Hillrom’s determination that Bardy 

was an attractive acquisition target.352 Hillrom emphasizes profitability and 

discounted cash flows (“DCF”), which it argues are standard benchmarks in any 

acquisition and metrics that figured prominently in Hillrom’s pre-acquisition due 

diligence of Bardy.

353

This court has noted that it is appropriate to consider whether a material 

adverse effect has occurred broadly by reference to “the overall earnings potential 

of the target.”354 Previous decisions have coalesced around EBITDA as the primary 

(but by no means exclusive) financial metric by which to measure the operational 

352 See Pl.’s Post-Trial Opening Br. at 46, 58–59; Pl.’s Post-Trial Reply Br. at 32.

353 See Defs.’ Post-Trial Reply Br. at 13–18.

354 IBP, 789 A.2d at 68. 
100

results of the business.355 EBITDA, of course, measures a company’s free cash 

flows.

356 And free cash flows, as the source for calculating a firm’s value through a 

DCF analysis, is regarded by many as the “gold standard” valuation metric.357 That 

metric operates with less force, however, when the target is still in startup mode and, 

like its “similarly situated” comparator, is unprofitable and invested heavily in 

growth.358 

I need not delve further into the most appropriate benchmark(s) by which to 

measure the “operational results of [Bardy’s] business,”359 however, because 

Hillrom has failed to prove that Bardy suffered a disproportionate impact relative to 

355 See id. at 66–67 (reviewing the target’s financial performance by reference to earnings 

per share and EBIT); Hexion, 965 A.2d at 740 (determining EBITDA “is a better measure 

of the operational results of the business” than earnings per share); Akorn, 2018 

WL 4719347, at *53–57, *62 (placing the most weight on EBITDA, while also considering 

other metrics including revenues, operating income and earnings per share).

356 See Hexion, 965 A.2d at 740.

357 See In re PetSmart, Inc., 2017 WL 2303599, at *23 (Del. Ch. May 26, 2017) (compiling 

authority). 

358 See Aswath Damodaran, Investment Valuation: Tools and Techniques for Determining 

the Value of Any Asset 17–18 (Wiley, 3d ed. 2012) (“Discounted cash flow valuation is 

based on expected future cash flows and discount rates. Given these estimation 

requirements, this approach is easiest to use for assets (firms) whose cash flows are 

currently positive and can be estimated with some reliability for future periods, and where 

a proxy for risk that can be used to obtain discount rates is available.”); id. (observing that 

DCF valuations often do not properly account for unutilized assets or patents.). As noted,

iRhythm, the “similarly situated” comparator, is also unprofitable and currently oriented 

toward growth.

359 Hexion, 965 A.2d at 740.
101

iRhythm by any measure. Because of their comparable product mixes and the nearly 

mirrored percentage of revenue attributable to Medicare reimbursements, one would 

expect iRhythm and Bardy to be similarly impacted by the April Novitas Rate in 

terms of revenues, gross profits and other valuation metrics. And the numbers bear 

this out.

The April Novitas Rate’s impact on revenue is clearly not disproportional. 

Bardy and iRhythm attribute 29% and 27% of their revenue to Medicare 

reimbursements, respectively.360 Hillrom’s own expert models show Bardy’s 

revenue impact at either -22% or -63%, depending on whether an impact to nonMedicare payors is included in the calculation.361 The corresponding figures for 

iRhythm deviate by only a few percentage points, at -16% and -60%, respectively.362 

360 JX 668 ¶ 58. I note that Hillrom’s expert, Allen, misstated the proportion of revenue 

Bardy derives from Medicare. See JX 631 (Allen calculating Bardy’s portion of revenues 

attributable to Medicare to be 36%). Medicare represented approximately 33% of Bardy’s 

total units sold in 2020, and its weighted revenue accounted for 44.6% of split bill revenues. 

See JX 259 (“Phasing Analysis” sheet setting out Bardy’s payor mix). Hillrom’s DCF 

model included split bill revenues accounting for approximately 65.9% of total Bardy

revenues for CY 2020. JX 391 (“US Patch Build” sheet setting out Bardy’s revenue 

distribution). 44.6% of Split Bill x 65.9% = ⁓29% of revenues reimbursed by Medicare. 

Though Bardy’s expert advanced this argument in his rebuttal report, Hillrom never 

meaningfully contests his point on brief or otherwise.

361 JX 665 at 49–50.

362 Id.
102

The April Novitas Rate’s impact is not disproportional when measured by 

profitability either. Hillrom bears the burden of proof here, and yet Bardy and 

iRhythm’s gross margins are difficult to discern from the parties’ competing expert

analyses. Specifically, it is unclear how iRhythm treats its costs when calculating 

its gross margin, and whether its treatment is comparable to Bardy’s.

363 It is, 

therefore, difficult to assess whether the experts’ granular analysis is actually

comparing apples to apples.

364 On a less granular level, the record indicates Bardy

has competitive, or even superior, margins to iRhythm, as iRhythm’s first reaction 

to the April Novitas Rate was to announce that it could no longer profitably serve 

363 See JX 668 ¶ 68 (observing that “[c]ompanies calculate their cost of sales on a different 

basis from one another and include or exclude certain expenses and costs that are not 

always obvious. These inclusions and exclusions are not clearly defined in their financial 

statements. It is particularly more complex to determine cost of sales basis for these 

companies, as they have high technology and services components, so costs and expenses 

related to labor, compensation, and research and development may or may not be partially 

or fully included in cost of sales, according to an individual company’s accounting 

practices.”).

364 Bardy’s expert, Jeffers, could not say for sure whether his gross margins calculations 

included device costs “beyond just the plastic patch and adhesive tape.” Tr. 425:21–426:17 

(Jeffers). He further assumed iRhythm’s gross margins for its Medicare business were the 

same as its overall gross margins, without support for that assumption. Id. at 426:23–

427:11, 420:12–431:4 (Jeffers). Hillrom’s expert, Allen, based her gross margin numbers 

for iRhythm on public disclosures, but it is unclear whether those numbers are calculated 

in the same way as Bardy’s numbers. See JX 631 ¶ 68; see also JX 668 ¶¶ 67–68

(Jeffers persuasively critiquing Allen’s methods).
103

Medicare patients.

365 While iRhythm subsequently reconsidered its decision to exit 

the Medicare market segment,

366 Bardy has never doubted its ability to operate 

profitably under the April Novitas Rate.

367 This makes sense since, notwithstanding 

iRhythm’s superior economies of scale as a larger company, Bardy runs most of its 

Medicare claims through IDTFs in New Jersey, where the rates are about 15% higher 

than in Houston, where iRhythm has its IDTFs.368 Again, while differences in the 

competing products’ profit margins are difficult to discern on this record, the 

evidence indicates they are a far cry from the 10x deltas held in Akorn to constitute 

a disproportionate impact.

369

Finally, on the issue of valuation, Hillrom argues Bardy’s DCF valuation has 

“dropped over 100%” to “less than $0,” while iRhythm’s stock price declined only 

68%.370 As noted above, however, Allen’s valuation of Bardy as worth less than the 

365 JX 646 at 5; see also (McClanahan) Dep. 98:14–99:6 (noting that Hillrom specifically 

looked at iRhythm’s growth rates and margin expectation when it assessed the future value 

of Bardy).

366 JX 823 at 3.

367 Tr. 189:1–190:12 (Querry) (confirming Bardy continues to operate profitably and 

suggesting iRhythm’s wavering on serving Medicare patients presented an opportunity to 

take increase Bardy’s market share).

368 Id. at 188:5–24 (Querry); JX 668 ¶ 70; JX 589 at 11.

369 Akorn, 2018 WL 4719347, at *58–60.

370 Defs.’ Post-Trial Opening Br. at 7, 66.
104

paper on which the Agreement was printed is facially incredible given the value of 

Bardy’s intellectual property, its growth trajectory and its profitable unit economics. 

Moreover, juxtaposing Hillrom’s DCF valuation with iRhythm’s publicly-traded 

stock price compares apples to oranges—you can do it, but the result yields very 

different flavors on the palate.

371 

Hillrom failed to carry its burden to prove that the disproportionate-effect 

exception applies to disable the applicable MAE carve-out. That carve-out, 

therefore, renders Hillrom’s refusal to close a breach of the Agreement. 

C. The Purpose of the Agreement is Not Frustrated

Having failed to prove an MAE, Hillrom is left to fall back on its argument 

that its obligation to close is excused because the purpose of the Merger has been 

frustrated. The frustration of purpose doctrine discharges a contracting party’s 

obligations when his “principal purpose is substantially frustrated without his fault 

by the occurrence of any event the non-occurrence of which was a basic assumption 

371 See Hexion, 965 A.2d at 734 (noting differences between both sides’ experts’ DCF 

analyses and their public company/transaction analysis amounting to $6 billion and 

$700 million, respectively). As previously noted, iRhythm’s fluctuations in market value

have been driven largely by popular guesses on whether the April Novitas Rate is here to 

stay; because this is a highly technical subject with evidence on record indicating the 

April Novitas Rate will not endure for a durationally significant period, I reiterate that 

iRhythm’s stock price, on this record, is not a reliable indicator of its estimated value. 

See JX 665 ¶ 10 (documenting correlation between iRhythm’s stock price and the timing 

of Novitas’ rate announcements). 
105

on which the contract was made.”372 “This common law doctrine provides an escape 

for an acquirer if the target experiences a catastrophe during the executory 

period.”373 “It is not enough that the transaction has become less profitable for the 

affected party or even that he will sustain a loss. The frustration must be so severe 

that it is not fairly to be regarded as within the risks that he assumed under the 

contract.”374

The purpose of this Merger has not been frustrated. For reasons explained, 

Hillrom’s contention that the April Novitas Rate renders Bardy less than worthless

is not credible. Hillrom sought to acquire a growth company with clinically superior 

technology to expand its cardiology offering; Bardy remains exactly that. While the 

April Novitas Rate will lower Bardy’s revenue in the short-term, the record does not 

support that this state will remain status quo for long. In any event, the parties 

allocated the risk of a reimbursement rate reduction onto Bardy through the 

Agreement’s earnout, which helps to offset any short-term losses Hillrom will suffer 

as a result of the April Novitas Rate. For these reasons, Hillrom’s invocation of the 

frustration of purpose doctrine fails.

372 Wal-Mart Stores, Inc. v. AIG Life Ins. Co., 901 A.2d 106, 113 (Del. 2006) (quoting 

Restatement (Second) of Contracts § 265 (1981)).

373 Akorn, 2018 WL 4719347, at *57.

374 Restatement (Second) of Contracts § 265 cmt. a.
106

D. Remedies

Because Hillrom has failed to prove the occurrence of an MAE, its failure to 

close the Merger on February 25 breached the Agreement.375 Bardy claims it is 

entitled to specific performance and compensatory damages, in addition to 

prejudgment interest on the deal price.

376 Hillrom does not dispute that, if a breach 

is proven, specific performance is warranted.377 Nor does it appear to contest 

Bardy’s claim for prejudgment interest.378 It does, however, contest Bardy’s claim 

for compensatory damages.

In support of its damages claim, Bardy points to two clauses in the Agreement. 

First, in Section 9.11 of the Agreement, the parties agreed that specific performance 

375 JX 376 §§ 1.3, 5.1.

376 Tr. 401:12–403:18 (Jeffers); JX 636 at 30–33 (Bardy’s expert report calculating that 

Bardy suffered more than $12 million in damages from reduced transaction proceeds, a 

cash burn of roughly $97,000 per business day, and litigation fees and expenses); 

Brinkerhoff v. Enbridge Energy Co., 159 A.3d 242, 262 (Del. 2017) (“Once liability has 

been found, and the court’s powers shift to the appropriate remedy, the Court of Chancery 

has broad discretion to craft a remedy to address the wrong.”).

377 See Defs.’ Post-Trial Reply Br. at 39–40 (disputing only Bardy’s prayer for damages 

while implicitly acknowledging its right to specific performance); Emerald P’rs, 726 A.2d 

at 1224 (“Issues not briefed are deemed waived.”); see also JX 376 § 9.11 (parties waiving 

any arguments against specific performance in the Agreement).

378 See Defs.’ Post-Trial Reply Br. at 39–40 (disputing only Bardy’s claim for damages 

under the Agreement’s indemnification clause); see also Osborne ex rel. v. Kemp, 991 A.2d 

1153, 1158 (Del. 2010) (affirming trial court’s award of specific performance and its order 

that payment of delayed purchase price include interest). 
107

was not exclusive of an award of damages.379 Second, in Section 7.3, the parties 

agreed that after closing Hillrom would:

indemnify, defend and hold harmless the Equityholders . . . from, and 

will reimburse the Equityholder Indemnified Parties for, all Adverse 

Consequences suffered or incurred by the Equityholder Indemnified 

Parties, to the extent arising out of or related to a breach or nonfulfillment by Parent or Merger Sub and, with respect to covenants and 

agreements required to be performed after Closing, the Company or 

Surviving Corporation, of any of their respective covenants or 

agreements in this Agreement.380

“Adverse Consequence” is defined to include any “expense, loss, liability, Tax or 

other damages” and “reasonable and out-of-pocket legal and other professional fees, 

costs, [and] other dispute resolution expenses[.]”381 Bardy asserts that, because it 

will not be made whole by specific performance alone, an award of damages—in 

addition to pre-judgment interest on amounts that should have been paid at the 

scheduled closing on February 25—are warranted in this case. 

Hillrom responds that the term “Equityholder” is defined to mean “a holder 

of Company Capital Stock, Company Options, Company Warrants or Promised 

Option Units.”382 According to Hillrom, that definition does not include Bardy. 

379 JX 376 § 9.11.

380 Id. § 7.3.

381 Id. at 81.

382 Id. at 93.
108

Indeed, Bardy does not claim any Equityholder was harmed, but instead argues that 

“Hillrom has damaged Bardy” and that “Bardy suffered more than $12 million in 

damages.”383

I agree with Hillrom. Section 7.3 clearly juxtaposes the “Equityholder

Indemnified Parties” with “the Company [Bardy] or Surviving Corporation”: on the 

one hand, the Equityholder Indemnified Parties will be reimbursed “to the extent 

arising out of or related to a breach or non-fulfillment by [Hillrom]” pre-closing; on 

the other hand, “with respect to covenants and agreements required to be performed 

after Closing,” Hillrom would reimburse “the Company [Bardy] or Surviving 

Corporation.”384 By distinguishing Equityholder Indemnified Parties from Bardy,

and spelling out that the latter would only be reimbursed “with respect to covenants 

and agreements required to be performed after Closing,” the parties unambiguously 

excluded Bardy from indemnification for any pre-closing breaches by Hillrom, 

including its refusal to consummate the Merger.

While Bardy handwaves the Court in the direction of the supposed legion 

authority supporting its proposition that, notwithstanding a plain reading of the 

Agreement’s text, Bardy qualifies as an Equityholder under the Agreement, it 

383 Pl.’s Post-Trial Opening Br. at 65 (emphasis added).

384 JX 376 § 7.3 (emphasis added). Bardy acknowledges on brief that Section 7.3’s “breach 

or non-fulfilment” language means “a pre-closing breach.” Pl.’s Post-Trial Opening Br. 

at 65 n.299.
109

conspicuously fails to cite any authority stating as much.385 At oral argument, Bardy

raised for the first time “the We Work case from last year” as an instance where this 

court allowed a company to stand in the stockholders’ shoesfor purposes of pursuing 

damages.386 

I gather Bardy is referring to this court’s December 14, 2020 decision In re 

WeWork Litigation, where former-Chancellor Bouchard held The We Company

(“WeWork”), a commercial real estate entity, had standing to pursue breach of 

contract claims against its shareholder, Softbank Group Corp. (“SBG”), under a 

Master Transactions Agreement (“MTA”) that obligated SBG, inter alia, to 

consummate a tender offer to WeWork’s shareholders.

387 Although WeWork was 

not among the tendering stockholders allegedly trodden upon by SBG’s cold feet, 

the court nonetheless held WeWork could sue on their behalf for “essentially three 

reasons”: (1) WeWork was a party to the MTA, and the agreement expressly 

acknowledged that the parties were entitled to sue should the transactions 

contemplated therein not be consummated consistent with its terms; (2) “injury-infact” is not limited “to those who could show economic harm,” but extends more 

385 See Pl.’s Post-Trial Opening Br. at 64–66.

386 Post-Trial Oral Arg. at 87:23–88:3.

387 In re WeWork Litig., 2020 WL 7343021, at *1–2, *5–9 (Del. Ch. Dec. 14, 2020). There 

were a number of “We Work decisions from last year [2020],” though this appears to be 

the only viable candidate to advance Bardy’s position. 
110

broadly to a company that failed to receive even the tender offer’s “relatively small 

benefit” of reduced agency costs (from a larger stockholder on the cap table) and 

improved employee morale; and (3) structural barriers hardcoded into the MTA 

would frustrate (or at least disadvantage) stockholders seeking to enforce the 

reasonable efforts provision against SGB, and equity abhors a wrong without a 

remedy.

388

I confess I do not follow Bardy’s analogy. The MTA in WeWork expressly 

designated WeWork as a party that could sue for SBG’s breach, whereas the 

Agreement expressly juxtaposes Bardy with the Equityholders indemnified for 

Hillrom’s pre-closing breaches. While Bardy was no doubt harmed by a delayed 

closing, that does not mean ipso jure that it is entitled to collect damages under a 

contract’s bargained-for indemnification scheme. An order of prejudgment interest 

will adequately address harm flowing from the delayed closing, and that is the only 

compensatory relief Bardy is entitled to receive.389

III. CONCLUSION

Hillrom has failed to carry its burden to prove that it is excused from closing 

on the Merger by the occurrence of an MAE since it has failed to prove the 

388 Id. at *8–9.

389 See Snow Phipps, 2021 WL 1714202, at *55–56 (citing Osborn v. Kemp, 2009 

WL 2586783, at *12 (Del. Ch. Aug. 20, 2009), aff’d, 991 A.2d 1153 (Del. 2010)).
111

April Novitas Rate will have a durationally significant material effect on Bardy. 

Even if Hillrom had successfully proven a durationally significant effect, a change 

in Medicare reimbursement rates was carved out from the MAE definition and 

Hillrom failed to prove that Bardy was “disproportionately impacted” relative to 

“similarly situated companies operating in the same industries or locations” as 

Bardy. The remedy for Hillrom’s breach of contract is specific performance and 

prejudgment interest. In this regard, Bardy has failed to prove that it is entitled to 

compensatory damages. 

For the foregoing reasons, my verdict is for Bardy on its claim for specific 

performance of the Agreement and prejudgment interest on the deal price at the 

statutory rate.390 Hillrom’s claims for relief are dismissed. Bardy’s counsel shall 

file, on notice, a proposed form of final judgment within ten (10) days of the date of 

this opinion. 

390 6 Del. C. § 2301(d).