What changed in this filing

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Item 1. Business

2021-02-23 compared with 2020-02-26 · 187 added, 140 removed, 447 unchanged (42% of the section changed)

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The resulting corporation assumed the name Tactile Systems Technology, Inc.

and in September 2013, we began doing business as “Tactile Medical.” Our mission is to help people suffering from chronic diseases live better and care for themselves at home.

and in September 2013, we began doing business as “Tactile Medical”.

Our mission is to help people suffering from chronic diseases live better and care for themselves at home.

We focus our efforts on advancing the standard of care in treating chronic diseases in the home setting to improve patient outcomes and quality of life and help control rising healthcare expenditures.

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Our solutions deliver cost-effective, clinically proven, long-term treatment for people with these chronic diseases.

We believe that our clinically proven, at-home treatment options for lymphedema and venous leg ulcers provide a continuity of care, service and support that improves outcomes, reduces costs and gives people their lives back.

We believe that our clinically proven, at-home treatment options for lymphedema, phlebolymphedema and chronic venous insufficiency provide a continuity of care, service and support that improves outcomes, reduces costs and gives people their lives back.

We employ a direct-to-patient and -provider model, through which we obtain patient referrals from clinicians, manage insurance claims on behalf of our patients and their clinicians, deliver our solutions directly to patients and train them on the proper use of our solutions in their homes.

This model allows us to directly approach patients and clinicians, whereby we disintermediate the traditional durable medical equipment channel and capture both the manufacturer and distributor margins.

For the year ended December 31, 2019, we generated revenue of $189.5 million and had net income of $11.0 million.

Our revenue increased 32% during the year ended December 31, 2019 compared to the year ended December 31, 2018.

For the year ended December 31, 2020, we generated revenue of $187.1 million and had net loss of $0.6 million.

Our revenue decreased 1% during the year ended December 31, 2020, compared to the year ended December 31, 2019.

Lymphedema is a type of chronic swelling, or edema, which occurs in the arms, legs, neck, trunk or other body parts when the lymphatic vessels are unable to adequately drain protein-rich lymph fluid from these regions.

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Chronic venous insufficiency is a condition that occurs when the venous wall and/or valves in the veins are not working effectively, making it difficult for blood to return to the heart from the affected region(s).

Phlebolymphedema is the convergence of lymphedema and chronic venous insufficiency.

When the venous system does not effectively transfer blood from the lower limbs, it can result in venous hypertension and the development of painful, slow-healing wounds on the lower leg called venous leg ulcers.

Venous hypertension can also lead to a marked increase in fluid build-up in the limbs, overwhelming the lymphatic system and causing lymphedema.

Our proprietary Flexitouch system is a clinically proven at-home solution for patients with vascular disorders like lymphedema.

Our proprietary Actitouch system is an ambulatory, home-based solution for chronic venous insufficiency patients that may be worn throughout the day.

Patients with lymphedema or chronic venous insufficiency are typically treated by vascular surgeons, vascular medicine physicians, wound physicians, nurses and therapists.

Our proprietary Flexitouch and Entre systems are clinically proven at-home solutions for patients with vascular disorders such as lymphedema.

Patients with lymphedema or chronic venous insufficiency are typically treated by vascular surgeons, vascular medicine physicians, oncology care teams, wound physicians, nurses and therapists.

Our advanced at-home Flexitouch system provides effective automated, at-home lymphatic drainage therapy.

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In June 2017, we announced that we received 510(k) clearance from the FDA for the Flexitouch Plus, the third-generation version of our Flexitouch system.

Our Flexitouch system generated $171.3 million, or 90%, of our revenue in 2019, and $131.9 million, or 92%, of our revenue in 2018.

Our Actitouch system provides precise, consistent and wearable compression that a patient may apply, remove and reapply at home.

This system was developed to provide maximum convenience for patients by providing them with the freedom to remain active while simultaneously receiving the clinically proven benefits of sustained and intermittent pneumatic compression, which we refer to as dual-compression.

Our Actitouch system received 510(k) clearance from the FDA in June 2013 and we began selling the product in September 2013.

Due to a decrease in the demand for and sales volume of our Actitouch system, we plan to discountinue this product line in the first quarter of 2020, see “Our Products – Actitouch System” below for further discussion.

We also introduced the Entre system in the United States in February 2013.

In December 2020, we received 510(k) clearance for two new indications for our Flexitouch Plus system:

phlebolymphedema and lipedema.

Our Flexitouch system generated $163.9 million, or 88%, of

our revenue in 2020, and $171.3 million, or 90%, of our revenue in 2019.

The Entre system is marketed to patients for whom a basic pump is suitable or who do not yet qualify for insurance reimbursement for an advanced compression device such as our Flexitouch system.

Our Entre and Actitouch systems combined generated $18.2 million, or 10%, of our revenue in 2019, and $11.8 million, or 8%, of our revenue in 2018.

Our Entre system and other products generated $23.2 million, or 12%, of our revenue in 2020, and $18.2 million, or 10%, of our revenue in 2019.

In October 2018, we licensed the intellectual property rights related to the Airwear Gradient Compression Wrap, or the Airwear wrap, in the U.S.

and Canada, for use in all medical applications, including but not limited to swelling/edema and ulcers (including lymphedema and chronic venous insufficiency conditions), but excluding the use of the intellectual property in the field of prophylaxis for deep vein thrombosis.

The Airwear wrap is indicated for the management of venous insufficiency, venous hypertension, venous ulcerations and lymphedema.

Compression therapy is the standard of care for these conditions and the Airwear wrap works by delivering precise gradient compression to the lower leg.

We began selling the Airwear wrap to a limited market during the fourth quarter of 2019.

A commercial release is anticipated in the first quarter of 2020.

To support the growth of our business, we invest heavily in our commercial infrastructure, consisting of our direct sales force, home training resources, contracted at-home trainers, reimbursement capabilities and clinical expertise.

and Canada, for use in all medical applications, including but not limited to swelling/edema and ulcers (including lymphedema and chronic venous insufficiency conditions).

We made the strategic decision to discontinue the Airwear wrap in the second quarter of 2020, and effective July 31, 2020, the licensing party terminated the license agreement with us related to the Airwear wrap.

To support the growth of our business, we invest heavily in our commercial infrastructure, consisting of our direct sales force, patient training resources, contracted trainers, reimbursement capabilities and clinical expertise.

We are a national, accredited provider of home medical equipment services approved for coverage by private payers, Medicare, the Veterans Administration and certain Medicaid programs in the United States.

Our direct sales force is focused on increasing clinician awareness of our solutions and has grown to over 240 sales representatives as of December 31, 2019, compared to over 200 representatives as of December 31, 2018.

We also utilize over 560 licensed, independent healthcare practitioners as home trainers who educate patients on the proper use of our solutions.

Our Reimbursement Department, composed of over 90 employees, includes our Payer Development and Reimbursement Operations groups.

Our Payer Development group is composed of both strategic and analytical teams, with focus on payer decision-maker relationships and education, payer policy development and revision, payer contract negotiations, and payer data analysis.

Our experienced Reimbursement Operations group is responsible for verifying patient insurance benefits, individual patient case development, prior authorization submissions, case follow-up, and appeals when necessary.

Our clinical team, consisting of a scientific advisory board, in-house therapists and nurses, and a medical director (part-time), serves as a resource to clinicians and patients and guides our development of clinical evidence in support of our products.

We believe these investments are critical to driving payer, physician and patient adoption of our technologies, and together with our commercial infrastructure, represent a significant competitive advantage.

Health insurance coverage for our Flexitouch, Entre and Actitouch systems is in place with private payers, Medicare, the Veterans Administration and certain Medicaid programs.

Based on our estimates, we are contracted or enrolled as an in-network provider with payers covering over 275 million lives in the United States.

Over 160,000 patients have been treated with our Flexitouch system since its launch in 2004, and over 40,000 Flexitouch systems were shipped in 2019.

More than 42,000 patients have been treated with our Entre and Actitouch systems since their launch in 2013, and over 13,000 Entre and Actitouch systems were shipped in 2019.

Our direct sales force is focused on increasing clinician awareness of our solutions and has grown to 255 sales representatives as of December 31, 2020, compared to over 240 representatives as of December 31, 2019.

Additionally, we have a team of approximately 30 Field Support Specialists, bringing our collective field commercial team to 285 employees as of December 31, 2020.

Furthermore, in concert with COVID-19 social distancing requirements and recommendations, we moved to a “no contact” virtual patient training model.

This new model substantially reduced the need for in-person contact and visits to patients’ homes and clinics in order to protect the health and limit the exposure of both our trainers and patients.

Accordingly in the second quarter of 2020, we inactivated our independent healthcare practitioners, who acted as at-home trainers to educate patients on the proper use of our systems, in order to allow these individuals to have access to specific COVID related financial relief.

We have since reactivated a small number of healthcare practitioners in the same capacity as trainers who educate patients on the proper use of our solutions.

Our reimbursement function includes payer relations and reimbursement operations.

Our payer relations function focuses on payer policy development, education, contract negotiations, and data analysis.

Our reimbursement operations function is responsible for verifying patient insurance benefits, individual patient case development, prior authorization submissions, case follow-up, and appeals when necessary.

Our clinical function, consisting of a scientific advisory board, in-house therapists and nurses, and our Chief Medical Officer (part-time), serves as a resource to clinicians and patients and guides our development of clinical evidence in support of our products.

We believe these investments are critical to driving payer, clinician and patient adoption of our technologies, and together with our commercial infrastructure, represent a significant competitive advantage.

Health insurance coverage for our Flexitouch and Entre systems is in place with private payers, Medicare, the Veterans Administration and certain Medicaid programs.

Based on our estimates, we are contracted or enrolled as an in-network provider with payers covering nearly 275 million lives in the United States.

Over 200,000 patients have been treated with our Flexitouch system since its launch in 2004, and approximately 42,000 Flexitouch systems were shipped in 2020.

More than 57,000 patients have been treated with our Entre system since its launch in 2013, and approximately 17,000 Entre systems were shipped in 2020.

Coronavirus (COVID-19)

The United States economy in general and our business specifically have been negatively affected by the COVID-19 pandemic.

We have seen adverse impacts as it relates to the decline in the number of patients that healthcare facilities and clinics are able to treat due to enhanced safety protocols.

There are no reliable estimates of how long the pandemic will last or how many people are likely to be affected by it.

For that reason, we are unable to reasonably estimate the long-term impact of the pandemic on our business at this time.

Our first priority with regard to the COVID-19 pandemic is to ensure the safety and health of our employees, clinicians and patients.

Subject to that, we are focusing our efforts on attempting to continue our business operations in this unprecedented environment.

Part of our strategy includes changing many of our processes and practices in an effort to help mitigate the impact of COVID-19 on our business so that we can support our

clinicians and safely make our at-home therapies available to patients.

Since the onset of COVID-19, we have remained proactive to ensure we continue to adapt to our employees, clinicians and patients needs.

These changes to our business include, but are not limited to:

● Initially, we modified our operations with the primary focus on keeping our employees safe while continuing to serve our clinicians and patients.

As an essential business under federal guidelines, we continued to manufacture product and implemented multiple, smaller rotational shifts and other best practices to help protect the health and safety of our workforce.

More recently, we have migrated closer to our pre-COVID work shifts, however we have implemented more stringent safety measures including mandatory use of face masks, social distancing and temperature checks for our employees.

● We have continued to incorporate remote and flexible work arrangements for employees whenever possible, including real-time, online training of our new sales representatives.

● We have continued to limit employee travel and contact restrictions to reduce exposure.

● We have continued to collaborate with payers to modify coverage requirements by serving patients virtually.

● In concert with COVID-19 social distancing requirements and recommendations, we moved to a “no contact” virtual patient training model.

We have since reactivated a small number of healthcare practitioners in the same capacity as trainers who educate patients on the proper use of our solutions.

● We continue to transition large, in-person medical education programs in favor of conducting virtual meetings whenever possible.

● When in-person visits are required, we are supporting clinicians and patients by using rigorous infection control practices.

We cannot assure you that these changes to our processes and practices will be successful in mitigating the impact of COVID-19 on our business.

We continue to evaluate and, if appropriate, will adopt other measures in the future related to the ongoing safety of our employees, clinicians and patients.

Additional information related to the COVID-19 pandemic is included elsewhere in this report.

Overview of the Lymphedema and Chronic Venous Insufficiency Markets

The lymphatic system, a fundamental part of the cardiovascular system, consists of lymph vessels and lymph organs that protect the body against harmful bacteria and transport lymph fluid from the body’s tissues back to the cardiovascular system.

Lymph vessels are thin-walled capillaries that absorb fluids, bacteria and proteins, and propel them to lymph nodes, small lymph organs that filter and process the lymph fluid by

eliminating waste and bacteria.

Lymph vessels are thin-walled capillaries that absorb fluids, bacteria and proteins, and propel them to lymph nodes, small lymph organs that filter and process the lymph fluid by eliminating waste and bacteria.

Lymph nodes are located in several areas of the body, including superficial and deep lymph nodes under each arm, at the hip, in the groin, above the collar bones in the neck, in the abdomen, tonsils and spleen, and in bone marrow.

Lymph vessels and lymph nodes work together with larger lymph structures to help maintain a normal healthy fluid balance.

Lymphedema occurs when there is impairment to the lymphatic system, disrupting normal transport of lymph fluid within the body and causes severe and debilitating symptoms, including decreased mobility, skin breakdown, pain, increased risk of serious infection and marked psychosocial impairment, resulting in significant negative implications for a patient's health.

breakdown, pain, increased risk of serious infection and marked psychosocial impairment, resulting in significant negative implications for a patient's health.

When the lymphatic system becomes overwhelmed, damaged, or blocked for an extended period of time, lasting swelling (referred to as chronic edema) occurs.

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Recurrent skin infections such as erysipelas and cellulitis, a more serious skin infection, are common complications of lymphedema.

Lymphedema worsens over time if not properly treated, and it currently has no known cure.

Lymphedema worsens over time if not properly treated, and currently has no known cure.

When untreated, lymphedema can become painful and debilitating.

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Chronic Venous Insufficiency

Chronic venous insufficiency (“CVI”) occurs when the venous wall and/or valves in the veins are not working effectively, making it difficult for blood to return to the heart.

Chronic venous insufficiency (“CVI”), otherwise known as phlebolymphedema, occurs when the venous wall and/or valves in the veins are not working effectively, making it difficult for blood to return to the heart.

The disease is prevalent among patients who are obese or pregnant and may also be caused by high blood pressure, trauma, lack of exercise, smoking, deep vein thrombosis and inflammation of the vein walls.

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Market Opportunity

Lymphedema and chronic venous insufficiency are costly and lifelong conditions with debilitating physical and psychological impacts on patients.

Lymphedema and CVI are costly and lifelong conditions with debilitating physical and psychological impacts on patients.

Based on a study performed by Dr.

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In order to more accurately target patients actively looking for a treatment option we have performed an analysis of claims data.

that approximately 1.3 million patients were diagnosed with lymphedema during the 12 months ended June 30, 2019.

Based on a similar analysis of claims data commissioned by us, we estimated that there were approximately 1.1 million patients diagnosed with lymphedema during the 12 months ended June 30, 2018.

This represents an 18% year-over-year increase in the number of patients diagnosed with lymphedema in a one-year period.

We estimate that the addressable market opportunity for our Flexitouch system exceeds $5.0 billion in the United States, which is based on the number of patients diagnosed with lymphedema and our average selling price per device.

We believe that chronic venous insufficiency, or CVI, afflicts approximately 3-11% of the U.S.

population, and this percentage may rise due to the growing prevalence of obesity, cancer, and smoking, as well as an aging population.

We estimate the addressable market opportunity for our Airwear wrap is in excess of 3.1 million patients in the United States, which is based on an analysis of claims data commissioned by us of patients diagnosed with CVI.

Based on an analysis of claims data commissioned by us, we estimated that there were approximately 1.1 million patients diagnosed with lymphedema during the 12 months ended June 30, 2018.

By comparison, claims-based data estimated that approximately 1.4 million patients were diagnosed with lymphedema in a 12-month period as of the most recent data extraction in December of 2020.

This represents a 10.1% annualized increase in the number of patients diagnosed with lymphedema in a one-year period.

It is important to note that the 2020 time period was impacted by the pandemic.

We estimate that the addressable market opportunity for our Flexitouch system exceeds $5.0

billion in the United States, which is based on the number of patients diagnosed with lymphedema and our average selling price per device.

In the fourth quarter of 2016 we expanded the indications for use of the Flexitouch system.

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We estimate the market opportunity for our Flexitouch head and neck system is approximately $1 billion in the United States, which is based on 75% of the total number of patients suffering from cancers of the head and neck and our average selling price per device.

In June 2020, a study published in Supportive Care in Cancer recognized the effectiveness of Flexitiouch in treating patients with head and neck related lymphedema.

The study, led by Vanderbilt University was a pilot randomized clinical trial reflecting statistically significant reductions in swelling, pain and improvements in the ability to swallow.

Current Treatment and Limitations

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Peer-reviewed, published studies have shown that our Flexitouch system provides improved quality of life and clinical outcomes and delivers significant cost savings to payers and patients.

The standard of care treatment for chronic venous insufficiency is compression therapy.

The standard of care treatment for CVI is compression therapy.

Compression stockings and wraps are typically used to provide added pressure, increasing the effectiveness of the calf-muscle pump in returning blood to the heart, but these products can be challenging for patients to apply.

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Treatment efficacy is inconsistent because bandages can lose their precise pressure between treatments.

Patients use our Airwear compression wrap to administer easy-to-apply compression therapy to assist with the circulation of blood through affected veins.

Our Airwear wrap provides comfortable, consistent compression that a patient may apply, remove and reapply at home, allowing patients to bathe, sleep comfortably and increase mobility.

Enhancing standard of care treatments for CVI with our pneumatic compression systems has been proven to reduce the recurrence of ulcer formations as well as recurrent skin infections (cellulitis) leading to better patient quality of life and lower overall cost of clinical care.

Our goal is to become a leader in the at-home treatment of chronic diseases.

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We intend to continue promoting this awareness through training and educating clinicians, advertising campaigns, exhibiting at tradeshows and physician meetings and publishing additional clinical and economic outcome data demonstrating the benefits of our solutions.

Our ongoing marketing initiatives focus on increasing referrals from physicians trained in venous and lymphatic diseases.

Our ongoing marketing initiatives focus on increasing referrals from physicians trained in venous and lymphatic diseases as well as oncology.

In addition, we plan to launch more extensive direct-to-provider and patient marketing programs that we believe will further increase awareness of our solutions.

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We intend to strengthen our distribution network by continuing to recruit, train and retain talented sales representatives.

With an expanded sales force, we believe we could target additional clinical call points.

With an expanded sales force, our goal is to expand the existing prescriber base.

● Introduce new features and products to grow our technology platform.

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● Expand third-party reimbursement.

Most of our products are covered under existing reimbursement codes, and we have secured coverage for our solutions with private payers, Medicare, the Veterans Administration and certain Medicaid programs.

Most of our products are covered under existing reimbursement codes, and we have secured coverage for our solutions with commercial payers, Medicare, the Veterans Administration and certain Medicaid programs.

Our team has experienced significant success in obtaining positive coverage policies from payers by developing direct relationships with payer decision-makers, leveraging our relationships with physician societies and key opinion leaders, providing clinical data, demonstrating the efficacy of our products and educating payers on the limitations of traditional treatments.

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We currently market our products almost exclusively within the United States.

While our plan is to continue to focus our direct sales efforts on penetrating the U.S.

market, we plan to pursue future international expansion.

We expect approval for a European CE Mark and a Medical Device License in Canada for our current Flexitouch Plus system in 2020.

We market our Flexitouch, Entre and Actitouch systems, and the Airwear wrap, as at-home therapies for the treatment of lymphedema and chronic venous insufficiency.

While our current plan is to continue to focus our direct sales efforts on penetrating the U.S.

market, we may explore expansion outside of the United States in the future.

We market our Flexitouch and Entre systems as at-home therapies for the treatment of lymphedema and chronic venous insufficiency.

These products have received 510(k) clearance from the FDA to be marketed in the United States.

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Flexitouch System

Our Flexitouch Plus system is a fully automated, programmable, advanced pneumatic compression device designed for treatment of lymphedema in the home setting.

Our Flexitouch system has received 510(k) clearance for the treatment of lymphedema, certain types of edema, venous insufficiencies and certain types of leg ulcers.

Our Flexitouch Plus system is a fully automated, programmable, advanced pneumatic compression device, or APCD, designed for treatment of lymphedema in the home setting.

Our Flexitouch system has received 510(k) clearance for the treatment of lymphedema, phlebolymphedema, lipedema, certain types of other edema, venous insufficiencies and certain types of leg ulcers.

We introduced our first-generation Flexitouch system in the United States in 2003, our second-generation Flexitouch system in 2006, and our third-generation Flexitouch system, the Flexitouch Plus, in 2018.

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The system can be programmed to a variety of pressures delivering a prescribed treatment customized to meet the patient's needs.

Actitouch System

We introduced our Actitouch system in the United States in September 2013.

Our wearable Actitouch system combines intermittent pneumatic compression with sustained gradient compression to the lower leg and foot to improve and accelerate wound healing, as compared to the current standard of care, which involves sustained compression applied with compression wraps or multilayered bandages.

We have observed a steady decrease in the demand for and sales volume of our Actitouch system over the past four years, reflecting a reduction in the overall future marketability of the product line.

As a result, we plan to discontinue the current Actitouch system and corresponding product line in the first quarter of 2020.

Due to the planned discontinuation of the current product line, we recorded a $2.5 million non-cash impairment charge to fully write off the inventory and intangible assets related to our Actitouch system for the year ended December 31, 2018.

We believe the Airwear gradient compression wrap provides access to a larger population of patients with chronic venous insufficiency and does so earlier in their treatment pathway, while providing enhanced benefits as compared to the Actitouch system.

Airwear Gradient Compression Wrap

The Airwear Gradient Compression Wrap, or the “Airwear wrap”, was introduced in the United States in 2007, under the trade name Aero-Wrap, to provide precise compression from the foot up to the knee.

The intellectual property rights related to the Airwear wrap are owned by Sun Scientific, Inc., or Sun Scientific.

In October 2018, we entered into a license agreement with Sun Scientific pursuant to which we licensed certain intellectual property of Sun Scientific, including related to the Airwear wrap, in the U.S.

The Airwear wrap is indicated for the management of venous insufficiency, venous hypertension, venous ulcerations and lymphedema.

Compression therapy is the standard of care for these conditions and the Airwear wrap works by delivering sustained gradient compression to the lower leg.

Compression helps by mechanically squeezing the leg to improve blood flow and fluid return, thereby reducing swelling and other associated symptoms.

However, traditional static compression therapy products (e.g.

stockings, competitive wraps, bandages, etc.) are often difficult to apply, require precise application to achieve the desired pressure and are generally not user-friendly, resulting in poor user compliance.

By utilizing an easy to apply hook and loop fastening system on the Airwear wrap, patients do not need to struggle with stockings or bandages to receive the compression therapy they require.

In addition, a unique and patented inflation system enables consistent and precise pressure to be applied without professional application.

While our other products have certain reimbursement-related requirements that can delay the receipt of a prescription for them, the Airwear wrap is not subject to those additional reimbursement requirements and therefore can be recommended by a healthcare provider at the time of a patient’s visit, or the Airwear wrap can be obtained by patients over-the-counter without a prescription.

The Airwear wrap can also be a complementary therapy option to our Flexitouch Plus and Entre systems.

Clinical Results and Studies

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We have developed a significant body of clinical data supporting the efficacy and safety of our products.

We intend to continue to invest in additional studies to support peer-reviewed, published articles that evidence the clinical and economic benefits of our solutions as compared to traditional treatments.

To date, 23 studies regarding the safety and efficacy of our products have been completed, in which over 2,100 subjects have been included.

We intend to continue to invest in additional studies to support peer-reviewed, published articles that evidence the clinical and economic

benefits of our solutions as compared to traditional treatments.

To date, more than 25 studies regarding the safety and efficacy of our products have been completed, in which over 2,100 subjects have been included.

Economic Impact of our Flexitouch System in Patients with Phlebolymphedema

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The study used administrative claims data from Blue Health Intelligence for the years 2012 through 2016.

Patients were required to be continuously enrolled in the health plan for at least 18 months, diagnosed with phlebolymphedema, and had received at least one claim for conservative therapy either alone or in addition to

a pneumatic compression device, or PCD.

The main outcomes included direct phlebolymphedema- and sequelae-related medical resource utilization and costs.

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The study was conducted in the United States and included 718 patients with a lymphedema diagnosis who had continuous insurance coverage during the 12 months prior to and the 12 months after receiving our Flexitouch system from 2007 through 2013.

The study evaluated a broad, clinically relevant set of healthcare use outcomes for each patient for the 12 months before and the 12 months after receipt of our Flexitouch system, including cellulitis infections, inpatient hospitalizations, manual therapy and outpatient hospital visits.

Receipt of our Flexitouch system was associated with a significant decline in the rate of cellulitis diagnosis in the cancer-related lymphedema patients of 79% (from 21.1% to 4.5%;

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The greatest contributor to this change was a 54% reduction in outpatient hospital costs from $1,517 to $694 (p<0.001).

Total costs per non-cancer-related lymphedema patients, excluding durable medical equipment costs, were reduced by 36% from $2,937 to $1,883 (p=.007).

Total costs per non-cancer-related lymphedema patients, excluding durable medical equipment costs, were reduced by 36%

from $2,937 to $1,883 (p=0.007).

Outpatient hospital costs for the non-cancer patients declined by 65% from $1,726 to $606 (p<0.001).

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The primary objective of the study was to examine the effectiveness of our Flexitouch system in reducing lower extremity limb volume, with a secondary objective of evaluating clinician-assessed and patient-reported outcomes.

Use of our Flexitouch system was associated with a statistically significant reduction in limb volume with 88% of patients experiencing a reduction in limb volume and with 35% enjoying a reduction in limb volume of greater than 10%.

Twelve percent of patients experienced an increase in limb volume.

Clinician assessment indicated that the majority of patients experienced improvement in the condition of their skin.

86% of the patients exhibited a reduction in skin hardening (fibrosis) based on manual assessment of the skin.

Eighty-six percent of the patients exhibited a reduction in skin hardening (fibrosis) based on manual assessment of the skin.

Based on clinical observation of function, 85% of patients demonstrated an increased ability to perform activities of daily living.

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In patients with venous reflux, moderate to great improvement in symptoms was reported in 7% and 11%, respectively compared with 28% and 43% in patients without venous reflux ( P =0.257).

Advanced Pneumatic Compression for Treatment of Lymphedema of the Head and Neck

An open label, randomized wait-list controlled trial published in the Supportive Care in Cancer journal supported the safety and feasibility of the Flexitouch system APCD for the treatment of secondary lymphedema in head and neck cancer, or HNC, patients.

This study was conducted in the United States and included 49 head and neck cancer patients.

Eligible patients had completed treatment for HNC, were disease free, and had lymphedema at enrollment.

Participants were randomized to wait-list lymphedema self-management (standard of care) or lymphedema self-management plus the use of the APCD bib.

Safety (CTCAE V4.0) and feasibility were primary endpoints;

secondary endpoints included efficacy measure by objective examination and patient reported outcomes (symptoms, quality of life, function) adherence barriers, and satisfaction.

Assessments were conducted at baseline and weeks 4 and 8.

No device-related serious adverse events were reported.

Most patients used the APCD once per day, instead of the prescribed twice per day, citing time related factors as barriers to use.

Patients in the intervention group reported improvement in perceived ability to control lymphedema (baseline:

5/19, 26% good or excellent;

16/19, 84% good or excellent, p=0.003) and visible external swelling (front view p<0.001, right view p=0.004, left p=0.005), as well as less reported pain.

Relative to patients in the control group, at 8-weeks patients using the Flexitouch system had statistically significant reductions in the reported severity of soft tissue (p=0.008, d =−0.86) and neurological symptoms (p=0.047, d=−0.60) clusters on the Lymphedema Symptom Intensity and Distress Survey-Head and Neck.

Relative to patients in the control group, patients using the Flexitouch system had statistically significant improvement in swallowing solids (p=0.016) and mucous related symptoms (p=0.050, d=−0.80 and −0.57 respectively) on the Vanderbilt Head and Neck Symptom Survey plus General Symptom Survey.

Sales and Marketing

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The below chart shows this disintermediation:

Our direct-to-patient and -provider model is composed of a direct sales force, at-home trainers, reimbursement capabilities and medical expertise to expand awareness, garner referrals and obtain payment for our products.

As of December 31, 2019, we employed over 240 full-time sales representatives, including

eight sales managers, who provide coverage throughout the United States.

Our direct-to-patient and -provider model is composed of a direct sales force, patient training and support, reimbursement capabilities and medical expertise to expand awareness, garner referrals and obtain payment for our products.

As of December 31, 2020, we employed a field staff of 255 Tactile employees, made up of sales and service representatives, as well as managers, who provide coverage throughout the United States.

Furthermore, we have a team of approximately 30 Field Support Specialists, who assist our field staff by conducting patient demonstrations and collecting necessary medical records and documentation.

The Field Support Specialists’ role provides more time for our direct field staff to focus on engaging with clinicians and growing our prescriber base.

The chart below describes our U.S.

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Reimbursement, Payer Relations and Customer Support Process

Private insurers and other payers represented approximately 72% and 71% of our revenue in 2019 and 2018, respectively, while Veterans Administration hospitals represented approximately 17% and 20% of our revenue in 2019 and 2018, respectively, and Medicare represented approximately 11% and 9% of our revenue in 2019 and 2018, respectively.

Private insurers and other payers represented approximately 71% and 72% of our revenue in 2020 and 2019, respectively, while Medicare represented approximately 16% and 11% of our revenue in 2020 and 2019, respectively, and Veterans Administration hospitals represented approximately 13% and 17% of our revenue in 2020 and 2019, respectively.

When we sell our solutions directly to patients, we generally bill third-party payers, such as commercial insurance or Medicare, on behalf of our patients and bill the patient for their copayment obligations and deductibles.

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Our model utilizes our strategic and operational reimbursement proficiency to meet the varying requirements of hundreds of payers across the country.

Our Reimbursement Department, composed of over 90 employees, includes our Payer Development and Reimbursement Operations groups.

The Payer Development group is composed of both strategic and analytical teams with focus on payer decision-maker relationships and education, payer policy development and revision, payer contract negotiations, and payer data analysis.

The Reimbursement Operations group, which is responsible for verifying patient insurance benefits, individual patient case development, prior authorization submissions, case follow-up and appeals when necessary, is organized into “regional payer lanes” so that each case is handled throughout the process by experts in specific payer requirements.

Our reimbursement function includes payer relations and reimbursement operations.

Our payer relations function focuses on payer policy development, education, contract negotiations, and data analysis.

The reimbursement operations function is organized into “regional payer lanes” so that each case is handled throughout the process by experts in specific payer requirements.

We have strong and established payer relationships, including most of the largest private payers in the United States.

Based on our estimates, we are contracted or enrolled as an in-network provider with payers covering over 275 million lives.

Based on our estimates, we are contracted or enrolled as an in-network provider with payers covering nearly 275 million lives.

These contracts allow us to be an in-network provider for patients, enabling them to access our systems at a competitive rate and copay comparable to other suppliers and easing our administrative burden in processing authorizations and claims.

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We have an in-depth understanding of specific payer coverage criteria, and our submission materials are tailored to address an individual payer's distinct requirements.

Our dedicated customer service team is available to answer patient questions regarding reimbursement, account status, device operation and troubleshooting during normal

business hours.

Our dedicated customer service team is available to answer patient questions regarding reimbursement, account status, device operation and troubleshooting during normal business hours.

We receive no additional reimbursement for patient support, but provide high-quality customer service and continuity of care to enhance patient comfort, satisfaction, compliance and safety with our products.

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Our head and neck garments do not currently have billing codes assigned.

As of December 31, 2019, over 1,100 payers have paid for our products.

To date, over 1,100 payers have paid for our products.

Research and Clinical Operations

We are committed to ongoing research and development as part of our efforts to be at the forefront of physician and patient preference in the area of chronic disease, especially lymphedema and chronic venous insufficiency.

As of December 31, 2019, our research and development and clinical operations staff included more than 20 engineers, scientists, clinical monitors and project managers with expertise in pneumatics, electronics, garment design, embedded software, mechanical design, sensors, manufacturing technologies and clinical trial management.

Our research and development expenses, including spending on our clinical evidence development efforts, totaled $5.2 million and $5.3 million for the years ended December 31, 2019 and 2018, respectively.

Our research and development and clinical operations functions include scientists, clinical monitors and project managers with expertise in pneumatics, electronics, garment design, embedded software, mechanical design, sensors, manufacturing technologies and clinical trial management.

Our current research and development efforts are focused primarily on increasing efficacy, improving design for ease-of-use, enhancing clinical functionality and reducing production costs of our solutions.

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We coordinate our development efforts with our intellectual property strategies in order to enhance our ability to obtain patent and other intellectual property protection.

Our research and development expenses, including spending on our clinical evidence development efforts, totaled $5.3 million and $5.2 million for the years ended December 31, 2020 and 2019, respectively.

Manufacturing and Quality Assurance

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We have implemented a quality management system designed to comply with FDA regulations and International Standards Organization, or ISO, standards governing medical device products.

In the United States, we and certain of our manufacturers are required to manufacture our products in compliance with the

FDA's Quality System Regulation, which covers the methods and documentation of the design, testing, control, manufacturing, labeling, quality assurance, packaging, storage and shipping for our products.

In the United States, we and some of our manufacturers are required to manufacture our products in compliance with the FDA's Quality System Regulation, which covers the methods and documentation of the design, testing, control, manufacturing, labeling, quality assurance, packaging, storage and shipping for our products.

We maintain a quality management system to control compliance with such requirements and have procedures in place designed to ensure that all products and materials purchased by us conform to our requirements and FDA regulations.

As of December 31, 2019, we had over 45 employees in operations, manufacturing and quality assurance.

Our quality management system has been certified to ISO 13485:2003 in 2012, 2014 and 2017, and to ISO 13485:2016 in 2019.

Our quality management system has been certified to ISO 13485:2003 in 2012, 2014 and 2017, and to ISO 13485:2016 in 2019 and 2020.

Many of our manufacturers' quality management systems also have been certified to ISO.

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Once we have a complete patient order and appropriate documentation from the payer, we package and ship a system, configured to their physician's prescription, directly to the patient.

Our primary logistics partners are Federal Express and United Parcel Service, which we use for delivery and pick up of our devices.

After delivery and when requested by our patient, we coordinate a visit from one of our over 560 licensed, contract trainers to provide education, clinical support or customer service.

We utilize third-party carriers for delivery and pick up of our devices.

After delivery and when requested by our patient, we coordinate a virtual or at-home visit from one of our licensed, contract trainers to provide education, clinical support or customer service.

These trainers are healthcare professionals, licensed in their state of residence, instructed on proper use of our products.

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market position supported by a direct sales force.

We believe our manufacturing competitors' complete reliance on home medical equipment distribution intermediaries compresses their margins and limits their ability to invest in product features that address consumer preferences.

We believe our manufacturing competitors' complete reliance on durable medical equipment (DME) distribution intermediaries compresses their margins and limits their ability to invest in clinical evidence and product features that address consumer preferences.

To pursue a direct-to-patient and -provider sales model, our manufacturing competitors would need to meet national accreditation and state-by-state licensing requirements, secure Medicare billing privileges, as well as compete directly with the home medical equipment providers that many rely on across their entire home care businesses.

We anticipate that we will face increased competition in the future as existing companies and competitors develop new or improved products and distribution strategies and as new companies enter the market with new technologies and distribution strategies.

We anticipate that, given the size of the available market, we will face increased competition in the future as existing companies and competitors develop new or improved products and distribution strategies and as new companies enter the market with new technologies and distribution strategies.

Our ability to compete successfully and to increase our market share is dependent upon our reputation for providing responsive, professional and high-quality products and services and achieving strong customer satisfaction.

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Failure to comply with applicable U.S.

requirements may subject us to a variety of administrative or judicial sanctions,

such as warning letters, product recalls, product seizures, total or partial suspension of production or distribution, injunctions, fines, civil penalties and criminal prosecution.

requirements may subject us to a variety of administrative or judicial sanctions, such as warning letters, product recalls, product seizures, total or partial suspension of production or distribution, injunctions, fines, civil penalties and criminal prosecution.

The FDA can also refuse to clear or approve pending applications.

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In June 2017, we announced that we received 510(k) clearance from the FDA for the Flexitouch Plus, the third-generation version of our Flexitouch system.

We obtained 510(k) clearance for our Actitouch system in June 2013 and our Entre system in May 2015.

In December 2020, we received 510(k) clearance for two new indications for our Flexitouch Plus system:

phlebolymphedema and lipedema.

We obtained 510(k) clearance for our Entre system in May 2015.

All of our Class II devices have obtained 510(k) clearance and that status remains current as of the date of this filing.

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In 2019, the FDA released an optional Safety and Performance Based Pathway for 510(k) clearance, which allows a submitter to demonstrate that an eligible new device of a well-understood type meets FDA-identified performance criteria to demonstrate that the device is as safe and effective as a legally marketed device.

If the FDA determines that the device, or its intended use, is not substantially equivalent to a previously-

cleared device or use, the FDA will issue a not substantially equivalent decision.

If the FDA determines that the device, or its intended use, is not substantially equivalent to a previously-cleared device or use, the FDA will issue a not substantially equivalent decision.

This means the device cannot be cleared through the 510(k) process and will require marketing authorization through the premarket approval pathway.

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We last renewed our accreditation with our accrediting body in May 2020.

We are currently in the process of renewing our accreditation.

Maintaining our accreditation and Medicare enrollment requires that we comply with numerous business and customer support standards.

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Federal Anti-Kickback and Self-Referral Laws.

The Federal Anti-Kickback Statute, among other things, prohibits the knowing and willful offer, payment, solicitation or receipt of any form of remuneration,

whether directly or indirectly and overtly or covertly, in return for, or to induce the referral of an individual for the:

The Federal Anti-Kickback Statute, among other things, prohibits the knowing and willful offer, payment, solicitation or receipt of any form of remuneration, whether directly or indirectly and overtly or covertly, in return for, or to induce the referral of an individual for the:

● furnishing or arranging for the furnishing of items or services reimbursable in whole or in part under Medicare, Medicaid or other federal healthcare programs;

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The Federal Anti-Kickback Statute applies to certain arrangements with healthcare providers, product end users and other parties, including marketing arrangements and discounts and other financial incentives offered to our clinicians in connection with the sales of our products.

Noncompliance with the Federal Anti-Kickback Statute can result in civil, administrative and criminal penalties, restrictions on our ability to operate in certain jurisdictions, and exclusion from participation in Medicare, Medicaid or other federal healthcare programs.

The statute is very broad, but includes statutory safe harbors (such as a discount safe harbor) to ensure that if a company tailors its conduct in accordance with a safe harbor, it will not violate the statute.

The Health and Human Services Office of Inspector General made significant changes to the Anti-Kickback Statute’s regulatory safe harbors in November 2020 by modifying certain safe harbors and creating new safe harbors.

The changes were published as part of the Trump Administration’s Regulatory Sprint to Coordinated Care.

The new and expanded safe harbors will not have a material impact on our overall duty to comply with the Anti-Kickback Statute.

Medicare, Medicaid or other federal healthcare programs.

In addition, to the extent we are found to not be in compliance, we may be required to curtail or restructure our operations.

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The federal government may also seek civil monetary penalties for a wide variety of other conduct, including offering remuneration to influence a Medicare or Medicaid beneficiary's selection of providers and violations of the Federal Anti-Kickback Statute.

Monetary Penalties Law, plus up to three times the amount of damages that the federal government sustained because of the act of that person.

Although we believe that we are in compliance with the Federal False Claims Act as well as the Civil Monetary Penalties laws, if we are found in violation of the same, penalties include fines for each false claim violation of the Federal False Claims Act and varying amounts based on the type of violation of the Civil Monetary Penalties Law, plus up to three times the amount of damages that the federal government sustained because of the act of that person.

In addition, the federal government may also seek exclusion from participation in all federal health care programs.

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In 2021, this information expands to include tracking and reporting for additional covered recipients, namely physician assistants, nurse practitioners, clinical nurse specialists, certified registered nurse anesthetists and certified nurse-midwives.

Failure to submit timely, accurate and complete information may result in civil monetary penalties of up to an aggregate of $150,000 per year and up

to an aggregate of $1.0 million per year for "knowing failures to report."

Failure to submit timely, accurate and complete information may result in civil monetary penalties of up to an aggregate of $150,000 per year and up to an aggregate of $1.0 million per year for "knowing failures to report."

Certain states require implementation of commercial compliance programs and compliance with the device industry's voluntary compliance guidelines and the relevant compliance guidance promulgated by the federal government, impose restrictions on marketing practices, and/or prohibition and tracking and reporting of gifts, compensation and other remuneration or items of value provided to physicians and other healthcare professionals and entities.

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Most states have also adopted breach notification laws that require notification to affected individuals and certain state agencies if there is a security breach of certain individually-identifiable information.

If we suffer a

privacy or security breach, we could be required to expend significant resources to provide notification to the affected individuals and address the breach, as well as reputational harm associated with the breach.

If we suffer a privacy or security breach, we could be required to expend significant resources to provide notification to the affected individuals and address the breach, as well as reputational harm associated with the breach.

If we fail to comply with applicable state laws and regulations, we could be subject to additional sanctions.

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Our research and development and manufacturing processes and operations involve the controlled use of hazardous materials, including flammables, toxics and corrosives and produce hazardous chemical waste products.

We are subject to numerous foreign, federal, state, and local environmental, health and safety laws and regulations relating to, among other matters, safe working conditions, product stewardship and end-of-life handling or disposition of products, and environmental protection, including those governing the generation, storage, handling, use, transportation and disposal of hazardous or potentially hazardous materials.

of-life handling or disposition of products, and environmental protection, including those governing the generation, storage, handling, use, transportation and disposal of hazardous or potentially hazardous materials.

Some of these laws and regulations require us to obtain licenses or permits to conduct our operations.

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Medical devices that comply with the requirements of applicable directives will be entitled to bear the CE conformity marking, indicating that the device conforms with the essential requirements of the applicable directives and, accordingly, can be commercially distributed throughout the member states of the European Union, and other countries that comply with or mirror these directives.

We have the authorization to affix the CE Mark to our Flexitouch system and our Entre system and to commercialize these devices in the European Union.

We have the authorization to affix the CE Mark to our Flexitouch (classic) system to commercialize these devices in the European Union.

The notified body who inspected us issued our ISO 13485 certification in October 2014 and our EC-Certificate in December 2014.

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Medicare is a federal program that provides certain medical insurance benefits to persons age 65 and over, certain disabled persons and others.

In contrast, Medicaid is a medical assistance program jointly funded by federal and state governments to serve certain individuals and families with low incomes and who meet other

eligibility requirements.

In contrast, Medicaid is a medical assistance program jointly funded by federal and state governments to serve certain individuals and families with low incomes and who meet other eligibility requirements.

Each state administers its own Medicaid program which determines the benefits made available to the Medicaid recipients in that state.

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Obtaining a coverage determination, whether an NCD or LCD, is a time-consuming, expensive and highly uncertain endeavor, especially for a new device.

Under a NCD that has been effective since January 14, 2002, pneumatic compression devices, or PCDs, including our products, are covered for the treatment of lymphedema or for the treatment of chronic venous insufficiency with venous stasis ulcers.

Under a NCD that has been effective

since January 14, 2002, pneumatic compression devices, or PCDs, including our products, are covered for the treatment of lymphedema or for the treatment of chronic venous insufficiency with venous stasis ulcers.

A LCD, administered by the four Medicare Administrative Contractors responsible for processing durable medical equipment claims, sets forth additional coverage criteria that impacts Medicare coverage for our products.

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We also require our employees and consultants to sign agreements requiring that they assign to us their interest in intellectual property such as patents and copyrights arising from their work for us.

We also require all employees to sign an agreement not to compete unfairly with us during their employment and upon termination of their employment through the

misuse of confidential information, soliciting employees, and soliciting customers.

We also require all employees to sign an agreement not to compete unfairly with us during their employment and upon termination of their employment through the misuse of confidential information, soliciting employees, and soliciting customers.

Despite any measures taken to protect our intellectual property, unauthorized parties may attempt to copy aspects of our systems or to obtain and use information that we regard as proprietary.

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patents covering various aspects of our Flexitouch system expired in 2017.

Licensed Patents

In 2018, we licensed multiple U.S.

and international patents and patent applications directed to static (continuous) leg compression therapy products from Sun Scientific, Inc.

We have registered the trademarks Flexitouch, the Flexitouch logo design and Actitouch with the United States Patent and Trademark Office on the Principal Register.

We have filed an application to register the trademark Airwear in the United States.

We have registered the trademarks Flexitouch and the Flexitouch logo design with the United States Patent and Trademark Office on the Principal Register.

We rely in the United States on common law rights to the Entre, Tactile Medical and Tactile Medical design trademarks and have applied to register the Tactile Medical trademark in the United States, Australia, China, the European Union and Japan.

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See “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Seasonality.”

As of December 31, 2019, we had 629 employees, including 353 in sales and marketing;

122 in reimbursement and payer relations;

68 in manufacturing, quality assurance, and research and development;

72 in general administration, finance, information technology and human resources;

and 14 in clinical research and operations.

None of our employees are represented by a collective bargaining agreement.

We believe that our employee relations are positive, as evidenced by our being selected as a Top Workplace in Minnesota by our employees for the last ten years.

Human Capital Resources

As a company, Tactile’s mission is to develop and sell solutions that help increase clinical efficacy, reduce overall healthcare costs and improve the quality of life for patients with chronic conditions by treating them at home.

We believe the strength of our employees is the cornerstone to achieving these goals.

As of December 31, 2020, we had 707 employees, a 12% increase over 2019.

We have 285 employees who are based throughout the United States and 422 who are primarily based in our corporate/manufacturing locations in the Minneapolis metropolitan area.

Our employees are our most important assets and they set the foundation for our ability to achieve our strategic objectives.

The success and growth of Tactile’s business depends, in large part, on our ability to attract, retain and develop a diverse population of talented and high-performing employees at all levels of our organization, including the individuals who comprise our domestic workforce as well as executive officers and other key personnel.

To succeed in a competitive labor market, Tactile has developed key recruitment and retention strategies, objectives and measures that we focus on as part of the overall management of our business.

These strategies, objectives and measures form the pillars of our human capital management framework and are advanced through the following programs, policies and initiatives:

Total Rewards:

Rewarding and supporting our employees is essential to Company morale.

To ensure we maintain a competitive salary and benefits package, we utilize an independent third party to evaluate employee wages.

We continue to explore and utilize benefits options in line with our growing and diverse workforce to attract and retain top talent.

These benefits include but are not limited to retirement savings, employee stock purchase plans, a variety of health insurance options, including dental and vision, discounts on healthy foods and fitness memberships, disability insurance, and paid maternity/paternity leave.

Our Remote Work Policy also allows for a flexible work schedule and location, depending on business needs and the specific role.

Diversity, Equity, and Inclusion :

Tactile considers diversity, equity, inclusion, and employee engagement as cornerstones to the future growth of the business.

Our diverse and inclusive workplace encourages different perspectives and ideas, which we believe enables better business decisions and rapid innovation.

We are committed to constructive and critical self-evaluation that leads to concrete steps that continually enhance and strengthen our corporate culture.

In 2020, we conducted an anonymous employee survey to identify areas of improvement, which included:

● Increased diversity awareness programs for all areas of our organization;

● Increased focus on enhancing inclusiveness in our culture and understanding unintentional bias.

Fair Labor Practices:

We seek fair labor practices throughout our business, including from our partners and key suppliers who share our values for human rights, dignity, and respect.

We have implemented a Supplier Code of Conduct requiring the same commitment to human rights, fair labor practices, and anticorruption that we value at Tactile Medical.

Health and Safety :

The health and safety of our employees is a vital aspect to the success of the Company.

We provide all employees training on workplace safety and require employees to follow standards and practices supporting a safe and healthy work environment.

Our commitment to the health, safety, and

wellness of employees, patients, and business partners alike can be demonstrated by our expedient Covid-19 response.

We revamped our business processes to allow for social distancing, limited face-to-face interactions by operating virtually when able, and provided additional PPE for applicable employees while serving over 60,000 patients and avoiding employee lay-offs.

Talent and Retention:

In 2020, Tactile focused on recruitment, hiring, and retention to ensure the highest quality talent and best fit for specific roles and the Company.

Our recruitment efforts are expanding by assuring strong recruiting and hiring processes, and implementing an applicant tracking system.

This applicant tracking system will support continuous improvement in our hiring process and will be leveraged to coaching and employee growth.

We have also implemented a company intranet to facilitate employee inclusion, provide resources, and further transparent communication efforts.

The result of the culmination of the above is measured by our employee engagement.

We annually participate in survey conducted by a third-party resource in conjunction with the Top Workplace Award programs.

In 2020, our employees once again selected Tactile Medical as a Top Workplace in Minnesota for the 11 th year in a row.

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What changed 10-K

Item 1. Business