Greetings, and welcome to the Inspire Medical Systems Third Quarter 2020 Earnings Call. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Bob Yedid. Please go ahead.

Thank you Stacy and thank you all for participating in today's call. Joining me are Tim Herbert, President and Chief Executive Officer; and Rick Buchholz, Chief Financial Officer. Earlier today, Inspire released financial results for the three and nine months ended September 30, 2020. A copy of the press release is available on the company's website. I'd like to remind you that on this call, management will make forward-looking statements within the meaning of the Federal Securities laws. All forward-looking statements including without limitation, operations, financial results and financial condition, investments in our business, continued effects of the COVID-19 pandemic, full year 2020 financial and operational outlook, and improvements in market access are based upon current estimates and various assumptions. These statements involve material risks and uncertainties that could cause actual results or events to materially differ. Accordingly, you should not place undue reliance on these statements. See our filings with the Securities and Exchange Commission, including our quarterly report on Form 10-Q filed with the SEC today for a description of these risks and uncertainties. Inspire disclaims any intention or obligation, except as required by law to update or revise any financial projections or forward-looking statements whether because of new information, future events or otherwise. This conference call contains time-sensitive information, and speaks only as of the live broadcast today, December [ph] 2, 2020. And with those prepared remarks, it's my pleasure to turn the call over to Tim Herbert, CEO. Tim?

Thank you, Bob. Thanks everyone for joining the call today for our third quarter of 2020 business update. I'd like to begin by reiterating, how very proud I am of the Inspire team and how hard they have worked through all the challenges experienced thus far in 2020. These efforts resulted in an extremely strong third quarter with momentum in our business that we expect to continue through the end of the year and into 2021. In the third quarter of 2020, we generated worldwide revenue of $35.8 million, which is an increase of 72% compared to the third quarter of 2019. Our strong rebound in the third quarter included patients previously scheduled for implant, but delayed due to COVID and this combined with the continued enhancements of the core fundamentals of our business, drove the high level of procedures that was sustained throughout the quarter and we do not foresee any pause in our momentum. Importantly, our Inspire team, the hospitals and all health care providers have continued to adapt and identify safe methods to continue to operate and treat patients in need. Simply stated, the patient flow, diagnostic and implant activity has rebounded and is back to pre-COVID levels and beyond. That said, business conditions during COVID are always evolving and we continue to monitor the impact of the pandemic especially with the most recent spikes. However, to date we have not seen suspension of cases. With this in mind and assuming continued normalized operations, our strong performance in the third quarter and the positive trends in implant activity provide us with confidence in the outlook for our business for the remainder of the year. Therefore, we are increasing our full year 2020 revenue guidance to between $110 million and $112 million, which is an increase from our…

Thanks, Tim. As Tim noted, we are extremely pleased with the strong restart to our business, once the shutdown from the COVID-19 pandemic reverse, as our core business grew through increased implants diagnostic procedures, physician contacts, and prior authorization submissions. Total revenue for the third quarter of 2020 was $35.8 million, a 72% increase from the $20.9 million generated in the third quarter of 2019. U.S. revenue in the third quarter was $33.1 million, an increase of 78% from the $18.6 million in the prior year period. In the third quarter, European revenue increased 23% to $2.7 million. Our U.S. average selling price in the third quarter was $23,800, which was consistent with the prior year period. The European ASP was $23,300 during the quarter, as compared to $21,700 in the third quarter of 2019. The higher European ASP was primarily driven by favorable changes in foreign currency exchange rates. Our gross margin in the third quarter was 85.5% compared to 83.4% in the prior year period. The solid improvement was primarily due to manufacturing efficiencies and improved yields, which led to cost reductions with our third-party contractors. Based on these ongoing efficiencies and cost reductions, we are increasing our full year gross margin guidance to be in the range of 84% to 85% compared to our prior guidance of 82% to 84%. Total operating expenses for the third quarter were $40.5 million, an increase of 56% as compared to $26.1 million in the third quarter of 2019. This increase was primarily due to the expansion of the U.S. and European sales organizations, as well as increased direct-to-consumer marketing programs, continued product development efforts and general corporate costs. As we said during our second quarter earnings call, the increase in operating expenses is reflective of our plan to achieve continued…

Thank you. We will now be conducting a question-and-answer session [Operator Instructions] Our first question comes from Robbie Marcus with JPMorgan. Please go ahead.

Great. And I will say congrats on a phenomenal quarter. Well done.

Thank you, Robbie.

I'll just ask both my questions upfront into one bigger question. It just really came in well above I think even some of the better case expectations, my math rest were doing $1.4 million annualized revenue to get to your guidance range, it's over $1.5 million in annualized revenue in the fourth quarter. Centers are doing close to $400,000 of revenue percent or so. It's clear that each center is doing more procedures rather than just adding more reps and more centers here. So, I was hoping you could give us a deeper accounting of where you are today in terms of how deep your center penetration is? How much more is there to go? And if you can wrap in some of the DTC advertising and what you're doing on the patient side to drive such impressive growth year-over-year? I imagine people will still say your fourth quarter looks conservative in light of your third quarter which I think everyone will appreciate. But maybe you could just help us understand what's really going on here where you see yourself in the curve? And how much more is there to go? Thanks.

Very good. Well, first off, I think it's how we conducted business during the shutdown period and as frustrating as that was our staff and our team and the physicians and the centers remain very motivated and continue to communicate with patients. When we previously talked about our four groups of patients including one the group that unfortunately had their procedures postponed because of COVID; two the group that was unable to schedule their cases; three the group that were unable to have dicer sleep endoscopy procedure because those are also postponed; and the fourth group was those that were just entering the process and just come to the website. We continue to drive all those process. We continue to hire territory managers. We continue to do the prep work for opening new centers, albeit as we mentioned, we couldn't open them in the second quarter, but we can certainly open them in the third quarter and that has another -- that's still carrying forward as we move forward. We have not completely worked through all patients in all buckets including the first group of patients. We still have patients who are -- have their cases postponed that they're just not ready to come back in. So, we're still working through all four groups of patients. We keep track of them closely. But then on the other side as we're able to open up procedures this is a procedure that patients are looking to have Inspire therapy to take rare sleep apnea, so they're motivated to get in and get scheduled. Hospitals are motivated to get these procedures going in Inspire. Yes, it is and there's an economic benefit for hospitals and ASCs to perform these procedures. We certainly had a priority as we opened up some of our centers,…

Yes. Sure. So, as you recall during the end of the first quarter and in the second quarter, we did shift our direct-to-consumer efforts from those large markets that were more impacted to the smaller markets that were less impacted. And we held back a little bit but we continue to invest and lean forward a little bit as we started in the beginning of the third quarter. And so specifically, we increased sequentially our DTC efforts by just over 30% of sequentially on a quarterly basis and we spent $6.8 million in DTC efforts in the third quarter. But we -- as Tim mentioned the fact that all four buckets were continuing to address those patients we wanted to continue to spend dollars as we open up new centers and add territory managers to support the patient flow.

Great. Appreciate the answer.

Thanks Robbie.

Next question comes from Amit Hazan with Goldman. Please go ahead.

Thanks very much and let me just add congrats on really nice progress across so many different aspects of the business. I thought I could ask the question about 2021 and just see how much color you're willing to give at this early stage. The Street is sitting at about $145 million. Obviously, with some of the things you talked about today that seems to us like that's in okay territory, but I wondered if you could talk at least qualitatively about that? And any other puts and takes we should be considering for the topline next year and kind of while you're at it, if you're able to just talk through the P&L next year same thing kind of anything you would call out salesforce hires, DTC spend that could help us in modeling.

Right. Very good. As far as when we set up 2021, we obviously are putting out guidance yet on revenue or even opening new centers or the cadence of hiring new sales territories. But, I think, it's safe to say that we're going to continue to be aggressive with that. I don't see backing down on the numbers that we have. We'll probably get a little bit more aggressive with hiring new centers as well as new territories, as we move into 2021. The reimbursement really helps. Having the Medicare, having all the positive commercial policies. Anthem, while disappointing, it's still okay, because we're still able to get patients approved to the prior authorization process, will continue to stay on top of Anthem to get them to write positive policy. But we're seeing some other positive trends as well. Additional clinical evidence, the digital tools that we are putting in play with Inspire Cloud the Inspire app, the addition with the adviser care program and adding additional centers to be able to improve our conversion rates of physician contacts to implant and making sure that we get the patients to the right physician, I think, is really going to help us continue the momentum as we move into 2021. Rick you got something that you want to add there?

Yes. Regarding walking through the P&L, we had a nice improvement in our gross margin, 85.5%. We had cost efficiencies and some price reductions. Again, we use third-party suppliers for our products. And so, that gave us confidence to increase our guidance for our annual gross margin. We expect that to continue into the future. We have increased our operating expenses. As Tim mentioned, we have numerous development projects going on with the Inspire Cloud, the multi-year project of Inspire 5, as well as the app. And so, the current spending on R&D, $7.3 million, that's really going to be our baseline and we'll maintain or increase that going forward into 2021. And then, also, as Tim mentioned, as we add additional territory managers, add additional centers and continue to spend on our DTC efforts and we will continue to run our cadence as we've done in the past. And we think that will help us have sustained long-term growth.

That's great. Just a quick follow-up for me and I'll get back in queue. Just on Anthem, Tim, as you had mentioned. Just curious, what is the pathway forward here, just given the decision? I think you said something like 82% approval rate. Did you get feedback on why it was not adopted that's more specific that you could share? And then, the data that you're citing that's coming, do you think that's going to be what they're looking for to get you over the hump on that one?

Yes. I think the -- well, they're very conservative. I think, they pride themselves -- and this is Anthem, they pride themselves on being last and they are in this circumstance. We can only interpret what we read in their policy and from their review. We don't -- are not allowed to have one-on-one conversations, but we can understand how they interpreted the STAR trial, which we thought was not appropriate and we will continue to communicate with them on that through written communications. But we also have a European study that has been completed. It has not been presented in public yet, but the manuscript is being prepared and will be in for review soon. We have several other publications that will be coming out soon or already have come out. So we continue to build upon our clinical evidence. In fact, the ADHERE Registry is well over 2,000 patients enrolled. That is going to start evolving, because it's going to get folded into Inspire Cloud, so we can only further grow the amount of safety and efficacy evidence that we have. And we'll just keep on Anthem. Eventually what we'll do, when we start getting into higher numbers of the ADHERE Registry, we will write a paper on the clinical outcomes of Anthem-sponsored patients. And we're getting to that point of having that many patients with Anthem insurance, who have clinical evidence, we'll publish that and give that directly to Anthem. So we're going to keep -- we know how to do prior authorization. We've been doing it since we got approval in 2014. We have a very strong team that knows how to communicate. We don't let up. We don't give up and that will eventually get policy from Anthem.

Our next question comes from Larry Biegelsen with Wells Fargo. Please go ahead.

Good afternoon. Thanks for taking the question. I'll echo the prior congratulations on a really nice quarter guys.

Thank you, Larry.

Of course. Tim, one short-term question, one long-term question. Let me start with the long-term question on the new CPT codes. The press release talked about for both the implant and ice. You talked about -- the press release talked about an increase in surgeon payment. Do you have any sense at this point how much that can be? And how can you be confident in that at this point, given that the RUV survey still needs to be done? And I have one follow-up.

I think that when we talk with the AAO and we've been talk to some of the physicians. And when we go all the way back to when that base code the CPT 64568, it was originally developed in the year 2012, it has never been revalued or resurveyed since that time, and when it was first surveyed that was for neurosurgeons doing nerve stimulation. They I think have less than 20 surgeons conduct a survey. So we believe from the outset, it was always 30% undervalued. And then that was before we even talked about the pressure sensor. So the number one complaint from ENT surgeons has always been the reimbursement level of that code. And I think when the AAO conducts the survey; they basically send information to every Inspire trained position. And they serve them on specific skin to skin incision times. And from that they are able to calculate the RVUs. And the AAO when they look at the payment level that ENTs were getting, they were pretty comfortable that the new code will be higher than that. So yeah we have a little bit of comfort with that. We're very impressed by the partnership with -- that we have with AAO and that they can think through this process and they didn't want to share that code because it was an ongoing problem sharing 64568 with the neurosurgeons, because the utilization of that code is shifting more towards Inspire based on the number of cases and they realize that Inspire and hypoglossal nerve stimulation is going to be a very important part of the ENT surgeons procedures long-term. So they wanted to get control of their own code and I give them credit for really stepping up pushing it through and during this COVID period able to get a Category I code. And on top of that they understood that long-term challenges today and that statement code where there really isn't a clear pathway for coding that today. So AAO really took that out. So I think that is really going to have the long-term benefit for the surgeons both in hospitals as well as in ASCs.

Thanks, Tium. And the short-term question is how much visibility do you have on Q4, I'm asking because of the spike in COVID cases and the risk of reduction in electric procedures, which is kind of on investors' minds obviously this week last week? So is there some conservatism baked into the Q4 guide for that? Thanks for taking the questions.

Thank you Larry. I have the opportunity to sit in on regional manager meetings. And here their plans and what they're doing to work with their surgeons, we specifically are asking all of our hospitals, all of our doctors do you have your case scheduled, are they -- what risks do you have with COVID. And here's the key. Hospitals physicians, our staff have learned to operate in a COVID environment. Safe precautions must be used using the proper PPE and proper testing, making sure that the right procedures are followed. And we've been specifically asking especially with these spikes that you see and we have not seen suspension of cases to date. We're pretty confident that our centers will continue to proceed further. And they have capacity for COVID and they have capacity to continue with the Inspire procedure. So as we stand today, we remain very confident and so we did not build a suspension into our plan.

All right. Thank you so much.

Thanks, Larry.

Next question is Chris Pasquale with Guggenheim. Please go ahead.

Thanks, and congrats on the outstanding results. Tim, you mentioned the different patient buckets. Can you quantify how much of 3Q volume you think came from deferred procedures? I know you said you still think there's some pent-up demand left to be addressed, but those patients may very well take a while to come back if they haven't already. I think it would be helpful as people think about 4Q to compare guidance to a 3Q baseline without that catch-up phenomenon that you benefited from?

Right. So there certainly is a little bit of a bolus effect from Q3 that I don't think you can normalize between revenue in Q2 and Q3. I think, we worked so hard to build the other groups of patients that is -- while it may have a little bit of an impact, I don't have a specific number for you. I don't think it was overwhelming. And I think we are just stressing the confidence going forward with what we did to bring the other patients into the process. And so while yes there is a bolus effect from post-COVID, I think the growth that we have in new patients. And remember though, we also had a little bit of a bolus effect in patients that we're not able to get their final diagnostics or their sleep endoscopy. And so you're going to see more of that in the fourth quarter because just from a process you can only ramp up so fast and only do so many procedures. And so we have a pretty healthy pipeline of patients and plus as we mentioned, the number of patients coming into the pipeline remain very, very strong.

Okay. So if I don't want to put words in your mouth but I'm paraphrasing what you're saying, it sounds like you view the third quarter as really the culmination of the progress you guys have made on a number of different fronts over the last 12 months to 18 months not an unusual quarter that was really impacted mostly by this pent-up demand phenomenon?

Yes. I think there's a little bit of an element of bolus effect, but I think it's really the work that the team has been doing as you said well.

That's helpful. Thanks. And then I'm curious on the ASCs, I think you talked about in these national contracts, I mean, 600-plus site is obviously a big number. Do you have a sense yet how many of those are realistic targets for Inspire and just sort of a ballpark of what percentage of those could be accounts for you guys in the future?

We've had -- in the past we've generally just responded to this question kind of saying a third of hospitals and ASCs in the United States or potential to do inspire procedures. I think when you start looking at these national contracts, we get to work with the marketing group and they give them the computer and saying okay, who's got ENT? Who does sleep surgery? Who might do vehicle nerve stimulation? There's a lot of different experiences. And it really helps us to focus on who we're going to communicate with first to get those sites up and running, and really because of the national contract we're through the first step. All we really need to do is get in and make sure the team is formed and get through a training process. So long, long-term as a rough argument, I think we could be at a third of those. But again, I'm being pretty general there. I think it's really about us being focused right now in opening centers at the current cadence that we always have, albeit we're being a little bit more aggressive and increasing our guidance at opening centers, because we're increasing the size of our training team and increasing our capacity to handle additional centers. So, we're not going to -- we're going to stay within our cadence, but we will be more aggressive in opening centers.

Great. Thank you.

You bet, Chris. Thanks.

Next question Richard Newitter with Leerink. Please go ahead.

Hi. Thanks for taking the question, and congrats on the present quarter. Wanted to just follow-up on the ASC comments a little bit specifically in the context of utilization. Your utilization of account by my math took a pretty sizable step up this quarter and it's growing 30% and your implied 4Q utilization per account is looking like it's over 20% and that's despite 30% to 40% increases in your account base. And that's a big step function up. I was just wondering is that a function in part of the ASC utilization uplift? And can you give us a sense of what the ASC utilization is versus just the traditional hospital utilization? We've heard it as much as triple. So I'm just wondering if question in light of the comments that you could be applicable 3% ASCs, it would be helpful to know what kind of utilization bifurcation you're seeing between those two care settings?

Sure Rich. I don't think we've really experienced the full impact to ASCs yet. I go back to a prior workdays right working on my Medtronic days in sacral nerve stimulation for urology and spinal cord stem for pain and even the new some of our other friends like Axonics and Nevro. And look at the percent of their cases that are done in ASCs today. Well, until you have reimbursement in place, you can't start down that process. And so 2019, 2020 are the years that we're really able to get that reimbursement locked in, and now we're able to kind of step up a little bit. So now you're seeing the national contracts and gives us the right to start opening up more of those ASCs. And you're right, I think that you can drive higher utilization at those ASCs, especially when you have strong reimbursement that we see with level five APC payment as well now with the future increased surgeon payment, I think you'll see that further down the road. Don't have an exact number for you on utilization to-date, but as I mentioned ASCs still are only about 15% of our total number of centers. So it's still relatively small, but I think you will see a more significant increase in number of ASCs as we move into 2021. And the goal would be to your point to improve utilization right alongside with that.

Okay. Thanks for that. And then just thinking about your guidance for the fourth quarter very robust. You're clearly not baking in any meaningful slowdown due to COVID in your momentum, but I appreciate why you gave your rationale for that on the capacity side. You don't see any hospitals able to manage through COVID and better at dealing with the world as it is today. But how do you tap for what patient willingness will be as we move into these COVID months and COVID surges continue to materialize? What was your thinking there? That would be helpful. Thanks.

What we've been seeing is patients are very motivated and the amount of patients 3.6 million people come to our website, especially during a stay-home-pandemic period people realize the quality of life with untreated moderate to severe sleep apnea is not good, and the productivity is down. The relationships are stressed. These are motivated people. They want to be able to find a solution and they go and they do all this research and they learn about Inspire. And remember these people have tried and are unable to use CPAP and they've probably benefited from CPAP for a while, but they can't have sustained benefits so they need to find an alternative. We haven't had a problem with patients really motivated to come back in. There are certainly a group of patients that are a little more timid metal, they want to hold up a little bit longer and that's just fine. And we're keeping communication with them. But again a great number of patients really have been motivated to come to website get educated, go through sleep endoscopy, get their insurance approved and get schedule for cases and you saw the significant number of implants in Q3 and we expect that going forward. We don't think there's going to be too much holdback from a patient perspective.

Thank you.

Thank you, Rich.

Next question comes from Jon Block with Stifel. Please go ahead.

Great. Thanks, guys. Good afternoon. First one just on 2020 guidance implies I think around 50% to 55% revenue growth for in the fourth quarter, you did 70% in the third quarter. And maybe some -- not a lot for your comments Tim, but some of the 3Q was aided by deferred 2Q procedures. I'm just curious when we think about the 4Q year-over-year revenue guidance, should we think of that more as pure call it is it the right jump-off point into 2021? Or does that fourth quarter implied guide still have a decent amount of pent-up demand to it? And then I just got a follow-up.

That is a very good question. I don't think we're going to have too much demand left over after Q4. I think that's pretty much going to be all organic or new patients in the process. And so I think from that standpoint, maybe there's a little bit more of the bolus effect in the fourth quarter predominantly from the sleep endoscopy diagnostic side than it was from the implant. So yes, I think the way Chris asked that question too and it's characterized a little bit of the bolus effect in Q3 and setting our plan for Q4. But I think in general, what you're suggesting is probably pretty appropriate that we think that the pipeline is strong as we mentioned. We're going to continue with our direct-to-consumer outreach programs, that adviser care program continues to grow, the number of patients downloading, the Inspire app continues to grow and opening ASCs and driving utilization. And we're just kind of spending a lot of place, but we'll keep focused on taking care of patients and having strong outcome flow.

Got it. Helpful. Thanks for that. And I think just to pivot, can you just talk about a couple of your key initiatives on the investment side? I mean they seem to be centered around the direct-to-consumer, the call center that you called out. I know it's early, but are there any metrics or growth figure that you can share? Any qualitative comments on what you're seeing from the DTC markets or what you're seeing from the centers or subset of centers that are currently in line with your call initiative? Thanks, guys.

I can tell you what some of our key performance indices or KPIs are in regards to our advisory care program. How this works is a patient will call in and there will be somebody at the call center will talk to the patient and answer or ask a few questions to find out if they're a qualified patient, determine what physician they would be best served to. And then they will together contact a center to schedule an appointment. And we want like 80% of those calls answered live. We're not there yet, but we expect centers to make sure that when we have a phone number, it's a hot line coming in we're calling to make an appointment when we have a qualified patient, we expect that we'll be able to make that appointment. KPI number two, is we expect to make that appointment within two weeks. And then the final thing is making sure that we can drive qualified patients to the right physician. What I mean by that? Is if somebody -- we have a lot of patients who call in who have never had a sleep study before and bless them that they're calling in, but they need to see a sleep physician first to diagnosed for their sleep apnea and then try CPAP knowing 50% will circle back around in a certain period of time. They need to go to a sleep physician and we can help them there. Other patients are ready to go with Inspire. They've been diagnosed. They've tried CPAP. They have the proper characteristics that we can identify over the phone. And so we set them up with the ENT. So the whole process is set up to improve conversion. And if we can improve the quality of patients coming to an ENT's office, by default we get to improve the utilization of that surgeon to be able to do performance. The other question that we always pose to surgeons is how many dedicated OR days are you giving for Inspire patients? And when we start out training centers, we said we expect you to do at least one dedicated OR day a month. That can give you two to three implant procedures as well as sleep endoscopy procedures. As we grow then you can go to two, if not three dedicated OR days a month. The Ohio State University has rebounded extremely strong. Remember they did 100 implants last year. So we know how to drive capacity and now we put the incentive in there for our territory managers to help our centers add that capacity.

Thanks, guys. Helpful color.

Thanks, Jon.

Next question comes from Bob Hopkins with Bank of America. Please go ahead.

Hi, thanks. Good evening. Appreciate for taking the question.

Hello.

So just a couple of quick things because I know it's getting late. Can you just give us an update? Anything changing on the margin here in terms of the percentage of these cases requiring an overnight stay in kind of the average age of a patient? Just curious, if in these COVID times anything is changing there?

Now, that's a really good question. Interesting enough, the STAR trial, which was our Phase 3 pivotal the average age was 54. And then, the Adhere registry, which is our post-market study, the average age jumped up to 60. Well, that was really because of reimbursement, because it's easier to get Medicare. Now that we got all these commercial cases, and commercial cases are still running at 65% of implants, and Medicare at 30%, I think we're seeing a little bit age reduction, as far as implant procedures. I'm not going get that number looked up here, but I'm sure it's coming back down. We believe, it should be near the 54 years. Maybe there's a little bit of effect from COVID because the elderly population needs to be a little bit safe. And so they're being a little bit careful about scheduling their cases. But we certainly are tracking that. As far as overnight stays, the great majority of our cases are all same day surgeries. They go home the same day. Very few have overnight stays. Maybe in Europe, the reimbursement is set up such that, it's more beneficial to have overnight stays and the majority of patients in Germany, do stay in the hospital. But in the U.S., it's outpatient again. That's why it lends itself to such a migration to ASCs.

And then, Tim, one other quick question. Just in terms of the two national contracts on the ASC side, can you just give us a little bit of a more detailed sense as to what exactly that means? Do those like set pricing and facilitate contracting as you go into the individual ASCs? Or just exactly what is part of those national contracts?

Absolutely. Well, the key to it – it's kind of the same thing as with the national health care policies, we have policy of contracts with like Kaiser or Intermountain or Ascension Health that we just signed, and what we do is the key number one fundamental that we have in Inspire is everybody pays the same price period. I don't care, if you're ASC, Kaiser, the Cleveland clinic, or a small hospital in Alabama everybody pays the same price, because that's how we can hold consistency and that's how we can sleep at night. So ASCs are the same thing. They when did their review their diligence. They did the value analysis, or the value committee to make sure that, it's worthwhile for their ASCs to be able to do these procedures. And then they enter into a contract. And of course, everybody when they do a national contract is certainly going to ask to have a little bit of a discount off the pricing, but we don't do that Bob. And since 2004, when we got the FDA approval to this day, we stand firm. Everybody pays the same price. And when we negotiate these national contracts, what it is? It is the value committee. It is the pricing that every center pays. And so now when we go to ASC, we don't have to go through that logistics part of it. Whenever we go to a Kaiser hospital, whenever we go to Ascension hospital, intermodal hospital, or all the other national contracts that we have, we just need to form the team, train the team, and make sure we understand how to drive patient flow and how to be able to treat patients and have strong outcomes.

Great. And last quick one. Of all the positive news you guys announced today, which one do you think will have the biggest impact on your business over the course of the next 18 months?

Wow, that's a good question. Being able to manage in a COVID environment, I think is very significant. We are very careful. All of our personnel carry their own PPE, and people recognizing the dangers of COVID, and being able to operate in COVID, yet still treat patients and have strong outcomes is tremendous. Coding – the new code for a surgeon reimbursement, I think will have a longer-term impact, as far as transitioning even further to ASCs. I think the positive coverage policies and the Medicare LCD is so tremendous. As you know, we talked Anthem is frustrated, but it's just a matter of time before they write policy. So then what I – I'm engineer, Bob, what I get excited about is our technology development. Our digital tools, our Inspire Cloud, the new patient remote, the Inspire App is really going to play into it and when we release Inspire 5 that's going to have an impact.

Great. Thanks so much. Have a good evening.

Thanks, Bob.

Next question comes from Adam Maeder with Piper Sandler. Please go ahead.

Hey, guys. Congrats on the strong quarter. And thanks for squeezing me in here. I'll keep it one. Just on the OUS business, I know it's a relatively small part of the overall sales number today. But Q3, OUS came in nicely above our expectations. I was just hoping to get some additional color on, what drove the nice performance in Europe. I think you mentioned some price benefit. And then just looking forward, how should we think about Europe in subsequent quarters? Would you expect to kind of I guess build off this by watermark? Thanks so much guys.

Thanks, Adam. I think – so they had a very good Q3, and back to Chris's question early on. Europe was shut down too. So Europe also had a little bit of a bolus effect from being able to reschedule those cases. But that said, Andreas our VP in Europe has been so active in building his team and opening new centers, specifically in Germany and finding better ways to improve patient flow in the Netherlands as in Belgium and other countries has really set up Europe for future growth. So yes, there's a little bit of a bolus effect, but they also had a very strong quarter. And I think you're going to see that even continuing into the fourth quarter and beyond. We talked about this before that if we can have international revenue hanging around 8% that means international revenue really has to grow as fast as it's growing in the United States and we may get some benefit by adding in Japan and then beyond that Australia and further expansion after that. But the key to it right now is really the European growth. And I think you're going to see some strong changes with the permanent reimbursement in Germany as well as improved flow in the Netherlands in the near future so.

Thanks so much for the color, Tim.

You bet, Adam.

Next question comes from Ravi Misra with Berenberg Capital Markets. Please go ahead.

Hi, good evening. Thanks for taking the questions.

Hi, Ravi.

Just one on the coding announcement Rick, Tim. Just -- it sounds like you're expecting a higher kind of rate based on the RVU selections that may come through next summer. But let's just say -- are held flat. What would the kind of the change overall change in reimbursement there? Just to give us a benchmark. Then I'll just ask my second question upfront. Just curious to understand how you're accounting for ROI on some of your patient spend in terms of how quickly you expect people to come in. I mean, your approval times are being reduced. You're kind of insurance, your patience submitting for prior ops are going up. Just how much of that is kind of related to the spend on advertising? If you could help us tease that out? Thanks.

Yes, absolutely. Well that's based on physician reimbursement today. So right now, the code 64568, the National Average Medicare payment is $600 to $800. That's for Medicare. Commercial payers are about 1.4x better, call it $1200, right? So it's between $600 to $800 Medicare and maybe $1,200 -- $800 $1,200 for commercial payers. And now, they get to $450 for the pressure sensor that's new with the Medicare policies. So they're anywhere between $1,000 and $1,200 for MetCare and then 1.4x that or $1,400 to what is that maybe $1,600 for a 2-hour outpatient procedure. So that is the baseline, right? So when they do the reg process what AAL looked at is they looked at the work to dissect down to the Vagus Nerve and place the electrodes from Cyberonics or I'm sorry LivaNova implant for Vagus Nerve stim. And then they compare that to dissecting down doing the nerve integrity monitor tracking which nerve, which part of the hypoglossal nerve replace the electrodes because we do some detailed mapping and then placing the nerves on the distal branch of the hypoglossal nerve. I feel very confident that the work is significantly higher and will come in at a higher rate. As far as ROI, yes, we're very tightly watching that. And that's a long-term view. The key to it is we don't have very good data from our digital tools today. But as we move forward, now we're getting people coming to our website and they're immediately downloading the app and setting up a communication with us. And then when they're on the app communicates with Inspire cloud. And so we can get them into Inspire cloud. We can start tracking patients from the beginning to streamline their process, their advisory care program the call center is just one tool to be able to streamline them to get them to the right doctor within a timely period of time. And all of those improve the conversion rates, which of course as you know is going to reduce our cost per acquired patient. And we can look at it in a number of different ways and we're tracking that very closely, right, the calls per -- the cost per call, the cost per appointment, the cost per implant and we're tracking that very closely and believe that's really going to have a strong benefit down the road. When we can continue to improve? Time from contact to implant as well as improve our conversion rates.

Great. Thanks for the detail report.

Thanks, Ravi.

Next question comes from Suraj Kalia with Oppenheimer. Please go ahead.

Good afternoon, Tim, Rick, congrats on the quarter.

How are you sir? Good to hear you.

So Tim or Rick, forgive me if I got this wrong. The math is suggesting in the U.S. there were roughly 1,391 patients implanted in the quarter. Am I right on that math?

I don't know.

Can you repeat your question there again Suraj?

So the math, if I take your ASPs, it's suggesting roughly around 1,391 patients implanted in the quarter. Am I approximately right?

Yes, that's correct. Yes.

Okay. Yes. So Tim, I know this sounds down and it's late. So please give me, 1,233 submissions, 1,039 prior auth approvals in the quarter so -- and 1,391 approximately implanted. Can you help us tie all of these together? And I guess...

Well they don't exactly math tie up because a lot of those -- well let me answer that one and then you follow-up. Those don't include Medicare remember. Medicare don't prior authorize and Medicare is 30% of our implants. So that's one. Number 2, they don't include VA or military and they don't include Europe. And the other key to it is going to be a little careful because some of those will carry over into the fourth quarter depending upon when the approvals came in.

Right. I'll just have to think through this Tim because I just did the rough math and maybe Medicare is the missing piece, but I'm not sure you have connected the dots yet. Even since Q2, 2018 the numbers I think total submissions are roughly 7870 total approvals are 5805? So this is a delta here. Maybe I should take it offline because I haven't connected the dots. It still doesn't add up.

Now let's go through it. You've got to remember, you've got a 30% factor in there for Medicare. And that has changed. And remember, VAs you go on historical. Remember VAs used to run at 10%. And then also remember Europe used to run at 13%, 15%. So that you got a lot of moving targets in that you're trying to calculate.

Right. Okay. Fair enough. Rick, what was the DTC spend in the quarter? And Tim finally and thanks for squeezing me in, what percent of patients in the quarter were already in the funnel versus pull-through de novo new patients how do you want to characterize that? Gentlemen, thank you for taking my question and congrats on a great quarter.

Thanks Suraj. Let me answer the last one and then have Rick answer the question on the DTC. I think we don't have the specific numbers, but as we talked about early on from Ravi's question as well. The -- we don't know there's a little bit of a bolus effect from the first group of patients that were carried over from COVID. But we also had a lot of new patients in the court basement as you just talked about with the number of submissions as well as the number of approvals in the quarter. So it was very strong from all fronts as far as those patients coming through. Rick DTC.

DTC Q3 our spend was $6.8 million compared to $4.8 million in the third quarter of 2019.

So, very good. So thanks very much. Hey everybody. I just want to thank you all for joining the call today. I know it's late and appreciate you hanging in there. I remain grateful to the growing team of dedicated Inspire employees for their enthusiasm, hard-work and continued motivation to achieve successful and consistent patient outcomes. The Inspire team's commitment to patients remains unmatched and is the most important element to our success. I wish to thank all of our employees as well as the health care teams for their continued efforts as we return to a strong growth in our business in the U.S. and in Europe especially in a post-COVID environment. Finally on the call we appreciate your continued interest and support of Inspire and look forward to providing you with further updates in the coming weeks and months. Please stay safe and healthy and look forward to talking to you very near future.

This concludes today's teleconference. You may disconnect your lines at this time. And thank you for your participation.