Amedisys Inc. (NASDAQ: AMED) has petitioned the U.S. Supreme Court to take up a securities fraud case, in which investors claim they lost money when the large home health company’s stock price dropped due to revelations of Medicare fraud.
After a district court tossed the case against Amedisys, the U.S. Court of Appeals for the Fifth Circuit revived it and remanded it for further proceedings in October 2014. Amedisys filed a petition to the Supreme Court on March 30, arguing against the Fifth Circuit’s decision.
Amedisys issued public statements affirming its compliance with Medicare guidelines, when in fact the company was engaged in a scheme to juice reimbursements by providing medically unnecessary care, the institutional investors contend.
The company’s share prices dropped on a number of occasions over a two-year period following disclosures of the Medicare wrongdoing, the investors claim. They are seeking money damages on behalf of a putative class of all people who purchased Amedisys stock between Aug. 2, 2005, and Sept. 28, 2010.
The district court was correct in rejecting the case, because none of the so-called “corrective disclosures” that purportedly revealed the secret fraud actually did so, Amedisys argues in its Supreme Court petition.
For example, the first of these supposed disclosures was a 2008 online report from Citron Research that raised questions about Amedisys’s billing practices. The day the report was released, Amedisys’s stock price dropped 17.86%, according to court documents.
However, the Citron report was not a “corrective disclosure” but merely “speculation about possible noncompliance,” the district court held.
Similarly, a Wall Street Journal article in April 2010 that shared details of an analysis of Amedisys billing was based on publicly available data and therefore was a confirmatory rather than a corrective disclosure, the district court ruled. An “efficient market” already should have responded to that data prior to the WSJ article’s publication.
The Fifth Circuit based its decision on the idea that while none of these individual disclosures might have been a corrective disclosure, taken together they functioned that way.
Amedisys’s Supreme Court petition challenges this decision in several respects, including that it creates uncertainty as to which drops in share price over the five-year period in question can be attributed to the fraud disclosures.
The Fifth Circuit’s reasoning suggests Amedisys might only be liable for the last of the fraud-related disclosures—a September 2010 announcement of a U.S. Attorney’s investigation. The Fifth Circuit’s decision implies that after this last disclosure, the “truth suddenly snapped into focus” for the market, the Amedisys petition states.
However, it is unclear whether this actually is the case, or whether the home health company also could be liable for earlier share price drops; and the exposure faced by Amedisys is “exponentially greater” if the company is on the hook for those earlier drops, the petition notes.
These uncertainties have arisen because the Fifth Circuit relied on Federal Rules of Civil Procedure Rule 8(a)(2) in making its decision, which was not appropriate, Amedisys argues. Other circuit courts in similar cases involving this issue of “loss causation” have ruled under Rule 9(b), which imposes a more heightened standard.
The Supreme Court should take on the case and resolve this circuit split, the lawyers for Amedisys conclude.
Amedisys agreed to a $150 million settlement with the federal government in April 2014, to resolve allegations of providing medically unnecessary services to Medicare beneficiaries. Since then, a new CEO has stepped in, and this week the Louisiana-based company—which serves 360,000 patients annually—announced an overhaul of its executive leadership.
Written by Tim Mullaney