Sapssov v. Health Mgmt. Assocs., Inc. (Summary)

FRAUD AND ABUSE

Sapssov v. Health Mgmt. Assocs., Inc., Nos. 2:12-cv-46-FtM-29DNF, 2:12-cv-163-FtM-29DNF (M.D. Fla. May 21, 2014)

The United States District Court for the Middle District of Florida dismissed plaintiffs’ class action complaint for violations of the Securities and Exchange Act of 1934.  Plaintiffs purchased the publicly traded common stock of the defendant between July 27, 2009 and January 9, 2012 (the “Class Period”).  The defendant is a publically traded corporation that operates 70 acute care hospitals and other health care facilities throughout the United States.

Plaintiffs alleged that defendant violated the Securities and Exchange Act by failing to disclose a scheme to defraud Medicare, which resulted in inflated revenue during the Class Period.  Specifically, plaintiffs alleged that defendant pressured its physicians to admit Medicare beneficiaries regardless of medical necessity, in order to collect higher reimbursement rates, and this increase in revenue inflated its stock price.  Once the fraudulent scheme was disclosed through two subpoenas from the U.S. Department of Health and Human Services, Office of Inspector General, a “60 Minutes” investigative segment and a report from an equity analyst, the defendant’s stock price dropped dramatically, resulting in significant losses for the plaintiffs.

The court held that even though plaintiffs’ complaint contained the required particular circumstances constituting fraud, material misrepresentations, and the intent to defraud, plaintiffs failed to show a causal connection between the material misrepresentations and a subsequent decline in stock value.  The court agreed with defendant that the reports by financial groups did not reveal any information that was not already made public.  The court also held that the drop in price after the subpoenas did not show causation because an investigation, without more, does not prove a material misrepresentation or reliance on it.  Finally, the court ruled that the drop in the stock price after the “60 Minutes” segment was irrelevant because it aired 11 months after the Class Period.