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In re Envision Healthcare Corporation Securities Litigation

United States District Court, M.D. Tennessee, Nashville Division

November 19, 2019

In re ENVISION HEALTHCARE CORPORATION SECURITIES LITIGATION This Document Relates To: ALL ACTIONS

          FRENSLEY MAGISTRATE JUDGE

          MEMORANDUM

          WILLIAM L. CAMPBELL, JR. UNITED STATES DISTRICT JUDGE

         Pending before the Court is Defendant Envision Healthcare Corporation and the Individual Defendants' Motion to Dismiss the Consolidated Amended Complaint (Doc. No. 125). Also pending before the Court is a motion to dismiss filed by Clayton, Dublier & Rice, LLC, CD&R Associations VIII Ltd., Clayton Dubilier & Rice Fund VIII, L.P., CD&R EMS Co-Investor, L.P., CD&R Advisor Fund VIII Co-Investor, L.P., and CD&R Friends and Family Fund VIII, L.P. (the “CD&R Defendants”) (Doc. No. 122). Plaintiffs filed a consolidated response in opposition to both motions (Doc. No. 131). Defendant Envision Healthcare Corporation and the Individual Defendants filed a Reply (Doc. No. 133) and the CD&R Defendants filed a Reply (Doc. No. 132). For the following reasons, the motion to dismiss by the CD&R Defendants is GRANTED, and the motion to dismiss by Envision and the Individual Defendants is GRANTED in part, DENIED in part.

         I. BACKGROUND

         A. Procedural Background

         On August 4, 2017, Plaintiff Terry W. Bettis filed an initial complaint against Envision Healthcare Corporation and four individual defendants: William A. Sanger, Randel G. Owen, Christopher A. Holden, and Claire M. Gulmi (Doc. No. 1). That initial complaint alleged violations of the Securities Act of 1933 (the “1933 Act”) and the Securities Exchange Act of 1934 (the “1934 Act”). (Id. ¶¶ 63-78). The case brought by Beattis was consolidated with two related cases: Carpenters Pension Fund of Illinois v. Envision Healthcare Corporation, Case No. 3:17-cv-01323 (M.D. Tenn., Sept. 29, 2017); and Central Laborers' Pension Fund v. Envision Healthcare Corporation, Case No. 3:17-cv-01397 (M.D. Tenn., October 23, 2017). (See Doc. Nos. 58 and 60). The Plaintiffs filed a Consolidated Class Action Complaint on January 26, 2018 (Doc. No. 88), alleging violations of the 1933 Act and the 1934 Act against Envision Healthcare Corporation, the private equity firm, Clayton, Dubilier & Rice, LLP (“CD&R”), four CD&R-associated companies (together with CD&R, the “CD&R Defendants”), and twenty-three (23) individual defendants.

         B. The Parties

         Plaintiffs bring this action on behalf of all entities or individuals who purchased or acquired Envision's common stock between February 3, 2014, and October 31, 2017 (the “Class Period”). The Complaint identifies four institutional investors as lead/named Plaintiffs: Laborers' Pension Trust Fund for Northern California (lead Plaintiff); Laborers' International Union of North America National Industrial Fund (lead Plaintiff); Central Laborers' Pension Fund (named Plaintiff); and United Food and Commercial Workers Union Local 655 Food Employers Joint Pension Fund (named Plaintiff). (Id. ¶¶ 25-28).

         Defendant Envision Healthcare Corporation (“Envision”)[1] is headquartered in Nashville, Tennessee. EmCare is a subsidiary of Envision and its largest business unit - generating approximately 60% of Envision's net revenue (Id. ¶¶ 1-2). EmCare provides “facility-based physician services, ” which is essentially physician staffing for hospital emergency rooms. (Id.) On December 1, 2016, Envision merged with AMSURG Corp. (“AmSurg”). (Id. ¶ 257). The combined company continued to operate EmCare and other legacy Envision and AmSurg services. (Id. ¶¶ 1-2).

         The Complaint identifies 23 Individual Defendants, which have been grouped by Plaintiffs as follows:

1. The Envision Officer Defendants served as officers of Envision prior to and at the time of the merger: William A. Sanger, Randel G. Owen, Craig A. Wilson, and Todd G. Zimmerman. William A. Sanger was President and CEO of Envision from May 2011 until the AmSurg Merger in December 2016. He served as Chairman of the Envision Board from November 2014 through the Merger, and as Executive Chairman of the Board from December 2016 through December 2017. (Id. ¶ 30). Randel G. Owen was CFO and Executive Vice President (May 2011-November 2016) and Chief Operating Officer (September 2012-November 2016) of Envision. (Id. ¶ 31). Following the merger with AmSurg on December 1, 2016, Owen was Executive Vice President and President of Envision's Ambulatory Service Group. (Id.) Plaintiffs allege Owen signed certifications accompanying each of the annual reports (Form 10-K) and quarterly reports (Form 10-Q) issued by Envision before the merger with AmSurg. (Id.) Craig A. Wilson is Senior Vice President, General Counsel, and Secretary of Envision. (Id. ¶ 32). Todd G. Zimmerman was Executive Vice President of Envision from May 2011 until the AmSurg merger. (Id. ¶ 32). He also served EmCare as President (April 2010 - April 2015) and CEO (February 2013 - June 2017). (Id.)
2. The Envision Director Defendants, each of whom served as a member of Envision's Board of Directors prior to and at the time of the Merger: Carol J. Burt, Mark V. Mactas, Leonard M. Riggs, Jr., Richard J. Schnall, James D. Shelton, Michael L. Smith, Ronald A. Williams, and William A. Sanger (also an Envision Officer Defendant). (Id. ¶ 35). The following directors joined the new Envision Board after the AmSurg merger: Burt, Riggs, Schnall, Shelton, Smith, and Williams.
3. The AmSurg Officer Defendants, each of whom served as an officer of AmSurg at the time of the Merger and an officer of Envision post-Merger: Christopher A. Holden, Claire M. Gulmi, and Kevin D. Eastridge. (Id. ¶¶ 37-40). Christopher Holden has been President and CEO of Envision since the December 1, 2016, merger with AmSurg. (Id. ¶ 37). Following the merger, Holden signed certifications accompanying each of the annual reports (Form 10-K) and quarterly reports (Form 10-Q) issued by Envision. Claire M. Gulmi was Executive Vice President and CFO of Envision from December 1, 2016, to October 2, 2017. (Id. ¶ 38). During that time, she signed certifications accompanying each of the annual reports (Form 10-K) and quarterly reports (Form 10-Q) issued by Envision. (Id.) Kevin D. Eastridge was Senior Vice President, Finance and Chief Accounting Officer of Envision from December 1, 2016, to October 2, 2017, and Envision's CFO thereafter. (Id. ¶ 39).
4. The AmSurg Director Defendants, each of whom served as a member of AmSurg's Board of Directors at the time of the Merger: Christopher A. Holden, Claire M. Gulmi, Kevin D. Eastridge, Thomas G. Cigarran, James A. Deal, John T. Gawaluck, Steven I. Geringer, Henry D. Herr, Joey A. Jacobs, Kevin P. Lavender, Cynthia S. Miller, and John W. Popp, Jr. (Id. ¶ 41).

         The Complaint also names as defendants four CD&R funds, the general partner of those funds, and an independent investment advisor, Clayton, Dubilier & Rice LLC and refers to them all as CD&R.[2] (Id. ¶ 43). CD&R includes CD&R LLC, CD&R Associated VIII Ltd., CD&R Fund VIII, L.P., CD&R EMS Co-Investor, L.P., CD&R Advisor Fund VIII Co-Investor L.P., and CD&R Friends and Family Fund VIII L.P. According to Plaintiffs, CD&R “formed Envision in May 2011 … and owned over 97% of Envision at the time of [Envision's] IPO” in 2013. (Id.) CD&R had the right to designate the chairperson of Envision as long as they held 30% of the Envision stock, which was until March 2015, when CD&R sold all of its remaining Envision stock. (Id.) CD&R designated Envision Director Defendants Schnall, Giurico, and Williams. (Id.) Williams served as Chairman of the Board from May 2011 to November 2014, and Schnall and Williams remained on the Board until March and October 2017, respectively. (Id.)

         C. Factual Background

         1. The Alleged Fraudulent Scheme

         The overarching allegations of the Complaint are that Envision artificially inflated its earnings through out-of-network billing, illegal upcoding, and inflated facility spending, and failed to disclose to investors that these business practices were substantially responsible for EmCare's revenue growth. Between 2013 and 2016, EmCare almost doubled its annual revenue from $2.3 billion to $4.2 billion. (Compl., Doc. No. 88, ¶ 3). Plaintiffs allege EmCare intentionally staffed its emergency rooms with out-of-network physicians, which allowed it to bill health insurers and patients at “vastly higher rates” and reap the associated profits. (Id. ¶ 5). Plaintiffs also allege EmCare engaged in illegal upcoding - billing for services using a billing code that is more expensive than the code associated with services the patient actually received or required. (Id. ¶ 6). In a similar vein, Plaintiffs allege EmCare increased facility spending for its hospital partners by increasing hospital admission and imaging rates without regard to medical necessity. (Id. ¶ 7). Increased facility spending had the dual benefit of increasing EmCare's revenue and increasing revenues for the hospitals with which it contracted. As a result, Plaintiffs allege, EmCare was able to parlay this increase in hospital revenue into more contracts and thereby increase its own revenue. (Id. ¶¶ 4, 7, 64-65).

         According to Plaintiffs, EmCare's out-of-network billing, upcoding, and increased facility spending were uncovered by a study published by the National Bureau of Economic Research (the “NBER study”) and brought to public attention by a New York Times article (the “Article”) published on July 24 (online) and 25 (print), 2017.[3] (Id. ¶¶ 15, 16).

         The Article reported that the NBER study examined data provided by one insurance company for the time period 2011 to 2015 and found that many of the emergency rooms with the highest rate of out-of-network billing were run by EmCare. (Doc. No. 127-39). The NBER study focused on 16 hospitals that EmCare entered between 2011 and 2015 and found that in eight of those hospitals, out-of-network billing rose “quickly and precipitously.” (Id. at 5). The NBER study also looked at a larger sample of EmCare operated emergency departments and found an out-of-network billing rate of 62 percent, which it said was higher than the national average. (Id.) The Article reported that “[t]he before-and-after analysis [in the NBER study] was limited to the small number of hospitals where researchers could find public records of EmCare's entrance and was based on claims from only one large insurance company. (Id.). While the nationwide patterns are consistent with studies that have looked at other insurance companies, the single insurer in the study may not be typical in all cases: EmCare does not participate in some insurer's networks, such as Blue Cross of Texas.” (Id.). The article reported that EmCare had reached agreements with additional insurers since 2015. (Id.).

         Regarding Plaintiffs' allegation of unlawful upcharging and increased facility spending, the article gives an example of one small hospital north of Spokane, Washington, where the number of patients billed for the most complex level of case increased from 6 percent to 28 percent when EmCare took over. (Id. at 1). The Article also quotes a doctor at a California hospital who claimed to have discovered a pattern of “inflated bills and out-of-network bills.” (Id. at 7). The Article also informed readers that EmCare was named in a 2011 whistle-blower lawsuit (brought by a former EmCare executive) alleging that EmCare and hospitals pressured emergency doctors to increase admission and tests without regard to medical necessity. (Id. at 6).

         Both the Article and the NBER study acknowledge there are various factors contributing to out-of-network billing, including that some doctors are not willing to accept the rates offered by insurance companies. (Id. at 5). Neither the Article nor the NBER study suggests out-of-network billing is illegal, only that patients were upset by “surprise out-of-network billing” and that they complained about it to hospitals. Although the NBER study itself broadly analyzed out-of-network billing trends, the reasons contributing to high levels of out-of-network billing, and existing and potential policy responses to “surprise out-of-network billing, ” the New York Times article, which incorporated data from the NBER study, focused specifically on EmCare. (See NBER Study, Doc. No. 127-38; New York Times Article, Doc. No. 127-39).

         2. Stock Sales

         CD&R sold its $ 4.4 billion equity stake in Envision in four stock offerings in February 2014, July 2014, September 2014, and March 2015. (Compl., Doc. No. 88, ¶ 46). Plaintiffs allege certain Envision officers and directors sold Envision stock in 2014 and 2015: William Sanger ($80 million), Randel Owen ($36 million), Todd Zimmerman ($18 million), Ronald Williams ($4.3 million). (Id. ¶¶ 30, 31, 33, 35, 147).

         3. Underperforming Contracts

         In 2014 and 2015 Envision entered into approximately 30 contracts that underperformed expectations. In October 2015, Envision issued drastically reduced earnings and projections and attributed the earning miss to these underperforming contracts. (Id. ¶¶ 133-134). The contracts, which had been expected to produce revenue of $3.5 million instead resulted in a loss of $6.5 million - a negative $10 million variance. (Id.). William Sanger, speaking at a healthcare conference, revealed the contracts at issue had been performing below expectations for over a year and explained, “we kind of misread what the cash per visit was … We ran into a set of frankly, poor execution, poor decision about taking those contracts.” (Id. ¶ 135). Sanger later added that they relied heavily on incomplete data provided by the hospital and made assumptions that were incorrect. (Id. ¶ 137). At the same conference, Randel Owen explained that the problems with the contracts were largely due to unexpected challenges recruiting physicians and that they had a “much higher cost of staffing.” (Id. ¶ 139). Following the October 22, 2015 announcement of reduced earnings and guidance, Envision's stock price fell 30%. (Id. ¶ 11).

         4. AmSurg Merger

         On June 15, 2016, Envision and AmSurg announced a merger agreement between the two companies. (Id. ¶ 13). On August 5, 2016, Defendants sent shareholders the Joint Proxy Registration Statement (“Registration Statement”), which estimated revenue growth of 14 percent (to $1.5 billion) in 2017 and revenue growth of 13 percent (to $1.7 billion) in 2018. (Id. ¶ 254). Following shareholder approval, the merger was completed on December 1, 2016. (Id. ¶ 257). The merged company issued stock to Envision shareholders - 0.334 shares of new stock for each share of pre-merger Envision stock (approximately $4.26 billion). (Id.)

         5. Transition from Out-of-Network to In-Network

         On February 28, 2017, Envision announced it planned to transition its out-of-network business in-network over the next 18-24 months. (Id. ¶ 99). At the time, out-of-network business was valued at approximately $1 billion and constituted somewhere between 17 and 35 percent of post-merger physician services revenue. (Id. ¶¶ 14, 94, 102). Envision said it believed the transition would be “revenue neutral” and that the “stated objective is to move the majority of our out-of-network revenue to in-network status within the next 12-18 months” (Id. ¶ 99-104). Envision representatives continued to discuss the transition to in-network billing at healthcare conferences and on investor conference calls in the spring and summer of 2017.[4] (Id. ¶¶ 101-108). The New York Times article acknowledged Envision's plan to move most of its business in- network: “EmCare said in early February that it planned to reach agreements with insurers for most of its doctors.” (Doc. No. 127-39 at 7).

         6. Final Stock Price Declines

         Following the publication of the New York Times article, Envision's stock value declined 6 percent by close of market on July 25, 2017. (Compl., Doc. No. 88, ¶ 199).

         On September 18, 2017, Envision announced the resignation of the Physician Services Division President. (Id. ¶¶ 172, 200). That day, Envision's stock declined an additional 10% on substantial volume of 11.2 million shares. (Id. ¶ 201).

         On October 31, 2017, Envision released its 2017 third-quarter results and decreased earnings and revenue projections for 2017 and 2018. (Id. ¶ 19). The revised projections anticipated 2017 reduction in revenue of 50 percent from predictions made at the time of the merger and a 25%-30% reduction in 2018 revenue predictions. (Id.) Envision said the miss and guidance reduction were “essentially all attributable to Physicians Services” specifically to losses caused by Hurricanes Harvey and Irma (approximately $22 million) and reduction in volumes for emergency medicine and anesthesia. (See Transcript: Q3 2017 Envision Healthcare Corp. Earnings Call, Nov. 1, 2017, Doc. No. 127-37 at 6; Compl. Doc. No. 88, ¶¶ 195, 203). Envision's stock price fell over 41%. (Compl. Doc. No. 88, ¶¶ 19, 202).

         D. The Claims

         The Consolidated Complaint alleges eight counts under the 1933 Act and the 1934 Act:

Count I - claims alleging securities fraud in violation of Section 10(b) of the 1934 Act and Securities and Exchange Commission (“SEC”) Rule 10b-5 brought by all Plaintiffs against Envision, the Envision Officer Defendants (Sanger, Owen, Wilson, and Zimmerman), and the AmSurg Officer defendants (Holden, Gulmi, and Eastridge);
Count II - claims for control person liability under Section 20(a) of the 1934 Act brought by all plaintiffs against the Envision Individual Defendants and the AmSurg Defendants (except Ciggaran, Herr, and Popp) alleging these defendants controlled the dissemination of the alleged false and misleading statements at issue in Claim I;
Count III - insider trading in violation of Section 20A of the 1934 Act brought by the UFCW Pension Fund against Williams, Sanger, Owen, and Zimmerman, and the CD&R Defendants;
Counts IV and V - strict liability and negligence claims under Sections 11 and 12(a)(2) of the 1933 Act brought by all Plaintiffs against Envision and the Envision Individual Defendants, alleging these defendants were responsible for false and misleading statements in the Joint Proxy Registration Statement;
Count VII - negligence based claims under §14(a) of the 1934 Act and SEC Rule 14a-9 brought by all Plaintiffs against Envision, the Envision Individual Defendants, and the AmSurg Defendants for false and misleading statements in the Joint Proxy Registration Statement;
Counts VI and VIII - claims for control person liability under Section 15 of the 1933 Act and Section 20(a) of the 1934 Act. Claims for violation of Section 15 of the 1933 Act are brought against the Envision Individual Defendants. Claims under Section 20(a) of the 1934 Act are brought against CD&R and four associated CD&R companies, the Envision Individual Defendants, and the AmSurg Defendants.

         II. Standard of Review

         In deciding a motion to dismiss under Rule 12(b)(6), a court must take all the factual allegations in the complaint as true. Ashcroft v. Iqbal, 556 U.S. 662 (2009). To survive a motion to dismiss, a complaint must contain sufficient factual allegations, accepted as true, to state a claim for relief that is plausible on its face. Id. A claim has facial plausibility when the plaintiff pleads facts that allow the court to draw the reasonable inference that the defendant is liable for the misconduct alleged. Id. In reviewing a motion to dismiss, the Court construes the complaint in the light most favorable to the plaintiff, accepts its allegations as true, and draws all reasonable inferences in favor of the plaintiff. Directv, Inc. v. Treesh, 487 F.3d 471, 476 (6th Cir. 2007).

         In considering a Rule 12(b)(6) motion, the Court may consider the complaint and any exhibits attached thereto, public records, items appearing in the record of the case, and exhibits attached to defendant's motion to dismiss provided they are referred to in the Complaint and are central to the claims. Bassett v. National Collegiate Athletic Assn., 528 F.3d 426, 430 (6th Cir. 2008). In support of their motion to dismiss, Envision and the Individual Defendants have included numerous documents referenced in the Complaint. (See exhibits to Doc. No. 127). These include copies of numerous SEC filings, conference and teleconference transcripts, and the New York Times article and NBER study. The CD&R Defendants included a number of public filings in support of their motion to dismiss. (See exhibits to Doc. No. 124). For purposes of the pending motions to dismiss, the Court will consider these documents.

         III. Analysis

         A. Securities and Exchange Act Claims: Section 10(b) and Rule 10b-5

         Plaintiffs bring claims for securities fraud under Section 10(b) of the Securities and Exchange Act and Rule 10b-5 against Envision and seven individual defendants who were officers of Envision and AmSurg: William A. Sanger, Randel G. Owen, Craig A. Wilson, Todd G. Zimmerman, Christopher A. Holden, Claire M. Gulmi, and Kevin D. Eastridge.

         Section 10(b) and Rule 10b-5 prohibit fraudulent, material misstatements in connection with the sale or purchase of securities. Indiana St. Dist. Council of Laborers and Hod Carriers Pension and Welfare Fund, 583 F.3d 935, 942 (6th Cir. 2009) (citing Zaluski v. United Am. Healthcare Corp., 527 F.3d 564, 570 (6th Cir. 2008)). Section 10(b) of the Exchange Act makes it unlawful to “use or employ, in connection with the purchase or sale of any security … any manipulative or deceptive device or contrivance in contravention of such rules and regulations as the Commission may prescribe as necessary or appropriate in the public interest for the protection of investors.” 15 U.S.C. § 78j(b). Rule 10b-5, promulgated by the SEC to implement Section 10(b), makes it unlawful for any person, directly or indirectly, “[t]o make any untrue statement of a material fact or to omit to state a material fact necessary in to make the statement made, in light of the circumstances under which they were made, not misleading.” 17 C.F.R. § 240.10b-5(b). To state a claim for violation of § 10(b) and Rule 10b-5 a plaintiff must allege: (1) a material misrepresentation or omission by the defendant; (2) scienter; (3) a connection between the misrepresentation or omission and the purchase or sale of a security; (4) reliance upon the misrepresentation or omission; (5) economic loss; and (6) loss causation. Stoneridge Inv. Partners, LLC v. Scientific-Atlanta, 552 U.S. 148, 157 (2008).

         Because the Section 10(b) claims sound in fraud, the pleading strictures of Federal Rule of Civil Procedure 9(b) apply. Frank v. Dana, 547 F.3d 564, 569-70 (6th Cir. 2008). At a minimum, the complaint must: (1) specify the statements that the plaintiff contends were fraudulent, (2) identify the speaker, (3) state where and when the statements were made, and (4) explain why the statements were fraudulent. Id. at 570. The PSLRA imposes additional requirements. Id. The complaint must “specify each statement alleged to have been misleading” along with “the reason or reasons why the statement is misleading.” 15 U.S.C. § 78u-4(b)(1). In addition, plaintiffs must “with respect to each act or omission alleged to violate this chapter, state with particularity facts giving rise to a strong inference that the defendant acted with the required state of mind.” 15 U.S.C. § 78u-4(b)(2) (emphasis added); see Frank, 547 F.3d at 570.

         “For purposes of Rule 10b-5, the ‘maker' of a statement is a person or entity with ultimate authority over the statement, including its content and whether and how to communicate it.” Janus Capital Group, Inc. v. First Derivative Traders, 564 U.S. 135, 143 (2011). The Supreme Court reasoned that “[o]ne ‘makes' a statement by stating it, ” comparing a corporate statement to a speech drafted by a speechwriter - even when drafted by someone else, the content of the speech is entirely within the control of the person who delivers it. Id. After Janus, courts have consistently held that corporate officers who sign documents on behalf of the corporation “make” the statements in those documents. See Zwick Partners, LP v. Quorum Health Corp., No. 3:16-cv-2475, 2018 WL 2933406, at * 3 (M.D. Tenn. Apr. 19, 2018).

         Plaintiffs allege Defendants are liable for false or misleading statements that fall generally into three categories: (1) statements regarding “critical drivers” of revenue growth (including quality of care)[5] that failed to disclose EmCare's high rate of out-of-network billing; (2) statements about the transition from out-of-network to in-network status; and (3) statements about the due diligence conducted in connection with certain 2014-15 contracts and the performance of those contracts.

         1. Omitting Out-of-Network Billing and Upcoding as Basis of Revenue Growth

         A. Factual Support for the Allegations

         During the class period, Envision made numerous statements about what it considered to be the basis for the company's revenue growth and general success. To summarize, Envision stated that it believed its revenue growth was due to factors such as integrated service offerings, meeting consumer service expectations, and providing quality care. Plaintiffs argue these statements, even those couched as statements of opinion, were misleading because Defendants knew that Envision's revenue was due in large part to EmCare's reliance on out-of-network billing and upcoding, as well as a strategy of increasing facility spending by increasing admission rates and procedures without regard to medical necessity. Defendants argue that the facts alleged by Plaintiffs do not show out-of-network billing was a “prime driver” of revenue or that Envision “inflated” revenue through illegal upcoding and improperly increased facility spending.

         The Court must first assess whether Plaintiffs allege facts sufficient to create a plausible inference that Envision actually engaged in these practices or that revenue growth was reliant on them. Defendants cannot be held responsible for failing to disclose that which is not plausibly alleged. See Ashcroft v. Iqbal, 556 U.S. 662, 679 (2009) (“Where the well-pleaded facts do not permit the court to infer more than the mere possibility of misconduct, the complaint has alleged - but it has not ‘show[n]' - ‘that the pleader is entitled to relief.'” (alterations in original) (citing Fed.R.Civ.P. 8(a)(2))).

         With regard to out-of-network billing, Defendants claim the practice is neither illegal nor illicit and argue that the NBER study uses too limited a data set to substantiate allegations of a company-wide business practice of out-of-network billing.[6] Plaintiffs respond with evidence of high levels of out-of-network billing, and corresponding revenue, from the NBER study and from Envision's own disclosures. Plaintiffs contend that because EmCare generates approximately 60 percent of Envision's revenue, its business practices and sources of revenue necessarily have an effect on overall revenue. (Compl., Doc. No. 88, ¶ 2). Plaintiffs cite evidence that out-of-network billing at hospitals managed by EmCare was significantly higher than other hospitals (62% on average) and that out-of-network billing at hospitals managed by EmCare increased when EmCare took over. During the transition to in-network billing, Envision disclosed that out-of-network billing represented upwards of 35 percent and $1 billion of EmCare's revenue. (Compl., Doc. No. 88, ¶¶ 102, 110; Doc. No. 127-33 at 4). The Court finds Plaintiffs have sufficiently alleged facts that raise a plausible inference that out-of-network billing was a significant source of revenue.

         On the other hand, the allegations of upcoding improper hospital admissions and procedures are based entirely on one statistic from the NBER study, which showed the likelihood of a patient being coded as “most severe” increased by 42%, and the likelihood of a patient being admitted to the hospital increased by 23% when EmCare took over management of the emergency department. The NBER study relied on data from one insurer[7] and covered 16 of EmCare's 900 hospitals.[8] (Compl., ¶¶ 63, 67; Article, Doc. No. 127-39). Neither the NBER study nor the Article made accusations of upcoding. In fact, the Article said Envision explained that admissions increased because EmCare “allows hospitals to treat sicker patients.” (Article, Doc. No. 127-39).

         The question then is whether evidence cited by Plaintiffs indicating that admissions rates and coded severity (as reported by one insurer) increased at eight emergency departments when EmCare took over, supports a reasonable belief that the company was engaging in systemic, illegal upcoding in an effort to improperly boost revenue. The Court finds the evidence insufficient to plausibly raise this inference. The sample size given is too small to suggest a company-wide policy or practice of unlawful upcoding. Without more, Plaintiffs have not raised a plausible inference of upcoding or improperly increased admissions rates. The statements cannot be considered misleading for failure to discuss that which is not plausibly alleged. See In re Career Educ. Corp. Sec. Litig., No. 03C8884, 2006 WL 999988, at * 8 (N.D. Ill., Mar. 28, 2006) (granting motion to dismiss when plaintiffs' allegations of conduct in six of defendants' 78 campuses did not “raise an inference of fraud on a nation-wide level such that [] statements and omissions” regarding company-wide statistics were false or misleading); In re Plains All Am. Pipeline, L.P. Sec. Litig., 245 F.Supp.3d 870, 897 (S.D. Tex. 2017) (allegations of specific problems with pipes comprising a small fraction of the overall network do not give rise to an inference that statements about pipeline integrity management are false and misleading); Metzler Inv. GmBH v. Corinthian Colleges, Inc., 540 F.3d 1049, 1063 (9th Cir. 2008) (disclosure of an investigation at one of the schools 88 colleges raised only the “potential” of widespread fraudulent conduct which was insufficient to state a claim under Section 10(b)).

         For these reasons, the Court will consider whether the alleged representations are misleading for failure to disclose Envision's alleged out-of-network billing practices.[9]

         B. Material Misrepresentation

         Materiality can be established by proof of a “substantial likelihood that the disclosure of the omitted fact would have been viewed by the reasonable investor as having significantly altered the ‘total mix' of information made available.” Zaluski, 527 F.3d at 571 (quoting Basic Inc. v. Levinson, 485 U.S. 224, 240 (1988)). “Section 10(b) and Rule 10b-5(b) do not create an affirmative duty to disclose any and all material information. Disclosure is required under these provisions only when necessary ‘to make … statements made, in the light of the circumstances under which they were made, not misleading.'” Matrixx Initiatives, Inc. v. Siracusano, 563 U.S. 27, 44 (2011) (quoting 17 C.F.R. § 240.10b-5(b)). In order to be actionable, a misrepresentation or omission must pertain to material information that the defendant has a duty to disclose, and generally this duty does not apply to forecasts, or soft information. Zaluski, 527 F.3d at 571. However, “once a company chooses to speak, it must ‘provide complete and non-misleading information with respect to the subjects on which [it] undertakes to speak.'” Id. at 572.

         Statements identified as statements of opinion are actionable if it was subjectively false (i.e. not honestly held) or omits material facts about the basis or reliability of the opinion. Omnicare, Inc. v. Laborers Dist. Council Const. Indus. Pension Fund, 135 S.Ct. 1318, 1329 (2015). To state a claim for an omission resulting in a misleading opinion statement, “the investor must identify particular (and material) facts going to the basis for the issuer's opinion … whose omission makes the opinion statement at issue misleading to a reasonable person reading the statement fairly and in context.” Id. at 1332.

         In addition, liability does not attach to mere corporate puffery or statements of corporate optimism. In re Ford Motor Co. Sec. Litig., 381 F.3d 563, 570 (6th Cir. 2004). Courts have consistently found immaterial “a certain kind of rosy affirmation commonly heard from corporate managers and numbingly familiar to the marketplace - loosely optimistic statements that are so vague, so lacking in specificity, or so clearly constituting the opinions of the speaker, that no reasonable investor could find them important to the total mix of information available.” Id. at 570-71. Vague predictions of positive future results cannot engender reasonable reliance by investors. Indiana State Dist. Council, 583 F.3d at 944 (“continuation of outstanding earnings growth” is a vague forward-looking statement entitled to safe-harbor).

         The Court finds that a reasonable investor could view a significant level of out-of-network billing as material information. See Zaluski, 527 F.3d at 571 (material information is that which significantly alters the “total mix” of information made available). Materiality alone, however, does not impose an affirmative duty to disclose. Rather, a company must disclose material information when necessary “to make statements made, in the light of the circumstances under which they were made, not misleading.” Matrixx Initiatives, 563 U.S. at 44.

         The Complaint includes a long list of alleged misleading statements. These are gathered from what appears to be every quarterly and annual filing during the class period and numerous statements made by Envision officers during teleconferences with shareholders and at various healthcare conventions. (See Compl., Doc. No. 88, ¶¶ 71-91; 112-121). Defendants allege these statements are not actionable because they are accurate financial statements, statements of opinion, forward-looking statements, or puffery.

         The Court now turns to the statements themselves.

         i. Accurate Financial Statements

         Plaintiffs have included each and every statement of revenue and EBITDA[10] filed with the SEC during the class period and have not alleged these statements of revenue were inaccurate. Instead they claim, “[I]t is the combination of the reported financial results and metrics together with defendants' explanations of the bases for those purportedly extraordinary results that gives rise to plaintiffs' claims.” (Pl. Br., Doc. No. 131 at 31). Plaintiffs it seems do not contest the general rule that “a violation of federal securities law cannot be premised upon a company's disclosure of accurate historical data.” In re Almost Family, Inc. Securities Litig., No. 3:10-cv-00520, 2012 WL 443461, at *3 (W.D. Ky. Feb. 10, 2012) (quoting In re Sofamor Danek Group, Inc., 123 F.3d 394, 400 (6th Cir. 1997)). Instead, they argue that the accurate financial statements provide context for the other alleged misstatements. Envision's reports of historical income and EBITDA growth are not themselves actionable statements. However, the Court will consider Envision's historic revenue growth as context for the other allegedly misleading statements.

         ii. Statements Regarding “Drivers of Revenue and Growth”

         Plaintiffs argue Envision's statements regarding the drivers of revenue and growth were materially misleading because they attributed EmCare's growth to new contracts obtained as a result of “differentiated service offerings and ability to deliver efficient, high-quality care, ” and failed to disclose that out-of-network billing was a significant factor contributing to the company's revenue and growth. Plaintiffs cite statements published in quarterly and annual filings to the SEC and in the preliminary prospectus filed in conjunction with the 2014 secondary stock offering and statements made at healthcare conferences and during investor phone calls by individuals on behalf of Envision. The Court will address them in turn. a. Statements in Envision Filings Pursuant to the Supreme Court's decision in Janus, only the “maker” of the statements can be liable under 10(b) and Rule 10b-5. Janus Capital, 564 U.S. at 143. In addition to the corporation itself, corporate officers who sign documents on behalf of the corporation “make” the statements in those documents. See Zwick Partners, 2018 WL 2933406, at *3. Plaintiffs allege the SEC quarterly and annual filings made through December 1, 2016, the date of the AmSurg merger, were signed by William Sanger and Randel Owen; and that the 2016 Annual Report, filed in March 2017, was signed by Christopher Holden and Claire Gulmi. Accordingly, there can be no liability for alleged misstatements in these filings against the other individual defendants.

         The statements are reviewed in context to determine whether a reasonable investor would have found them misleading in light of the circumstances in which they were made. See 17 C.F.R. § 240.10b-5(b) (providing liability for failure to “state a material fact necessary in order to make the statement made, in light of the circumstances in which they were made, not misleading”); Omnicare, 135 S.Ct. at 1327 (“[W]hether a statement is ‘misleading' depends on the perspective of a reasonable investor.”). In Omnicare, the Supreme Court emphasized the importance of context specifically noting that a reasonable investor expects statements in a registration statement to have been “carefully wordsmithed to comply with the law.” Omnicare, 135 S.Ct. at 1328.

         The following are a representative sample of the allegedly misleading statements regarding drivers of growth that were published in Envision's quarterly and annual filings in 2013, 2014, and 2015:

• Growth is “primarily driven by revenue increases from net new contract wins and same store revenue growth.” • “We believe that our significant new contract revenue growth has been driven by our differentiated service offerings and ability to deliver efficient, high-quality care.”
• “[N]ew contract growth has been accelerating since 2011 as a result of our integrated service offerings and the success of each of EmCare and AMR in cross- selling services to their respective customers.”
• “We believe that EmCare is well-positioned to continue to generate significant organic growth due to its integrated service offerings, differentiated, data-driven processes to recruit and retain physicians, scalable technology and sophisticated risk management programs.”
• “We believe these factors have driven EmCare's strong track record in obtaining new contracts and retaining existing customers.”
• “We have developed strong brand recognition and competitive advantages in clinician recruitment as a result of our market position, clinical best practices and ...

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