In Bach v. Amedisys Inc., No. 13-30580, 2014 BL 291495 (5th Cir. May 20, 2014), the United States Court of Appeals for the Fifth Circuit reversed and vacated the district court’s decision granting the defendant’s motion to dismiss and, accordingly, remanded the case for further proceedings.

Amedisys is a home health company and, as provided by federal law, receives Medicare reimbursement only when providing patients with medically necessary services. From 2005 – 2009, Medicare reimbursements accounted for approximately 90% of the company’s total reimbursements for services rendered.

The Public Employee’s Retirement System of Mississippi and Puerto Rico Teacher’s Retirement System (together, “Plaintiffs”) filed suit against Amedisys, Inc. (“Amedisys”) and seven prior and current board members (collectively, “Defendants) for violating sections 10(b) and 20(a) the Securities Exchange Act of 1934 alleging Defendants defrauded investors by concealing a Medicare fraud scheme.  Plaintiffs alleged that Amedisys engaged in fraud when it (1) pressured employees to perform unnecessary service visits in order to maximize Medicare reimbursements, and (2) released materially false or misleading statements causing Amedisys’s stock to be traded at an inflated price. Plaintiffs further alleged that when information regarding potential fraud became publicly available, Amedisys’ stock values dropped, causing significant financial loss to shareholders.  The district court dismissed the claim, finding that plaintiffs had not sufficiently alleged loss causation. 

To bring an action under Section 10(b) and Rule 10b-5, plaintiff must allege that the  “misrepresentations (or omissions) proximately caused Plaintiff’s economic loss.” To demonstrate proximate cause, a plaintiff must allege that when a “relevant truth” regarding fraud became public, it caused stock prices to fall, thereby proximately causing the economic harm. The court emphasized the “test for ‘relevant truth’ simply means the truth disclosed must make the existence of actionable fraud more probable than it would be without that alleged fact, taken as true.”

In applying the standard, the court found that plaintiffs had sufficiently alleged the requisite causation. 

• The Complaint consists of over 200 pages of allegations regarding, among other things, Defendants’ fraudulent Medicare billing practices. Where the Complaint sets forth specific allegations of a series of partial corrective disclosures, joined with the subsequent fall in Amedisys stock value, and in the absence of any other contravening negative event, the plaintiffs have complied with Dura’s analysis of loss causation. 

In so holding, the court asserted that it was evident “the whole is greater than the sum of its parts.”

Accordingly, the United States Court of Appeals for the Fifth Circuit reversed and vacated the district court’s decision granting Defendant’s motion to dismiss, and remanded the case for further proceedings.

The primary material for this case may be found on the DU Corporate Governance website.