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In re Gentiva Secs. Litig.

United States District Court, E.D. New York

March 25, 2013


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For Los Angeles City Employees' Retirement System, Plaintiff: Frederic S. Fox, Esq., Joel B. Strauss, Esq., Jeffrey P. Campisi, Esq., of Counsel, Kaplan Fox & Kilsheimer LLP, New York, NY.

For Gentiva Health Services, Inc., Ronald A. Malone, Anthony H. Strange, and John R. Potapchuk, Defendants: John A. Neuwirth, Esq., of Counsel, Weil, Gotshal & Manges LLP, New York, NY.

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ARTHUR D. SPATT, United States District Judge.

The present case is a consolidated securities fraud class action brought on behalf of a class consisting of all persons or entities that purchased the publicly traded securities of Gentiva Health Services (" Gentiva" ) between July 31, 2008 and October 4, 2011. Presently before the Court is the Defendants' motion to dismiss. For the reasons set forth below, this motion is granted.


A. Factual Background

The following facts are drawn from the Plaintiff's class action complaint and are construed in a light most favorable to the Plaintiff.

1. The Parties

The Defendant Gentiva is a corporation with its principal headquarters in Atlanta, Georgia. The Individual Defendants are current and/or former directors and/or officers of the company. Ronald A. Malone previously served as Gentiva's Chief Executive Officer from June 2002 until December 2008, and as Chairman of the Board of Directors until May 2011. H. Anthony Strange served as Gentiva's President beginning in 2007, and served as its Chief Operating Officer from November 2007 through May 2009. Mr. Strange then became the company's Chief Executive Officer in January 2009, and it's Chairman in May 2011. John R. Potapchuck served as Gentiva's Chief Financial Officer and Treasurer until May 2010. He was succeeded in May 2010 by Eric R. Slusser, who currently serves as the company's Chief Financial Officer, Treasurer, and Executive Vice President.

2. The HH PPS

The Social Security Act requires that for patients to be eligible for home health benefits such as nursing care, the beneficiaries must be homebound and there must be a medical necessity for the services that are provided. Medicare pays for these home health services through a prospective payment system or " PPS" . Under this home health prospective payments system (the " HH PPS" ), a home health service provider is paid in advance for a substantial portion of the total payment to which they are entitled to for a given patient. These payments are based on things such as " a predetermined rate schedule established by Medicare", as well as " a pre-treatment assessment of the given patient's condition and proposed plan of care during a 60-day time period." (Compl. ¶ 28.) Gentiva is one such home health provider that receives payments from Medicare through the HH PPS.

According to the Defendants, both federal regulations and Medicare's Policy Manual make clear that independent physicians, as opposed to the home health provider itself, direct and oversee the billing process. In other words, a patient will only receive treatment after a physician prescribes a home health plan of care, which includes: the type of services to be provided; the professional who will provide the services; the nature of the individual services; and the frequency of the services. See 42 C.F.R. § 409.43(b) (" The

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physician's orders for services in the plan of care must specify the medical treatments to be furnished as well as the type of home health discipline that will furnish the ordered services and at what frequency the services will be furnished." ). In addition, any changes in the plan of care must be approved by a physician. See id. at § 409.43(c).

On the other hand, the Plaintiff claims that Gentiva had near absolute discretion to dictate the terms and frequency of patient care in order to achieve these particular " bonus" thresholds. The Plaintiff alleges that Gentiva played a critical role in determining how much money Medicare would pay for its services after a physician prescribed a home health plan. In this regard, the complaint alleges that after a physician prescribed a home health plan of care, a Gentiva nurse or therapist assessed the patient's condition and needs at the beginning of each episode of care. As part of this assessment, a form was completed entitled the Outcome and Assessment Information Set (" OASIS" ), which detailed a patient's condition and expected therapy needs. This information was used to classify patients in accordance with a classification system known as the " case-mix adjustment" to adjust payments for home health services under the PPS. This system was developed by the Centers for Medicare and Medicaid Services (" CMS" ). Accordingly, the OASIS was utilized to determine how much money Medicare ultimately paid Gentiva for its services. The Plaintiff alleges that the proper completion of the OASIS by Gentiva--not the physician--was a key and critical driver in determining how much Gentiva would be paid for its services by Medicare.

The above described system is prospective, hence the prospective payment system. Gentiva would generally receive an upfront payment from Medicare of approximately sixty percent of the estimated payment entitlement. However, the final payment was ultimately based on the actual number of visits provided to the patient. (Compl. ¶ 34.)

Prior to and through 2007, the HH PPS provided an additional payment or " bonus" of up to $2,200 if Gentiva provided a patient with ten therapy visits in connection with one individual's treatment cycle, otherwise known as an " episode" . However, in 2008 this " bonus" threshold was modified and the new thresholds became six, fourteen, and twenty therapy visits per treatment cycle. As a result, Gentiva could potentially obtain higher payments from Medicare if the number of patient visits reached these new thresholds.

Also relevant is that the thresholds needed to be reached within each sixty-day episode period, which is the time period covered by the physician's initial proposed plan of care. Gentiva would determine after the initial episode of care whether to " recertify" a patient for an additional episode of care. According to the Complaint, re-certifications increased the company's profits because less paperwork was associated with these patients.

In light of the HH PPS and the modified threshold levels for Medicare reimbursement, the Plaintiff alleges that in order to increase revenues and margins per episode, Gentiva's clinicians and managers were pressured by senior executives to provide patients with medically unnecessary visits and services in order to reach the enhanced payment thresholds from Medicare.

3. Former Gentiva Employees as Confidential Witnesses

The Plaintiff's complaint is largely based upon interviews with former Gentiva employees, including clinicians and managers. The allegations from most of these former

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employees appear in the complaint as those of confidential witnesses (" CWs" ). According to the Plaintiff, these former employees describe how Gentiva executives knew of and themselves applied pressure on Gentiva clinicians and managers, through periodically scheduled and ad hoc meetings, emails, and conference calls, to violate Medicare rules in order to increase Medicare payments. Specifically, these executives are alleged to have urged employees (1) to provide medically unnecessary visits to patients in order to hit the thresholds required by Medicare to receive bonus payments (Compl. ¶ ¶ 52-61); (2) to wrongfully " upcode" in order to increase a patient's " case-mix weight" ; (3) to recertify patients for added episodes of care even if additional visits were not medically necessary (Compl. ¶ ¶ 56-60); (4) to manipulate OASIS forms to increase reimbursement from Medicare (Compl. ¶ ¶ 53-61); (5) to wrongfully manipulate diagnostic codes in order to generate the greatest reimbursement from Medicare (Compl. ¶ ¶ 59-60); and (6) to provide medically unnecessary services to increase Medicare reimbursement revenues and margins (Compl. ¶ ¶ 52-61). The CWs' accounts of Gentiva's purported illegal activity are summarized as follows:

o CW1, a Physical Therapist, was an Orthopedics Director at Gentiva from April 2004 until May 2010, and played a supervisory role over certain branch offices. CW 1 stated that throughout the Class Period, either by way of periodic meetings and/or emails, he/she was subjected to pressure from supervisors--an " Area Vice President" (Area VP) and a " Regional Vice President" (Regional VP)--to increase the number of patient visits provided in order to hit the next highest enhanced Medicare reimbursement threshold, regardless of the patients' medical needs. CW 1 left Gentiva because of the " threshold pressure." (Compl. ¶ 53.)o CW2 was Director of Gentiva's Las Vegas, Nevada branch office from July 2006 through April 25, 2010. From at least January 2010 until this CW's resignation, CW 2 felt frequently pressured by an Area VP to either pressure clinicians to provide medically unnecessary visits to patients to meet the budget projections and/or to pressure clinicians under CW 2's supervision to increase case mix weights assigned to patients in a way that would result in increased payments from Medicare. In April 2010, CW 2 resigned from Gentiva, primarily because of what CW 2 believed to be undue pressure to engage in improper business practices. (Compl. ¶ 54.)o CW3 was the former Branch Director of Gentiva's Albuquerque, New Mexico Office from 2007 through 2010, and was under the same regional direction as CW2. CW 3 believes that periodic comments made to him/her by an Area VP were intended to put pressure on CW 3 to increase revenue for the Albuquerque branch by providing medically unnecessary services. This is the same Area VP who allegedly pressured CW2. (Compl. ¶ 55.)o CW4, a nurse employed by Gentiva from February 2008 through October 2009, was the manager of Clinical Practice during that time period. CW 4 described being subjected to pressure from superiors to meet the enhanced Medicare payment thresholds of 6, 14 or 20 visits and noted how this was often referred to internally as " hitting the magic numbers." CW4 also alleges that during weekly teleconference calls with his/her immediate

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supervisors and certain unidentified Gentiva executives, he/she was regularly instructed by superiors to relay the message to clinicians that " they were not putting in enough therapies," and that they needed to increase the number of patient visits, which CW 4 interpreted to mean the provision of unnecessary services. (Compl. ¶ 56.)o CW5 was employed as a Compliance Specialist at Gentiva from December 2002 through May 2009. CW5 assisted with various internal audits and was also responsible for handling " first line screening" of incoming calls to the Company's compliance hotline. CW 5 recalled receiving several calls in the 2008 to 2009 time-frame from Gentiva employees from the upstate New York area that felt they were being asked by management to add or provide treatments to patients that were not needed and that at least one therapist described as " not ethically correct." CW5 passed these complaints along to an individual named Margo Nemet, who in turn reported to the Company's Chief Compliance Officer. (Compl. ¶ 57.)o CW6 was a nurse who worked at Gentiva's Binghamton, New York branch from January 2010 through September 2011. CW6 alleges to have been frequently pressured by her supervisors to complete initial OASIS forms in a way that would result in a higher need for home health services than a patient actually needed and would therefore result in higher payments to Gentiva from Medicare. CW6 allegedly told his/her Branch Manager that he/she was uncomfortable with patient assessment and Medicare billing practice instructions, and it was CW6's " understanding" that the Branch Manager shared these concerns with unidentified senior Gentiva management. (Compl. ¶ 58.)o CW7 was also a nurse who worked at Gentiva's Binghamton, New York branch from January 2009 through August 2011. CW7 alleges that his/her supervisor, Gentiva's Area Director of Clinical Operations, would ask CW 7 to improperly modify OASIS forms in a way that would result in medically unnecessary services being provided to patients in order to increase Medicare revenue, and also to press clinicians under CW 7's supervision to push for enough visits to patients to hit the next highest enhanced Medicare payment threshold, regardless of the patients' needs or even the patients' desires for such treatment. The types of wrongful pressures were often exerted through informal discussions between Gentiva management and branch managers and clinicians. However, according to CW7, it was also exerted through and during more formal and periodic in person and/or telephone meetings during which data listed in various periodic reports was discussed. In June 2011, CW 7 called Gentiva's internal compliance hotline to complain about Gentiva clinicians being unduly pressured to provide patients with unnecessary visits and/or therapies. CW 7 sent a resignation letter to his/her supervisor in which CW 7 noted that the reasons for CW 7's resignation included the belief that the Company exerted continuous pressure on employees to put finances over patient care. (Compl. ¶ 59.)

The complaint also includes allegations from two identified witnesses. Former

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Gentiva employee Holly McComas is a registered nurse who was employed by Gentiva as a case manager at its Charleston, West Virginia branch beginning in 2007. She alleges that notwithstanding the fact that she was the person who made the intake assessment for patients in OASIS, she was not permitted to code for the diagnoses and treatments related to her assessments. Instead, this coding was done by the manager of clinical practice at that branch office, which McComas would then write in her own handwriting. In many instances McComas believed she was being required to write the codes on the forms in a manner that maximized reimbursement from Medicare rather than being truly reflective of the patients' medical conditions and/or that the number of visits being entered on the OASIS were not medically necessary. In addition, during her tenure at Gentiva, McComas regularly observed practices aimed at pressuring physical therapists employed by Gentiva to continue physical therapy notwithstanding that the patient had reached maximum medical improvement. Finally, on January 22, 2010, McComas placed a telephone call to Gentiva's Regional Director of Human Resources to complain about fraudulent Medicare billing practices at Gentiva's Charleston branch. (Compl. ¶ 60.)

The final witness put forth by the Plaintiff is Kim Shah, a Registered Nurse, who began working for Gentiva on or about February 12, 2001 as a manager of clinical practices at the Charleston, West Virginia branch, and was then promoted to director of clinical practices and later to branch director. According to Shah, employees were regularly told by Gentiva's Regional VP during weekly conference calls that anyone over 65 needed more than 12 therapy visits, and that such therapy should be provided as a matter of course. Shah further related that she was regularly subjected to pressure by this Regional VP and unidentified others at periodic meetings to try to get clinicians in the office to increase the number of visits to patients to hit enhanced payment thresholds from Medicare, even if such visits were not medically necessary.

4. Alleged Misrepresentations

During the Class Period, the Defendants repeatedly represented in SEC filings and other public statements that Gentiva was " in compliance" with Medicare " standards and regulations" . Furthermore, Gentiva also represented that it maintained a " robust" and " best-in-class" compliance department. (Compl. ¶ 181.) In addition, Gentiva represented to its investors that its revenues, including its growing profit margins per episode--a metric closely observed by investors--were being legitimately earned. However, according to the Plaintiff, a series of partial disclosures revealed the risks concerning Gentiva's business.

5. The SFC and SEC Investigations

On May 13, 2010, the Wall Street Journal reported that " the [U.S. Senate Finance Committee or] SFC launched an investigation into the practices of companies that provide in-home therapy visits reimbursed by Medicare, including Gentiva." (Compl. ¶ 248.) Further, on July 13, 2010, Gentiva disclosed that the U.S. Securities and Exchange Commission (" SEC" ) had also commenced an investigation relating to Gentiva's participation in the HH PPS.

On October 3, 2011, after a seventeen month investigation, the SFC released a Report on Home Health and the Medicare Therapy Threshold (the " SFC Report" ). The SFC examined the home health therapy practices of each of the four largest publicly-traded home health companies.

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The Plaintiff alleges that the SFC found, based on nonpublic data provided to it by Gentiva, that when Medicare changed the number of visits required for home health care providers to receive bonus payments in 2008 from ten visits to six, fourteen, and twenty visits, there was a statistically significant drop of twenty-five percent in the number of patients Gentiva provided with ten visits, and at the same time, a statistically significant increase of up to thirty-one percent in the number of Gentiva patients who were suddenly receiving 6, 14, and 20 visits. Further, the SFC Report describes certain emails and documents that, according to the Plaintiff, demonstrate that the statistical shift was not an accident. For example, multiple internal email exchanges among senior Gentiva executives, including the Defendant Strange, make clear that in the months leading up to and subsequent to the January 1, 2008 changes in therapy thresholds, the Defendants were attempting to ascertain how the changes would impact the Company's revenue and earnings, as well as how they could increase Medicare revenues in light of the new system.

One particular email emphasized by the Plaintiff--and the only communication directly involving one of the Individual Defendants--was from Perri Southerland of Gentiva's Finance Department to Defendant Strange. This communication stated that as a follow-up to a discussion they had, Southerland performed an analysis where he figured out a way for Gentiva to increase it's per episode reimbursements by $350 to $550 under the new Medicare threshold requirements. It was made clear that the goal was to reach the six visit threshold for enhanced Medicare payments. As the Plaintiff points out, the medical needs of the patients were not mentioned as a factor in the analysis.

In response to these allegations, the Defendants maintain that the SFC did not conclude that Gentiva and its senior management caused Gentiva's employees and clinicians to seek reimbursement from Medicare for medically unnecessary services in direct violation of Medicare standards and regulations. In this regard, the complaint does not contain any allegation that the SEC or any other governmental or regulatory agency has instituted any action or proceeding alleging wrongdoing arising from Gentiva's participation in the HH PPS.

B. Procedural Background

On November 2, 2010, former named plaintiff Steve Endress filed a securities fraud class action on behalf of all persons who purchased the publicly traded securities of Gentiva Health Services (" Gentiva" ) between July 31, 2008 and July 20, 2010. The putative class action was filed against the Defendant Gentiva and three of its executives, the Defendants Ronald A. Malone, Anthony H. Strange, and John R. Potapchuk. Endress alleged that Gentiva artificially inflated its stock price through a scheme that involved ordering unnecessary medical care for clients, and then billing the federal government for these illegitimate expenses. Endress further alleged that when the scheme came to light, Gentiva's stock price dropped precipitously, and, as a person who had purchased Gentiva stock while its price was artificially inflated, he was harmed. Endress sought relief on behalf of himself and all persons who purchased Gentiva stock during the period of the alleged fraud, which he identified as being from July 31, 2008 to July 20, 2010. He brought causes of action based upon alleged violations of Sections 10(b) and 20(a) of the 1934 Act and Rule 10b-5.

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On January 21, 2011, the Minneapolis Police Relief Association (" MPRA" ) filed a motion to intervene as a plaintiff in the Endress action pursuant to Federal Rule of Civil Procedure (" Fed. R. Civ. P." ) 24(b)(1)(B). MPRA also requested to be lead plaintiff pursuant to the Private Securities Litigation Reform Act (" PSLRA" ). MPRA is a public pension fund that purchased an undisclosed amount of Gentiva stock during from July 31, 2008 to July 20, 2010. The Defendants did not oppose MPRA's motion to intervene. However, they did oppose MPRA's motion to be named as lead plaintiff, on the ground that MPRA had not satisfied certain prerequisites for this designation that are set forth in the PSLRA. On July 19, 2011, the Court ordered that MPRA's motion to intervene was granted, but that its motion to be appointed lead plaintiff was denied without prejudice.

On July 25, 2011, Endress sought to withdraw as a named plaintiff and MPRA renewed its motion to be appointed lead plaintiff, pursuant to the PSLRA. However, while this motion was pending before the Court, four other almost identical federal class actions were subsequently filed by Cement Masons & Plasterers Joint Pension Trust (" Cement Masons" ) on September 14, 2011; International Union of Operating Engineers Pension Fund of Eastern Pennsylvania and Delaware (" International Union" ) on October 11, 2011; Arkansas Teacher Retirement System (" Arkansas Teacher" ) on October 20, 2011; and Douglas Dahlgard (" Dahlgard" ) on October 25, 2011. All five actions were on behalf of the same class of investors who purchased Gentiva publicly traded securities during a similar class period, and based upon the same facts alleging violations of the same laws. Following the filing of all five actions, the plaintiffs in each case wrote a letter to the Court articulating their support for consolidation. In addition, all five parties requested the Court to consider them as a suitable lead plaintiff in the proposed consolidated action.

On November 2, 2011, the Court granted the motion by the Plaintiff Steve Endress to withdraw as named plaintiff. In addition, the Court ordered that the five Gentiva actions should be consolidated to economize both judicial resources and the resources of the parties. However, due to the unique circumstances of the case with regard to the procedure of appointing a lead plaintiff under the PSLRA, the Court reopened the lead plaintiff process and allowed any plaintiff to move to be appointed lead plaintiff within 60 days of the Court's Order, which was the date of the withdrawal of the only eligible lead plaintiff. See Endress v. Gentiva Health Services, Inc., 278 F.R.D. 78, 83 (E.D.N.Y. 2011) (Spatt, J.).

Thereafter, four motions were filed by five putative class members to be appointed lead plaintiff in this action in accordance with the PSLRA: Indiana Laborers Pension Fund (" Indiana Laborers" ); Los Angeles City Employees' Retirement System (" LACERS" ); Arkansas Teacher and the Metropolitan Water Reclamation District Retirement Fund (" Metropolitan Water" ) (collectively, the " Arkansas Group" ); and International Union. On January 27, 2012, the Court granted LACERS' motion to be appointed as lead plaintiff in this action pursuant to 15 U.S.C. § 78u-4(a)(3)(B), as amended by the Private Securities Litigation Act of 1995. The Court also granted the motion by LACERS for the appointment of Kaplan Fox & Kilsheimer LLP as lead counsel. An amended complaint was filed by LACERS on April 16, 2012. This pleading included not only claims under the 1934 Act, but also added claims under Sections 11 and 15 of

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the 1933 Act with respect to alleged material misstatements and omissions. Thereafter, on June 15, 2012, the Defendants filed the present motion to dismiss for failure to state a claim.

In addition, it is important to note that nearly identical actions have been commenced against two other publicly-traded health providers, Almost Family and Amedisys, Inc. (" Amedisys" ) in the U.S. District Courts for the Western District of Kentucky and the Middle District of Louisiana, respectively. See In re Almost Family, Inc. Sec. Litig., 10 Civ. 00520, (W.D. Ky.); Bach v. Amedisys, Inc., 10 Civ. 00395, (M.D. La.). On February 10, 2012, the Almost Family court dismissed the complaint in that action with prejudice. On June 28, 2012, the Amedisys court also dismissed the complaint in that action. A motion for reconsideration is still pending in the Amedisys action.


A. Legal Standard

Under the now well-established Twombly standard, a complaint should be dismissed pursuant to Rule 12(b)(6) only if it does not contain enough allegations of fact to state a claim for relief that is " plausible on its face." Bell A. Corp. v. Twombly, 550 U.S. 544, 570, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007). The Second Circuit has explained that, after Twombly, the Court's inquiry under Rule 12(b)(6) is guided by two principles. Harris v. Mills, 572 F.3d 66 (2d Cir. 2009) (citing Ashcroft v. Iqbal, 556 U.S. 662, 129 S.Ct. 1937, 1949, 173 L.Ed.2d 868 (2009)).

" First, although 'a court must accept as true all of the allegations contained in a complaint,' that 'tenet' 'is inapplicable to legal conclusions,' and '[t]hreadbare recitals of the elements of a cause of action, supported by mere conclusory statements, do not suffice.'" Id. at 72 (quoting Iqbal, 129 S.Ct. at 1949). As explained by the Second Circuit, " [i]n considering a motion to dismiss a 10(b) action, we must accept all factual allegations in the complaint as true and must consider the complaint in its entirety." Slayton v. Am. Express Co., 604 F.3d 758, 766 (2d Cir. 2010); see Tellabs, Inc. v. Makor Issues & Rights, 551 U.S. 308, 127 S.Ct. 2499, 2509, 168 L.Ed.2d 179 (2007) (" faced with a Rule 12(b)(6) motion to dismiss a § 10(b) action, courts must, as with any motion to dismiss for failure to plead a claim on which relief can be granted, accept all factual allegations in the complaint as true" ).

" 'Second, only a complaint that states a plausible claim for relief survives a motion to dismiss' and '[d]etermining whether a complaint states a plausible claim for relief will . . . be a context-specific task that requires the reviewing court to draw on its judicial experience and common sense.'" Id. (quoting Iqbal, 129 S.Ct. at 1950). Thus, " [w]hen there are well-pleaded factual allegations, a court should assume their veracity and . . . determine whether they plausibly give rise to an entitlement of relief." Iqbal, 129 S.Ct. at 1950. This plausibility standard is applicable to securities fraud pleadings. ATSI Commc'ns, Inc. v. Shaar Fund, Ltd., 493 F.3d 87, 98 (2d Cir. 2007) (observing that to survive 12(b)(6) dismissal, securities fraud plaintiffs " must provide the grounds upon which [their] claim rests through factual allegations sufficient 'to raise a right to relief above the speculative level'" ) (quoting Twombly, 127 S.Ct. at 1965). The issue on a motion to dismiss is " not whether a plaintiff will ultimately prevail but whether the claimant is entitled to offer evidence to support the claims." Todd v. Exxon Corp., 275 F.3d 191, 198 (2d Cir. 2001) (quoting Scheuer v. Rhodes, 416 U.S. 232, 236, 94 S.Ct. 1683, 40 L.Ed.2d 90 (1974)).

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Of particular importance here, " [a] complaint alleging securities fraud must satisfy the heightened pleading requirements of the PSLRA and Federal Rule of Civil Procedure 9(b) by stating with particularity the circumstances constituting fraud." Slayton, 604 F.3d at 766.

B. As to Whether the Plaintiff States a Claim Under Section 10(b) of the 1934 Act and Rule 10b-5

Section 10(b) of the 1934 Act, 15 U.S.C. § 78j(b), and Rule 10b--5 promulgated thereunder, 17 C.F.R. § 240.10b--5, prohibit fraudulent activities in connection with securities transactions. Specifically, section 10(b) makes it unlawful

[t]o 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 or for the protection of investors.

15 U.S.C. § 78j(b). Rule 10b--5 describes certain types of behavior proscribed by the statute, including:

[t]o make any untrue statement of a material fact or to omit to state a material fact necessary in order to make the statements made, in the light of the circumstances under which they were made, not misleading . . . .

17 C.F.R. § 240.10b--5.

" To state a claim under [Section 10(b) and] Rule 10b--5 for misrepresentations, a plaintiff must allege that the defendant (1) made misstatements or omissions of material fact, (2) with scienter, (3) in connection with the purchase or sale of securities, (4) upon which the plaintiff relied, and (5) that the plaintiff's reliance was the proximate cause of its injury." ATSI Commc'ns, 493 F.3d at 105. As set forth above, a complaint alleging securities fraud is required to satisfy the heightened pleading standard of the Private Litigation Securities Reform Act (" PSLRA" ), Pub. L. No. 104-67, 109 Stat. 737, and Federal Rule of Civil Procedure 9(b).

Accordingly, the circumstances constituting the fraud must be stated with particularity. Id. at 99. " A securities fraud complaint based on misstatements 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. Allegations that are conclusory or unsupported by factual assertions are insufficient." Id. (internal citation omitted). " Thus '[a] plaintiff cannot base securities fraud claims on speculation and conclusory allegations.'" Plumbers & Steamfitters Local 773 Pension Fund v. Canadian Imperial Bank of Commerce, 694 F.Supp.2d 287, 297 (S.D.N.Y. 2010) (quoting Kalnit v. Eichler, 264 F.3d 131, 142 (2d Cir. 2001)).

1. Materially False or Misleading Statements or Material Omissions

The Court will first address the initial element that a plaintiff must sufficiently allege under the PSLRA in order to withstand a motion to dismiss. With regard to misstatements or omissions of material fact, a plaintiff must (1) specify the statements that the plaintiff contends were fraudulent or misleading; (2) identify the speaker; (3) state where and when the statements were made; and (4) explain why the statements were misleading or fraudulent. See Rombach v. Chang, 355 F.3d 164, 170 (2d Cir. 2004).

The Defendants' position is that despite the complaint's inclusion of approximately sixty pages of quotations from SEC filings, press releases, and investor conferences during the Class Period, the Plaintiff has

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failed to identify a single actionable misstatement or omission. The Defendants argue that the Plaintiff has merely set forth a " laundry list" style of pleading, which fails to meet the requisite level of particularity. See In re Citigroup Inc. S'holder Deriv. Litig., No. 07 Civ. 9841, 2009 WL 2610746, at *10 n.19 (S.D.N.Y. Aug. 25, 2009). On the other hand, the Plaintiff contends that it adequately identifies the Defendants' materially false and misleading representations and material omissions, including who made the statement; when the statement was made; and why the representation was materially false and misleading. There are four materially false and misleading statements contained in the complaint. The Court will address each one in turn.

a. Reported Financial Results

One of the allegations in the complaint concerning a misstatement or omission is summarized as follows: the company's " representations concerning [its] financial results, including reported increases in revenue and profit margins (specifically revenue per episode and margins per episode) and the purported reasons behind those increases were materially false and misleading because they failed to disclose that these reported figures were materially and artificially inflated as a result of the improper manipulations of the Medicare reimbursement system." (Compl. ¶ 66.) The Defendants contend that this is merely a general allegation that the practices at issue resulted in a false report of the company's earnings, which is not sufficiently particularized. For instance, they argue that the complaint is devoid of any allegations as to how the alleged manipulation of Medicare billing via the HH PPS caused Gentiva's financial statements to be inflated during the Class Period. Further, the Plaintiff also does not allege the amount by which Gentiva's financial results were allegedly inflated. The essence of the Defendants' arguments is that the Plaintiff has not satisfied the materiality requirement for this alleged misrepresentation.

" At the pleading stage, a plaintiff satisfies the materiality requirement of Rule 10b-5 by alleging a statement or omission that a reasonable investor would have considered significant in making investment decisions." Ganino v. Citizens Utilities Co., 228 F.3d 154, 161 (2d Cir. 2000). " '[T]here must be 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.'" See Basic Inc. v. Levinson, 485 U.S. 224, 231-32, 108 S.Ct. 978, 99 L.Ed.2d 194 (1988) (quoting TSC Indus., 426 U.S. at 449, 96 S.Ct. 2126). " The materiality of allegedly false financials may not be pled in a conclusory or general fashion; a complaint must contain allegations tending to demonstrate the materiality of the alleged overstatements in light of the defendant's total financial picture." Gavish v. Revlon, Inc., No. 00 Civ. 7291, 2004 WL 2210269, at *16 (S.D.N.Y. Sept. 30, 2004). As one court explained, while there is no " numerical benchmark" for assessing the materiality of misstatements in financial reports, Ganino 228 F.3d at 162-65, defendants are still " entitled to be appraised of the approximate amount of overstatement involved." Jacobson v. Peat, Marwick, Mitchell & Co., 445 F.Supp. 518, 522 (S.D.N.Y. 1977).

Here, the complaint alleges that the Defendants publicly represented that Gentiva's revenues and margins--especially revenue and profits per episode--were growing, and that Gentiva was doing so in compliance with Medicare standards and regulations. In this regard, in the company's financial results, it reported that

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Home Health Medicare revenue was growing, in part driven by increased patient admissions and revenue per episode. (See, e.g., Compl. ¶ 70.) The complaint goes on to allege that the failure to disclose the illicit nature of at least a part of Gentiva's earnings, such as the provision of medically unnecessary visits to patients in order to hit thresholds required by Medicare to receive bonus payments, caused these statements in the Company's reported financial results to be materially misleading.

The Court agrees with the Defendants that while the complaint describes the financial misstatements it alleges as " material," claiming that the company's reported figures were materially and artificially inflated, it fails to even attempt to approximate the magnitude or degree of those misstatements in relation to Gentiva's overall financial picture. There are no factual allegations regarding how the financial figures were artificially inflated or the monetary consequences of doing so.

However, the complaint does not allege accounting fraud or the failure to disclose the specifics of a securities markup, or any other type of numerical manipulation. Rather, the complaint alleges that the Defendants failed to disclose that a portion--any portion--of the company's reported revenue and profits were derived from Medicare fraud. Thus, while the complaint does not specify the exact percentage of the revenue and profits that was a misstatement because it was earned solely as a result of alleged Medicare fraud, this is not of importance.

The Court has no doubt that information relating to Gentiva's purported push to provide medically unnecessary services to secure extra reimbursement from Medicare, even if only accounting for a small percentage of Gentiva's actual profits, was not " so obviously unimportant to a reasonable investor that reasonable minds could not differ on the question of their importance." ECA & Local 134, 553 F.3d at 197. It is plausible that a reasonable investor would view this information significant to an investment decision under the circumstances, regardless of the financial consequences. Any alleged Medicare fraud could have serious consequences for the company, including both civil and criminal liability. For this reason, even though the Plaintiff does not quantify the effect of the claimed misrepresentations contained in the various financial reports at issue, due to the nature of the allegations, the Court concludes that with respect to the reported financial results, the Plaintiff has sufficiently pleaded with particularity the material misstatements or omissions by the Defendants.

The Defendants contend that Gentiva had no duty to accuse itself of wrongdoing, and thus the failure to disclose here is not sufficient under the PSLRA. See In re Van der Moolen, 405 F.Supp.2d 388, 400 (S.D.N.Y. 2005) (" Defendants argue that the second category of alleged misstatements--i.e., that VDM Holding's financial statements failed to disclose that VDM Specialists' revenue had been generated, at least in part, by trading practices that violated NYSE rules--are non-actionable because federal securities laws do not require a company to accuse itself of wrongdoing." ). However, while " a defendant does not have a Rule 10b-5 duty to speculate about the risk of future investigation or litigation, if it puts the topic of the cause of its financial success at issue, then it is 'obligated to disclose information concerning the source of its success, since ...

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