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Teamsters Local 456 Pension Fund v. Universal Health Services

United States District Court, E.D. Pennsylvania

August 19, 2019

TEAMSTERS LOCAL 456 PENSION FUND, et al., Plaintiffs,
v.
UNIVERSAL HEALTH SERVICES, et al., Defendants.

          OPINION

          SLOMSKY, J.

         TABLE OF CONTENTS

         I. INTRODUCTION ................................................................................................................... 4

         II. BACKGROUND ..................................................................................................................... 6

         A. Events Leading Up to March 2, 2015, the Start of the Class Period ................................... 10

         1. Qui Tam Lawsuits and State Investigations .......................................................... 10

         2. Letter from Change to Win (“CtW”) About Use of Suicidal Ideation Code by Universal Health Services (“UHS”) Behavioral Health Facilities ................... 13

         3. Coordinated Federal Investigation of UHS Behavioral Health Facilities ............. 16

         B. Defendants' Statements from March 2, 2015 to December 7, 2016 ................................... 19

         C. Buzzfeed News Publishes First UHS Article on December 7, 2016 with Several Claims of Improper Conduct ........................................................................................................... 23

         1. Alleged Improper Labelling of Patients as Suicidal to Justify Admissions .............. 24

         2. Alleged Improper Lengthening of Patient Stays ....................................................... 26

         3. Alleged Understaffing at UHS Behavioral Health Facilities ..................................... 28

         D. Defendants' Statements and Representations from December 7, 2016 to July 25, 2017.... 29

         E. Ten Anonymous UHS Employees Allege Misconduct ....................................................... 38

         F. Lead Plaintiffs File the Amended Complaint in Federal Court .......................................... 41

         III. STANDARD OF REVIEW ................................................................................................... 44

         IV. ANALYSIS ............................................................................................................................ 47

         A. Lead Plaintiffs Have Failed to State a Claim Under Section 10(b) of the Securities and Exchange Act of 1934 and Rule 10b-5 ......................................................................... 48

         1. Alleged Material Misrepresentations and Omissions ....................................... 49

         a. Pre-Article Statements .................................................................................. 52

         i. Statements About the Behavioral Health Division's Performance ......... 54

         ii. Chief Financial Officer Filton's Statement About the Behavioral Health Division's 2016 Second Quarter Results .................................... 62

         b. Post-Article Statements ................................................................................. 65

         i. Statements Denying the Article's Conclusions ........................................ 66

         ii. Statements Denying the Effect of Buzzfeed I and the Federal Investigation ............................................................................................. 68

         iii. Statements Regarding Updates in the Federal Investigation .................... 71

         2. Scienter Has Not Been Sufficiently Pled .......................................................... 73

         a. Alan B. Miller, the Chairman of the Board and Chief Executive Officer, and Steve G. Filton, the Chief Financial Officer………………………...75

         b. Defendant UHS…………………………………………………………..88

         B. Count II - Section 20(a) of the Securities and Exchange Act of 1934 ................................ 92

         V. CONCLUSION ..................................................................................................................... 93

         I. INTRODUCTION

         Defendant Universal Health Services (“UHS”) is the largest provider of behavioral health services in the United States. On December 7, 2016, after a year-long investigation, Buzzfeed News (“Buzzfeed”) published an article that alleged that UHS behavioral health facilities were committing insurance fraud by (1) admitting healthy patients not in need of inpatient treatment to UHS behavioral health facilities by falsely stating that they were suicidal; (2) improperly lengthening patients' stays in UHS behavioral health facilities; and (3) chronically understaffing those facilities to maximize profits. Prior to the publication of the article, UHS reported that its Behavioral Health Division was in strong financial shape and that demand for UHS behavioral health services was so high that UHS-owned facilities routinely turned away patients that met clinical admissions criteria. In the wake of the article, UHS stock plummeted 12% in a single trading day, wiping out $1.5 billion in market capitalization. The company immediately denied the allegations of widespread billing misconduct, and to date, UHS maintains that it did not engage in the illicit conduct profiled in the Buzzfeed article. (See Doc. No. 30.)

         On December 23, 2016, Plaintiff David Heed, a UHS shareholder, filed the present federal securities class action in the United States District Court for the Central District of California. (See Doc. No. 1.) Named as Defendants are UHS, Alan B. Miller, the Chairman and Chief Executive Officer of UHS, and Steve G. Filton, the Chief Financial Officer of UHS (collectively, “Defendants”). The lawsuit alleges that Defendants knowingly or recklessly made materially false and misleading statements about UHS practices and procedures and failed to disclose that the Behavioral Health Division relied on revenue from illegal and unethical conduct.[1] On April 24, 2017, Teamsters Local 456 Pension Fund[2] and Teamsters Local 456 Annuity Fund[3] (“Lead Plaintiffs”) were appointed Co-Lead Plaintiffs to represent the interests of UHS shareholders in the suit.

         On June 20, 2017, the district court in California granted Defendants' unopposed Motion to Transfer the case to the Eastern District of Pennsylvania, at which point the case was assigned to former Chief Judge Lawrence F. Stengel. On September 29, 2017, Lead Plaintiffs filed the Amended Complaint on behalf of all investors who purchased or otherwise acquired UHS publicly-traded common stock between March 2, 2015 and July 25, 2017 (the “Class Period”). (Doc. No. 30.) In Count I of the Amended Complaint, Lead Plaintiffs allege that Defendants knowingly disseminated false or misleading statements about UHS's finances, policies, and procedures in violation of Section 10(b) of the Securities Exchange Act of 1934 (“Exchange Act”) and Rule 10b-5, which was promulgated under Section 10(b). (Id. ¶¶ 296-304.) In Count II, Lead Plaintiffs allege that the conduct of Defendants Miller and Filton, individuals in positions of control and authority over the company, violated Section 20(a) of the Exchange Act. (Id. ¶¶ 305-311.)

         On December 6, 2017, Defendants filed the present Motion to Dismiss the Amended Complaint. (Doc. No. 34.) On February 7, 2018, Lead Plaintiffs filed a Response in Opposition (Doc. No. 35), and on March 26, 2018, Defendants filed a Reply in support of the Motion (Doc. No. 36). Then, on July 12, 2018, the case was reassigned from Judge Stengel to Judge Robert F. Kelly. (Doc. No. 37.) Two days later, the case was reassigned to this Court. (Doc. No. 38.) On September 12, 2018, the Court held a hearing on Defendants' Motion to Dismiss. On October 5, 2018, in accordance with the direction of the Court at the hearing, the parties filed supplemental memoranda on matters raised during the Motion to Dismiss hearing.[4] (Doc. Nos. 50, 51.)

         The Motion to Dismiss is now ripe for review. For reasons discussed below, Defendants' Motion to Dismiss (Doc. No. 34) will be granted.

         II. BACKGROUND[5]

         Defendant Universal Health Services (“UHS”) was founded by Defendant Alan B. Miller in 1979. It is a publicly traded company[6] that owns and operates hospitals throughout the United States, the United Kingdom, Puerto Rico, and the U.S. Virgin Islands. The company, which is headquartered in King of Prussia, Pennsylvania, is split into two divisions: (1) the Acute Care Division, which operates general hospitals, and (2) the Behavioral Health Division, [7] which operates inpatient and outpatient psychiatric facilities. (Doc. No. 34-2 at 11.)

         The Behavioral Health Division has over 200 behavioral health facilities across the country, making UHS the largest provider of behavioral health services in the United States. (Doc. No. 30 ¶ 4.) For context, in 2016, UHS behavioral health facilities admitted half-a-million patients, which resulted in six million patient-days and generated $4.43 billion in net revenue. (Id. ¶ 24.) One-third of that revenue was derived from government health insurance payers, such as Medicare, TRICARE, which is a military insurer, and Medicaid; two-thirds of the revenue came from commercial health insurance payers.[8] (Id.)

         According to Defendants' filings with the United States Securities and Exchange Commission (“SEC”), each UHS behavioral health facility operates under its own leadership team, including a chief executive officer, chief financial officer, and compliance staff. (Doc. No. 34-2 at 11.) Each facility also has its own governance board, which includes members of the facility's medical and professional staff, and is responsible for the facility's day-to-day medical, clinical, and ethical practices. (Id.)

         Also named as Defendants are Alan B. Miller and Steve G. Filton.[9] Mr. Miller has served as Chairman of the Board and the Chief Executive Officer of UHS since he founded the company in 1979. (Id. ¶ 26.) According to UHS's April 6, 2017 Schedule 14A filing, [10] “the family of Alan B. Miller holds more than 95% of the shares of the Class A and C Common Stock, which is entitled to elect 80% of the entire Board of Directors and constitutes more than 50% of our aggregate voting power.” (Id.) In the Amended Complaint, Lead Plaintiffs cite to a 2017 Axios article that states that Mr. Miller, who made over $51.3 million in 2016, is the highest-paid CEO in the hospital industry.[11] (Id. ¶ 30.)

         Mr. Filton has served as Executive Vice President and Chief Financial Officer of UHS since 2003. (Id. ¶ 32.) UHS's April 2017 Schedule 14A filing notes that Mr. Filton “beneficially owned over $50 million of the Company's Class B Common Stock during the Class Period.” (Id.) In 2016, he received $2, 533, 102 in compensation. (Id. ¶ 33.)

         Lead Plaintiffs allege that during the Class Period, Mr. Miller and Mr. Filton reviewed, approved, and signed UHS's quarterly and annual filings with the SEC, which contained materially false and misleading statements and omissions. Additionally, Lead Plaintiffs claim that Mr. Miller and Mr. Filton made materially false and misleading statements and omissions at health care conferences and during investor earnings calls during the Class Period. (Id. ¶¶ 31, 35.)

         More specifically, in the Amended Complaint, Lead Plaintiffs allege that “UHS mental health facilities across the country manipulated and fabricated patient intake assessments- including by falsely coding them as ‘suicidal'-in order to admit thousands of patients for psychiatric care that was not medically necessary, ” and that UHS facilities would then “keep patients locked up, regardless of medical necessity, for as many days as insurance would cover.” (Id. ¶ 3.) Lead Plaintiffs further allege that Defendants knew about and approved of these practices, but made materially false and misleading statements to the public about UHS's financial health and patient intake procedures, in violation of federal securities laws.[12] (See id. ¶¶ 296-311.) Lead Plaintiffs represent investors who purchased or otherwise acquired UHS common stock on the New York Stock Exchange between March 2, 2015 and July 25, 2017, the Class Period. (Id. ¶¶ 1-2.)

         To address these allegations, the Court will proceed chronologically. First, the Court will address events that occurred before the Class Period, which, as noted above, began on March 2, 2015. Then, the Court will set forth the Defendants' allegedly false and misleading statements made between March 2, 2015, the start of the Class Period, and December 7, 2016, the day the first Buzzfeed article (“Buzzfeed I”) was published. Finally, the Court will discuss the allegations raised in Buzzfeed I, the events that transpired in its wake, and the statements made by Defendants from December 7, 2016 through July 25, 2017, the close of the Class Period.

         A. Events Leading Up to March 2, 2015, the Start of the Class Period

         Lead Plaintiffs allege that events leading up to the Class Period, which began on March 2, 2015, put UHS on notice that UHS behavioral health facilities across the country utilized fraudulent or unethical practices to maximize insurance reimbursements. Lead Plaintiffs separate these events into three categories: (1) lawsuits filed against UHS by patients and former employees, and state investigations; (2) a letter from Change to Win (“CtW”), a prominent investment group; and (3) a coordinated federal civil and criminal investigation of UHS behavioral health facilities across the country.

         1. Qui Tam Lawsuits and State Investigations

         Before March 2, 2015, at least six qui tam lawsuits[13] were filed against UHS by former employees of UHS behavioral health facilities. In 2010, Dr. Steven Klotz, a former psychiatrist at the Roxbury Treatment Facility in Pennsylvania, [14] filed a qui tam lawsuit against UHS, alleging that UHS “falsely and fraudulently coded patients as suicidal, when the chart did not reflect a likelihood of patient suicide, ” in order to increase occupancy levels at UHS facilities. (Id. ¶ 38.) Dr. Klotz further alleged that UHS trained employees to prioritize insurance reimbursement over patient well-being. (Id.)

         In 2011, another qui tam lawsuit was filed, this time in relation to Arbour Health System, a UHS behavioral health facility in Massachusetts. That suit alleged that “UHS failed to comply with state regulations requiring [a] sufficient [number of] qualified psychiatric staff, that the facility billed Medicare and Medicaid for services that were not rendered, that the facility misrepresented the credentials of its psychiatric staff, and that these practices resulted in the death of a patient.” (Id. ¶ 41.)

         In 2012, UHS settled two separate qui tam lawsuits that had been filed by former employees of the Marion Youth Center in Virginia. In the first suit, which was filed in 2007, a group of therapists who once worked at the facility alleged that UHS promoted unlawful practices to increase insurance payouts, including deliberately understaffing the facility, “provoking (‘escalating') residents so that the resident's reaction would serve to justify a longer length of stay in order to increase the Medicaid reimbursement for that resident, ” and “delaying the discharge of residents ready for discharge in order to increase Medicaid reimbursement.” (Id. ¶ 42.) Federal and state authorities joined the case before it was settled for $6.85 million. (Id.) In the second suit, which was filed in 2010, Barbara Jones, the Director of Education at Marion Youth Center, alleged that the UHS management team told employees that the facility's numbers needed to be “kept up.” To accomplish that goal, employees were instructed to delay discharge of patients and to admit patients who did not meet the clinical criteria for admission, “simply to get Medicaid monies.” (Id. ¶ 43.)

         Another qui tam lawsuit was filed in 2012 by former nurses at Verdugo Hills Hospital, a UHS behavioral health facility in California. The nurses claimed that they were instructed to admit all new patients, regardless of medical need. To effectuate that instruction, nurses were taught to “negative chart.” That is, they were instructed to “make notes in patients' charts using exaggerated buzz words like ‘agitated,' ‘irritated,' ‘aggressive,' ‘resisting,' ‘uncooperative,' etc., '” because “doing this increases the amount of money the government would pay for the patient's care.” (Id. ¶ 44.) Finally, in 2013, two therapists who formerly worked at the National Deaf Academy in Florida filed a lawsuit against UHS, alleging that they were instructed to falsify reports and patient records to unnecessarily admit or detain patients so that UHS could bill insurers. (Id. ¶ 45.) Plagued with reports of abuse, the facility closed its doors in 2016. (Id.)

         Apart from the qui tam lawsuits, UHS faced pressure from state authorities. In 2013, the Illinois Department of Children and Family Services (“DCFS”) and the Department of Psychiatry at the University of Illinois opened an investigation into Hartgrove Hospital, a UHS behavioral health facility in Chicago. (Id. ¶ 39.) After randomly observing staff-patient interactions over an eight-month period and reviewing 12, 000 pages of the facility's internal documents, the investigators concluded that Hartgrove Hospital maintained a policy of not only overadmitting patients, but also understaffing the facility in order to increase revenue. (Id.) In a report, the investigators stated that UHS had been overfilling Hartgrove Hospital since 2007:

Over the course of several years[, ] hundreds of mentally ill children-DCFS wards and non-wards alike-slept on rollaway cots in an overcrowded and frequently chaotic psychiatric hospital so that UHS corporate officials could take advantage of the opportunity to maximize profits.

(Id.) Furthermore, the report emphasized that the issues observed at Hartgrove were not isolated. Rather, “[d]uring the course of the review, the [] team learned about troubling reports suggesting a pattern of quality of care issues, harm to patients or major healthcare fraud charges involving UHS-operated facilities in a dozen other states beyond Illinois: Virginia, Tennessee, Pennsylvania, North Carolina, California, South Carolina, Massachusetts, Connecticut, Texas, Nevada, Arkansas and Missouri.” (Id. ¶ 40.)

         2. Letter from Change to Win (“CtW”) About Use of Suicidal Ideation Code by Universal Health Services (“UHS”) Behavioral Health Facilities

         On April 8, 2014, Change to Win Investment Group (“CtW”), a prominent coalition of unions that works to hold public companies accountable for corporate fraud, sent a letter to the UHS Board of Directors, raising questions about the admissions and billing practices of UHS behavioral health facilities. The letter was signed by Dieter Waizeneggar, CtW's Executive Director. In the letter, CtW informed UHS that an independent review of Medicare data revealed that “UHS free-standing inpatient psychiatric facilities (“IPFs”) utilize the suicidal ideation code much more frequently than other free-standing IPFs.”[15] (Id. ¶¶ 47-48; Doc. No. 34-4 at 3.) Moreover, CtW noted that the data showed that behavioral health facilities acquired by UHS dramatically increased their use of the suicidal ideation code after they were purchased by UHS. (Doc. No. 34-4 at 3-4.) CtW also advised UHS that a substantial portion of UHS behavioral health facilities ranked above the 80th percentile nationally for suicidal ideation diagnoses as compared to similar behavioral health facilities-a level identified as “indicating a significant outlier at risk of billing errors.” (Id.) On that subject, the letter stated the following:

. . . [T]his pattern of extremely high suicidal ideation rates is particularly troubling because it seems consistent with allegations made by a former UHS doctor in 2010. In a qui tam lawsuit, Dr. Steven G. Klotz, formerly of the Roxbury Treatment Center (a UHS facility), alleged that UHS “falsely and fraudulently coded patients as suicidal, when the chart did not reflect a likelihood of patient suicide.” Dr. Klotz further alleged the UHS's internal audit employees advised caregivers on how to maximize reimbursement. While the DoJ[16] declined to intervene in Dr. Klotz's suit . . . we are concerned that the Medicare data seems to point to an unusually high level of suicidal ideation coding at UHS facilities . . . .

(Id. at 4.)

         After setting forth these perceived red flags, CtW lamented that “UHS's board has not disclosed any efforts by itself or the Audit Committee to determine if UHS's unusually high level of suicidal ideation diagnoses, comorbidity rates, or other billing practices, may be generating excessive regulatory and compliance risks for the company and its long-term shareholders.” (Id. at 5.) In light of these issues, CtW urged UHS to create a separate compliance committee “comprised of independent directors with direct medical and regulatory experience to oversee legal and regulatory compliance.” (Id. at 7.) Without better corporate governance, CtW worried that UHS shareholders were exposed to significant financial risk. (Id. at 2.)

         On April 22, 2014, John Herrell, the Chairman of the UHS Audit Committee responded to CtW's concerns in a letter. (Doc. No. 34-5.) To start, Mr. Herrell, emphasized that UHS behavioral health facilities “provid[e] the highest quality of care and treatment” to patients:

First and foremost, I would like to address any misplaced quality of care concerns you may have as well as illustrate the extensive compliance mechanisms and practices in place at UHS to ensure our facilities are providing the highest quality of care and treatment to our patients under the direction of the Board of Directors. In 2013, The Joint Commission awarded 48 UHS facilities Top Performer Status for Quality and Patient Safety. 44 of the 48 UHS facilities that received this high quality distinction were behavioral health facilities. This equates to 40% of UHS's eligible behavioral health facilities achieving this elite quality distinction from The Joint Commission. In fact, 27% of all the behavioral health facilities in the nation which received this designation were UHS facilities. Such a measure of success does not come without a full commitment of resources of the entire company, including its Board of Directors, to providing the highest quality healthcare. UHS's facilities have also received a number of other recognitions, awards and designations for its high quality services too numerous to mention here.

(Id. at 2) (footnotes omitted). Mr. Herrell also addressed the qui tam lawsuits that were referenced in CtW's letter:

Many of the contentions in the prior letters were based on lawsuits filed against the company or its subsidiaries. The lawsuit in Boston mentioned in the November 8thletter from your local 1199[17] and covered in the Boston Globe articles last year has since been dismissed by the court. In addition, both the Massachusetts Attorney General's Office and the U.S. Department of Justice had previously declined to intervene. As mentioned in the prior letters, the qui tam case filed related to the Roxbury Treatment Center was also dismissed following the government's investigation of the allegations and decision not to intervene. Such actions and dispositions of those cases should point to their lack of basis. We have only recently become aware of the allegations in the qui tam action at Roxbury. I have been informed that the company is conducting its own internal review. The preliminary investigation to date confirms that the allegations are without merit. Further, settlements of lawsuits do not constitute admissions of liability in any circumstance but instead reflect economic realities of the costs and risks of litigation. Any product company is often faced with the prospect of settling cases it believes it could defend due to the extremely high cost associated with litigation and the always unpredictable nature of our judicial system.

(Id. at 3.) Mr. Herrell admitted that “a small minority of [UHS] facilities may encounter sporadic regulatory compliance issues, ” but assured CtW that “those matters are always remedied.” (Id.)

         Next, Mr. Herrell turned to CtW's allegations that UHS behavioral health facilities over- utilized the billing code for suicidal ideation. Notwithstanding CtW's statistical analysis, Mr. Herrell strongly defended UHS's billing practices, noting that all UHS coding staff “are required to be certified as a Registered Health Information Administrator, Registered Health Information Technologist or Certified Coding Specialist.” (Id.) Additionally, Mr. Herrell informed CtW that UHS's billing and coding practices are frequently audited by outside, independent analysts:

In addition, each of these facilities is subject to regular internal and external coding audits. The purpose of these audits is to ensure all coding and billing at all UHS facilities is accurate and in compliance with all billing requirements for federal and state healthcare programs. On a quarterly basis, an outside, independent coding consultant group reviews sample records at all UHS facilities to ensure compliance with acceptable and applicable coding guidelines as stipulated by CMS.[18]
***
As mentioned above, UHS engages an independent coding review company to assess our coding for accuracy. According to information provided to me by the company, not once have our independent coding reviewers referenced improper assignment of suicidal ideation as a coding designation. In addition, UHS behavioral health facilities have been subject to a number of RAC[19] audits over the past few years (like all of our competitors). Despite the RAC's pecuniary interest in obtaining recoupment from providers, not one UHS facility has ever been cited by the RACs nor had any recoupment been assessed based upon coding for suicidal ideation. This fact alone should refute any contentions you have regarding the propriety of our coding on this matter.

(Id.) (footnotes added). In conclusion, Mr. Herrell stated that the company strongly “disputes the basis of [CtW's] premise that coding of suicidal ideation by UHS facility as compared to [its] competitors is indicative of any impropriety and . . . refute[s] that contention.” (Id. at 4.)

         3. Coordinated Federal Investigation of UHS Behavioral Health Facilities

         At some point during either 2012 or early 2013, the federal government opened a civil investigation into several UHS behavioral health facilities. (Id. ¶ 53.) In the company's 2012 Form 10-K filing, [20] which was filed on February 28, 2013, UHS disclosed that the Office of Inspector General for the United States Department of Health and Human Services (“OIG”) had recently served subpoenas on twenty-five (25) UHS behavioral health facilities, requesting documents dating from January 2008 to present.[21] (Id.) At that time, several of the subpoenaed facilities were already the subject of state investigations and an investigation by the United States Department of Justice (“DOJ”) Civil Division. (Id.)

         In the company's 2013 Form 10-K filing, which was filed on February 27, 2014, UHS disclosed that it had been advised by DOJ's Criminal Frauds Section[22] “that they ha[d] received a referral from the DOJ Civil Division and ha[d] opened an investigation” into two UHS behavioral health facilities. UHS also disclosed that the criminal investigation expanded to include a third behavioral health facility in February 2014. However, the company stated that “[a]t present, we are uncertain as to the focus, scope or extent of the investigations, liability of the facilities and/or potential financial exposure, if any, in connection with these matters.”[23]

         In UHS's 2014 Form 10-K filing, which was filed on February 26, 2015, the company disclosed that the government had suspended Medicaid payments to River Point Behavioral Health in Florida, one of the facilities under criminal investigation. (Id. ¶ 54.) That filing also explained the following:

The DOJ has advised us that the civil aspect of the coordinated investigation in connection with the behavioral health facilities named above is a False Claim Act investigation focused on billings submitted to government payers in relations to services provided at those facilities. At present, we are uncertain as to potential liability and/or financial exposure of the Company and/or named facilities, if any, in connection with these matters.[24]

(Id.) (footnote added).

         On March 31, 2015, about one month into the Class Period, UHS filed a Form 8-K, [25] which disclosed that “the investigation conducted by the [DOJ] Criminal Frauds Section ha[d] been expanded to include UHS as a corporate entity arising out of the coordinated investigation of the facilities described above and, in particular, Hartgrove Hospital.”[26] (Id. ¶ 55.) Further, the company disclosed that at that point, the coordinated federal investigation included at least twenty-five (25) UHS behavioral health facilities. (Id.) The March 31, 2015 Form 8-K reiterated that the False Claims Act investigation focused on billings submitted to government payers in relation to services provided at certain UHS behavioral health facilities. These federal investigations remained open until very recently.

         On July 26, 2019, Defendants submitted a Notice Regarding the Government's Investigation, which informed the Court that the DOJ Criminal Frauds Section had closed its investigation into the company and its behavioral health facilities. (Doc. No. 56.) Defendants also represented that it had reached “an agreement in principle to resolve the related civil investigation led by the Department of Justice's Civil Division for $127 million.” (Id.) This information was publicly disclosed in the company's Form 8-K, filed July 26, 2019.[27]

         B. Defendants' Statements from March 2, 2015 to December 7, 2016[28]

         Despite disclosing the coordinated federal investigation, UHS publicly reported strong financial results from March 2, 2015, the start of the Class Period, through December 7, 2016, the day the first Buzzfeed article was published. In fact, the Behavioral Health Division, which was the subject of the federal investigation, accounted for 70% of the company's earnings during that time. (Doc. No. 30 ¶ 4.) At a May 6, 2015 investor conference, Mr. Filton, the company's CFO, stated the following:

[The U.S. Behavioral business] has been, as you know and anyone who follows the company or industry knows, a very steadily reliably performing business for a number of years now, including during a very difficult period through the recession when healthcare services in general I think were under great pressure both from a volume and a payer mix perspective. The behavioral business, and our behavioral business in particular, really tended to be largely immune from those two very significant headwinds that troubled a lot of others in the healthcare services industry.

(Id. ¶ 60) (emphasis omitted).

         Defendants partially attributed the company's stability and growth to a ten-year track record of maintaining occupancy rates in its inpatient psychiatric facilities at or above 75%, which Defendants claimed was the “ideal” occupancy level for maximum capacity and maximum profitability. (Id. ¶ 61.) At a March 11, 2015 investor conference, Mr. Miller, the company's Chairman and CEO, stated that the 75% occupancy rate was a key metric that demonstrated that the Behavioral Health Division was stable and profitable:

[T]his is obviously one of the key statistics, the occupancy rates are . . . at 75%. So with high occupancy, continued growth-and you'll see some of the slides later where we have been building additional beds every place we can and we have a lot of demand within our own network. 75% is pretty high and with low bad debt, high occupancy, great need for mental health services in the future, it's quite a solid business and we have been pretty much a pioneer in it.

(Id. ¶ 62) (emphasis omitted). In short, Mr. Miller told investors that UHS was a desirable investment in part because its behavioral health facilities operated at a profitable occupancy level.

         Defendants also reported that the company was successful because of the average length of stay of patients at UHS inpatient behavioral health facilities. In 2013, before the start of the Class Period, Mr. Filton explained the significance of the average length of stay metric, stating that “95%-plus of our reimbursement in the behavioral space is on a per-diem basis, that is, payers pay us for the number of days that a patient is in the facility. And obviously if they spend less days in a facility, then we're going to be paid less for a single admission.” (Id. ¶ 68) (emphasis omitted).

         At a May 13, 2015 conference, Mr. Filton told investors that while the average length of stay metric had “experienced pressure” in prior years, they expected the metric to level out. And when that happened, Mr. Filton stated that they expected the Behavioral Health Division's revenue to grow:

[W]hatever point that length of stay dynamic levels off, that's a pretty significant pickup just in terms of levelling off, because if you look at it, our Behavioral admission have been growing on average somewhere in the 6% to 7% range, and our Behavioral patient days have been growing only 1% to 2%, and the gap between those two metrics is the effective compression of the amount of time that patients spend in the hospital once they're admitted. So if that length of stay levels off then in theory our revenue should pick up by 300 basis points to 400 basis points just from the continued growth in our admissions. So that's a fairly significant tailwind that at least as we think about it is more just a function of predicting it's [sic] timing and it's more of an - when something happens as opposed to if.

(Id. ¶ 69) (emphasis omitted). One month after this statement was made, the average length of stay metric levelled out and remained stable for the next eighteen months. As a result, the Behavioral Health Division's revenue increased. (Id.)

         UHS further broke down patient admissions by tracking and reporting the following metrics: (1) the number of patients admitted to UHS behavioral health facilities; (2) net revenue per patient admission; (3) the aggregate number of days patients remained at a facility; and (4) net revenue per patient day. (Id. ¶ 73.) Defendants publicly reported steady growth in each of these metrics during nearly every quarter of the Class Period. Consequently, the Behavioral Health Division's net revenue increased nearly every quarter during this period. (Id. ¶ 74.)

         Throughout the Class Period, Defendants publicly reported that these metrics experienced growth or maintained desirable levels due to significant demand for UHS behavioral health services. In fact, UHS told investors that demand was so high that the company struggled to keep up with the current patient flow and had ceased creating new marketing campaigns to drum up new patients. (Id. ¶ 65.) At a May 18, 2015 investor conference, Mr. Filton told investors that the demand was so high that facilities routinely turned away potential patients who met clinical admissions criteria-that is, individuals who (1) are a danger to themselves, or suicidal; (2) are a danger to others; or (3) are gravely disabled. (Id. ¶¶ 64-65, 177.) He explained as follows:

I think what it demonstrates is that we're filling the beds that we're adding pretty much at the same pace as we're adding them . . . And despite the fact that we're adding beds, despite the fact that our capacity and our occupancy numbers are high, we still, by our own measures, are turning away a measurable number of patients. And these are patients who meet clinical admission criteria . . . They have appropriate insurance and we simply, in a particular day, et cetera, that they present for admission, don't have space for them in a facility or in the facility that they presented to. So we think the demand is still there.

(Id. ¶ 65) (emphasis omitted). Moreover, at a May 6, 2015 investor conference, Mr. Filton told investors that the demand for beds should remain robust for several years:

Honestly, if we could snap our fingers or I could snap my fingers, we'd probably add another couple of thousand beds tomorrow. We think there is that much demand . . . [A]ll the trends in demand that continue to be very robust, lead me to believe that this trajectory of being able to add beds at this relatively healthy clip should continue for certainly the foreseeable future. And by that, I mean maybe the next three years or five years.

(Id. ¶ 176.)

         As noted above, on March 31, 2015, about one month into the Class Period, UHS reported that the federal investigations expanded to include the UHS corporate entity and 25 UHS behavioral health facilities. (Id. ¶ 55.) At the May 13, 2015 investor conference, one analyst asked Mr. Filton whether the federal investigations focused on the company's length of stay metric and if so, whether the company had adjusted its practices. In response, Mr. Filton stated that “we don't know exactly what the government's full concerns are, ” and expressed the following:

[W]e've changed our practices very little[.] I think we're [sic] certainly are kind of refocused on them because [of] the investigation[, ] just making sure that patients meet criteria et cetera, but at the end of the day, we still believe that the length-of-stay compression is largely a payer driven initiative, not something we're doing to ourselves.

(Id. ¶ 174) (emphasis omitted).

         Throughout the rest of 2015 and 2016, UHS continued to report high demand for its behavioral health services, repeatedly affirming that UHS facilities routinely turned away patients who met clinical criteria for admission. (Id. ¶¶ 180-227.) At a March 7, 2016 conference, Mr. Filton told investors and analysts the following information:

The problem is and what we realized when we were operating at 85% occupancy is that we were turning away a large number of patients because of a lack of beds. So, we had patients who met the clinical requirements for admission, we were adequately insured, but we were turning them away because we didn't have an available bed for them.

(Id. ¶ 199.) Defendants continued to make similar statements at investor conferences in the following months.

         On July 26, 2016, the company reported a 0.3% decline in adjusted patient admissions for the second quarter of 2016. (Id. ¶ 209.) During the company's July 27, 2016 investor earnings call, Mr. Filton attributed the decline to a shortage of qualified psychiatric clinicians in certain regions of the country. (Id. ¶ 213.) In the Amended Complaint, Lead Plaintiffs challenge that rationale, alleging that “[t]he Behavioral Division's inpatient admissions were under pressure not because of a so-called national staffing shortage, but because of the escalating federal criminal investigation of the Company and increasing payer scrutiny due to Defendants' widespread illicit scheme.” (Id. ¶ 217.) Further, Lead Plaintiffs claim that UHS's reported performance metrics during the Class Period “were not attributable to consistent demand for the Behavioral Health Division's psychiatric services, as Defendant's repeatedly claimed to investors.” (Id. ¶ 75.) Instead, Lead Plaintiffs allege that the numbers were “artificially inflated by Defendants' illicit admissions practices and chronic understaffing of facilities nationwide, all in order to maximize their returns by any means necessary.” (Id.)

         C. Buzzfeed News Publishes First UHS Article on December 7, 2016 with Several Claims of Improper Conduct

         On December 7, 2016, Buzzfeed News[29] (“Buzzfeed”) published a lengthy article (“Buzzfeed I”)[30] that raised allegations of unlawful and unethical practices at UHS behavioral health facilities across the country.[31] (Id. ¶ 76.) The article, entitled Intake: Locked on the Psych Ward, was the result of a year-long investigation, during which Buzzfeed reporters interviewed 175 current and former UHS employees, including 18 UHS executives who managed inpatient behavioral health facilities. (Id.) Buzzfeed also interviewed more than 120 patients, government investigators, and health care experts, and reviewed a cache of internal UHS documents. (Id.) The article includes the anecdotal accounts of five former UHS patients. The improper conduct alleged in Buzzfeed I falls into three categories: (1) UHS's alleged practice of manipulating or falsifying patient intake statements to label patients as suicidal in order to justify admissions; (2) UHS's alleged practice of improperly lengthening patient stays to maximize insurance reimbursements; and (3) alleged UHS's practice of understaffing facilities to maximize revenue.

         1. Alleged Improper Labelling of Patients as Suicidal to Justify Admissions

         Buzzfeed I states that UHS behavioral health facilities routinely exaggerated or manipulated patient symptoms to make patients appear suicidal in order to justify admitting them for inpatient care. Once deemed suicidal, patients would be “locked in” and not permitted to leave the UHS facility. Former and current UHS employees told Buzzfeed that they were trained to “lock patients in.” A former employee of Highlands Behavioral, a UHS behavioral health facility located in Colorado, explained that “[i]f someone came in voluntarily, I wasn't allowed to let them out of the door.” (Id. ¶ 80.) Another former employee echoed this statement, telling Buzzfeed that “[t]he goal when you're on the phone with someone is to always get them into the facility within 24 hours, ” and then “once they stepped foot in, they are behind locked doors.” (Id.)

         As noted above, if a patient is considered suicidal, he meets the clinical criteria for admission to an inpatient behavioral health facility. According to Buzzfeed, UHS employees are trained to coax patients into stating that they are suicidal in order to justify admissions. (Id ¶ 64.) As evidence of this practice, Buzzfeed I recounted the story of a woman who felt that she was manipulated into telling a UHS behavioral health facility that she was suicidal. The Amended Complaint summarizes her experience as follows:

81. For example, the Buzzfeed report described the case of a young accountant named Allison who called Centennial Peaks Hospital in Colorado to inquire about outpatient treatment options. However, the facility told Allison that in order to learn about those options, she had to come into the facility for an assessment. While there, the counselor insisted upon completing a formal evaluation of Allison, pressing her about whether she had thought about suicide in the last 72 hours. When Allison responded that she had had some depressive thoughts earlier in the week that had since passed, “the counselor told Allison they were going to hold her against her will.” According to Buzzfeed, the counselor's evaluation stated: “Patient reported thoughts of suicidal ideation within the last 72 hours, thus she was admitted.”
82. This was a common practice across UHS facilities. According to Buzzfeed, UHS admissions workers learned how to “turn even passing statements that people made during assessments into something that sounded dangerous.” For example, according to a former clinician at Salt Lake Behavioral interviewed by Buzzfeed, “intake assessments might start with the straightforward question: ‘Have you ever thought about suicide?', ” followed by the far more leading question: “If you had a plan, how would you do it?” As Buzzfeed noted, “[a]lmost any answer could then be recorded as a plan.” Buzzfeed stated that this was what happened to Allison, as the counselor who evaluated her noted that “OD on pills” was “always her plan, ” but “Allison told [Buzzfeed] she mentioned pills during the assessment only to describe some of the brief thoughts she sometimes had- not anything close to an actual plan.” Buzzfeed reported that when Allison was discharged, “the doctor stated, ‘During the initial two days of hospitalization it was clear that [Allison] had no intent or plan of wanting to kill herself.”

(Id. ¶¶ 81, 82) (emphasis omitted). Another former employee explained why UHS instructs facilities to manipulate patients into stating that they are suicidal, telling Buzzfeed that “‘suicidal ideation could justify almost any admission,' and so it was ‘one of those go-to formulas' that would ensure ‘everything gets paid for.'” (Id. ¶ 83.)

         Buzzfeed I also echoed the claims made in the CtW letter, referenced above, stating that “UHS hospitals steadily increased the frequency with which they described patients as experiencing suicidal ideation, ” and “[b]y 2013, the code for suicidal ideation appeared in more than half of all of the Medicare claims submitted by UHS hospitals, ” at a rate “four and a half times the rate for all non-UHS psychiatric hospitals.” (Id. ¶ 84.) The billing manager of a hospital that had been acquired by UHS told Buzzfeed that after the acquisition, her UHS superiors instructed her to “build the severity level” of potential patients during intake interviews because “[i]f you're suicidal, a threat to yourself, you're more acute, and it would better support admission.” (Id.) Consistent with this instruction, Buzzfeed reported that in the first year after UHS purchased 100 psychiatric hospitals from Psychiatric Solutions in 2010, those facilities' “billing code for suicidal ideation in Medicare claims shot way up-more than sixfold overall.” (Id.)

         2. Alleged Improper Lengthening of Patient Stays

         Buzzfeed also reported that “[t]wo dozen current and former employees from 14 UHS facilities across the country told [Buzzfeed] that the rule was to keep patients until their insurance ran out in order to get the maximum payment.” (Id. ¶ 86.) Buzzfeed I alleged that this rule was neither sporadic nor isolated; rather, it was handed down from UHS executives. In fact, “[t]hree former heads of UHS hospitals claimed their divisional vice president, Sharon Worsham, repeated a mantra: ‘Don't leave days on the table.'” (Id.) Essentially, if a patient's insurance plan ...


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