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Norfolk County Retirement System v. Community Health Systems, Inc.

United States Court of Appeals, Sixth Circuit

December 13, 2017

Norfolk County Retirement System, et al., Plaintiffs,
v.
Community Health Systems, Inc.; Wayne T. Smith; W. Larry Cash, Defendants-Appellees. New York City Employees' Retirement System; Teachers' Retirement System of the City of New York; New York City Fire Department Pension Fund; New York City Police Pension Fund; Teachers' Retirement System of the City of New York Variable Annuity Program, Plaintiffs-Appellants,

          Argued: May 3, 2017

         Appeal from the United States District Court for the Middle District of Tennessee at Nashville. Nos. 3:11-cv-00433; 3:11-cv-00451; 3:11-cv-00601-Kevin H. Sharp, District Judge.

         ARGUED:

          Barbara J. Hart, LOWEY DANNENBERG COHEN & HART, P.C., White Plains, New York, for Appellants.

          Gary A. Orseck, ROBBINS, RUSSELL, ENGLERT, ORSECK, UNTEREINER & SAUBER LLP, Washington, D.C., for Appellees.

         ON BRIEF:

          Barbara J. Hart, David C. Harrison, Scott V. Papp, LOWEY DANNENBERG COHEN & HART, P.C., White Plains, New York, W. Michael Hamilton, PROVOST UMPHREY, LLP, Nashville, Tennessee, for Appellants.

          Gary A. Orseck, Michael L. Waldman, Matthew M. Madden, Daniel N. Lerman, ROBBINS, RUSSELL, ENGLERT, ORSECK, UNTEREINER & SAUBER LLP, Washington, D.C., Steven A. Riley, Milton S. McGee III, RILEY, WARNOCK & JACOBSON, PLC, Nashville, Tennessee, for Appellees.

          Before: COLE, Chief Judge; SUTTON and KETHLEDGE, Circuit Judges.

          OPINION

          KETHLEDGE, CIRCUIT JUDGE.

         The value of shares in Community Health Systems fell immediately after a competitor, Tenet Healthcare Corporation, publicly disclosed expert analyses and other information suggesting that Community's profits depended largely on Medicare fraud. The plaintiffs here, who owned Community shares at the time, allege that the disclosure caused the fall. The district court found that theory implausible because the disclosure came in the form of a complaint, which the market would regard as comprising mere allegations rather than truth. But whatever the merits of that proposal as a general rule, the Tenet complaint at least plausibly presents an exception to it. Moreover, according to the plaintiffs, the market received similar disclosures from another source: namely Community itself, whose senior executives-after trying for several months to lull the market with still more misrepresentations-eventually corroborated much of what Tenet had alleged. And when they did, Community's shares fell once again. The plaintiffs in this case have therefore plausibly alleged that the value of Community's shares fell because of a series of revelations about practices that Community had previously concealed. For that reason and others, we reverse.

         I.

         A.

         This case comes to us at the pleadings stage, so we take the allegations in the amended complaint as true. See Kaminski v. Coulter, 865 F.3d 339, 344 (6th Cir. 2017).

         Community runs the largest for-profit hospital system in the country. In 2011 alone, its 131 hospitals made $13.6 billion in revenue. That revenue depended in significant part on Medicare, which reimburses hospitals for treating patients covered by Medicare. Those reimbursements accounted for about 30% of the revenue made by Community's hospitals from 2006 to 2011.

         Medicare reimburses hospitals for inpatient and outpatient emergency services, both of which Community's hospitals offer. Inpatient services are reserved for patients who need more than 24 hours of constant care, so Medicare pays hospitals far more for those patients: in some cases nearly ten times more. But Medicare will reimburse hospitals only for services that are "reasonable and necessary." 42 U.S.C. § 1395y(a)(1)(A). Hospitals are therefore obliged not to classify patients as inpatients ...


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