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Oklahoma Law Enforcement Retirement System, Et Al. V. Adeptus Health Inc., Et Al. 17-CV-00449-Consolidated Class Action Complain

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Oklahoma Law Enforcement Retirement System, Et Al. V. Adeptus Health Inc., Et Al. 17-CV-00449-Consolidated Class Action Complain Case 4:17-cv-00449-ALM Document 108 Filed 11/21/17 Page 1 of 160 PageID #: 2034 UNITED STATES DISTRICT COURT EASTERN DISTRICT OF TEXAS SHERMAN DIVISION OKLAHOMA LAW ENFORCEMENT Case No. 4:17-CV-0449-ALM RETIREMENT SYSTEM, Individually And On Behalf Of All Others Similarly Situated, Judge Amos L. Mazzant, III Plaintiff, JURY TRIAL DEMANDED vs. ADEPTUS HEALTH INC., et al., Defendants. CONSOLIDATED CLASS ACTION COMPLAINT Case 4:17-cv-00449-ALM Document 108 Filed 11/21/17 Page 2 of 160 PageID #: 2035 TABLE OF CONTENTS Page PART ONE I. PRELIMINARY STATEMENT ......................................................................................... 2 II. THE CLAIMS ASSERTED IN THE COMPLAINT ........................................................ 10 III. JURISDICTION AND VENUE ........................................................................................ 11 IV. PARTIES ........................................................................................................................... 11 A. Plaintiffs ................................................................................................................. 11 B. Exchange Act Defendants ...................................................................................... 12 1. The Executive Defendants ........................................................................ 12 2. The Sterling Defendants ........................................................................... 13 C. Non-Party Adeptus ................................................................................................ 13 V. SUMMARY OF THE FRAUD ......................................................................................... 13 A. Background On Adeptus And The Freestanding Emergency Room Industry ....... 13 B. Sterling, Adeptus’s “Sponsor,” Takes The Company Public And Maintains Control Over It Throughout The Class Period ....................................................... 14 C. Defendants Deceive Investors About Adeptus’s Financial Health Through Misrepresentations Concerning The Acuity Of The Company’s Patients, The Economics And Performance Of Its JVs, And The State Of Its Internal Controls .................................................................................................................. 17 1. Defendants Assure Investors That Adeptus’s Revenue Is Driven By “High Acuity” Treatments That May Be Billed To Payers As Emergency Room Care ............................................................................. 17 2. Defendants Tout The JVs As A Profitable “Cornerstone” Of The Company’s Growth With Shared Working Capital And Operating Costs .......................................................................................................... 23 3. Defendants Conceal Serious Control Deficiencies In Adeptus’s Revenue Cycle Management Process ....................................................... 30 D. As Adeptus’s Stock Soars, Sterling And Other Insiders Sell Off Their Holdings, Reaping Hundreds Of Millions Of Dollars ........................................... 35 i Case 4:17-cv-00449-ALM Document 108 Filed 11/21/17 Page 3 of 160 PageID #: 2036 E. The Truth Slowly Emerges .................................................................................... 37 1. An Investigative Report Reveals That Adeptus Overbills Patients For Low-Acuity Conditions ...................................................................... 37 2. Defendants Hall And Fielding Suddenly Depart Adeptus ........................ 38 3. After Delaying Third Quarter 2016 Results, Adeptus Discloses That It Is Facing A Liquidity Crisis .......................................................... 39 4. Adeptus Discloses Additional Internal Control Failures And Announces That It Expects To Write Down Millions Of Dollars In Previously Reported Assets ...................................................................... 42 F. Post-Class Period Developments ........................................................................... 44 VI. ADDITIONAL ALLEGATIONS THAT DEFENDANTS KNOWINGLY OR RECKLESSLY MISLED INVESTORS REGARDING ADEPTUS’S TRUE FINANCIAL CONDITION ............................................................................................... 44 VII. ADDITIONAL ALLEGATIONS OF STERLING’S CONTROL OVER ADEPTUS ......................................................................................................................... 51 VIII. DEFENDANTS’ MATERIALLY FALSE AND MISLEADING STATEMENTS AND OMISSIONS ............................................................................................................ 54 A. Defendants’ False And Misleading Statements Concerning The JVs And The JV Strategy ..................................................................................................... 55 1. Adeptus’s Third Quarter 2014 Earnings Call ........................................... 55 2. Adeptus’s Fourth Quarter And Full-Year 2014 Earnings Call ................. 58 3. The March 12, 2015 Barclays Healthcare Conference ............................. 59 4. Adeptus’s First Quarter 2015 Earnings Call ............................................. 60 5. The June 2, 2015 Jefferies Global Healthcare Conference ....................... 63 6. Adeptus’s Second Quarter 2015 Earnings Call ........................................ 64 7. Adeptus’s Third Quarter 2015 Earnings Call ........................................... 67 8. The November 10, 2015 Stephens Fall Investment Conference............... 69 9. The December 1, 2015 Piper Jaffray Healthcare Conference ................... 71 10. Adeptus’s Fourth Quarter And Full-Year 2015 Earnings Call ................. 72 ii Case 4:17-cv-00449-ALM Document 108 Filed 11/21/17 Page 4 of 160 PageID #: 2037 11. Adeptus’s First Quarter 2016 Earnings Call ............................................. 74 12. The May 10, 2016 Bank Of America Merrill Lynch Health Care Conference ................................................................................................ 75 13. The June 9, 2016 Goldman Sachs Global Health Care Conference ......... 77 14. Adeptus’s Second Quarter 2016 Earnings Call ........................................ 78 15. The September 12, 2016 Morgan Stanley Global Healthcare Conference ................................................................................................ 79 16. Adeptus’s SEC Filings .............................................................................. 79 B. Defendants’ False And Misleading Statements Concerning Patient Acuity ......... 83 1. Adeptus’s SEC Filings .............................................................................. 83 2. Adeptus’s Third Quarter 2014 Earnings Call ........................................... 84 3. Adeptus’s Fourth Quarter And Full-Year 2014 Earnings Call ................. 86 4. The March 12, 2015 Barclays Healthcare Conference ............................. 87 5. Adeptus’s First Quarter 2015 Earnings Call ............................................. 88 6. Adeptus’s Second Quarter 2015 Earnings Call ........................................ 89 7. Adeptus’s Third Quarter 2015 Earnings Call and November 10, 2015 Stephens Fall Investment Conference .............................................. 90 8. The December 1, 2015 Piper Jaffray Healthcare Conference ................... 91 9. Adeptus’s Fourth Quarter And Full-Year 2015 Earnings Call ................. 92 10. Adeptus’s First Quarter 2016 Earnings Call ............................................. 93 11. The May 10, 2016 Bank Of America Merrill Lynch Health Care Conference ................................................................................................ 94 C. Defendants’ False And Misleading Statements Concerning Adeptus’s Internal Controls .................................................................................................... 95 1. Adeptus’s SEC Filings .............................................................................. 95 2. Fourth Quarter And Full-Year 2015 and First Quarter 2016 Earnings Calls ........................................................................................... 97 3. Second And Third Quarter 2016 Earnings Calls ...................................... 99 iii Case 4:17-cv-00449-ALM Document 108 Filed 11/21/17 Page 5 of 160 PageID #: 2038 D. Defendants’ False And Misleading Statements Concerning Adeptus’s Liquidity, Cash Flow, And Financial Performance ............................................. 100 1. Adeptus’s SEC Filings ............................................................................ 100 2. Fourth Quarter And Full-Year 2015 Earnings Call ................................ 105 3. First Quarter 2016 Earnings Call ............................................................ 106 4. Second Quarter 2016 Earnings Call ........................................................ 107 5. September 12, 2016 Morgan Stanley Global Healthcare Conference .............................................................................................. 109 E. False And Misleading Omissions In Adeptus’s SEC Filings .............................. 109 IX. LOSS CAUSATION ........................................................................................................ 112 X. PRESUMPTION OF RELIANCE ................................................................................... 115 XI. INAPPLICABILITY OF THE STATUTORY SAFE HARBOR ................................... 116 XII. CLASS ACTION ALLEGATIONS ...............................................................................
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