On Monday a shareholder filed suit in the Northern District of California against iRhythm Technologies, Inc. (iRhythm) for federal securities violations after its stock tumbled once in December and again in January. The plaintiff, on behalf of a putative class of investors, accused the company and its former CEO, Kevin M. King, of misleading investors about the impact of a U.S. Centers for Medicare and Medicaid Services (CMS) reimbursement rate change.
The complaint explains that San Francisco, California-headquartered iRhythm is a digital healthcare company that offers a suite of “ambulatory cardiac monitoring services” that provide an alternative way of diagnosing cardiac arrhythmias. The filing further contends that the company receives payments chiefly from third-party payors, which include commercial payors and government agencies, such as the CMS. Thus, such reimbursements are “critical” to iRhythm’s business, the plaintiff claimed.
On Aug. 3, 2020, the CMS announced its Calendar Year 2021 Medicare Physician Fee Schedule Proposed Rule, an update on payment policies, payment rates, and other provisions for services beginning in 2021. The complaint states that the next day, iRhythm held a conference call with stock market analysts to discuss the impact of the CMS’ proposed rule on its business. The CEO reportedly praised the rule change, stating in part that “‘our total business will be up slightly overall’” as a result.
Reportedly, the market reacted favorably, with shares hiking from an Aug. 3 close of $127.46 per share to an Aug. 5 close of $190.09 each. The filing notes that later that month, the company made another public offering earning it approximately $206.2 million.
The plaintiff urged that on Dec. 1, 2020, “[t]he truth began to be revealed,” after the CMS issued its final rule, “which finalized the codes as anticipated, but did not finalize national pricing for certain products and services offered by iRhythm.” Shares opened on Dec. 2 at $183.00 each, down from the Dec. 1 close of $240.64. Reportedly, iRhythm held a call on Dec. 2 to discuss the CMS’ final rule, during which the CEO allegedly “continued to mislead investors” by voicing his opinion that he did not expect reimbursement rates to be cut, and at worst expected them to remain constant.
According to the complaint, on Jan. 29, CMS published actual reimbursement rates for iRhythm products. The filing notes that one stock market analyst remarked that the reimbursement rates were “‘way lower than’” the former ones, citing an example where iRhythm was previously reimbursed around $311, but would now receive only $42.68. The stock then fell by about one-third of its value, from its Jan. 28 close of $251.00 to $168.42, representing a one-day loss in market capitalization of approximately $2.4 billion.
The filing claims that throughout the class period, from Aug. 4, 2020, through Jan. 28, 2021, the company and its CEO made materially false and misleading statements to investors and failed to disclose facts regarding the CMS rule change. In particular, the plaintiff accuses the defendants of misrepresenting to what degree iRhythm’s business would suffer as a result of the CMS’ rulemaking, that reimbursement rates would “plummet,” and that the interim lack of national pricing would cause “uncertainty and weakness” to iRhythm’s business.
The plaintiff seeks to certify a class of investors who bought or otherwise obtained iRhythm’s stock during the class period. The shareholder requests compensatory and punitive damages, and his litigation costs and attorneys’ fees.
The plaintiff is represented by Block & Leviton LLP.