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Pension Plan Sues Texas-Based Clinic Chain

TYLER, Texas (CN) — Citing enormous medical bills for minor injuries that allegedly boosted unsustainable revenue growth, a pension plan filed a class action against Adeptus Health for a secondary public offering that brought it and a sponsor $393 million.

Filed Thursday with a federal judge in Texas, the complaint by the Oklahoma Law Enforcement Retirement System is the Oct. 28 Top Download for Courthouse News. Defendants include Adeptus Health and Sterling Partners.

Based in Lewisville, Texas, Adeptus Health runs two hospitals and 93 clinics, in Texas, Colorado and Arizona. It raised $266 million in its July 31, 2015 secondary public offering, and its largest shareholder at the time, raised another $127 million, both at a little over $100 a share, according to the complaint.

Citing the company's own statements, the pension plan says Adeptus "'operate[s] at the higher end of the acuity and emergency care spectrum' and derives higher revenue from more complex treatments, in part, because reimbursement rates set by third-party payors tend to be higher for higher acuity visits."

Be that as it may, the pension fund says, Adeptus billed patients so exorbitantly that it prompted NBC News to investigate. Adeptus' corporate predecessor was called First Choice ER.

KUSA-TV in Denver, an NBC station, broadcast an investigative report on Nov. 17, 2015, after "months of investigation," and "found that the company's First Choice ERs engaged in a pattern and practice of predatory overbilling," the complaint states.

It continues, with the interior quotes apparently taken from the NBC report: "For example, Jennifer Martin, who visited a First Choice ER for shortness of breath, stated 'they sent me home and told me I needed to relax.' Two weeks later, Ms. Martin received a bill totaling $6,237. Jeff Nixon, a deck builder complained that he was billed $3,690 to have a splinter removed from his thumb. Doug Linder, who walked into a UCHealth ER in August 2015 with a cut finger, complained that he was charged over $3,000 for a few stitches. 'We had no idea we were going to get slammed with this [bill],' his wife Teresa said. 'Honestly, it just sucks.'"

The overbilling caused Adeptus Health's revenue per patient visit to increase by more than 50 percent in four years, according to the lawsuit.

The class claims that Adeptus's registration statement for its SPO was inaccurate and omitted information that had to be disclosed.

The statement did not disclose its excessive billing practices, nor the large volume of patient complaints, nor the risks associated with its practices, nor why it reported ballooning rates of same-store revenue growth, while its same-store patient volumes were steadily declining, according to the complaint.

"Defendants were also motivated to engage in this course of conduct to allow the company and company insiders to sell more than one-half billion dollars of Adeptus Health common shares at inflated prices," the complaint states.

The pension fund seeks class certification, damages for securities violations and fraud, and rescission of the SPO. Defendants include Adeptus officers and board members, Sterling Partners, Goldman Sachs & Co., and Merrill Lynch Pierce Fenner & Smith.

The pension fund is represented by Samuel Rudman with Robbins Geller Rudman & Dowd in Melville, N.Y., and T. John Ward Jr. with Ward, Smith & Hill in Longview, Texas.

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