Opinion ID: 212733
Heading Depth: 2
Heading Rank: 3

Heading: Analysis of the Alleged Misstatements

Text: With these standards providing our decisional matrix, we turn to the parties' contentions and the specific allegations of the complaint. Anima contends that the district court erred in failing to view the facts in their totality, with inferences drawn in its favor. With respect to the alleged misrepresentations, Anima contends that the district court erred in determining that they were not misleading or were within the statutory safe harbor. The defendants counter that the district court was correct to find no actionable material misstatements. We examine each alleged misstatement in turn.
According to ¶ 134 of the complaint, on October 27, 2005, NeuroMetrix issued a press release concerning its third quarter results. The release reported significant revenue increases. It also contained an express disclosure that the statements contained in the release involve a number of risks, uncertainties (some of which are beyond the Company's control) or other assumptions that may cause actual results or performance to be materially different from those expressed or implied by these forward-looking statements. These risks and uncertainties include, but are not limited to, risks associated with ... reimbursement by third party payors to the Company's customers for procedures performed using the NC-Stat System. R.32 at 43 (quoting Oct. 27, 2005 press release) (emphasis and omission in original). The plaintiffs have not alleged any affirmative misstatement in this release, nor do we perceive one when the statement is read alongside the factual allegations. The claim, therefore, must rest on the omission of some fact, which, by its absence, rendered the release misleading. See 17 C.F.R. § 240.10b-5(b). The omitted material identified by the plaintiffs, as noted above, was: (1) that the company declined to apply for a new code, even though the reimbursement specialists had informed it that it was necessary; (2) sales personnel were advising physicians on use of the neurology codes; (3) reimbursement specialists had advised that use of the neurology codes was fraud; and (4) [t]here was a serious risk that insurers would not allow NC-Stat tests ... to be reimbursed under neurology-based CPT codes. R.32 at 44. There are sufficient factual allegations in the complaint to permit the conclusion that the principals of NeuroMetrix knew of the four alleged situations as early as 2005. According to the complaint, by mid-2005, the reimbursement expert had resigned because of a conflict with the principals over the coding recommendations, id. at 18; sales representatives were advising physicians to seek reimbursement under the neurology codes, id. at 19. By late 2005, regional insurance carriers had begun denying coverage, id. at 32. Reading the factual allegations of the complaint in whole, they support the assertion that the company was aware of at least some level of risk of non-reimbursement and had been apprised by experts that continuing in its then-current course of billing recommendations could have significant repercussions. We also agree with the plaintiffs that the omitted facts were material. As we have stated, information is material only if its disclosure would alter the total mix of facts available to the investor and if there is a substantial likelihood that a reasonable shareholder would consider it important to the investment decision. Cooperman v. Individual, Inc., 171 F.3d 43, 49 (1st Cir.1999) (quotation marks omitted); see also TSC Indus., Inc. v. Northway, Inc., 426 U.S. 438, 449, 96 S.Ct. 2126, 48 L.Ed.2d 757 (1976) (defining, in another type of securities action, information as material where it would have assumed actual significance in the deliberations of the reasonable shareholder). The omission of a known risk, its probability of materialization, and its anticipated magnitude, are usually material to any disclosure discussing the prospective result from a future course of action. Lormand v. U.S. Unwired, Inc., 565 F.3d 228, 248 (5th Cir. 2009). As this press release acknowledges on its face, the ability of physicians to receive third-party reimbursement for procedures performed with the NC-Stat is of critical importance to the profitability of the device and of NeuroMetrix itself. That experts flatly had informed the principals that the company's suggested method of billing was unsustainable certainly would have been relevant to a reasonable shareholder's investment decisions. We further have stated that [i]f an alleged omission involves speculative judgments about future events, ... materiality will depend at any given time upon a balancing of both the indicated probability that the event will occur and the anticipated magnitude of the event in light of the totality of the company activity. Milton v. Van Dorn Co., 961 F.2d 965, 969-70 (1st Cir. 1992) (emphasis in original) (internal quotation marks omitted). The complaint's allegations regarding the Medicare 10% rule and the company's sales growth are sufficient to demonstrate a significant probability that the noted risks would materialize and that the effect of those risks on the company's future would be significant. Nevertheless, the mere possession of material[,] nonpublic information does not create a duty to disclose it. Cooperman, 171 F.3d at 49 (internal quotation marks omitted); see also Chiarella v. United States, 445 U.S. 222, 235, 100 S.Ct. 1108, 63 L.Ed.2d 348 (1980). Instead, the issue ... is whether the securities law imposes on defendants a `specific obligation' to disclose information of the type that plaintiffs claim was omitted. Cooperman, 171 F.3d at 49-50. Rule 10b-5 requires that, when a company speaks, it cannot omit any facts necessary in order to make the statements made, in the light of the circumstances under which they were made, not misleading. 17 C.F.R. § 240.10b-5; see also SEC v. Texas Gulf Sulphur Co., 401 F.2d 833, 862 (2d Cir. 1968) (en banc). [E]ven a voluntary disclosure of information that a reasonable investor would consider material must be complete and accurate. Backman v. Polaroid Corp., 910 F.2d 10, 16 (1st Cir.1990) (en banc) (internal quotation marks omitted). Nevertheless, this obligation has its limits: It does not mean that by revealing one fact about a product, one must reveal all others that, too, would be interesting, market-wise; a company must reveal only those facts that are needed so that what was revealed would not be so incomplete as to mislead.  Id. (internal quotation marks omitted) (emphasis added). We begin with the issue central to two of the four claimed omissions in the 2005 press release: the opinion of the experienced reimbursement experts that the billing practices were incorrect and possibly fraudulent. We previously have held that the existence of internal disagreement about strategy is not the kind of fact that must be disclosed to investors. In Cooperman v. Individual, Inc., 171 F.3d 43 (1st Cir.1999), we evaluated claims that a company had failed to disclose that its CEO had significant strategic disagreements with the board about the future direction of the company. After noting that the existence of a board-level conflict was material, we concluded that disclosure was not required. Disclosure of the business strategy supported by a majority of the directors did not obligate defendants also to disclose information about the extent to which each individual Board member supported that model. Id. at 51. Indeed, we held, [m]ore specifically, that disclosure of the business strategy supported by the majority of the Board did not obligate defendants also to disclose the fact that [the CEO]a distinct minority of a multi-member Boardopposed that strategy. Id. By contrast, in Lormand v. U.S. Unwired, Inc., 565 F.3d 228 (5th Cir.2009), our colleagues in the Fifth Circuit did find the statements misleading, and therefore actionable. In Lormand, the plaintiffs alleged that U.S. Unwired had been pressured by Sprint, with whom it had an affiliate relationship, to extend services to customers with sub-prime credit without requiring the usual safeguards. Through a series of negotiations, it became clear that the management of U.S. Unwired knew the business strategy would prove disastrous, saw some of the risks actually materialize, and fought hardif unsuccessfullyto prevent the policy's full implementation. Id. at 237; see also id. at 247. At the same time, U.S. Unwired's public statements touted the benefits of the program and omitted [the] serious risks inherent in the initiatives. Id. at 249. When risks were referenced, it was by way of generalized risk factors, and the real potential problems were glossed over as a future risk of limited magnitude. Id. at 247 (emphasis in original). The Fifth Circuit found our decision in Cooperman distinguishable because, in Lormand, the entire management team of the company knew that disastrous effects would result from the strategy Sprint had forced upon U.S. Unwired, but continued to present to the public a contrary, or incomplete, view. Id. at 250. Finally, in In re Cabletron Systems, Inc., 311 F.3d 11 (1st Cir.2002), we evaluated a complaint in which the allegations were that company officials, like the principals in Lormand, saw disaster looming on the horizon. According to the complaint, a number of adverse factors converged on the company nearly simultaneously, making clear that the company's immediate future was less than rosy. Id. at 23 (internal quotation marks omitted). In response, the leadership of the company engaged in a host of fraudulent practices designed to give the false impression that the company's prospects for success were much higher than they actually were: (1) They falsified sales records; (2) they timed shipments of goods to create the false impression of high sales for a quarter while knowing that massive returns would occur in the next quarter, sometimes with the cooperation of customers interested in the company's success; (3) they delayed reporting liabilities, including parking raw materials with suppliers to avoid entering them on balance sheets; and (4) they concealed negative facts about the products from sales staff to avoid disclosure to potential customers, although the facts were widely known internally. See id. at 24. We characterized the pleading as portraying a frenzied effort by a troubled company to conceal its difficulties for as long as possible, and concluded that the allegations were sufficient to survive dismissal. Id. In our view, the situation we confront in this case is closer to that of Cooperman than to that of Lormand or Cabletron. The kind of information the plaintiffs wanted the company to disclosethat the reimbursement experts informed the principals that they needed to apply for a new code and that the persistence in recommending the neurology codes was fraudulentis not on the order of the information withheld from investors in Lormand. There, the principals unquestionably were forced into a losing strategy and fully understood the near-certainty of financial disaster to come. Here, although knowledgeable employees of NeuroMetrix believed the strategy was both losing and potentially dangerous, there is simply nothing in the complaint to suggest that the expert opinions demonstrated that the danger posed by the reimbursement strategy was, at the time the statement was made, a near certainty of ruin. The principals of NeuroMetrix had this information to factor into their decision-making about coding recommendations to buyers of their device. They, however, had no obligation to make it public simply because they mentioned the risk associated with non-reimbursement by third-party payers in a profit statement. Moreover, although there are allegations of other questionable business practices, such as the use of potentially illegal incentive programs, there is no allegation, as there was in Cabletron, that the principals were engaged in a comprehensive scheme to disguise negative information to keep the house of cards standing. Cabletron, 311 F.3d at 24. The total mix of information available to investors in the short press statement at issue was not highly skewed, Lormand, 565 F.3d at 249, by the failure to disclose the opinions of the reimbursement experts. The plaintiffs submit, however, that Cooperman is inapposite because there is no evidence of disagreement. In their view, the facts of the complaint show that the only informed opinion was that of the experts; the principals did not disagree with that opinion, but disregarded it to maximize profits and shed their own stock at an artificially inflated market price. We cannot accept this argument. At bottom, Cooperman discusses when factors that predate a company's chosen course of action must be disclosed to investors, and that question encompasses more than the issue of board-level strategic disagreements. In neither Cooperman nor the present case was the undisclosed information insignificant; both involved something material to the investment decision and both predicted that significant risks would materialize from the course the company ultimately chose. But in neither case did the undisclosed opinion even approach the widely-accepted certainty of failure or the comprehensive cover-up in Lormand or Cabletron. At the time the statement was made, the final resolution of the third-party reimbursement issue was indeed unknown. As our colleague in the district court noted, the RVUs for a CPT code reflect[] the estimated physician, practice, and malpractice costs for the service represented by that code. R.52 at 2. Although the company took an aggressive, and in the view of some, an unrealistically aggressive view of the appropriate resolution in the promotion of its product, its press release does state explicitly that the ultimate resolution of the issue is unknown and, by reasonable implication, out of its hands. Turning to the other alleged omissions, we conclude that they too were not sufficient to demonstrate that the statement itself was misleading. First, that the company's sales team provided advice on appropriate billing practices is plainly beyond the scope of the disclosure. The statement as quoted by the plaintiffs was not incomplete for failure to state specifically that the company had a reimbursement-advice strategy, or for failure to state what that strategy specifically was. Finally, the plaintiffs maintain that the statement was misleading for failing to disclose a serious risk of non-reimbursement. Nevertheless, a risk of non-reimbursement specifically was disclosed. To the extent that the plaintiff's complaint is that the precise degree of risk was not stated, that failure is not sufficient to have rendered the statements misleading. Cf. In re Cabletron Sys., Inc., 311 F.3d at 23-24 (noting that allegations of a company's unremittingly optimistic statements in the face of numerous adverse factors, coupled with company efforts to hide th[e] downward spiral, were sufficient to state a claim). A statement that discloses a level of risk may be so understated as to be misleading. In Backman v. Polaroid Co., 910 F.2d 10, 16 (1st Cir.1990) (en banc), we considered claims regarding misleading statements made in reference to the Polavision camera. We concluded that the company's disclosure that Polavision was being sold below cost was not misleading by reason of not saying how much below. Nor was it misleading not to report the number of sales, or that they were below expectations. Id. We contrasted those statements with another allegation, namely, that the principals knew that the Polavision camera was a commercial failure, but stated only that earnings were negative; we noted that the negative-earnings statement might well be found to be a material misrepresentation by half-truth and incompleteness. Id. Although we ultimately dismissed the commercial failure claim as not supported by the allegations of the complaint, the distinction between our treatment of these two allegations is instructive, and it is mirrored again in the Fifth Circuit's decision in Lormand. A statement of risk does not insulate the speaker from liability, particularly where it is generic and formulaic. See Lormand, 565 F.3d at 245. At the same time, neither does it create liability simply because it does not disclose, at the level of detail the plaintiffs request in retrospect, all of the factors that contribute to the risk assessment. In cases where the risk approaches a certainty, courts have no difficulty in finding a duty of disclosure. But where the level of risk is unknown and the existence of a risk is disclosed, we shall hesitate to conclude that disclosure is misleading merely because it did not state that the risk was serious. R.32 at 44. [5] In sum, we agree with the district court that the November 2005 NeuroMetrix press release is not misleading because it failed to include the four facts alleged by the plaintiffs.
The complaint next alleges that, on November 10, 2005, NeuroMetrix filed its Quarterly Report with the SEC on form 10-Q and included various statements regarding reimbursement, including the following: Reimbursement from third-party payers is an important element of success for medical products companies. Generally, we believe that the nerve conduction studies performed by our customers with the NC-Stat System have been satisfactorily covered by third-party payers. As our presence in the market expands and the use of the NC-Stat System increases, we have experienced and are likely to continue to experience an increased focus from third-party payers regarding the reimbursement of nerve conduction studies performed using the NC-Stat System and an increased focus from third-party payers regarding the professional requirements for performing nerve conduction studies in general. Widespread adoption of the NC-Stat System by the medical community is unlikely to occur if physicians do not receive satisfactory reimbursement.... R.32 at 44-45. Further, the report stated explicitly that reimbursement problems could lead to future product sales [being] severely harmed. Id. at 45 (emphasis omitted). Finally, the report stated that [f]uture regulatory action relating to Medicare/Medicaid reimbursement could change the reimbursement landscape, but closed, We are unable to predict what changes will be made in the reimbursement methods used by private or governmental third-party payers. Additionally, we may be required to expend substantial resources to address potential reimbursement issues with third party payers. Id. at 46. The plaintiffs claimed these statements to be misleading for the identical four reasons set forth above, relating to the internal expert opinions, company advice to physicians regarding billing and the serious risk of non-reimbursement. Id. at 44. The same reasons that led to our conclusion that the first alleged misstatement was not misleading require that we also conclude that this disclosure cannot give rise to liability. Indeed, this disclosure is more explicit about the nature of the risks the company faced regarding third-party reimbursement and specifically references the possibility of future government action. Although the alleged omissions are material, the total mix of statements in the November 2005 disclosures was not skewed to present a rosy picture. Although cautious in tone and substance, it acknowledged some attention from third-party payers and the significant impact that either that attention or attention from federal regulators could have on the profitability of the business.
The plaintiffs next alleged that NeuroMetrix misled investors in its 2005 Annual Report filed with the SEC. In that report, the company explained briefly the mechanics and the significance of CPT coding: According to present Medicare guidelines, nerve conduction studies may be performed by medical doctors, or M.D.s, and doctors of osteopathic medicine, or D.O.s, and are reimbursable under the three CPT codes: 95900, 95903, and 95904. We believe that the nerve conduction measurements performed by the NC-Stat System meet the requirements stipulated in the code descriptions published by the AMA and that these [neurology] codes are currently used by physicians performing nerve conduction studies with the NC-Stat System. If the CPT codes that apply to the procedures performed using our products are changed, reimbursement for performances of these procedures may be adversely affected. Id. at 46. This statement is not misleading because it failed to include the opinions of the reimbursement experts or the reimbursement advice strategy or because it failed to characterize explicitly the risk of non-reimbursement as serious. In addition to repeating the same four omissions urged with respect to the documents discussed earlier, the plaintiffs further claim that this statement is misleading for its omission of several additional facts: (1) that the sales staff for Neuro-Metrix marketed the device for use by non-medical office staff; (2) that the device was marketed for primary care physicians to determine whether referral to neurology was appropriate, but after the codes were used for a NC-Stat procedure, claims for follow-up neurology diagnostics under the same code were denied; and (3) that the FDA had approved the NC-Stat as a supplement rather than as a replacement for traditional nerve conduction studies. See id. at 46-47. The district court stated succinctly that these facts were beyond the scope of the reimbursement disclosures. R.52 at 8 (emphasis added). We agree. In making this determination, we recall the perspective from which we must make this evaluation. We must determine whether the omission of any of these facts from the statement that appeared in the 2005 Annual Report rendered that statement misleading. We can assume, for the sake of this analysis, that these statements are material in the sense that a reasonable shareholder would consider these matters important in making an investment decision. See Cooperman, 171 F.3d at 49. Nevertheless, we agree with the district court that the absence of this material did not render the statements that actually were made about the application of CPT codes to the NC-Stat System misleading. We are not persuaded that the allegations concerning limitations on FDA approval of the device or secondary billing problems occurring for patients requiring follow-up traditional nerve testing are sufficiently related to the quoted statement that failure to disclose those facts rendered that statement misleading. The allegation that the device was marketed for use by non-medical office staff poses the closest case for a material misrepresentation. The Annual Report does state explicitly that the Medicare guidelines call for procedures billed under the neurology codes to be performed by medical doctors, or M.D.s, and doctors of osteopathic medicine, or D.O.s and that NeuroMetrix's belief is that the nerve conduction measurements performed by the NC-Stat System meet the requirements stipulated in the code descriptions. R.32 at 46. That sales personnel of NeuroMetrix attempted to induce members of the medical profession to circumvent these billing requirements and delegate the performance of this test to employees without their training is a serious accusation and, if true, could no doubt make an investor think twice about the desirability of investment in such a company. Nevertheless, the more narrow inquiry before us is simply whether non-disclosure of such a practice makes the statement in the report misleading. We do not believe that it does. Whether the product conforms to the current or future CPT codes is not dependent on the company's alleged attempt to sell the machine to unscrupulous members of the medical profession.
The plaintiffs' next allegations concern the third quarter report for 2006. In that report, NeuroMetrix maintained its position on reimbursement: Generally, we believe that the nerve conduction studies performed by our customers with the NC-Stat System have been satisfactorily covered by third-party payers. As our presence in the market expands and the use of the NC-Stat System increases, we have experienced and are likely to continue to experience an increased focus from third-party payers and governmental agencies regarding ... reimbursement... [and] the professional requirements for performing nerve conduction studies in general. Widespread adoption of the NC-Stat System is unlikely to occur if physicians do not receive satisfactory reimbursement from third-party payers for procedures performed with the NC-Stat System . ... A successful market expansion will depend upon, in part, our targeting of primary care and specialty physicians who traditionally have not been targeted by companies selling equipment used to perform nerve conduction studies and our ability to alter physicians' practices relating to the diagnosis of neuropathies. Id. at 47 (emphasis in original). The complaint first alleges that the statements were false and misleading because they failed to make the same disclosures discussed above, relating to the advice of the reimbursement experts, the advice by sales personnel to bill under neurology codes and the serious risk of non-reimbursement. We again conclude that the statements are not misleading because of the failure to include any of those alleged facts. The statement is clear that generally, reimbursement is satisfactory, but that the company ha[s] experienced and [is] likely to continue to experience scrutiny from third-party payers, which could have a significant effect on future profitability. Id. (emphasis omitted). Nothing about this statement changes our view that, under Cooperman, 171 F.3d at 50-51, disclosure of the internal opinions of two qualified employees was not required to prevent skewing of the total mix of information available to shareholders. Although by mid-2006, when this statement was made, NeuroMetrix certainly was aware that its customers were experiencing reimbursement issues, the complaint alleges only that the complaints were sporadic and regional; that is consistent with the qualified statement about reimbursements actually made in this disclosure. [6]
The plaintiffs next challenge the sufficiency of the disclosures contained in a July 2006 conference call with analysts and investors and the second quarter report issued in August 2006. In the conference call, Mr. Gozani stated: Basically, the reimbursement situation for NC-Stat is very positive. We believe that over 600 payors have reimbursed our customers and on a routine basis, our customers are clearly being reimbursed. Obviously as for any medical device company in today's reimbursement environment, there are from time to time reimbursement issues that come up that have to be addressed, many of them often are just the way customers code, the way they code their insurance claims or other very straightforward administrative issues. Sometimes they pertain to the misunderstandings of the technology and so forth. That is just par for the course in this type of business. ... We continue to work with payors to explain our technology who continue to do studies demonstrating the viability and strength of our technology and are very positive about the situation. R.32 at 48-49 (emphasis in original). Defendant Gregory added that the company would not comment specifically on what our overall reimbursement mix is, but that it was very pleased with the reimbursement landscape[] [a]nd that it allows physicians to appropriately perform these tests and be reimbursed appropriately for doing them. Id. at 48. Mr. Gozani then clarified that the company was not involved obviously ... in billing by our customers... other than providing them with basic published information on expected coding practices. Id. at 49. One month later, NeuroMetrix filed its quarterly report for the second quarter of 2006, which was not materially different from those of prior quarters. Indeed, it repeated that it believed the procedure was reimbursed satisfactorily, even though it was the subject of increased focus from payers. Id. Anima claims that these statements are false and misleading for the same reasons it has cited repeatedly in the complaint. We again conclude that these statements are not rendered misleading by the omission of any of the information Anima claims it should have included. The statements continue to acknowledge some difficulties, and although they are certainly optimistic about the future, they are not misleading because they fail to identify a serious risk of non-reimbursement. See Backman, 910 F.2d at 16 (distinguishing between the commercial failure allegations and the allegations of undisclosed details relating to risks). With respect to this disclosure, the plaintiffs also claim that the statement was misleading for what the plaintiffs term a reckless[] failure to disclose that NeuroMetrix was aware of pervasive problems with insurer reimbursement for NC-Stat tests. R.32 at 49-50. Although this alleged misstatement might give us pause if the allegations of the complaint were sufficient to support it, they are not. The complaint is more than seventy pages in length, but it is relatively thin on specific claims regarding reimbursement denials. [7] Moreover, because of its structure, it is difficult to place any of the information regarding the reimbursement along the timeline of the disclosures. The failure of the complaint to detail with some greater degree of specificity what these pervasive problems were is fatal to this allegation. See ACA Fin. Guar., 512 F.3d at 63 (It is true, as the plaintiffs argue, that the PSLRA does not require plaintiffs to plead evidence. But more meat was needed on these bones. (internal citations omitted)).
On October 26, 2006, NeuroMetrix held a conference call for analysts and investors. In it, the defendants spoke at some length about reimbursements: We wanted to cover some basic information which may offer some insights towards the reimbursement landscape. First and foremost, the NC-Stat System is a FDA-cleared technology that is supported by strong language held within our FDA clearance. And I quote, Clinical data submitted in the 510(k) demonstrates the nerve conduction measurements obtained using the NC-Stat System are comparable to those obtained using conventional nerve conduction measurement equipment. As detailed here, the NC-Stat System performs standard nerve conduction measurements.    Furthermore, as reported by our customers, we believe the technology has been routinely reimbursed by over 600 payors, including all Medicare carriers and nearly all commercial and worker's compensation payors throughout the nation. Several Medicare carriers have draft LCDs or local coverage determinations, which includes select potential concerns for NeuroMetrix, which if implemented as a final policy could adversely impact the reimbursement for the NC-Stat. ... Another Medicare carrier, Cigna, has issued a draft LCD for NCS test[s] recently. And in our review with Cigna, we noted that this does not include any reference to the NC-Stat System. Of course, this does not surprise us, as the NC-Stat System performs standard nerve conduction measurements. Our concern with the draft is that if it implies that needle EMG should be performed with the majority of nerve conduction studies, we believe that the decision to perform NCS and/or needle EMG should be left up to the physician's clinical judgment and also supported by the evidence-based medical guidelines. R.32 at 50 (omissions in original). The principals then took questions from the analysts. Specifically, an analyst noted: Obviously, there are a couple of policies out there, a couple of others in draft. Just wanted to see what type of feedback you are getting from your client base. ... Are we continuing to see good reimbursement etcetera? Id. at 50-51. In response, Mr. Gregory replied: The reimbursement landscape today remains straightforward for the vast majority of our customers. And if you look at the areas where we have some draft LCDs in question, when you really distill it, it's a relatively small portion of the country. As importantly, it's only for Medicare, which we estimate to be less than 30% of the total testing that is done with the NC-Stat System. So, as a broad sweeping statement, the landscape on reimbursement for our customers is straightforward and it remains so for nearly all of them. As importantly and as you all know, many of these areas of question are just thatstill in question. And the LCDs are just that draft and not implemented. So, that gives you a little bit of a flavor but I think that the landscape has certainly got some elements in front [of] it before us but nothing has been implemented and we have already given you some good flavor I believe on our view on this and how we are approaching it. Id. at 51. Thereafter, another analyst asked how the reimbursement team had responded to the draft coverage determinations. Id. Mr. Gozani stated that the position of NeuroMetrix is always to deliver the facts to our customer base ... and allow[] the customer to be equipped with the information to be able to perform their own activities and billing practices. Id. Anima claims that all of these statements on the call were misleading for failing to state the serious risk of non-reimbursement, the opinions of the reimbursement experts, and the facts concerning use by non-medical office staff. We find no merit to these objections, for reasons set forth above. Anima also submits that in these statements, the Defendants failed to disclose that the Company was by this time receiving widespread and pervasive complaints from sales representatives, physicians and other customers regarding reimbursement and billing problems. Id. at 51-52. As noted above, the factual allegations are simply insufficient to support the charge that the company was aware of widespread and pervasive complaints at this time or any other. See supra note 7.
On November 9, 2006, the company filed its report for the third quarter. In it, in addition to the same statements made in the previous quarters that [g]enerally,... the nerve conduction studies performed by our customers with the NC-Stat System have been satisfactorily covered by third-party payers, id. at 52 (emphasis omitted), the company made additional statements regarding the reimbursement landscape: At any point in time, a number of third-party payers may take the position of not reimbursing our customers for their use of the NC-Stat System. Recently, two local Medicare carriers covering Florida, Texas and several additional states issued policies indicating that physicians using the NC-Stat System will not be reimbursed under the existing Current Procedural Terminology (CPT) codes for nerve conduction testing (95900, 95903 and 95904) but rather should submit for reimbursement under a separate miscellaneous neurological procedure code (95999). We do not know what success our customers will have in obtaining reimbursement under this code and what level of reimbursement they may receive. This decision could potentially adversely impact our future revenues. In addition, several additional local Medicare carriers have issued draft local coverage determinations, which if implemented as final policies, could adversely impact the reimbursement received by our customers and therefore potentially adversely impact our future revenues. Id. at 52 (emphasis in original). The risk factors also were updated to include a reference to the possibility that providers would be unable to receive sufficient reimbursement and that, as a result, our future product sales will be severely harmed. Id. at 53 (emphasis omitted). The quarterly report is alleged to be misleading for failure to include the factual allegations made by the plaintiffs regarding the serious risk of non-reimbursement and the marketing techniques employed by the company, as well as that the company was receiving widespread and pervasive complaints. Again, we find no support in the factual allegations of the complaint for allegations of widespread reimbursement problems. Further, none of the other omitted facts alleged in the complaint rendered this statement so incomplete as to mislead. Indeed, this statement specifically disclosed more about the problems with reimbursement (including the references to regional Medicare carriers) than we are able to discern elsewhere in the factual allegations of the complaint.
On February 1, 2007, NeuroMetrix hosted another conference call with investors. In the discussion of reimbursement, Mr. Gregory stated: Through the course of 2006, several Medicare carriers issued draft LCDs, or local coverage determinations, which included select potential concerns for NeuroMetrix.... We're pleased that the majority of these draft LCDs across Palmetto, Cigna, and NIHC were modified and/or not implemented.    In response, we have retained a team of reimbursement experts to assist us in assessing and challenging these coding articles. Based upon their review, ... we believe our customers should be able to perform medically appropriate NCS tests and appropriately bill them under standard NCS codes. ... Id. at 54-55 (certain omissions in original). This statement was not misleading for failing to include the same facts regarding reimbursement repeated throughout the complaint. Further, the complaint does not allege specifically that the information regarding the positive developments for reimbursement are incorrect or overstated, nor are any contrary facts specifically alleged that would alter the total mix of facts.
In the 2006 Annual Report, issued March 29, 2007, the Company issued more extensive risk disclosures. Id. at 55. Those disclosures included that (1) five regional Medicare carriers covering a total of twenty states issued draft local coverage determinations that could adversely affect reimbursement, including several that would not reimburse for NC-Stat procedures under the neurology codes; (2) the AMA Editorial Panel formed a committee to examine coding practices for similar devices; and (3) local coverage determinations and coding articles addressed other issues, including the background and training of physicians performing the tests. Id. The report stated that the company did not believe that the local coverage determinations prohibited physicians from receiving reimbursement for the NC-Stat, but acknowledged that they do appear targeted at limiting access to perform and/or reimbursement for nerve conduction studies. Id. at 56. As with its fourth quarter 2006 statement, this disclosure provides more information about the reimbursement landscape than do the company's earlier statements and reports. We cannot find it to be materially misleading under these circumstances.