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

Heading: 2005 Annual Report to the SEC

Text: 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.