Case 3:21-cv-00776-EMC Document 1 Filed 02/01/21 Page 1 of 18
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`Whitney E. Street (SBN 223870)
`Block & Leviton LLP
`100 Pine Street, Suite 1250
`San Francisco, CA 94111
`(415) 968-1852 phone
`(617) 507-6020 fax
`whitney@blockleviton.com
`
`Jacob A. Walker
`Block & Leviton LLP
`260 Franklin Street, Suite 1860
`Boston, MA 02110
`(617) 398-5600 phone
`(617) 507-6020 fax
`jake@blockleviton.com
`
`Attorneys for Plaintiff
`
`
`UNITED STATES DISTRICT COURT
`NORTHERN DISTRICT OF CALIFORNIA
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`
`Case No. _____________________
`
`
`Class Action Complaint for
`Violations of the Federal Securities Laws
`
`
`Jury Trial Demanded
`
`
`Mark Habelt, individually and on behalf of all
`others similarly situated,
`
`
`
`v.
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`iRhythm Technologies, Inc. and Kevin M.
`King,
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`
`
`
`Plaintiff,
`
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`Defendants.
`
`
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`Plaintiff, Mark Habelt, (“Plaintiff”), by and through his attorneys, alleges upon personal
`knowledge as to his own acts, and upon information and belief as to all other matters, based upon
`the investigation conducted by and through his attorneys, which included, among other things, a
`review of documents filed by Defendants (as defined below) with the United States Securities and
`Exchange Commission (the “SEC”), news reports, press releases issued by Defendants, and other
`publicly available documents, as follows:
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`CLASS ACTION COMPLAINT
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`Case 3:21-cv-00776-EMC Document 1 Filed 02/01/21 Page 2 of 18
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`Nature and Summary of the Action
`This is a federal securities class action on behalf of all investors who purchased or
`1.
`otherwise acquired iRhythm Technologies, Inc. (“iRhythm” or the “Company”) common stock
`between August 4, 2020 and January 28, 2021, inclusive (the “Class Period”), seeking to recover
`damages caused by Defendants’ violations of the federal securities laws and to pursue remedies
`under §§ 10(b) and 20(a) of the Securities Exchange Act of 1934 (the “Exchange Act”) and Rule
`10b-5 promulgated thereunder by the SEC, 17 C.F.R. § 240.10b-5.
`According to its most recent Annual Report filed on Form 10-K with the SEC,
`2.
`iRhythm is a digital healthcare company that seeks to “redefin[e] the way cardiac arrythmias are
`clinically diagnosed by combining [the Company’s] wearable biosensing technology with cloud-
`based data analytics and deep-learning capabilities.” iRhythm offers a portfolio of ambulatory
`cardiac monitoring services on its platform, called the Zio service. iRhythm common stock trades
`on the NASDAQ stock exchange under the ticker symbol “IRTC.” The Company is headquartered
`in San Francisco, CA.
`iRhythm receives revenue for its Zio service primarily from third-party payors,
`3.
`which include commercial payors and government agencies, such as the U.S. Centers for Medicare
`and Medicaid Services (“CMS”). Reimbursement from the CMS and other third-party payors is
`therefore critical to the Company’s business.
`On August 3, 2020, the CMS announced its Calendar Year 2021 Medicare
`4.
`Physician Fee Schedule Proposed Rule, which would update payment policies, payment rates, and
`other provisions for services furnished under the Medicare Physician Fee Schedule on or after
`January 1, 2021.
`On August 4, 2020, iRhythm held a conference call with stock market analysts to
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`discuss the impact of the CMS’ proposed rule on the Company’s business. On this call, Defendant
`Kevin M. King, then President and CEO of iRhythm, discussed at length how the Company
`“worked hand-in-hand with the various governing bodies . . . in drafting and constructing” the
`language used in the CMS’ proposed rule, and that the Company was “well aware and well
`informed” of the proposed CMS rules. As set forth in greater detail below, Defendant King praised
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`CLASS ACTION COMPLAINT
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`Case 3:21-cv-00776-EMC Document 1 Filed 02/01/21 Page 3 of 18
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`the impact the proposed rule would have on iRhythm’s business and revenues, stating that “[i]f we
`were to apply the new codes and proposed rates, our 2019 revenues would increase slightly,” and
`that “our total business will be up slightly overall.”
`The market reacted positively, with shares immediately jumping from the August
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`3, 2020 close of $127.46 per share to an August 5, 2020 close of $190.09 each.
`The truth began to be revealed on December 1, 2020, when the CMS issued its final
`7.
`rule, which finalized the codes as anticipated, but did not finalize national pricing for certain
`products and services offered by iRhythm. Shares opened on December 2, 2020 at $183.00 each,
`down from the December 1, 2020 close of $240.64.
`Nevertheless, on December 2, 2020, the Company continued to mislead investors.
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`iRhythm held a call with analysts that day to discuss CMS’ final rule, and despite the lack of
`national pricing in CMS’ final rule, Defendant King stated that “I don’t think this is going to be
`terribly disruptive to us,” that “I’m not expecting this to be considered a rate cut,” and at worst,
`“we should stay were we are” in terms of reimbursement rates.
`Then on January 29, 2021, Medicare Administrative Contractor Novitas Solutions
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`published actual reimbursement rates under the CMS’ 2021 Medicare Physician Fee Schedule. A
`Baird analyst commented that these rates were “way lower than” the former codes, citing one
`example where iRhythm was previously reimbursed around $311, but was now receiving just
`$42.68.
`On this news, the price of iRhythm common stock closed at $168.42, down
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`approximately 33% from its January 28, 2021 close of $251.00. Shares traded intraday as low as
`$135.65 each. The 33% drop represents a one-day loss in market capitalization of approximately
`$2.4 billion.
`Throughout the Class Period and in violation of the Exchange Act, Defendants
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`made materially false and/or misleading statements, as well as failed to disclose material adverse
`facts to investors. Specifically, Defendants misrepresented and/or failed to disclose to investors
`that: (1) iRhythm’s business would suffer as a result of the CMS’ rulemaking; (2) reimbursement
`rates would in fact plummet; (3) a lack of national pricing in the CMS rule and fee schedule would
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`CLASS ACTION COMPLAINT
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`Case 3:21-cv-00776-EMC Document 1 Filed 02/01/21 Page 4 of 18
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`cause uncertainty and weakness in the Company’s business; and (4) as a result of the foregoing,
`Defendants’ public statements were materially false and misleading at all relevant times.
`As a result of Defendants’ wrongful acts and omissions, and the precipitous decline
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`in the market value of the Company’s securities, Plaintiff and other Class members have suffered
`significant losses and damages.
`
`Jurisdiction and Venue
`The federal law claims asserted herein arise under and pursuant to §§ 10(b) and
`13.
`20(a) of the Exchange Act, 15 U.S.C. § 78(b) and 78t(a), and Rule 10b-5 promulgated thereunder
`by the SEC, 17 C.F.R. § 240.10b-5.
`This Court has subject matter jurisdiction over this action pursuant to 28 U.S.C.
`14.
`§1331, § 27 of the Exchange Act, 15 U.S.C. § 78aa.
`This Court has jurisdiction over each Defendant named herein because each
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`Defendant is an individual or corporation who has sufficient minimum contacts with this District
`as to render the exercise of jurisdiction by the District Court permissible under traditional notions
`of fair play and substantial justice.
`Venue is proper in this District pursuant to § 27 of the Exchange Act, 15 U.S.C.
`16.
`§ 78aa and 28 U.S.C. § 1931(b), as the Company has its principal executive offices located in this
`District and conducts substantial business here.
`In connection with the acts, omissions, conduct and other wrongs in this Complaint,
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`Defendants, directly or indirectly, used the means and instrumentalities of interstate commerce,
`including but not limited to the United States mail, interstate telephone communications and the
`facilities of the national securities exchange.
`Intradistrict Assignment
`Pursuant to Local Rule 3-2(c), this is a securities fraud class action to be assigned
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`on a district-wide basis. Defendant iRhythm Technologies, Inc. is headquartered in San Francisco,
`CA, which is within the San Francisco/Oakland Division.
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`CLASS ACTION COMPLAINT
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`Case 3:21-cv-00776-EMC Document 1 Filed 02/01/21 Page 5 of 18
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`Parties
`Plaintiff Mark Habelt, as set forth in his Certification filed contemporaneously
`19.
`herewith, acquired shares of iRhythm common stock at artificially inflated prices, and has been
`damaged.
`Defendant iRhythm Technologies, Inc. is incorporated under the laws of the State
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`of Delaware, with its principal place of business at 699 8th Street, Suite 600, San Francisco, CA
`94103. Its common stock trades on the NASDAQ stock exchange under the symbol IRTC.
`Defendant Kevin M. King was, from July 2012 until approximately January 12,
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`2021, iRhythm’s President, Chief Executive Officer, and a member of the Company’s Board of
`Directors. Mr. King remains a member of the Company’s Board of Directors.
`Defendants King is named as a Defendant for violations of all counts asserted
`22.
`herein, and is sometimes referred to as the “Individual Defendant.” The Individual Defendant,
`because of his positions with the Company, possessed the power and authority to control the
`contents of the Company’s reports to the SEC, press releases and presentations to securities
`analysts, money and portfolio managers, and the investing public, i.e., the market. The Individual
`Defendant was provided with copies of the Company’s reports and press releases alleged herein
`to be misleading prior to, or shortly after, their issuance and had the ability and opportunity to
`prevent their issuance or cause them to be corrected. Because of his positions and access to
`material, non-public information available to him, the Individual Defendant knew that the adverse
`facts specified herein had not been disclosed to, and were being concealed from, the public, and
`that the positive representations that were being made were then materially false and/or
`misleading. The Individual Defendant is therefore liable for the misstatements and omissions plead
`herein.
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`Substantive Allegations
`According to its most recent Annual Report filed on Form 10-K with the SEC,
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`iRhythm is a digital healthcare company that seeks to “redefin[e] the way cardiac arrythmias are
`clinically diagnosed by combining [the Company’s] wearable biosensing technology with cloud-
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`CLASS ACTION COMPLAINT
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`Case 3:21-cv-00776-EMC Document 1 Filed 02/01/21 Page 6 of 18
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`based data analytics and deep-learning capabilities.” iRhythm offers a portfolio of ambulatory
`cardiac monitoring services on its platform, called the Zio service.
`iRhythm was incorporated in Delaware on September 14, 2006. The Company is
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`headquartered in San Francisco, CA.
`iRhythm receives revenue for its Zio service primarily from third-party payors,
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`which include commercial payors and government agencies, such as the CMS. Reimbursement
`from the CMS and other third-party payors is therefore critical to the Company’s business.
`On August 3, 2020, the CMS issued its Calendar Year 2021 Medicare Physician
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`Fee Schedule Proposed Rule, which would update payment policies, payment rates, and other
`provisions for services to be furnished under the Medicare Physician Fee Schedule on or after
`January 1, 2021. According to an August 4, 2020 iRhythm press release, the CMS’ proposed rule
`“includes two new Category I Current Procedural Terminology (“CPT”) code sets related to long
`term continuous electrocardiogram (“ECG”) monitoring and recording. Category I CPT codes
`93XX0 – 93XX7 will replace Category III temporary CPT codes 0295T – 0298T as the primary
`codes that iRhythm uses to seek reimbursement for its Zio XT service. For these and other CPT
`codes, the Proposed Rule establishes Relative Value Units (“RVUs”) for Work, Practice Expense
`and Malpractice components that are adjusted by Geographical Practice Cost Indices that account
`for geographic cost variations and then multiplied by an annually updated Conversion Factor that
`converts the RVUs to payment rates.”
`Defendants’ False and Misleading Statements and Omissions
`The Class Period begins on August 4, 2020, when iRhythm held a conference call
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`with analysts to discuss the newly-released CMS proposed rule. On this call, Defendants made
`several misrepresentations.
`In his opening remarks, Defendant King stated:
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`For our direct bill contracted revenue, which represents contracts with third-party
`payers with a range of negotiated rates, the majority of our revenue in this category
`are contracts with negotiated rates that are not indexed to CMS rates or contracts
`that have already been negotiated. For the remaining portion of our direct bill
`contracted revenue, the contracts contain what is called default language, which
`determines the payment rate in the case of a code change. Within these subgroup
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`CLASS ACTION COMPLAINT
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`Case 3:21-cv-00776-EMC Document 1 Filed 02/01/21 Page 7 of 18
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`of payers, in some cases, the new rate will be above existing rates, and in some
`cases, the new rate will be below existing rates. The net impact of these contracts,
`along with the change in CMS revenue, are included in the estimated revenue
`impact provided earlier.
`Looking ahead, we believe that the new national CMS pricing, there are a
`number of additional tailwinds and opportunities for iRhythm that may lead to
`higher volumes and higher revenue over time. Category I CPT codes are
`associated with clinical validation of a new technology, which may improve patient
`access and physician willingness to adopt the technology. In addition, with national
`pricing, we have the added flexibility and benefit of utilizing all of our 3 IDTFs,
`allowing us to scale our clinical operations in certain geographies. And finally,
`there are other entirely new sources of potential revenue that we can now pursue,
`including contracting from Medicaid and potentially billing for our home
`enrollment service.
`In closing, we’re pleased that the proposed rates reflect the significant clinical
`value of long-term continuous cardiac monitoring. We expect the rates to become
`final in December and go into effect next January. We will be sharing updates
`between now and January, if any, as appropriate. And most importantly, we’re
`excited about the transition to a permanent code and the increased access this will
`bring patients. We’re looking forward to continuing the work of delivering our ZIO
`service to the millions of patients who benefit from it.
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`An analyst asked Defendant King whether “in 2021, you do think third-party
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`commercial payers as of Jan. 1 will honor the CMS expanded rates?” Defendant King replied:
`Yes. Maybe I could just unpack that a little bit. So contracted -- commercial plans,
`whether they’re contracted or not, are typically not indexed to CMS rates in our
`view. I would say that, over the past year, we’ve been working with many of our
`contracted payers, and some of them have agreed to move to the new code set for
`billing purposes, keeping our payment structure the same given that they’re not
`indexed. But the 0297T family of codes goes away and a new code set comes in, so
`they have to update their billing system. In the case where they aren’t indexed, we
`feel that we’re in a stronger position relative to these plans because there’s a higher
`RVU that puts us in a stronger negotiating position relative to those contract plans.
`In some cases, commercial contract plans have predetermined indices relative to
`CMS pricing or RVUs. In some cases, it’s below. In some cases, it’s above. And
`it’s sort of a starting point for negotiation, if you will. And when we net all of those
`factors out, we think, in total, our business will be up slightly overall.
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`Also on this August 4, 2020 call, a Citigroup analyst offered her “[c]ongratulations”
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`to the Company, and then asked whether “there was anything that surprised you when you saw
`these final codes?” as well as “is there anything in the codes that makes you change your business
`model?” Defendant King responded:
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`Case 3:21-cv-00776-EMC Document 1 Filed 02/01/21 Page 8 of 18
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`No, there’s nothing about the code language that is surprising. As we described on
`previous calls, we worked hand-in-hand with the various governing bodies, AMA,
`ACC, HRS, in drafting and constructing that code language. So we were well
`aware and well informed, and we think this best represents the interest of patients,
`providers, service providers like ourselves in the industry. Anything surprising
`here, look, I think at the highest level, the movement to a Category I is validating
`and great news for the company. It’s a positive in all directions. It’s positive for
`customers, it’s positive for patients, and it’s positive for the company. The initial
`ruling is highly favorable in that our relative value unit is increased compared to
`where it was as a calculated value. The conversion factor going down is not so
`much a surprise, although it’s enumerated as a percentage now. But we did know
`that the physician payment for evaluation and management was likely to go up in
`the coming year. And the way CMS operates in a balanced budget, other things
`would have to change. So this is related to all CPT codes will be reduced by some
`percentage. And the fact that we’re coming out of this net positive despite a nearly
`11% of decline in the conversion factor, I think, is really validating from the
`standpoint of the uniqueness and value of our service. So it’s probably more
`validation but not a surprise.
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`On August 6, 2020, iRhythm held a call with analysts to discuss the Company’s
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`second quarter 2020 financial results. On this call, Defendant King stated: “After several years of
`collaboratively working with the [AMA], the Heart Rhythm society the American College of
`Cardiology and the CMS staff, we are pleased with the very positive impact the proposed outcome
`will have on our business and especially to have such a significant milestone successfully behind
`us.”
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`On August 11, 2020 – after the Company’s stock was soaring – iRhythm filed a
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`Registration Statement on Form S-1 with the SEC seeking to offer to the public an undisclosed
`amount of the Company’s common stock. In this Registration Statement, iRhythm included a
`section entitled “Reimbursement Update,” which provided:
`In early August, the Centers for Medicare and Medicaid Services, or CMS,
`published the Medicare Physician Fee Schedule Proposed Rule for 2021, or
`Proposed Rule, and accompanying Addenda. The Proposed Rule and
`accompanying Addenda update payment policies, payment rates, and other
`provisions for services furnished under the Medicare Physician Fee Schedule, or
`PFS. The Proposed Rule release is followed by a public comment period that will
`close on October 5, 2020 and will culminate in CMS’ release of the Final Rule,
`which is expected to be announced on or around December 1, 2020 for
`implementation on January 1, 2021. The Proposed Rule is therefore subject to
`change. The Proposed Rule and accompanying Addenda include payment rates for
`two new Category I Current Procedural Terminology, or CPT, code sets related to
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`CLASS ACTION COMPLAINT
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`Case 3:21-cv-00776-EMC Document 1 Filed 02/01/21 Page 9 of 18
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`long term continuous ECG monitoring and recording. Category I CPT codes
`93XX0 – 93XX7 will replace Category III temporary CPT codes 0295T – 0298T
`as the primary codes that iRhythm uses to seek reimbursement for its Zio XT
`service. The eight new Category I CPT codes were split between two sets of four
`with rates tied to wear-time of greater than 48 hours and up to 7 days, and for greater
`than 7 days up to 15 days. These additional codes were established to define the
`associated time and work to monitor, detect and identify cardiac disease over longer
`periods of time which has been shown to lead to higher detection rates. At this time,
`the Company expects that the new CPT codes will be adopted by all U.S. payors
`for reporting purposes beginning January 1, 2021 when the new codes become
`effective, at which point the Company expects the Zio service will become eligible
`for reimbursement under the new Category I CPT codes.
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`After an amendment, the SEC declared the Registration Statement effective on
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`August 18, 2020, and on August 19, 2020, iRhythm filed its final prospectus with the SEC on
`Form 424B4. The Company was offering 1,093,167 shares at $175.00 each for total proceeds of
`over $191 million. The final prospectus contained a “Reimbursement Update” similar or identical
`to that included in Registration Statement as alleged above.
`On August 21, 2020, iRhythm announced that the offering had closed. Including
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`the 163,975 shares sold via options exercised by the underwriters of the offering, iRhythm received
`$206.2 million, after deducting discounts, commissions, and expenses.
`On November 5, 2020, iRhythm held a call with analysts to discuss the Company’s
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`third quarter 2020 financial results. On this call, Defendant King stated:
`Regarding 2021 reimbursement and volume, I think on reimbursement or pricing
`side, if you will, the data that we gave at the time of the initial ruling, I guess, the
`RVU, and we did the backwards walk to 2019, same mix and so forth was, I think,
`high single digit delta on price. I think that still continues to make sense. The
`progress that we’re making with our commercial contract conversions, be they
`indexed or nonindexed, is very much in line with where we were with what we had
`stated before. So I feel comfortable with that number.
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`The statements in ¶¶ 28-32, 35 were materially false and misleading and omitted to
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`disclose material information. Specifically, Defendants misrepresented and/or failed to disclose to
`investors that: (1) iRhythm’s business would suffer as a result of the CMS’ rulemaking; (2)
`reimbursement rates would in fact plummet; (3) a lack of national pricing in the CMS rule and fee
`schedule would cause uncertainty and weakness in the Company’s business; and (4) as a result of
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`CLASS ACTION COMPLAINT
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`Case 3:21-cv-00776-EMC Document 1 Filed 02/01/21 Page 10 of 18
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`the foregoing, Defendants’ public statements were materially false and misleading at all relevant
`times.
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`Defendants knew, or in reckless disregard for the truth should have known, that at
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`the time the statements in ¶¶ 28-32, 35 were made, they were false and/or misleading, and/or failed
`to disclose material information to investors.
`Additional Misstatements and The Truth Emerges
`On December 1, 2020, the CMS issued its Calendar Year 2021 Medicare Physician
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`Fee Schedule Final Rule, which established payment policies, payment rates, and other provisions
`for services furnished under the Fee Schedule on or after January 1, 2021. According to a press
`release issued by iRhythm before the market opened on December 2, 2020:
`The Final Rule describes two new Category I Current Procedural Terminology
`(“CPT”) code sets related to long term continuous electrocardiogram (“ECG”)
`monitoring and recording. Category I CPT codes 93241 – 93248 will replace
`Category III temporary CPT codes 0295T – 0298T as the primary codes that
`iRhythm uses to seek reimbursement for its Zio XT service. The eight new
`Category I CPT codes were split between two sets of four with rates tied to wear-
`time of greater than 48 hours and up to 7 days, and for greater than 7 days up to 15
`days. These additional codes were established to define the associated time and
`work to monitor, detect and identify cardiac disease over longer periods of time
`which has been shown to lead to higher detection rates. At this time, the Company
`expects that the new CPT codes will be adopted by all U.S. payors for reporting
`purposes beginning January 1, 2021 when the new codes become effective.
`In the Final Rule, CMS did not finalize national pricing for the extended external
`ECG patch, medical magnetic tape recorder (SD339) supply, and ruled to contractor
`price CPT codes 93241, 93243, 93245 and 93247. iRhythm will be working with
`Medicare Administrative Contractors (MACs) to establish pricing for these codes.
`
`The market began to digest what this development meant for iRhythm’s business:
`39.
`without national pricing as part of the CMS rule, tremendous uncertainty surrounded the
`reimbursement rates iRhythm would receiving beginning in 2021. Shares opened on December 2,
`2020 at $183.00 each, down from the December 1, 2020 close of $240.64.
`Nevertheless, the Company continued to mislead the market by assuring investors
`40.
`that the final rule and fee schedule would not negatively impact iRhythm’s business. On December
`2, 2020, iRhythm held a call with analysts to discuss the CMS rule and fee schedule. On this call,
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`CLASS ACTION COMPLAINT
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`Case 3:21-cv-00776-EMC Document 1 Filed 02/01/21 Page 11 of 18
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`Defendant King stated that he remained “confident” and “bullish” about the impact the rule would
`have. King stated:
`While we were expecting a national pricing decision, it’s very important to note,
`this is not a rate cut, rather, a rate increase was not approved and the changes relate
`to roughly 1/4 of our revenue. We believe a local contracting path is an attractive
`and familiar option for the company and leverages the long-standing working
`relationships we have with several local contractors. Separate but related, we
`believe our commercial contract pricing is unaffected, as is our ability to pursue
`Medicaid contracting and reimbursement for our home enrollment service. And
`most importantly, the clinical validation that is associated with the category I code
`-- CPT codes remain, and we believe this positions us well to improve patient access
`and physician willingness to adopt the technology.
`
`Defendant King also stated:
`41.
`Yes. As I said earlier, I don’t believe this is going to be a challenging process. It is
`going to take some time. And as I said in the prepared remarks, we’re going to work
`on that, and it’s going to take a few months. But aside from that, I think this should
`be fairly straightforward conversation. The data is already available. The
`relationships are in place with numerous local carriers, and we’ll try to contract
`with as many as possible to establish the right pricing level. And I don’t -- and it’s
`about 1/4 of our business. I don’t see any impact to volume. I don’t see any impact
`to commercial contracting rates so aside from the few months to get in line with
`the local carrier pricing calendars, I don’t think this is going to be terribly
`disruptive to us.
`
`King further said on this December 2, 2020 call:
`42.
`Well, I think it depends on whether you’re talking about a temporary code or a
`permanent code, Margaret. In the work that we did initially with Novitas on a
`temporary code basis, as we’ve described before, we needed to put together what
`we believe where to practice expense inputs. And that’s where we arrived at, I think
`at the time, it was $311. It’s since increased from that to about $320. Now that
`there’s a permanent code in place. There’s no question that the technology is
`validated, if you will. It’s not experimental. It’s not investigational. So this -- from
`a contracting standpoint, ends up becoming the same valuation exercise. And from
`our perspective, the initial ruling is going to help us here because all of that work
`was done by the RUC as the governing body. And I think that, that’s a good starting
`point for us to go to the conversations with them about this. So I think -- I’m hoping
`it’s going to be more conversational than it’s going to be contentious in any way.
`And again, the 5 to 7 years of experience, I guess it’s now 7 years of experience
`that we have with them, I think will help as well. This is not like we’re an unknown
`entity. So I’m not expecting this to be considered a rate cut. I think this -- the way
`for all of us to be thinking about this is that we were hoping for a rate increase
`that was not approved so minimally, we should stay where we are, and we’re
`
`CLASS ACTION COMPLAINT
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`Case 3:21-cv-00776-EMC Document 1 Filed 02/01/21 Page 12 of 18
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`going to go for -- swing for the fences, if you will, in terms of our ability to apply
`the RVUs that were generated out of the initial process.
`
`King continued:
`43.
`The validation process associated with Category I code remains. And we think this
`does help patient access, and it does help physician willingness to adopt the
`technology. We’ve commented on that previously. While it may be at the margin,
`it is positive, and it does signal a validation of the technology without a doubt. This
`is not something after millions and millions of tests are done that’s experimental
`investigational nor lacking evidence, it’s one that is validated that’s struggling as a
`category to fit into, to fit into like I wooden shoe, right? The wooden shoe doesn’t
`flex maybe is the way to think about it from my days of working in the Netherlands.
`But nonetheless, it’s one that we’ll benefit from for certain.
`
`One analyst asked “how does this impact your relationships with private payers
`44.
`and/or sort of the balance of your revenue base?” Defendant King replied:
`I don’t believe it does. And we’ve commented on this in the past when we described
`the initial ruling or the benefits of the initial ruling where we said crosswalking the
`2019 revenue to the initial ruling would take us up in high single digits, and that
`was largely CMS. And we did not believe that the commercial contracts that we
`have in place would largely be affected mostly because they were already paying
`higher than where we were and higher than the initial ruling ones. So I’m not overly
`concerned about that. Many of these contracts are already completed and have been
`crosswalked to the existing commercial rates that we have. So I’m feeling pretty
`confident about that. There is the benefit of the permanent code allowing us now to
`go after Medicaid state level pricing or contracting.
`Also, the home enrollment for hook-up is now a permanent code in and it is valued
`as well. So that can be used for us. And I think those are 2 additional side benefits
`that will flow to the business over time.
`
`On December 14, 2020, iRhythm announced that Defendant King was retiring from
`45.
`his position as President and CEO of the Company, effective January 12, 2021. The Company
`stated that King would remain on the Board of Directors.
`Then on January 29, 2021, Medicare Administrative Contractor Novitas Solutions
`46.
`published actual reimbursement rates under the CMS’ 2021 Medicare Physician Fee Schedule. A
`Baird analyst commented that these rates were “way lower than” the former codes, citing one
`example where iRhythm was previously reimbursed around $311, but was now receiving just
`$42.68. The Baird analyst added that “[t]his is a massive slash on the face in the most important
`MAC jurisdiction for iRhythm.”
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`CLASS ACTION COMPLAINT
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