Molina Healthcare, Inc.
- Company Name
- Molina Healthcare, Inc.
- Stock Symbol
- Class Period
- October 31, 2014 to August 2, 2017
- Motion Deadline
- June 29, 2018
- Central District of California
The complaint charges Molina and certain of its officers with violations of the Securities Exchange Act of 1934. Molina is a multi-state health care organization that arranges for the delivery of health care services and offers health information management solutions to nearly five million individuals and families who receive their care through Medicaid, Medicare and other government-funded programs in 15 states.
The complaint alleges that during the Class Period, defendants misled investors regarding the scalability of Molina’s existing administrative infrastructure, with its executives falsely claiming that the Company’s existing administrative infrastructure could support rapid growth into existing Medicaid markets and new Patient Protection and Affordable Care Act health insurance marketplaces (“ACA Health Exchanges”) in a cost-effective manner. Molina later admitted that its existing administrative infrastructure was built for a “much smaller, simpler business” and was “never” designed to support the Company’s growth strategy. As a result of these false statements, the price of Molina common stock was artificially inflated to more than $80 per share during the Class Period.
The truth regarding Molina’s failed growth strategy and inadequate administrative infrastructure was revealed through a series of partial disclosures regarding Molina’s financial results, beginning on April 28, 2016 and culminating on August 2, 2017, when the Company reported a net loss of $230 million for the second quarter of 2017, the termination of its ACA Health Exchange participation in Utah and Wisconsin, and that it would implement a major restructuring plan.
In the related August 2, 2017 earnings call, the Company revealed that its administrative infrastructure was never designed to sustain such rapid growth. According to Molina’s CFO, “we did not properly adjust our business to absorb the growth that resulted from the Affordable Care Act” and “did not fully appreciate that growth in the ACA Marketplace required robust development of new capabilities that we did not have.” The CFO also stated that, as a result of Molina trying to “manage [its] growth within an infrastructure designed for a much smaller, simpler business, [it had] experienced breakdowns in areas like provider payment, utilization management, risk adjustment and information management.” In addition, Molina’s CFO admitted that they had known about the “utilization management issues . . . in the first quarter of 2016,” and that the money they were spending on administration was misdirected. On this news, the price of Molina common stock fell $3.92 per share, or nearly 6%, to close at $62.32 per share on August 3, 2017.