A federal judge in Delaware has allowed significant portions of a securities fraud lawsuit against Humana (HUM) and certain former executives to proceed, finding that investors plausibly alleged misleading statements regarding the company’s Medicare Advantage utilization trends and its Star Ratings program. The ruling keeps alive Section 10(b) and 20(a) claims tied to alleged statements during the July 27, 2022, to October 1, 2024, period, while dismissing Gamla Liv’s claims relating to the Star Statements.
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The case centers on allegations that Humana and former executives Bruce D. Broussard and Susan M. Diamond misrepresented the extent of rising healthcare utilization following the COVID-19 pandemic and allegedly overstated the extent to which Humana’s Medicare Star ratings could offset resulting financial pressures, although the court dismissed Gamla Liv’s claims tied to the Star Statements. According to the complaint, those alleged misstatements artificially inflated Humana’s stock price until corrective disclosures allegedly revealed the company’s actual utilization trends and financial exposure.
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Court Rejects Standing Challenge Against Lead Plaintiff
Defendants argued that lead plaintiff SEB Investment Management AB lacked standing because the securities purchases were made by investment funds rather than SEB directly. Judge Jennifer L. Hall rejected that argument, citing prior decisions recognizing standing for asset managers acting on behalf of managed funds.
The Court found that the complaint sufficiently alleged that SEB possessed authority to pursue claims on behalf of the funds and that the funds themselves could not independently bring the action.
Court Finds Investors Adequately Alleged False Statements and Scienter
The Court also rejected Humana’s argument that the complaint failed to adequately plead falsity or scienter under the Private Securities Litigation Reform Act. Judge Hall noted that the complaint identified 42 allegedly false or misleading statements and included detailed explanations regarding why those statements were allegedly misleading when made.
The ruling focused heavily on alleged statements concerning Medicare Advantage utilization trends. The complaint alleged that Humana executives publicly described inpatient utilization as lower than expected while internally discussing increased utilization during recurring company meetings attended by senior leadership.
The Court concluded that those allegations plausibly supported an inference that former CFO Susan Diamond knew about the utilization trends when making public statements minimizing their impact. Judge Hall stated that the competing inference proposed by defendants—that such information never reached the CFO—was not more compelling than plaintiffs’ allegations.
The Court reached a similar conclusion regarding statements tied to Humana’s Medicare Star ratings. Plaintiffs alleged that company executives discussed the anticipated negative impacts of projected Star ratings results internally while publicly presenting the ratings as a competitive advantage. The Court found those allegations sufficient to plead both falsity and scienter at the motion-to-dismiss stage.
Court Partially Dismisses Certain Loss Causation Claims
Although most claims survived, the Court partially granted the motion to dismiss with respect to claims asserted on behalf of Gamla Liv relating to the Star Statements. Judge Hall found that Gamla Liv sold its Humana shares before the alleged October 2024 corrective disclosure and therefore could not plausibly allege losses caused by that disclosure.
The Court otherwise rejected defendants’ broader challenges to loss causation. Defendants argued that several alleged disclosures merely repeated earlier information or originated from third parties. Judge Hall disagreed, holding that the complaint plausibly alleged that several disclosures revealed new information to the market, including alleged information about pent-up healthcare demand, higher utilization levels, and a higher medical loss ratio.
The ruling highlighted several alleged disclosures, including statements in late 2023 and early 2024 that utilization pressures were expected to persist into 2024 and that Humana was unable to fully offset higher inpatient utilization costs despite prior representations.
Section 20(a) Claims Also Survive
Because the Court determined that plaintiffs plausibly alleged at least one underlying Section 10(b) violation, it also allowed the related Section 20(a) control-person claims to proceed against the individual defendants.
Judge Hall ultimately denied the motion to dismiss with respect to claims tied to the alleged Utilization Statements and claims brought on behalf of the SEB Funds, while dismissing only the Gamla Liv claims tied to the Star Statements.
What Happens Next
The Court directed the parties to jointly submit a proposed scheduling order and address any remaining scheduling disputes by May 26, 2026. The Court may then hold a Rule 16 scheduling conference to establish the next phase of the litigation.
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