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Case 2:10-cv-05064-ADS-WDW Document 57 Filed 04/16/12 of 133 PageID #: 747

UNITED STATES DISTRICT COURT EASTERN DISTRICT OF NEW YORK

In re: GENTIVA SECURITIES LITIGATION

CASE NO. 10-CV-5064 (ADS)(WDW)

CONSOLIDATED CLASS ACTION COMPLAINT

JURY TRIAL DEMANDED

ELECTRONICALLY FILED

KAPLAN FOX & KILSHEIMER LLP Frederic S. Fox Joel B. Strauss Jeffrey P. Campisi Gwendolyn N. Cutini 850 Third Avenue, 14th Floor New York, New York 10022 Tel: (212) 687-1980 Fax: (212) 687-7714

KAPLAN FOX & KILSHEIMER LLP Justin B. Farar 11111 Santa Monica Blvd. Suite 620 Los Angeles, CA 90025 Tel: (310) 575-8604 Fax: (310) 575-8697

KAPLAN FOX & KILSHEIMER LLP Laurence D. King 350 Sansome Street, Suite 400 San Francisco, California 94104 Tel: (415) 772-4700 Fax: (415) 772-4707

Lead Counsel for Lead Plaintiff the Los Angeles City Employees’ Retirement System and the Proposed Class


Table of Contents

I. NATURE AND GENERAL OVERVIEW OF THE CLAIMS ............................................. 1

II. JURISDICTION AND VENUE ............................................................................................ 2

III. EXCHANGE ACT CLAIMS ................................................................................................ 2

A . The Exchange Act Parties ............................................................................................. 5

B. Overview of the Exchange Act Defendants’ Wrongful Conduct ................................ 7

1. Relevant Background on Home Health Care Eligibility Rules and Regulations, Medicare’s Prospective Payment System and Therapy Thresholds ............................. 7

a. Bonus Payments Based on Number of Visits ........................................................... 9

b. Recertifications ....................................................................................................... 10

c. LUPAs .................................................................................................................... 11

2. Statistics Suggest that Gentiva Provided Therapy Visits Based on Meeting Bonus Payment Criteria, Rather Than Patient Medical Needs ................................... 11

3. Lead Counsel’s Investigation Corroborates the Findings of the SFC......................... 18

4. The SEC is Investigating Gentiva ............................................................................... 35

C. The Exchange Act Defendants’ Materially False and Misleading Statements ........... 35

1. Second Quarter 2008 Financial Results and Representations about Compliance with Medicare Standards and Regulations .................................................................. 37

2. Third Quarter 2008 Financial Results and Representations about Compliance with Medicare Standards and Regulations .................................................................. 45

3. 2008 Financial Results and Representations about Compliance with Medicare Standardsand Regulations .......................................................................................... 50

4. First Quarter 2009 Financial Results and Representations about Compliance with Medicare Standards and Regulations .................................................................. 57


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D. Loss Causation/Economic Loss ................................................................................ 100

E. Fraud-On-The-Market Doctrine ................................................................................ 105

F. Additional Scienter Allegations ................................................................................ 106

G. No Safe Harbor ......................................................................................................... 108

H. Claims for Relief under the Exchange Act ............................................................... 108

IV. SECURITIES ACT CLAIMS ............................................................................................ 111

A. The Securities Act Parties ......................................................................................... 111

B. Gentiva’s False and Misleading Offering Documents .............................................. 112

1. The 2009 10-K .......................................................................................................... 113

2. The Q1 2010 10-Q .................................................................................................... 115

3. The Q2 2010 10-Q .................................................................................................... 116

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4 . The Q3 2010 10-Q .................................................................................................... 117

C. Claims for Relief Under the Securities Act .............................................................. 119

V. CLASS ACTION ALLEGATIONS .................................................................................. 121

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Lead Plaintiff, the Los Angeles City Employees’ Retirement System (“LACERS”), by its

attorneys, on behalf of itself and all others similarly situated, alleges the following based upon

the investigation by Lead Plaintiff’s counsel, except as to allegations specifically pertaining to

Lead Plaintiff, which are based on personal knowledge. The investigation by counsel included,

among other things, a review of Gentiva Health Services, Inc.’s (“Gentiva” or the “Company”)

public filings with the U.S. Securities and Exchange Commission (“SEC”), press releases issued

by the Company, public conference calls, media, analyst and news reports about the Company,

publicly available trading data relating to the price and volume of Gentiva securities, the Staff

Report on Home Health and the Medicare Therapy Threshold prepared by the Staff of the U.S.

Senate Finance Committee, including the Appendix of documents attached thereto, and Lead

Counsel’s interviews with former Gentiva employees.

I. NATURE AND GENERAL OVERVIEW OF THE CLAIMS

1. This is a securities class action brought under Sections 11 and 15 of the Securities

Act of 1933 (the “Securities Act”), 15 U.S.C. §§ 77k, and 77o, and Sections 10(b) and 20(a) of

the Securities Exchange Act of 1934 (the “Exchange Act”), 15 U.S.C. §§ 78j(b) and 78t(a); and

SEC Rules 10b-5, 17 C.F.R. § 240.10b-5 (the “Action”).

2. The Action is brought on behalf of a class consisting of all persons or entities that

purchased the publicly traded securities of Gentiva between July 31, 2008 and October 4, 2011,

inclusive (the “Class Period”) against Gentiva and certain of its present and former officers,

executives, and directors for violations of the Exchange Act and the Securities Act.

3. The Exchange Act claims are alleged in Section III of this Consolidated Class

Action Complaint (the “Complaint”) and the Securities Act claims are alleged in Section IV of

the Complaint. The Class Action allegations are in Section V of the Complaint.

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II. JURISDICTION AND VENUE

4. This Court has jurisdiction over the subject matter of the Action pursuant to

Section 22(a) of the Securities Act (15 U.S.C. § 77v(a)), Section 27 of the Exchange Act (15

U.S.C. § 78aa), and 28 U.S.C. § 1331.

5. Venue is proper in this District pursuant to Section 22(a) of the Securities Act (15

U.S.C. § 77v), Section 27 of the Exchange Act (15 U.S.C. § 78aa) and 28 U.S.C. §§ 1391(b) and

(c). Substantial acts in furtherance of the wrongs alleged and/or their effects have occurred

within this District, and for part of the Class Period Gentiva maintained its principal office in

Melville, New York.

6. In connection with the acts and omissions alleged in this Complaint, all of the

defendants, directly or indirectly, used the means and instrumentalities of interstate commerce,

including, but not limited to, the mails, interstate telephone communications, and the facilities of

the national securities markets.

III. EXCHANGE ACT CLAIMS

7. Gentiva purports to be a provider of home health and hospice services, providing

nursing; physical, occupational, speech and neurorehabilitation services; and other therapies and

services. During the Class Period, the Company reportedly provided direct home nursing and

therapy services through licensed and Medicare-certified agencies located in 39 states.

8. During the Class Period, Gentiva reported increased revenues and profit margins,

in large part, due to Gentiva’s purported growth in its home health business. Gentiva’s most

significant reimbursement source was the U.S. government’s Medicare program. Notably, of

Gentiva’s home health revenues between 2008 and 2011, Medicare reimbursements represented

approximately 69%, 72%, 75% and 78%, respectively.

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9. Accordingly, Gentiva’s continued compliance with Medicare standards and

regulations was materially important to Gentiva’s financial results and continued growth. In

fact, Gentiva’s quarterly and annual filings with the SEC repeatedly represented that “there are

certain standards and regulations that the Company must adhere to in order to continue to

participate in Medicare, Medicaid and other federal and state healthcare programs . . . The

Company believes that it is currently in compliance with these standards and regulations.”

10. The Exchange Act Defendants further represented that the Company maintained a

“robust” and “best-in-class” compliance department; that the Company did not condone

manipulation of the Medicare reimbursement system; and that the Company maintained effective

internal controls over financial reporting and maintained effective disclosure controls and

procedures.

11. However, as alleged in detail below, an investigation by the U.S. Senate Finance

Committee (“SFC”), as well as Lead Counsel’s own investigation, revealed that these

representations were materially false and misleading when made because the Exchange Act

Defendants knowingly, or with at least reckless disregard, misstated that the Company was in

compliance with Medicare standards and regulations and failed to disclose that, in its effort to

report ever increasing revenues and profit margins, Gentiva and its most senior management

caused Gentiva’s employees and clinicians to seek reimbursement from Medicare for medically

unnecessary services—in direct violation of Medicare standards and regulations.

12. As alleged below, the SFC found internal, nonpublic documents, including

emails, that showed Gentiva management, including its most senior executives, discussed

increasing therapy visits and expanding specialty programs to increase Medicare reimbursements

in response to changes to the Medicare reimbursement system in 2008. Specifically, internal

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emails reflect that Defendants Anthony M. Strange (“Strange”) (Gentiva’s CEO and Chairman)

and Ronald A. Malone (“Malone”) (Gentiva’s former CEO and Chairman) closely followed

changes to policies and procedures for reimbursement from Medicare and, along with other

Company executives, were well aware of internal discussions and analyses by Gentiva senior

management concerning how reimbursement revenue from Medicare could be increased by

providing patients with additional therapy visits and services, regardless of medical need.

13. Indeed, as alleged in detail below, the SFC found that home healthcare practices

at Gentiva (and certain other home health providers) “at best represent abuses of the Medicare

home health program. At worst, they may be examples of for-profit companies defrauding the

Medicare home health program at the expense of taxpayers.”

14. Further, the findings of the SFC were corroborated in interviews conducted by

Lead Counsel with numerous former Gentiva clinicians and branch managers from Gentiva

locations across the U.S. These former employees, representing numerous Gentiva offices from

diverse areas of the U.S., told a common story of being chronically pressured by senior Gentiva

management to provide medically unnecessary services to patients in order to improperly

increase reimbursements from Medicare.

15. As a result of the Exchange Act Defendants’ wrongful conduct, Gentiva shares

traded at artificial prices throughout the Class Period, trading, at certain points, over $30 per

share.

16. As alleged below, through a series of partial disclosures that revealed the truth

about Gentiva, the Company’s stock price declined and by the end of the Class Period, the

Company’s common stock traded at $3.02 per share, a decline of approximately 90% from the

Class Period high.

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A. The Exchange Act Parties

17. Lead Plaintiff LACERS, as detailed in the certification attached hereto, purchased

Gentiva’s publicly traded common stock during the Class Period and was damaged thereby.

18. Defendant Gentiva is incorporated in Delaware and its current principal executive

offices are located at 3350 Riverwood Parkway, Suite 1400, Atlanta, Georgia 30339. During the

Class Period, Gentiva maintained executive offices in Melville, New York.

19. Defendant Malone was the Company’s Chief Executive Officer from June 2002

to December 2008 and was the Company’s Chairman of the Board of Directors until May 2011,

when Strange became Chairman. During the Class Period, Malone acquired 146,775 Gentiva

shares through the exercise or conversion of stock options and he sold nearly all of them

(145,018 shares) at artificially inflated prices for proceeds of approximately $3.1 million.

Malone did not purchase Gentiva shares on the open market. During the Class Period, Malone

signed Gentiva’s annual and quarterly reports filed with the SEC and made false representations

to investors and analysts on conference calls as alleged herein.

20. Defendant John R. Potapchuk (“Potapchuk”) was the Company’s Chief Financial

Officer and Treasurer from the beginning of the Class Period until May 13, 2010. During the

Class Period, Potapchuk acquired 120,505 shares through the exercise or conversion of options

and he sold nearly all of them (115,883 shares) for proceeds of approximately $3.2 million.

Potapchuk did not purchase any Gentiva shares on the open market. During the Class Period,

Potapchuk signed Gentiva’s annual and quarterly reports filed with the SEC and made false

representations to investors and analysts on conference calls as alleged herein.

21. Strange became Gentiva’s Chief Executive Officer in January 2009 and the

Company’s Chairman of the Board of Directors in May 2011. He served as Gentiva’s President

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beginning in 2007 and as Chief Operating Officer from November 2007 until May 2009. From

February 2006 to November 2007, Strange served as executive V.P. of Gentiva and president of

Gentiva’s home health division. During the Class Period, Strange acquired 109,608 Gentiva

shares through the exercise or conversion of stock options and he sold 31,078 Gentiva shares at

artificial prices for proceeds of approximately $756,712. Strange did not purchase any Gentiva

shares on the open market. During the Class Period, Strange signed Gentiva’s annual and

quarterly reports filed with the SEC and made false representations to investors and analysts on

conference calls as alleged herein

22. Defendant Eric R. Slusser (“Slusser”) has served as the Company’s Chief

Financial Officer, Treasurer and Executive V.P. since May 13, 2010. During the Class Period,

Slusser signed Gentiva’s annual and quarterly reports filed with the SEC and made false

representations to investors and analysts on conference calls as alleged herein.

23. Strange, Malone, Potapchuk, and Slusser are referred to herein as the “Individual

Exchange Act Defendants.” The Individual Exchange Act Defendants, because of their positions

with the Company, possessed the power and authority to control the contents of Gentiva’s

quarterly reports, press releases and presentations to securities analysts, money and portfolio

managers and institutional investors, i.e. , the market. Each of the Individual Exchange Act

Defendants 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 their positions and their access

to material non-public information, each of the Individual Exchange Act Defendants knew, or at

least recklessly disregarded, that the adverse material facts specified herein had not been

disclosed to and were being concealed from the public and that the positive representations

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which were being made were then materially false and misleading. The Individual Exchange

Act Defendants are liable for their respective false representations pleaded herein.

24. Gentiva and the Individual Exchange Act Defendants are collectively referred to

as the “Exchange Act Defendants.”

B. Overview of the Exchange Act Defendants’ Wrongful Conduct

1. Relevant Background on Home Health Care Eligibility Rules and Regulations, Medicare’s Prospective Payment System and Therapy Thresholds.

25. The Social Security Act defines the eligibility and coverage requirements for

Medicare home health benefits by stating that home health services shall be provided only to

beneficiaries who (1) are homebound ; (2) have medical necessity (i.e. , need intermittent skilled

nursing care, physical therapy, speech therapy or occupational therapy); and (3) are under a

physician’s plan of care. See Social Security Act §§ 1814(a)(2)(C) and 1835(a)(2)(A), 42 U.S.C.

§§ 1395f and 1395n(a)(2)(A). Medicare defines “medically necessary” services as those “that

are needed for the diagnosis or treatment of your medical condition and meet accepted standards

of medical practice.”

26. Gentiva’s annual report for the year ended December 31, 2010 filed with the SEC

on Form 10-K (“2010 10-K”) represented, in part, the following:

Government Regulations

The Company’s business is subject to extensive federal, state and, in some instances, local regulations which govern, among other things: Medicare . . . .

The Company’s compliance with these regulations may affect its participation in Medicare . . . to participate in the Medicare program, a Medicare beneficiary must be under the care of a physician, have an intermittent need for skilled nursing or physical or other therapy care, must be homebound and must receive home healthcare services from a Medicare certified home healthcare agency. The Company is also subject to a variety of federal and state regulations which

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prohibit fraud and abuse in the delivery of healthcare services. These regulations include, among other things: . . . . laws against the filing of false claims . . . .

27. The False Claims Act provides that any person who “knowingly presents, or

causes to be presented, a false or fraudulent claim for payment or approval; [or] knowingly

makes, uses, or causes to be made or used, a false record or statement material to a false or

fraudulent claim” is liable for a civil penalty of up to $11,000 for each such claim, plus three

times the amount of the damages sustained by the federal government. 31 U.S.C. § 3729(a); see

also 28 C.F.R. § 85.3 (adjustment to penalties).

28. The Balanced Budget Act of 1997 changed the way Medicare paid for home

health services such as nursing care, physical, occupational and speech therapy, medical social

work and home health aid services by requiring the implementation of a prospective payment

system, or “PPS.” Under the PPS, home health service providers, such as Gentiva, are paid

prospectively, or in advance, for a substantial portion of the total payment to which they are

entitled for a given patient based on, inter alia, (a) a predetermined rate schedule established by

Medicare, and (b) a pre-treatment assessment of the given patient’s condition and proposed plan

of care during a 60 day time period, known as an “episode.”

29. The Centers for Medicare and Medicaid Services (“CMS”) also developed a

patient classification system to adjust payments for home health services under the PPS, known

as the “case-mix adjustment,” that considers each patient’s health characteristics and use of

services.

30. After a physician prescribes a home health plan of care, the service provider (such

as Gentiva) assesses the patient’s condition and likely skilled nursing care, therapy or other

covered needs at the beginning of the episode of care. A nurse or therapist from the service

provider must perform this assessment for the initial episode and each subsequent 60 day episode

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of care the patient receives. The assessment is done using a form called the Outcome and

Assessment Information Set, which is commonly referred to as “OASIS.” OASIS items

describing a patient’s condition, as well as expected therapy needs ( i.e. physical, occupational,

speech), are used to determine the case-mix adjustment to the standard payment rate for the

episode. There are 153 case-mix groups, or Home Health Resources Groups (“HHRG”)

available for patient classification.

31. Because HHRG classification, in effect, determines the expected level of home

health care the patient requires, and, accordingly, how much Medicare will pay the home health

care provider, proper completion of the OASIS is of critical importance, especially given that the

system provides that Medicare will typically pay 60% of the total amount the health care

provider is entitled to receive in advance for the services to be provided during the initial 60 day

episode of care.

a. Bonus Payments Based on Number of Visits

32. Through 2007 the Medicare payment system included a therapy “bonus” when a

home health agency provided at least 10 therapy visits. The bonus was substantial and could be

as much as $2,200 for providing a patient with 10 therapy visits. CMS implemented the bonus

measure, in part, to discourage “stinting,” a term used within the industry to describe health care

providers providing the lowest level of service necessary to collect a “bonus”.

33. For a variety of reasons CMS determined to change, effective January 1, 2008, the

number of therapy visits required for a service provider to receive a

“bonus” payment. Instead of the 10 visit threshold, CMS established bonus thresholds at 6, 14

and 20 visits. Home health care providers (such as Gentiva) could receive substantially higher

payments from Medicare if they reached the 6, 14, and 20 visit thresholds within each 60-day

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episode period. The service providers could receive greater payments between the thresholds

(i.e. for reaching 7, 10, 11, 16 or 18 therapy visits), but the payments were not as significant as

the 6, 14 and 20 visit payment increases.

34. Although, as noted above, under the PPS the service provider generally receives

an upfront payment of approximately 60% of the estimated payment entitlement under the

Medicare payment grid, the service provider’s final payment is based on the actual number of

home visits made during the 60-day episode.

b. Recertifications

35. Toward the end of the initial episode of care, the clinician must determine

whether the patient is eligible for and requires continued home health care. If a patient continues

to be eligible for the home health benefit under Medicare, the home health PPS permits

continuous episode care—known as a “recertification.” Accordingly, at the end of each 60-day

episode of care, a decision is made as to whether or not to “recertify” the patient for another 60-

day episode. An eligible beneficiary who qualifies to be recertified for another 60-day episode

of care would start the subsequent 60-day episode on day 61. Unlike the initial episode where

the home health care provider receives 60% of the anticipated fee from Medicare upfront, the

home health care provider receives an upfront payment of 50% of the anticipated Medicare fee

for episodes resulting from recertifications. Home health care providers such as Gentiva like

when they can recertify patients for continuous care because it allows for them to maintain their

patient census. Moreover, the health care provider generally reaps a higher profit margin with

respect to such patients. This is the case because, among other things, patient intake and other

information is already in the company’s system, thus reducing paperwork relating to such

patient.

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c. LUPAs

36. The PPS has a Low-Utilization Payment Adjustment, or “LUPA”, for patients

who receive less than 5 visits during a 60-day episode. LUPAs may result from a variety of

circumstances, including if a patient refuses to accept more than four visits or is re-hospitalized

or dies before receiving a fifth therapy visit or if it is determined that the patient, due to changed

circumstances, simply does not require more than four visits. LUPAs are paid a standardized

service-specific per visit amount multiplied by the actual number of visits during the episode.

Health care providers such as Gentiva want to avoid LUPAs because not only are the service

specific payments generally less than what they would otherwise receive, but the profit margins

for LUPA patients are much lower because the home health care provider has fewer visits over

which to spread costs relating to servicing the patient such as intake, medical records, billing and

discharge. Moreover, an episode involving a LUPA because of less than five visits can result in

the home health care provider having to pay back to Medicare a substantial amount of money—

that being the difference between the amount originally paid to the company under the PPS

based on the original OASIS form and plan of care and the lesser amount payable under the per-

visit formula applicable to LUPAs.

2. Statistics Suggest that Gentiva Provided Therapy Visits Based on Meeting Bonus Payment Criteria, Rather Than Patient Medical Needs.

37. In apparent response to reports that home health providers such a Gentiva were

providing medically unnecessary visits to patients in order to hit thresholds required by Medicare

to receive bonus payments, the SFC, which has oversight jurisdiction over Medicare, conducted

an investigation commencing in May 2010, which spanned 17 months. In connection with such

investigation the SFC sought, obtained and reviewed documents provided to it by Gentiva.

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Based on its investigation, the SFC made a number of findings that were set forth in its report

dated September 30, 2011 and publicly disseminated on October 3, 2011. See Staff of the

Committee on Finance U.S. Senate, 112th Cong., Staff Report on Home Health and the Medicare

Therapy Threshold, S. Prt. 112-24 (2011). (“SFC Report”).

38. As noted in the SFC Report, based on data provided to it by Gentiva, the SFC

found that when Medicare changed the number of visits required for home health providers to

receive bonus payments, there was a statistically significant shift in the number of home visits

Gentiva provided to patients. For example, in 2007, when the 10 visit threshold still applied to

receive a bonus payment, “7.7 percent of Gentiva’s therapy episodes received 10 visits while 3.6

percent of the therapy episodes received 9 visits.” However, in 2008, when the 10 visit threshold

was eliminated and replaced by the 6, 14 and 20 visit thresholds, the number of therapy episodes

that received 10 visits dropped to 5.8 percent, representing a sudden 25% drop in the number of

patient episodes receiving 10 visits.

39. The SFC also found that from 2007 to 2008 when, as described above, the number

of visit thresholds for Medicare bonus payments changed from 10 visits to 6, 14 and 20 visits,

the number of therapy visits provided to Gentiva patients in the 6 to 9 visit range suddenly

increased from 18.9% in 2007 to 22.1% in 2008 (representing a 17% increase); the number of

Gentiva patient episodes receiving 14 visits suddenly increased from 4.0% to 4.8% (representing

a 20% increase); and the number of therapy episodes receiving 20 visits suddenly increased from

1.6% to 2.1% (representing a 31% increase).

40. The sudden and material post-2007 shift in the number of visits Gentiva’s

Medicare patients were receiving was no accident and was, in material part, driven by Gentiva’s

desire to increase revenues by taking advantage of the new 2008 therapy visit thresholds required

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for enhanced Medicare payments. Indeed, based on its investigation, the SFC Report states:

Internal documents and e-mails show that Gentiva’s management discussed increasing therapy visits and expanding specialty programs to increase Medicare reimbursements as a result of the proposed 2008 CMS payment changes.

41. Notably, these documents and emails show how Gentiva executives were focused

on how the Company could increase revenues and margins by adapting its number of patient

visit protocols to the new CMS thresholds for enhanced payments.

42. For example, as noted in the SFC Report, on January 5, 2007, Mara Brenner,

Gentiva’s Vice-President for Government Affairs, sent Malone and Strange an email, the subject

of which was: “PPS Refinements Proposed Regulations”, that stated, in part:

Hi Ron and Tony,

FYI—We are waiting on the release by CMS of the PPS refinements proposed regulations that will include the three new therapy thresholds along with case mix changes . . .

* * *

. . . CMS officials also stated yesterday that investors and others are anxious to see the proposed regulation. . . .

* * *

At this time, the PPS refinements are not expected to be implemented until at the earliest January 2008.

43. Susan Sender, who was copied on the above email, and at the time was a Gentiva

V.P. and Chief Clinical Executive, responded to the above January 5 email that was sent to

Malone and Strange, among others, stating:

FYI—we also have an internal group . . . crunching utilization and outcomes data to determine whether revisions to our therapy protocols are clinically defensible.

44. Indeed, the SFC uncovered a Gentiva Excel spreadsheet entitled “Changes in

Profitability due to Proposed Changes in Therapy Reimbursement” that analyzed the impact of

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the new 6, 14 and 20 visit thresholds on Gentiva profits assuming application of the new

thresholds to Gentiva patient episodes experienced between July 1 and December 31, 2006.

Tellingly, the analysis showed that if the Company did not adjust the number of patient visits to

the new thresholds the Company would experience a decrease in earnings before interest, taxes,

depreciation and amortization (“EBITDA”) of $4,970,810. However, the same analysis showed

that if therapy visits were “increased 2 to 4 visits to reach the 6 and 14 visit plateaus” earnings

could be increased by $8,400,880.

45. The focus by Gentiva executives on how to increase revenues and margins by

taking advantage of the new Medicare payment thresholds continued in anticipation of the

January 1, 2008 changes, as exemplified by the following email to defendant Strange (among

others) from Perri Southerland of Gentiva’s Finance Department in which Company executives

are figuring out how much more money Gentiva can make by increasing therapy visits just

enough to push the episode into the next highest Medicare reimbursement “bucket.” The

analysis was even so brash as to note how the Company could achieve higher profitability by

swapping less costly nursing services for more expensive therapy services. Notably, patient

needs are never mentioned in the analysis:

From: Sent: To: CC: Subject: Attachments:

Hi Tony:

Southerland, Perri Friday, September 07, 2007 02:49AM Strange, Tony Wollstein, Mary; Ballew, Brandon PPS refinements - Therapy analysis Therapy Analysis.xls

I have attached some analyses of the therapy episodes for Q1 of 2007. As we discussed on Tuesday, the average therapy visits for “nonSpecialty” episodes is comparable to the Gentiva Orthopedics program. This is the first summary included in the attachment.

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I also summarized all nonLUPA episodes by the therapy groups that make up the S scores in reimbursement. For each increase in S score (or therapy bucket), the reimbursement increases between about $350 to $550. In the analysis, I increased the therapy visits by an average of two visits to determine the additional revenue from moving to the next highest therapy bucket. The lowest episodes that I added the two visits to were 4 therapy visits, since 3 visits to 5 visits would not increase reimbursement.

The third analysis is based on a point that Mary brought up in our meeting. She reported on episodes with high therapy visits, but the functional score was low. I calculated the inverse. Functional scores were high, F2 or F3, but no therapy was provided to these patients. I calculated the additional revenue if 6 therapy visits were provided to these patients with the high functional scores.

In all cases, I calculated the additional revenue on 100% of the episodes changing in the analysis. All the revenue increases are for 1 quarter only.

In summary, increasing therapy visits by an average of 2 visits per episode will increase revenue by approximately $350 to $550 per episode. Adding therapy services (6 visits) to patients with high functional needs will increase revenue by about $700 per episode. Costs will need to be controlled on these episodes (swap nursing for therapy visits), or profitability will decrease.

I hope the worksheets are self explanatory, but give me a call if further explanations are needed.

Perri Perri Southerland Finance Department Gentiva® Health Services Hoover, AL 35244 [Redacted]

(emphasis added).

46. Gentiva’s concern with providing enough visits to patients to avoid LUPAs,

regardless of patient medical needs, was also noted in the SFC Report which stated at page 18,

again citing to internal Gentiva documents, that:

There is also evidence of a direct push toward therapy thresholds in Gentiva’s internal educational materials. A presentation titled “PPS Refinements” noted “About 12% of Gentiva’s episodes have LUPA adjustments, less than five visits in the episode.” The document stated that it is “Interesting how many are at 5, could we have done one more visit??”

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(emphasis added).

47. Even after the new visit thresholds for increased Medicare payments became

effective in early 2008, Gentiva executives were always analyzing how revenues and earnings

could be increased by adding visits to meet the new thresholds, as exemplified in the following

email in which an Area V.P. for Financial Operations asked a subordinate to provide analyses

considering the new thresholds and stated “I’d like to know what overall impact we’ll get if we

push for an increase in therapy . . .”. Notably, patients’ medical needs are not even mentioned in

the context of pushing for an increase in therapy:

From: Cavanaugh, Pete Sent: Monday, September 29, 2008 2:38 PM To: Wang, Shirley Cc: Ballew, Brandon; Norlander, John Subject: PPS Therapy Impact Analysis

Hi Shirley,

Can you please go through the 2008 PPS file and tell me the total number of episodes that had at least 1 therapy visit (total therapy, not just PT), but less than 7 ? I’d like to know what overall impact we’ll get if we push for an increase in therapy, so all of those episodes times $70 would equal the cost of increasing the utilization. Then take the count of the number of episodes with 5 visits times $480, and the number of episodes with 6 visits and multiply times $500. That will get the revenue impact. Thanks, Pete

Peter M. Cavanaugh AVP Financial Operations Gentiva® Health Services KS 56213 [Redacted]

(emphasis added).

48. Pushing to get more therapy visits into an episode of care in order to increase

revenues continued throughout the Class Period and was a focus of senior Gentiva management.

Indeed, as exemplified by another email cited in the SFC Report, on January 7, 2009 Charlotte

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Weaver, RN, PhD, a Sr. V.P. and Chief Clinical Officer of Gentiva sent an email to defendant

Strange and Beth Landry, a Gentiva V.P., stating, inter alia, that “operations did a [2 part] . . .

management assignment . . . and the 2 nd part addressed getting more therapy visits in an episode

of care.” Again, there is no mention of the medical needs of patients being part of the analysis.

49. Managers and therapists employed by Gentiva throughout the U.S. felt

consistently pressured by senior Gentiva management to increase therapy visits, regardless of

patient medical needs, in order to hit higher Medicare reimbursement thresholds. The following

email (which was cited in the SFC Report) sent to Strange on May 3, 2010 by a Gentiva Physical

Therapist and Orthopedics Director (hereafter referred to as the “Parting Comments Email”)

exemplifies the issue:

From: [Redacted] Sent: Monday, May 03, 2010 03:26 PM To: Strange, Tony Subject: Parting comments

Dear Tony:

As I prepare to leave after 6 years with Gentiva, I would like to share some of my thoughts and concerns. As I wasn’t sure who to send these on to and you always sated (sic) you wanted to hear from us, I am addressing them to you.

* * *

Unfortunately, I have seen many changes with Gentiva in the last few years. I see the push to treat by metrics not by what the patients need. I see dropping insurance companies because they don’t pay well enough. What this is doing is making Gentiva look like cherry pickers and instead of saying all patients will get the best care, Gentiva is saying only those who will pay us well will get good care. This is discrimination in the wors[t] sense in my book and I am not comfortable with it. I understand the need to make a profit and keep the company solvent but I don’t think this is a good way to do it. Treating by numbers is also making the clinicians feel their professional judgment is being questioned. Again, not sitting on plateaus is understandable but pushing to thresholds based on what their diagnosis is, not by what the patient needs is just wrong.

* * *

17


I feel that Gentiva has become the large corporation that is only concerned with the bottom line and not with the people who make it what it is. As such, I am going to pursue other interests and challenges as I am not comfortable working in this environment.

I wish you well with the future.

Sincerely,

[Redacted] PT Orthopedics Director Gentiva®

(emphasis added).

50. The SFC further revealed, based on its review of Gentiva documents, that

“Gentiva developed a competitive ranking system for management that served to drive therapy

visit patterns toward the more profitable thresholds.” Through Gentiva’s ranking system, known

as Key Indicator Reports , Gentiva administrators tracked several metrics, including metrics “that

would increase a region’s rank based on the percentage of therapy visits that fell in the most

profitable therapy visit range, between 7 and 20 sessions”, and on therapy visits per episode.

51. Indeed, Defendants Strange, Slusser and Potapchuk were aware that Gentiva

ranked the financial performance of areas based, in part, on these metrics. On May 5, 2010,

Gentiva executives and officers, including Defendants Strange, Slusser and Potapchuk, (as well

as senior and regional V.Ps. and directors, including those identified below in paragraphs 53-61)

were sent an email from Brandon Bellow, V.P. of Finance and Investor Relations, that identified

metrics by which Gentiva’s regions would be ranked, including “Visits Per Episode,” “%

Therapy > 20,” and “% Therapy < 7.”

3. Lead Counsel’s Investigation Corroborates the Findings of the SFC.

52. As set forth the below, Lead Counsel interviewed former Gentiva branch and

18


other managers and clinicians from across the U.S. who conveyed a similar story—that

throughout the Class Period pressure from Gentiva executives was consistently placed on staff to

provide medically unnecessary services to patients in order to increase Company revenues and

earnings. And, among other things, as detailed below, Gentiva executives specifically pressured

managers and clinicians to increase their visits to patients in order to meet the number of visit

thresholds required for bonus payments from Medicare.

53. Lead Counsel interviewed the author of the Parting Comments Email, who will

hereafter be referred to as CW 1. CW 1, a Physical Therapist, was an Orthopedics Director at

Gentiva from April 2004 until May 2010, at which time CW 1 resigned from the Company.

While employed by Gentiva as an Orthopedics Director, CW 1 played a supervisory role over the

Wilkes-Barre, PA and Port Summit, PA branch offices, including the hiring of physical

therapists, and occupational therapists, supervising approximately 8 full-time and 3 to 4 per-diem

physical therapists, and occupational therapists who worked at the aforementioned two offices,

and providing patient care. CW 1 was also involved in marketing Gentiva’s orthopedic specially

programs and services to physicians. CW 1 reported to Elizabeth Scanlon (“Scanlon”) who was

the Area V.P. for Gentiva’s Northeast Pennsylvania Region, which included approximately 6

branch offices that employed approximately 30 to 40 clinicians. Per CW 1, Scanlon reported

directly to Dan Locker (“Locker”), a Gentiva Regional V.P.

(a) CW 1 stated that throughout the Class Period, either by way of periodic meetings

and/or emails, CW 1 was subjected to pressure from Scanlon and/or Locker to increase the

number of patient visits provided by CW 1 and those CW 1 supervised in order to hit the next

highest enhanced Medicare reimbursement threshold, regardless of the patients’ medical needs.

CW1 believed that the demands and pressure to provide medically unnecessary visits to patients

19


to hit revenue targets was wrong.

(b) CW 1 also noted that monthly reports were sent to all specialty directors, such as

CW 1, as well as others including Area V.Ps. (such as Scanlon) and Regional V.Ps. (such as

Locker). Darlene Mahoney, the Regional Director of Specialties, disseminated the monthly

reports. The reports provided comparative data for all Gentiva branch offices, including data

concerning average number of patient visits per episode, patient recertification statistics and

revenue statistics. Per CW 1, the monthly reports were used as a means to pressure CW 1 (as

well as other branch managers and specialty directors) to increase visits per episode. By way of

example, CW 1 was repeatedly asked by superiors such as Scanlon and/or Locker why the

specialty practice offices CW 1 was responsible for had lower visits per episode than other

Gentiva offices reflected on the monthly reports. CW 1 stated that CW 1 knew of other program

directors who also felt they were being inappropriately pressured to have their clinicians provide

medically unnecessary visits to patients in order to meet the number of visit thresholds required

for enhanced payments from Medicare and that, like CW 1, left Gentiva because of the

“threshold pressure.”

(c) CW 1 also stated that although CW 1 gave advance notice to at least two

superiors that CW 1 was leaving the Company, at least, in part, because of what CW 1 believed

to be inappropriate pressure to provide medically unnecessary services, CW 1 was never given

an exit interview upon leaving the Company. Moreover, CW 1 stated that neither defendant

Strange, nor anyone on behalf of Gentiva, ever followed-up in any way with CW 1 concerning

the Parting Comments Email and/or the allegations made therein.

54. Lead Counsel also interviewed the Director of Gentiva’s Las Vegas, Nevada

branch office from July 2006 through April 25, 2010 and who will hereafter be referred to as CW

20


2. As Director of the Las Vegas branch (which fell under the jurisdiction of Gentiva’s Phoenix

regional office), CW 2 was responsible for overseeing day-to-day operations of that office

including supervising 7 office staff members and approximately 50 clinicians. During 2006

through approximately September 2009, CW 2 reported directly to Area V.P. Steve Sadecki

(“Sadecki”). After Sadecki’s resignation from Gentiva in approximately September 2009, CW 2

reported to Robert Koch (“Koch”) who replaced Sadecki. Both Sadecki and Koch reported to

Gentiva Regional V.P., John Aurelio (“Aurelio”) who reported to David Causby, Gentiva’s

Senior V.P. of Home Health (“Causby”), who ultimately reported to defendant Strange, the

Company’s CEO.

(a) From at least January 2010 until CW’s resignation, CW 2 felt frequently

pressured by Koch to either pressure clinicians to provide medically unnecessary visits to

patients to meet the budget projections and/or to pressure clinicians under CW 2’s supervision to

increase case mix weights assigned to patients in a way that would result in increased payments

from Medicare. And, if the clinicians would not do it, CW 2 felt pressured by Koch to review

the documentation to ensure if they needed at least some therapy or more therapy visits to

achieve budget projections. CW 2 consistently resisted Koch’s instructions, which CW 2

believed to be improper, and was consistently chastised by Koch for such challenges. Indeed, at

a Regional Gentiva meeting held in February 2010 (known internally as the “Going into the

Roar” meeting) CW 2 was approached by Koch and Aurelio and again questioned as to CW 2’s

leadership abilities. CW 2 told Koch and Aurelio that he/she was “uncomfortable” with their

request to add unnecessary therapies and patient visits. Koch then told CW 2, in the presence of

Aurelio, that CW 2 was not a leader and he didn’t like the responses to the performance

improvement plan that CW 2 submitted to him. CW 2 responded to Koch and Aurelio by stating

21


“I am not going to jail for anyone.” In April 2010, CW 2 resigned from Gentiva, primarily

because of what CW 2 believed to be undue pressure to engage in improper business practices.

(b) CW 2 was told by one other branch director in his/her territory that Koch also

“harassed” him/her.

55. CW 2’s experience, as outlined herein, was certainly not unique within Gentiva or

for CW 2’s particular region. Indeed, Lead Counsel interviewed the former Branch Director of

Gentiva’s Albuquerque, New Mexico Office (hereafter referred to as CW 3). CW 3 was the

director of this branch from 2007 through approximately August of 2010 and for approximately

6 years prior to that served as the branch’s Clinical Director. The Albuquerque office also fell

under the jurisdiction of Gentiva’s Phoenix regional office and, accordingly, CW 3, like CW 2,

reported to Sadecki until Sedacki’s resignation in September 2009, and then to Koch. Per CW 3,

Sadecki, and then Koch, had oversight responsibilities for Gentiva branches located in Arizona,

California, New Mexico, Nevada, Utah and Washington. CW 3 also reported to Cheri Turner

(“Turner”), Gentiva’s Regional Clinical Leader, in charge of overseeing weekly admission and

clinical reports for Gentiva offices with the Phoenix region. Turner reported to Aurelio in 2009-

2010.

(a) CW 3 believes that periodic comments made to CW 3 by Koch were intended to

put pressure on CW 3 to increase revenue for the Albuquerque branch by providing medically

unnecessary services. Moreover, beginning in the summer of 2009, CW 3 began being subjected

to criticisms from Turner by phone on virtually a weekly basis as to why the Albuquerque office

had “too many LUPAs,” why the gross margins for the office were too low and/or why the

average case mix weights for patients of the office were too low (which meant fewer therapies

and/or visits to patients). CW 3’s employment with Gentiva was terminated by Koch in August

22


2010.

56. Lead Counsel also interviewed a nurse employed by Gentiva from February 2008

through October 2009 who was the manager of Clinical Practice during that time period and will

hereafter be referred to as CW 4. As Manager of Clinical Practice, CW 4 had supervisory

responsibility for approximately 20 clinicians working out of Gentiva’s offices in Sanford and

Orlando, Florida, as well as oversight responsibilities for patient admissions and plans of care.

CW 4 reported to Nilsa Ramos (“Ramos”), Gentiva’s Area Director, as well as Michelle

Mazzonetto (“Mazzonetto”), Gentiva’s Area V.P. of Home Health. Ramos and Mazzonetto

reported to Bruce Carter (“Carter”), a Gentiva Regional V.P.

(a) CW 4 described being subjected to pressure from superiors to meet the enhanced

Medicare payment thresholds of 6, 14 or 20 visits and noted how this was often referred to

internally as “hitting the magic numbers.” In fact, during weekly teleconference calls in which

CW 4 took part, along with Ramos, Mazzonetto, Carter, as well as other Gentiva executives, call

participants discussed individual patient files and respective case mix weights and HHRG scores

for patients. During these calls CW 4 was regularly instructed by superiors to relay the message

to clinicians that “they were not putting in enough therapies,” and that they needed to increase

the number of patient visits which CW 4 interpreted to mean the provision of unnecessary

services. CW 4 was also frequently chastised by Ramos and Mazzonetto to avoid LUPAs “at all

costs” because they negatively impacted Gentiva’s bottom line. CW 4 was also consistently

pressed by the same superiors and for the same reasons, to increase the number of patient

recertifications. Indeed, at one point Ramos told CW 4 “you better have at least 4 recerts a

month . . . no ifs, ands or buts.” CW 4’s position was “eliminated” in October 2009.

57. Lead Counsel also spoke with an individual who was employed as a Compliance

23


Specialist at Gentiva from December 2002 through May 2009 and will hereafter be referred to as

CW 5. In addition to assisting with various internal audits, CW 5 was also responsible for

handling “first line screening” of incoming calls to the Company’s compliance hotline. In that

capacity, CW 5 would take notes of issues raised by callers to the hotline and forward such

issues to the appropriate person within Gentiva. CW 5 recalled receiving several calls in the

2008 to 2009 time-frame from Gentiva employees from the upstate New York area that had a

similar theme—that the clinicians felt they were being asked by management to add or provide

treatments to patients that were not needed and that at least one therapist described as “not

ethically correct.” It was CW 5’s impression from the calls that these clinicians were being

trained by Gentiva managers to add extra therapies that the clinicians did not believe were

necessary.

(a) CW 5 recalls referring the aforementioned complaints to Margo Nemet. It was

CW 5’s understanding that Margo Nemet reported to John Camperlengo, who at the time was the

Company’s Chief Compliance Officer and a Gentiva Senior V.P.

58. CW 5’s impression about clinicians being trained to add extra unnecessary

therapies was not unfounded. Indeed, Lead Counsel interviewed a nurse who worked at

Gentiva’s Binghamton, New York branch from January 2010 through September 2011 who

corroborated that Gentiva clinicians were being trained to complete patient documentation in a

way that would make patients appear medically worse-off than they actually were in order to

justify additional patient services and therefore higher Medicare payments. This nurse, who will

hereafter be referred to as CW 6 was primarily responsible for developing and implementing

home nursing programs for Gentiva patients. CW 6 reported to Becky Brown (“Brown”) a

Gentiva clinical supervisor and Terry Tichenor (“Tichenor”) a Gentiva Nursing Supervisor.

24


(a) CW 6 related that CW 6 was frequently pressured by Brown and Tichenor to

complete initial OASIS forms in a way that would result in a higher need for home health

services than a patient actually needed and would therefore result in higher payments to Gentiva

from Medicare. Moreover, CW 6 told Lead Counsel of being pressured by superiors such as

Brown and Tichenor at the preliminary evaluation of patients to always find a way to add on PT

or OT services (whether truly medically needed by the patient or not) because Medicare would

pay Gentiva more money for these services than for nursing services. CW 6 was pressured by

these same superiors to never allow for the discharge of a patient before an episode ended and

the number of visits for which Medicare paid Gentiva had been completed, regardless of whether

such visits were medically necessary and/or the patient wanted them because to do so would

result in Gentiva having to reimburse Medicare for services not provided, yet already paid for by

Medicare under the PPS.

(b) At some point in 2010 CW 6 informed the Branch Manager for the Binghamton

branch that CW 6 was uncomfortable with patient assessment and Medicare billing practice

instructions CW 6 was being pressured to comply with by Brown and Tichenor. It was CW 6’s

understanding that the Branch Manager shared such concerns and brought them to the attention

of senior Gentiva management.

59. Another former Gentiva employee interviewed by Lead Counsel (who will

hereafter be referred to as CW 7) similarly described undue pressure from Gentiva management

to provide medically unnecessary services to patients in order to increase revenues from

Medicare.

(a) Between January 2009 and August 2011 CW 7, a Registered Nurse, served as a

Manager of Clinical Practice and Branch Manager for Gentiva’s offices in Binghamton and

25


Norwich, New York. (The Norwich office opened toward the end of 2010). CW 7 had

supervisory responsibilities for approximately 8 to 10 clinicians (including nurses, OTs, PTs and

assistants) working out of the Binghamton office and approximately another 5 clinicians working

out the Norwich office. CW 7’s responsibilities included reviewing the OASIS forms prepared

by clinicians as well as their plans of care for patients. CW 7 reported directly to Joley Hine

(“Hine”), Gentiva’s Area Director of Clinical Operations, who, in turn, reported to John Ellis

(“Ellis”), Gentiva’s Regional V.P. Ellis reported for some time to Jeff Shaner (“Shaner”),

Gentiva’s V.P. of Operations for the Home Health Division and to Causby, Gentiva’s Senior

V.P. of its Home Health Division and then, in 2011, President of the Home Health Division.

(b) Throughout CW 7’s employment at Gentiva, CW 7 felt consistently pressured by

Gentiva management to engage in and, in turn, press subordinates to engage in improper conduct

that violated Medicare rules.

(c) For example, on numerous occasions Hine would ask CW 7 to improperly modify

OASIS forms in a way that would result in medically unnecessary services being provided to

patients in order to increase Medicare revenue. CW 7 was pressed by Hine to, in turn, press

clinicians under CW 7’s supervision to push for enough visits to patients to hit the next highest

enhanced Medicare payment threshold, regardless of the patients’ need or even the patients’

desire for such treatment. Indeed, CW 7 explained how, in CW 7’s view, clinicians were being

trained and advised by Gentiva management to manipulate patients, if necessary, into accepting

more care than the patient needed or wanted and were consistently admonished at periodic

meetings with Gentiva managers to always avoid situations whereby Gentiva would have to pay

money back to Medicare, such as LUPAs.

(d) By way of example, CW 7 explained how if a patient had been scheduled under a

26


plan of care for 14 visits (for which Medicare under the PPS had prepaid Gentiva a substantial

amount) and the patient wanted to discontinue receiving services after only 7 visits because

he/she was feeling better and/or did not want to remain home-bound (as required for home

healthcare under Medicare rules), Gentiva clinicians were trained and/or admonished to press the

patient to accept the 14 visits, even if it meant falsely manipulating the patient into believing

such additional visits were necessary. And this was all done so that Gentiva could increase

revenues, regardless of patients’ true medical needs and/or desires. Indeed, where a patient plan

of care fell a visit or two short of an additional Medicare reimbursement threshold, Hine would

tell CW 7 to just add another visit or two, whatever it took to hit the next enhanced payment

threshold, regardless of patient need.

(e) Similarly, CW 7 was consistently told to press subordinates to add OT or PT

services, whenever possible, regardless of patient need, because Gentiva made more money from

Medicare on such services than from nursing. Although CW 7 challenged and protested to Hine

about such instructions by saying, among other things—“if the patients don’t need it, they don’t

need it”—such protestations fell on deaf ears. And, although CW 7 would advise clinicians not

to provide medically unnecessary treatments to patients, CW 7 believes that many Gentiva

clinicians succumbed to pressures placed on them by management to do just that out of fear of

losing their jobs.

(f) CW 7 further explained how Gentiva managers and clinicians were trained to and

pressed by Gentiva executives to wrongly manipulate diagnostic codes on patient intake and

assessment forms so as to increase payments from Medicare. Indeed, as explained by CW 7,

differing diagnostic codes listed for patients resulted in differing payments from Medicare. And,

in instances where a patient’s condition was the result of multiple diagnoses, the diagnostic

27


codes were supposed to be listed on patient assessment forms in a manner that would truly

reflect, by way of example, the patient’s primary condition diagnosis, followed by secondary and

additional diagnoses. The proper listing of diagnoses, as determined by the patient’s physician,

impacted the amount of money Gentiva would be paid by Medicare. Yet, Gentiva management

would pressure clinicians and branch managers to manipulate the listed hierarchy of diagnoses

on patient intake forms in a way that would increase payments from Medicare even if the manner

in which the diagnoses were listed did not truly reflect the patient’s medical condition.

(g) The types of wrongful pressures described above were often exerted through

informal discussions between Gentiva management and branch managers and clinicians.

However, it was also exerted through and during more formal and periodic in person and/or

telephone meetings during which data listed in various periodic reports was discussed. Such

reports included Weekly Projected vs. Actual Reports and Monthly Reports sent to CW 7 by

Hine. The Weekly Projected vs. Actual Reports included numerous statistics for Gentiva

branches, including data on patient clinical scores used for reimbursement; profit percentage by

patient; the number of visits per patient projected based on plans of care used to request payment

from Medicare, versus the actual number of patient visits provided; and other data. Monthly

Reports contained similar data as well as information to assess how Gentiva branches compared

to each other for the various data points listed, including the average number of patient visits per

episode per office. The data listed in these reports was used as tool to pressure Branch Managers

to increase revenues, even if it required providing medically unnecessary services and/or

wrongly manipulating data on forms submitted to Medicare.

(h) In addition to challenging Hine on what CW 7 believed to be improper pressures

by Management, CW 7 alerted Senior Gentiva management of the wrongful conduct in other

28


ways, all to no avail. Indeed, in late 2009 or early 2010 CW 7, along with 3 other Gentiva

Branch Managers/Directors from various areas of the United States, had dinner in Georgia with

Kathleen Shanahan, a Gentiva V.P. of Human Resources. At the dinner, various concerns about

Gentiva’s business practices were raised and discussed. At one point during the dinner Shanahan

asked the others if they felt decisions by Gentiva clinicians in the field were being made based

on financial reasons rather than patient medical needs. CW 7 responded in the affirmative and

further stated that Gentiva had created an environment wherein patient care was often driven by

money as opposed to medical need. The other Gentiva Branch Managers at the dinner did not

object to CW 7’s statement and, in fact, nodded in agreement. CW 7 knows of no follow-up

from Gentiva to the comments CW 7 made to Shanahan at the dinner.

(i) Moreover, in June 2011 CW 7 called Gentiva’s internal compliance hotline to

complain about Gentiva clinicians being unduly pressured to provide patients with unnecessary

visits and/or therapies. To CW 7’s knowledge, there was no follow-up to such call.

(j) Finally, because of, in large part, CW 7’s discomfort with what CW 7 believed to

be Gentiva’s improper Medicare billing practices, CW 7 resigned from the Company in August

2011. At the time, CW 7 sent a resignation letter to Hine in which CW 7 noted that the reasons

for CW 7’s resignation included CW 7’s belief that the Company exerted continuous pressure on

employees to put finances over patient care and CW 7’s belief that patient care should not be

simply finance driven. CW 7 believes a copy of this letter was also sent to Ellis and Bruce

Reardon, another Gentiva V.P. Neither they nor anyone at Gentiva ever followed up with CW 7

with respect to the concerns CW 7 raised in CW 7’s resignation letter, nor was CW 7 ever given

an exit interview.

29


60. Lead Counsel also interviewed former Gentiva employee Holly McComas

(“McComas”) who related the following concerning herself and her experience at Gentiva.

McComas is a registered nurse who was employed by Gentiva as a case manager at its

Charleston, West Virginia branch beginning by at least 2007.

(a) In late 2009, McComas was assigned by Gentiva to work as an admissions nurse,

which involved an initial meeting with patients at their homes where the patients’ conditions

would be assessed and treatment needs determined. McComas remained in this position until

her employment with Gentiva ended on or about April 9, 2010.

(b) During these initial meetings with patients, McComas would conduct an

assessment under OASIS and complete an associated form, which included a patient’s history,

assessment of living arrangements, physical and behavioral status, medications being taken, as

well as a plan of care for the patient.

(c) The OASIS Form was used to make adjustments to the base payments made by

Medicare to Gentiva for home health services provided to Medicare beneficiaries.

(d) McComas further related that notwithstanding the fact that she was the person

who made the intake assessment, McComas was not permitted to code for the diagnoses and

treatments related to her assessments; rather, such coding was done exclusively by Ashley Beane

(“Beane”), Gentiva’s manager of clinical practice at the Charleston branch office. Ms. Beane

would determine the codes and affix a post-it note with the codes to the OASIS form, and

McComas was then required to write the codes on the form in her own handwriting. Ms. Beane

also determined the number of therapy visits that a patient would receive and directly entered

such information on the OASIS form. In many instances McComas believed she was being

required by Beane to write the codes on the forms in a manner that maximized reimbursement

30


from Medicare rather than being truly reflective of the patients’ medical conditions and/or that

the number of visits being entered on the OASIS by Beane were not medically necessary. Based

on her discussions with other nurses in the office, it is McComas’ understanding that other nurses

in the Charleston branch had similar experiences with regard to coding and/or the number of

patient visits being entered on the Medicare forms.

(e) Furthermore, per McComas, Ms. Beane would materially alter the OASIS forms

completed by McComas, and forge McComas’ initials with regard to the same. Such alterations

included the addition of unnecessary requests for occupational therapy evaluations, as well as the

strike-through or deletion of entries supporting the appropriateness of nursing care in place of

physical therapy visits.

(f) In performing her intake assessments, McComas was instructed by her immediate

supervisors, such as Beane or Roni Koch (“Koch”) (Manager of Clinical Practice) or Beth

Chambers (“Chambers”) (a clinical director) to “mark one level lower” with regard to a patient’s

physical abilities, with the aim of justifying physical therapy visits.

(g) During her tenure at Gentiva, McComas also regularly observed practices aimed

at pressuring physical therapists employed by Gentiva to continue physical therapy

notwithstanding that the patient had reached maximum medical improvement. Gentiva managers

even went so far as to destroy discharge papers submitted by physical therapists where the

discharge was being initiated prior to completion of the expected number of therapy visits.

(h) Per McComas, such practices by Gentiva and its managers were intended to and

did result in the “upcoding” of entries on the OASIS forms submitted to Medicare and otherwise

billing Medicare for therapy visits that were not medically necessary.

31


(i) McComas further related how she and other clinicians attended weekly meetings

of the Charleston branch at which comments and directives were regularly made by Beane,

Koch, Chambers and Amy Winters (“Winters”) (Director of Gentiva’s Safe Strides Program for

the Charleston office) that were interpreted by McComas and her colleagues as pressure to

provide medically unnecessary visits to patients in order to achieve enhanced Medicare

reimbursement thresholds such as the 6, 14 and 20 visit enhanced payment thresholds and/or to

recertify Medicare patients even when not medically necessary.

(j) On January 22, 2010, McComas placed a telephone call to Edwina Simpson

(“Simpson”), Gentiva’s Regional Director of Human Resources to complain about fraudulent

Medicare billing practices at Gentiva’s Charleston branch.

(k) On February 2, 2010 McComas and other employees in the Charleston branch

complained in an in-person meeting with Simpson about there being a pattern and practice of

Medicare fraud by Gentiva. McComas also complained to Simpson that someone was forging

and falsifying her initials on various nursing assessment documents to perpetuate and further the

billing fraud.

61. Lead Counsel also interviewed former Gentiva employee Kim Shah (“Shah”) who

related the following about herself and her experience at Gentiva. Shah, a Registered Nurse,

began working for Gentiva on or about February 12, 2001 as a manager of clinical practices at

the Charleston, West Virginia branch. After approximately one year, Shah was promoted to the

director of clinical practices, a position she held for four or five years. Shah was later promoted

to the position of branch director of Gentiva’s Charleston branch office, which position she

retained until her termination by the Company on March 9, 2010.

32


(a) Between 2008 and March 2010, the Charleston branch employed approximately 6

occupational therapists, including assistants, 15 physical therapists, including assistants, 15

nurses, including nurses’ aids and 3 Speech Therapists. As branch director of the Charleston

office, Shah had responsibilities that included staffing, scheduling and budgeting. Between at

least 2008 and the time of her termination, Shah reported to a Regional Manager, who, in turn,

reported to Gentiva’s Regional V.P., Pat Phillips (“Phillips”). Shah recalls that Phillips reported

to Shaner.

(b) In addition to providing home nursing and therapy services, Gentiva also delivers

home health services through “focused specialty programs.” These specialty programs included

“Gentiva Safe Strides®,” a trademarked program which provided therapies for patients with

balance issues who are prone to injury as a result of falling, as well as “Gentiva

Neurorehabilitation,” which helps patients who have experienced a neurological injury or

condition. Both of these specialty programs entail a significant number of therapy visits by

Gentiva.

(c) During her tenure at Gentiva’s Charleston branch office, Shah witnessed

Gentiva’s emphasis on therapy services in general, and its specialty programs, including Gentiva

Safe Strides® in particular. Shah did not have direct supervisory responsibility for the Gentiva

Safe Strides® program run out of the Charleston office. This program fell under the direct

supervision of Winters, who was the Safe Strides® program director. Winters reported to

Gentiva’s Regional Director of Rehabilitation, Derek Nordman (“Nordman”), who also reported

to Phillips.

(d) Shah related that Gentiva’s Charleston employees were routinely questioned by

Winters and Nordman at meetings as to why they were not providing more therapy visits to

33


patients, with managers such as Winters and Beth Chambers (Director of Clinical) often leaving

color-coded messages in therapist’s mail boxes pushing them to provide additional services to

patients. Employees were regularly told by Phillips during weekly conference calls (with

Gentiva staff from 5 offices in West Virginia and Tennessee including the Charleston office) on

which Shah, Winters and RN managers participated, that anyone over 65 needs more than 12

therapy visits, and that such therapy should be provided as a matter of course.

(e) Shah and others were concerned that medically unnecessary visits were being

ordered by Gentiva supervisors and complaints to that effect originated from Shah’s employees

in the Charleston branch. Clinicians were further regularly pressured by Winters and Nordman

to add therapy services even when patient referrals came in to the office for nursing services

only. Shah believes these pressures were exerted because Gentiva made more money from

Medicare for the provision of therapy services than for nursing. In fact, according to Shah,

Winters reviewed virtually every case for possible inclusion in the Gentiva Safe Strides®

program, and instructed or otherwise pressured physical therapists in the Charleston office to

place patients in such program notwithstanding the fact that such placement was medically

questionable, if not unnecessary. Ms. Winters appeared to have conducted these reviews and

offer these instructions at the urging of her Gentiva supervisors from outside the Charleston

branch.

(f) Moreover, according to Shah, Gentiva’s employees were routinely told by

Winters and Nordman to put patients into the Gentiva Safe Strides® program when there was

any evidence of a previous fall, even when it was questionable as to whether such therapy was

medically necessary. Shah related that her employees complained of medically unnecessary

visits for virtually every patient who had suffered a fall, even if that patient did not seem to meet

34


the medical criteria of the Safe Strides® program. According to Shah, the practice by Gentiva of

directing patients into the Gentiva Safe Strides® program resulted in Medicare being billed for

therapy visits that appeared to be medically unnecessary but were ordered by the employees in

charge of the specialty programs.

(g) Shah further related that she was regularly subjected to pressure by Phillips and

others at periodic meetings to try and get clinicians in the office to increase the number of visits

to patients to hit enhanced payment thresholds from Medicare, even if such visits were not

medically necessary.

4. The SEC is Investigating Gentiva.

62. According to Gentiva’s annual report for the year ended December 31, 2011

(“2011 10-K”), on July 13, 2010, the SEC informed Gentiva that it had commenced an

investigation relating to Gentiva’s participation in the Medicare HH PPS.

63. On July 16, 2010, Gentiva reportedly received a subpoena from the SEC

requesting certain documents in connection with its investigation.

64. According to the Company’s 2011 10-K, the SEC subpoena focused on issues

related to the number of and reimbursements received for therapy visits before and after changes

in the Medicare reimbursement system, relationships with physicians, compliance efforts,

including compliance with fraud and abuse laws, and certain documents sent to the SFC.

C. The Exchange Act Defendants’ Materially False and Misleading Statements

65. The Exchange Act Defendants’ representations were materially false and

misleading and/or omitted to disclose material facts necessary in order to make their statements

true, in light of the circumstances under which they were made, not misleading because, as

alleged in paragraphs 37-64, the Exchange Act Defendants knew, or at least recklessly

35


disregarded, that Gentiva was engaging in the following practices that violated Medicare

standards and regulations and resulted in the provision of medically unnecessary services,

including: i) providing medically unnecessary visits to patients in order to hit thresholds required

by Medicare to receive bonus payments (¶¶ 37-61); ii) wrongly “upcoding” in order to increase a

patient’s “case-mix weight” (¶¶ 53-61); iii) avoiding LUPAs by wrongly adding medically

unnecessary therapy visits (¶¶ 45-46; 55-56; 59); iv) recertifying patients for added episodes of

care even if not medically necessary (¶¶ 56-60); v) wrongfully manipulating OASIS forms to

increase reimbursement from Medicare (¶¶ 53-61); vi) wrongfully manipulating the listing of

diagnostic codes in order to generate the greatest reimbursement from Medicare, even when the

manner of listing such codes did not reflect patients’ true medical condition (¶¶ 59-60); and vii)

providing medically unnecessary services to increase Medicare reimbursement revenues and

margins. (¶¶ 37-61).

66. As a result of this wrongful conduct, the Exchange Act Defendants’

representations concerning Gentiva’s financial results, including reported increases in revenue

and profit margins (specifically revenue per episode and margins per episode) and the purported

reasons behind those increases were materially false and misleading because they failed to

disclose that these reported figures were materially and artificially inflated as a result of the

improper manipulations of the Medicare reimbursement system, as alleged herein.

67. Further, the Exchange Act Defendants’ representations concerning Gentiva’s

compliance practices were materially false and misleading because the Exchange Act Defendants

failed to disclose that: i) Gentiva’s compliance program was materially defective because

complaints to Gentiva executives and officers concerning the Company’s wrongful conduct were

ignored (¶¶ 49; 53-61).

36


68. Finally, the Exchange Act Defendants’ representations in SOX Certifications

were materially false and misleading because, in contrast to the representations made in these

certifications, Gentiva’s disclosure controls and procedures and internal controls over financial

reporting were not effective as they permitted the Exchange Act Defendants to report financial

results on behalf of Gentiva that were, in material part, the product of the wrongful manipulation

of the Medicare reimbursement system and because, when signing SOX Certifications, the

Exchange Act Defendants each knew of, or recklessly disregarded, and failed to disclose the

Exchange Act Defendants’ scheme to improperly manipulate the Medicare reimbursement

system, as alleged herein.

1. Second Quarter 2008 Financial Results and Representations about Compliance with Medicare Standards and Regulations.

69. The Class Period begins on July 31, 2008 when the Exchange Act Defendants

caused the Company to issue a press release announcing Gentiva’s financial results for its fiscal

quarter ended June 29, 2008. The July 31, 2008 press release reported “strong second quarter

results, led by double-digit increases in Medicare revenues and admissions in the Company’s

Home Health segment,” net revenues of $346.2 million, a 13% increase, a 34% rise in net

income to $12.0 million, or $0.41 per diluted share. (Unless otherwise noted in this Complaint,

comparisons of Gentiva’s financial results to past results reported by Gentiva are to comparable

periods in Gentiva’s prior fiscal year).

70. Importantly, in the July 31, 2008 press release, the Company highlighted that

growth in its Home Health segment revenues and margin was driven by Medicare revenue,

stating in part:

--Home Health segment revenues increased 16% versus the prior-year period, while operating contribution rose 27%. Home Health’s operating contribution margin reached 16.6% versus 15.2% in the second quarter of 2007 . Strong

37


Home Health Medicare revenue growth of 18% was driven by a double-digit increase in episodic patient admissions, increases in revenue per episode, due in part to the Company’s expanding specialty programs, and the impact of acquisitions completed in 2008.

(emphasis added).

71. On July 31, 2008, the Exchange Act Defendants also conducted a conference call

with investors to discuss the Company’s second quarter financial results. During this conference

call, defendant Potapchuk made the following representations concerning the “strong

momentum” of Gentiva’s Home Health segment:

On a year-to-date basis, Home Health increased almost 11%, and our growth continues to be driven primarily by two factors, the first is increased Medicare contribution to our revenues. We are continuing to execute on our strategy of moving away from lower margin payer sources and focusing more on higher-margin areas like Medicare and acceptable rate commercial programs.

Total episodic revenue for the quarter grew $32 million or about 22% with over $24 million of the increase coming from Medicare PPS. The Medicare portion is up 18% over the prior year period, improving on the 7% growth we reported in the preceding quarter. . . .

For the six months episodic revenue was up nearly 17% with Medicare growing 13% during that period. Through the six months 72% of our total Home Health revenue was paid on an episodic basis, and all but 5 percentage points of that figure was Medicare revenue. The second driver of Home Health revenue growth is our continued leadership and specialty programs. During the quarter our specialty programs comprised 31% of our total Medicare Home Health revenue compared to 28% in the first quarter of 2008 and 26% in the second quarter of last year. Both of these factors increased Medicare contribution and specialty programs growth led to improved margins.

72. Further, defendants Strange, Malone and Potapchuk made the following

representations during the question-and-answer portion of the July 31, 2008 conference call:

Sheryl Skolnick – CRT Capital Group – Analyst

I would like you to help me to understand how the training dollars that you’ve spent appear to be helping to mitigate the negative impact and maybe even to help you to optimize reimbursement under Medicare.

38


Are you at a point now where you feel that everyone is well-trained and you are capturing all the secondary diagnoses, the comorbidities as well as any later episode payments? And that your clinician familiarity with the new oasis questions and answers is optimal or is there still more improvement that we can expect?

Tony Strange – Gentiva Health Services – COO

I don’t think we are ever going to be through improving. I think we are going to constantly get better at that. I think you are referring to the roughly $1 million in training that we did in the latter part of ’07 and then Q1 of ’08. We have begun seeing some of the impact of that training. For example, I think we are doing a much better job capturing secondary tertiary diagnoses. We have seen changes in our clinical scores, in our functional scores, and those are contributing to some of the changes you’ve seen in the revenue. Perhaps in addition when we first looked at our business under the new PPS reimbursement in ’07 since that date we have shifted some of our business to some higher therapy utilization type services. For example our Safe Strides program and the specialities that we talked about. As we began getting more and more admissions related to some of our specialty programs we would expect that case mix in revenue per episode to go up even further because that is a different kind of patient requiring a different kind of service.

* * *

Douglas Tsao – Lehman Bros. – Analyst

Quick question. John [Potapchuk], I think you referred to the 12% same-store increased same-store Medicare revenues. I was just wondering you refer to a 5% increase in the number of episodes and 7% increase in revenue per episode. I was wondering if you could provide a breakdown between—of that 7% how much is due to increases in prices versus mix shift towards more specialty programs?

John Potapchuk – Gentiva Health Services – EVP, CFO, Treasurer

That number, that revenue per episode number, to break that down any further I think would be it’s pretty difficult. Because we are shifting within Medicare shifting the mix of patients and as we do more specialties there is a higher revenue per episode associated with that. We certainly year-over-year have implemented the new Medicare PPS rules, which on the surface would have suggested a reduction in rate, but again, the mix of patients is a really significant aspect here.

Ron Malone – Gentiva Health Services – Chairman, CEO

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And from my perspective there is no rate increase. As a matter of fact, there is a rate reduction. The change in revenue per episode is not really coming from rate. It is all coming from the different kind of patient or the different level of acuity, or better capturing through this training we’ve been talking about, i.e. secondary diagnosis and those things on existing patients. But it is not coming from a rate increase per se where the base rate has changed.

Douglas Tsao – Lehman Bros. – Analyst

And as a follow-up, then, how is it to that the mix has been able to shift so quickly in this sort of really matter of one quarter?

Ron Malone – Gentiva Health Services – Chairman, CEO

It hasn’t. The mix hasn’t shifted, and I think Cheryl kind of pointed it out in her question, that the difference is that we are getting the training that we’ve done, we continue to get better at capturing appropriate clinical information. To use one example, the change in reimbursement secondary diagnoses, comorbidities actually change the clinical score of the HHRG. This training that we did is we are beginning to see that we are getting better at capturing that additional clinical information, which changed our clinical score, which changes our reimbursement pipe.

(emphasis added).

73. The representations in paragraphs 69-72 were materially false and misleading

because Potapchuk failed to disclose that the Exchange Act Defendants’ “strategy” of increasing

Medicare revenue involved pressuring Gentiva staff and clinicians to wrongfully bill Medicare

for unnecessary medical services as alleged above in paragraphs 53-61 and because the

Exchange Act Defendants’ representations concerning Gentiva’s financial results, including

reported increases in revenue and profit margins (specifically revenue per episode and margins

per episode) and the purported reasons behind those increases were materially false and

misleading because they failed to disclose that these reported figures were materially and

artificially inflated as a result of the improper manipulations of the Medicare reimbursement

system, as alleged in paragraph 65.

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74. Indeed, the Exchange Act Defendants’ representations that Gentiva’s increasing

profit margins in its Home Health segment (driven by Medicare revenues) were important to

investors and Wall Street and convinced them that Gentiva’s stock was a “buy.” By way of

example, in response to the July 31, 2008 press release, analysts at Deutsche Bank issued a

report stating, in part, as follows:

Strong 2Q affirms strength of core home health business : GTIV delivered solid upside 2Q EPS ($0.41 vs. Street $0.32) with break-out performance in its core home health segment . . . . We believe the strong admission and episodic growth experienced by the industry will continue and coupled with strong rev/episode, will lead to solid margin leverage.

75. Several days later, on August 4, 2008, in response to Gentiva’s July 31, 2008

press release, analysts at Wachovia raised their earnings estimates for Gentiva because the

Company reported higher than expected earnings that were “driven by higher than expected

revenue and margin.”

76. On August 7, 2008, the Exchange Act Defendants caused Gentiva to file its

quarterly report with the SEC on Form 10-Q for its fiscal quarter ended June 29, 2008 (the “Q2

2008 10-Q”). The Q2 2008 10-Q was signed by Malone and Potapchuk, repeated the

Company’s financial results set forth in the July 31, 2008 press release and made the following

representations:

Revenues generated from Medicare were $161.3 million in the second quarter of 2008 as compared to $136.8 million in the second quarter of 2007, an increase of $24.5 million or 17.9 percent. . . . The increases in Medicare revenues, for the second quarter and first six months of 2008, resulted from (i) growth in episodes of care of 11 percent and 10 percent, respectively, driven primarily by increased volume in specialty programs in both existing and new markets; (ii) the impact of the HHCA and PHHC acquisitions as noted below; and (iii) for the second quarter of 2008, improvements in revenue per episode . Factors contributing to the improvements in the revenue per episode for the second quarter of 2008 include growth in the Company’s therapy-based Specialty programs that have a higher level of reimbursement and a shift in mix toward higher acuity cases. . . .

41


The changes in revenue mix in the Home Health segment resulted from (i) organic revenue growth in Medicare, particularly in the Company’s specialty programs, and non-Medicare PPS business and (ii) the elimination or reduction of certain low margin Medicaid and local government business and commercial business. Revenue per episode for the Company’s Home Health Medicare and non-Medicare PPS business increased by 6.3 percent to approximately $2,830 in the second quarter and 2.4 percent to approximately $2,720 for the first six months of 2008 as compared to the corresponding prior year periods, due primarily to the increase in specialty programs and services to higher acuity patients.

(emphasis added).

77. These representations were materially false and misleading because the Exchange

Act Defendants’ representations concerning Gentiva’s financial results, including reported

increases in revenue and profit margins (specifically revenue per episode and margins per

episode) and the purported reasons behind those increases were materially false and misleading

because they failed to disclose that these reported figures were materially and artificially inflated

as a result of the improper manipulations of the Medicare reimbursement system, as alleged in

paragraph 65.

78. The Q2 2008 10-Q included representations that the Company was in compliance

with applicable Medicare standards and regulations:

There are certain standards and regulations that the Company must adhere to in order to continue to participate in Medicare, Medicaid and other federal and state healthcare programs. As part of these standards and regulations, the Company is subject to periodic audits, examinations and investigations conducted by, or at the direction of, government investigatory and oversight agencies. Periodic and random audits, conducted or directed by these agencies could result in a delay or adjustment to the amount of reimbursements received under these programs. Violation of the applicable federal and state health care regulations can result in the Company’s exclusion from participating in these programs and can subject the Company to substantial civil and/or criminal penalties. The Company believes that it is currently in compliance with these standards and regulations.


Act Defendants knew, or at least recklessly disregarded, that Gentiva was engaging in the

42


following practices that violated Medicare standards and regulations and resulted in the provision

of medically unnecessary services, including: i) providing medically unnecessary visits to

patients in order to hit thresholds required by Medicare to receive bonus payments (¶¶ 37-61); ii)

wrongly “upcoding” in order to increase a patient’s “case-mix weight” (¶¶ 53-61); iii) avoiding

LUPAs by wrongly adding medically unnecessary therapy visits (¶¶ 45-46; 55-56; 59); iv)

recertifying patients for added episodes of care even if not medically necessary (¶¶ 56-60); v)

wrongfully manipulating OASIS forms to increase reimbursement from Medicare (¶¶ 53-61); vi)

wrongfully manipulating the listing of diagnostic codes in order to generate the greatest

reimbursement from Medicare, even when the manner of listing such codes did not reflect

patients’ true medical condition (¶¶ 59-60); and vii) providing medically unnecessary services to

increase Medicare reimbursement revenues and margins. (¶¶ 37-61).

80. The Q2 2008 10-Q also included SOX Certifications signed by Malone and

Potapchuk that represented in part the following:

1. I have reviewed this quarterly report on Form 10-Q of Gentiva Health Services, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

43


(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles.

(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(e) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(f) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

81. Malone’s and Potapchuk’s representations in the SOX Certifications were

materially false and misleading because in contrast to the representations made in their


44



results on behalf of Gentiva that were, in material part, the product of the wrongful manipulation

of the Medicare reimbursement system and because, when signing SOX Certifications, the

Exchange Act Defendants each knew about or recklessly disregarded, and failed to disclose,

Defendants’ scheme to improperly manipulate the Medicare reimbursement system, as alleged

herein.

2. Third Quarter 2008 Financial Results and Representations about Compliance with Medicare Standards and Regulations.

82. On October 30, 2008, the Exchange Act Defendants caused Gentiva to issue a

press release announcing its financial results for its fiscal quarter ended September 28, 2008 that

reported net revenues of $347.6 million, a 12% increase, adjusted net income of $12.6 million, a

48% increase, and reported the following:

--Home Health’s 17% revenue growth to $239.3 million and 26% operating contribution growth to $38.8 million led to an operating contribution margin of 16.2%, as compared with 15.1% in the third quarter of 2007. Home Health Medicare revenue growth of more than 20% was driven by a double-digit increase in episodic patient admissions as the Company continues to benefit from both its expanding specialty programs and acquisitions completed in 2008.






as a result the improper manipulations of the Medicare reimbursement system, as alleged in

paragraph 65.

45


84. After the issuance of the October 30, 2008 press release on October 30, 2008

Gentiva executives held a conference call with Wall Street analysts. Again, as illustrated by the

below excerpts from the transcript of the call, analysts focused on Gentiva’s reportedly

increasing revenues per episode and high margins. Gentiva executives, however, misled such

analysts by attributing reported revenues per episode and high margins to “conservative”

business methodologies, rather than the truth—that Gentiva was providing medically

unnecessary services to patients:


The revenue per episode growth in the third quarter I think you said was 7%, and that was significantly higher than the trends of 2.4% and 4% for the six and nine months of this year. So is that directly related to presumably the specialty programs but also better understanding and familiarity with the revenue opportunities for appropriately billing patients under the new reimbursement system?

Tony Strange – Gentiva Health Services – President, CEO

I don’t know that I would agree with the latter half of your comment, Sheryl.


Okay.


If you go back, and I’ll take you back to the first-quarter call, when we reported revenues and we gave for the first time the revenue-per-episode statistic in the first quarter, if you will recall we were very careful in telling people that the number was artificially low because as patients transitioned off of the old reimbursement system and onto the new reimbursement system, for the first time you were going to have positive therapy adjustments because CMS, even though you indicate how many therapy visits you think you’re going to do, if you do less than that they will adjust your revenue down. If you do more than that, they will adjust your revenue up, and I think I made a comment on the call that we took a very conservative approach to how we’re recognizing revenue. So as you go through the year and you get into Q2 and Q3, you begin to see some of those positive adjustments now starting to flow through as you are processing your final claim.

46


I think we do take a pretty conservative approach to how we’re booking our revenues because I don’t want a negative surprise. I don’t want to have a call and say that a large number of our claims got adjusted downward and we’re having to restate our revenue, so that’s contributing to the increase in revenue per episode.

* * *

Darren Lehrich – Deutsche Bank – Analyst

I have a couple of questions here about margins, and I just wanted to get your comments on what the gross margins were in the home health business and where you think that can go as you continue to I guess move to a more variable cost structure. And then Tony, it sounds like you’re a tad disappointed with the margin progress in the other segment, particularly hospice, so I just wanted to hear from you what you thought you needed to do to improve that and what that looks like going forward and then I’ll have a follow-up.


Well, from a qualitative perspective, Darren, I’ll talk about the margins in the home health business. We’re going to continue to get margin pressure related to increase in salaries and fuel expense and just the escalation or inflation in other costs. But we’re hopeful and I believe that we’ve demonstrated that we’re going to be able to hold margins consistent through better management of productivity, the implementation of the pay per visit model, those types of initiatives. So while I don’t think if you look at our—if you look at the outlook, we’re not indicating that we’re going to have a tremendous increase in gross margins, but we’re working very diligently to protect those margins on a go-forward basis.


I think, John, maybe you can provide the gross margin.

John Potapchuk – Gentiva Health Services – CFO

Yeah, sure. Sure, Darren. Our gross margin in home healthcare for the quarter was 51.9% . . . going forward that the margin we’ll report will be very much in proximity to the home health margins.


So kind of going back to my qualitative comment, when you look at—call it a 52% gross margin, we’re not projecting that number is going to continue to climb and go to the 55% or 56% or 59%, but we’re also not expecting to experience a significant climb from that related to wage pressures and fuel costs and those kind

47


of things. We have enough going in both directions that our hope is to hold that steady.

(emphasis added).

85. Strange’s and Potapchuck’s representations were materially false and misleading

because the Exchange Act Defendants’ representations concerning Gentiva’s financial results,

including reported increases in revenue and profit margins (specifically revenue per episode and

margins per episode) and the purported reasons behind those increases were materially false and




86. Once again, Wall Street analysts reacted favorably to Gentiva’s reported results

and the Exchange Act Defendants’ false representations convinced Wall Street analysts and

investors that Gentiva’s stock was a “buy,” in material part, due to Gentiva’s purported margin

growth.

87. For example a Jefferies & Company, Inc. report on Gentiva dated October 30,

2008 noted, inter alia, that Gentiva’s reported earnings for 3Q08 “exceeded consensus by

$0.07.” Under the heading “Key Points” the same report noted “Q3 results were nothing short of

impressive, as GTIV benefited from dynamic growth in its higher-margin Medicare home

nursing basis . . . .”

88. Similarly, on the same date, Deutsche Bank issued a report on Gentiva

highlighting that based on the Company’s reported financial results, Gentiva’s reported earnings

beat Wall Street’s estimates due, in part, to “continued margin improvement in home health.”

89. On November 7, 2008, the Exchange Act Defendants caused Gentiva to file its

quarterly report with the SEC on Form 10-Q for the fiscal quarter ended September 28, 2008 (the

48


“Q3 2008 10-Q”). The Q3 2008 10-Q, signed by Malone and Potapchuk, repeated the

Company’s financial results set forth in the October 30, 2008 press release and made the

following representations:

Revenues generated from Medicare were $165.2 million in the third quarter of 2008 as compared to $137.1 million in the third quarter of 2007, an increase of $28.1 million or 20.5 percent. . . . The increases in Medicare revenues, for the third quarter and first nine months of 2008, resulted from (i) growth in episodes of care of 11 percent and 10 percent, respectively, driven primarily by increased volume in specialty programs in both existing and new markets and the impact of the HHCA and PHHC acquisitions as noted below; and (ii) increases in revenue per episode of approximately 8 percent for the third quarter of 2008 and 5 percent for the first nine months of 2008. Factors contributing to the improvements in the revenue per episode for the third quarter of 2008 include growth in the Company’s therapy-based Specialty programs that have a higher level of reimbursement and a shift in mix toward higher acuity cases. . . .

The changes in revenue mix in the Home Health segment resulted from (i) organic revenue growth in Medicare, particularly in the Company’s specialty programs, and non-Medicare PPS business and (ii) the elimination or reduction of certain low margin Medicaid and local government business and commercial business. Revenue per episode for the Company’s Home Health Medicare and non-Medicare PPS business increased by 8.4 percent to approximately $2,900 in the third quarter and 4.3 percent to approximately $2,780 for the first nine months of 2008 as compared to the corresponding prior year periods, due primarily to the increase in revenues from specialty programs and services to higher acuity patients. . . . These changes contributed to an overall increase in gross margin with the Home Health segment from 50.4 percent in the third quarter of 2007 to 51.9 percent in the third quarter of 2008 and from 50.2 percent for the first nine months of 2007 to 51.7 percent for the first nine months of 2008.

(emphasis added).






49



paragraph 65.

91. The Q3 2008 10-Q included representations that the Company was in compliance

with applicable Medicare standards and regulations that were virtually identical to the

representations alleged above in paragraph 78.

92. These representations were materially false and misleading for the reasons set

forth above in paragraph 79.

93. The Q3 2008 10-Q contained SOX Certifications by Malone and Potapchuk that

were virtually identical to the certification referred to above in paragraph 80.

94. Malone’s and Potapchuk’s representations in the SOX Certifications were

materially false and misleading because, in contrast to the representations made in their



results on Gentiva’s behalf that were, in material part, the product of the wrongful manipulation

of the Medicare reimbursement system.

3. 2008 Financial Results and Representations about Compliance with Medicare Standards and Regulations.

95. On February 18, 2009, the Exchange Act Defendants caused Gentiva to issue a

press release announcing its financial results for the fiscal quarter and year ended December 28,

2008. Gentiva reported 20% revenue growth and 39% operating contribution growth from

Gentiva’s Home Health segment in its fourth quarter. For the twelve months ended December

28, 2008, Gentiva reported, net revenues of $1.30 billion versus $1.23 billion in the prior year,

and adjusted net income of $45.5 million, up 33% compared with $34.3 million in the year-ago

period.

50







as a result the improper manipulations of the Medicare reimbursement system, as alleged in

paragraph 65.

97. Also, in the February 18, 2009 press release Strange made the following

representations:

We achieved our results both for the fourth quarter and all of 2008 while focusing on two key objectives: delivering clinical excellence to a more acute patient population and positioning our Company as the employer of choice for clinicians. . . . During the fourth quarter we continued the launch of innovative specialty care programs across our branch network and again achieved strong performance in the hiring of new clinicians. Gentiva will continue to address the needs of the nation’s growing senior population, for which home healthcare is a cost-effective and patient-preferred solution for the nation's healthcare challenges.

98. Strange’s representations were materially false and misleading because Gentiva

was not addressing the medical “needs” of patients, but rather, as alleged above in paragraphs

37-61, the Exchange Act Defendants caused Gentiva clinicians, employees and staff, in violation

of Medicare standards and regulations, to provide medically unnecessary visits to patients in

order to hit thresholds required by Medicare to receive bonus payments, as well as provided

patients with medically unnecessary services.

99. On February 18, 2009, Defendants conducted a conference call with investors

during which Wall Street analysts questioned Strange and Potapchuk about Gentiva’s reported

increase in “revenue per episode” and margins:

John Potapchuk – Gentiva Health Services, Inc. – EVP and CFO

51


What we indicated, Ralph, is the revenue per episode—again this is the quarter— was up 13% to 13.5% and the volume same-store was in the kind of middish single digits, 6% or so.

Ralph Giacobbe – Credit Suisse – Analyst

All right, that’s helpful. And then you mentioned I guess 33% of your Medicare Home Health revenue was from the specialty programs. Is that right?


Correct.


Then I guess what percentage of your admissions have a therapy visit associated with it?


Right now we are up to about two-thirds of the episodes.

* * *

John Ransom – Raymond James – Analyst

John, you had mentioned that your 4Q revenue per episode was $3040 versus $2850 for the year. What explains this higher number in the fourth quarter versus the full year?


Well, let me start. We mentioned earlier, John, about the increasing use of therapy that 67% of our episodes now involve therapies. And that certainly with respect to our specialty programs is a driver of that increase.

Tony Strange – Gentiva Health Services, Inc. – President and CEO

And the other thing it’s not just that we are doing more therapy on the same patient. As a matter of fact to the contrary, as we roll out these specialty programs, a lot of these specialty programs really bring us a higher level of acuity in the patients that we are serving. And those patients for example coming out of rehab settings or coming out of skilled nursing facilities are more acute patients demanding a higher level of service, and that’s really what is changing the mix. That’s really what is changing that revenue for episode.

52



And so how much of the 13% growth for episode is higher acuity versus technical changes in the new 2008 version of the HHRGs?


The majority of it (multiple speakers) it’s really changing the mix in the kind of patients that we have been taking—that we are taking care of.

* * *

Pito Chickering – Deutsche Bank – Analyst

Two quick questions here. Back into the EBITDA margin guidance from the EPS, it looks as if at 11% EBITDA margin, I was curious here want for cost-cutting measures you had taken since the third quarter sort of in order to get to sort of that margin level?


I don’t know that it’s all in cost cutting. And if you go back and remember one of our goals is to continue to change our mix, I think John [Potapchuk] mentioned that 77% of our revenues today came from an episodic reimbursement or an episodic basis. That number if our plans all work as we hope, that number will continue to increase over 2009. That in and of itself will help drive—will help improve gross margin.

100. Strange’s and Potapchuk’s representations were materially false and misleading







101. Also on the February 18, 2009 conference call, Wall Street analysts questioned

Strange and Potapchuk about Gentiva’s recertifications:

53



Then my follow-up is can—clearly your episodic—your number of episodes is greater than your admissions. Can you just—I know this is a big question to end the call with—but can you just give us a sense of what’s happening with your certifications within the business? Is there really—with the specialty programs, do you note that re-certifications within specialty programs are significantly higher than they would be in sort of normal course of Home Health business? And what the average number of episodes is for patients that you treat? And how that’s changed?


Sheryl, let me give you—let me use one example to tell you about that. Our newest specialty, one of our newest specialties that we’ve launched is the neurorehabilitation program. The typical profile of the patient that enters into the program is a post-CVA patient. That patient is going to be on our service longer than a patient who is—has just had his knee replaced and is working his way back onto the golf course.

And so to answer your question broadly, as we bring out more and more of these highly sophisticated specialty programs related to senior health, related to neurorehabilitation, we would expect length of stay to increase specific to those pictures. Our length of stay for our joint replacement for example, that number is not going to go up. So as those programs become mature, I would expect that length of stay to go up. As it relates to your question of the average length of—

average episodes per patient—


Yes, Sheryl, I did give the statistical information and when you go through the math, for the year we were at episodes per admit of 1.4 and for the fourth quarter was 1.44. So it hadn’t changed remarkably.

102. These representations were materially false and misleading because as alleged

above in paragraphs 56 and 60, the Exchange Act Defendants, in violation of Medicare

regulations and standards, caused Gentiva clinicians, employees and staff to recertify patients for

additional episodes of care regardless of patients’ medical needs in order to increase revenue.

103. The Exchange Act Defendants’ materially false and misleading representations

once again convinced analysts to comment favorably about Gentiva’s revenue and margin

54


growth, rating Gentiva a “buy.” Jefferies & Company, Inc. noted management’s “progress with

its strategy of repositioning GTIV into higher margin Medicare home nursing” and stated that it

expected “sustained, solid organic growth and further margin expansion in the company’s home

nursing segment.”

104. Meanwhile, Deutsche Bank maintained Gentiva’s “buy” rating “based on

continued earnings leverage from specialty home health programs and margin expansion.”

Deutsche Bank analysts also noted that Gentiva’s “rev growth was driven by double digit

increases in episodes in the home health division as GTIV has been focusing its efforts to serve

higher acuity patients.”

105. On March 12, 2009, the Exchange Act Defendants caused Gentiva to file its

annual report with the SEC on Form 10-K for the fiscal year ended December 28, 2008 (the

“2008 10-K”). The 2008 10-K, signed by Malone, Strange, and Potapchuk, repeated the

Company’s financial results set forth in the February 18, 2009 press release and made the

following representations touting Gentiva’s revenue, income and margins:

Revenues generated from Medicare were $648.0 million during fiscal 2008, an increase of 18.0 percent as compared to $549.2 million in fiscal 2007. Medicare revenues represented approximately 69 percent of total Home Health revenues in the 2008 fiscal year as compared to 67 percent of total Home Health revenues in the 2007 fiscal year.

The increases in Medicare revenues resulted from (i) growth of 11 percent in episodes of care driven primarily by increased volume in specialty programs in both existing and new markets and the impact of the HHCA and PHHC acquisitions; and (ii) increases in revenue per episode of approximately 7 percent. Factors contributing to the improvements in the revenue per episode include growth in the Company’s therapy-based specialty programs that have a higher level of reimbursement and a shift in mix toward higher acuity cases. Medicare revenue growth, excluding the impact of HHCA and PHHC acquisitions, was approximately 13 percent. As a percentage of total Home Health Medicare revenues, Medicare revenues derived from the Company’s specialty programs were approximately 31 percent in 2008 and 26 percent in 2007.

55








paragraph 65.

107. The Exchange Act Defendants repeated representations about the Company’s

compliance with Medicare standards and regulations:


The Company’s business is subject to extensive federal, state and, in some instances, local regulations . . .

The Company’s compliance with these regulations may affect its participation in Medicare . . . . For example, to participate in the Medicare program, a Medicare beneficiary must be under the care of a physician, have an intermittent need for skilled nursing or physical or other therapy care, must be homebound and must receive home healthcare services from a Medicare certified home healthcare agency. The Company is also subject to a variety of federal and state regulations which prohibit fraud and abuse in the delivery of healthcare services. These regulations include, among other things . . . . laws against the filing of false claims . . . .

There are certain standards and regulations that the Company must adhere to in order to continue to participate in Medicare, Medicaid and other federal and state healthcare programs. . . . The Company believes that it is currently in compliance with these standards and regulations.


above in paragraph 65, the Exchange Act Defendants, in violation of Medicare regulations and

standards, caused Gentiva clinicians, employees and staff to recertify patients for additional

episodes of care regardless of patient medical needs in order to increase revenue as well as to

provide medically unnecessary services to patients.

56


109. The 2008 10-K contained SOX Certifications by Strange and Potapchuk that were

virtually identical to the certification referred to above in paragraph 80.

110. Strange’s and Potapchuk’s representations in the SOX Certifications were



reporting were not effective as they permitted Gentiva to report financial results that were, in

material part, the product of the wrongful manipulation of the Medicare reimbursement system.

4. First Quarter 2009 Financial Results and Representations about Compliance with Medicare Standards and Regulations.

111. On April 30, 2009, the Exchange Act Defendants caused Gentiva to issue a press

release announcing its financial results for the fiscal quarter ended March 29, 2009 that reported

net revenues of $288.9 million, which was an increase of $45 million or 18% when revenues

from CareCentrix (sold on September 25, 2008) were excluded, and adjusted net income of

$12.7 million, an increase of 61%.

112. The April 30, 2009 press release highlighted Home Health’s 19% revenue growth

to $257.7 million and operating contribution growth of 39% to $43.2 million.

113. Also in the April 30, 2009 press release Defendant Strange represented that

“Gentiva is off to a good start to 2009, both financially and operationally . . . . Our results for the

quarter were again led by our Home Health segment as we focus on meeting the needs of the

nation’s growing senior population, for which home healthcare is a cost-effective and patient-

preferred solution.”

114. On April 30, 2009, the Exchange Act Defendants conducted a conference call

with investors to discuss the Company’s first quarter 2009 earnings, during which Strange and

Potapchuk made the following representations:

57


Tony Strange – Gentiva Health Services – CEO, President

Our core Home Health business continued to lead the way for Gentiva in Q1. Home Health revenues were up 19% in the first quarter compared to last year to $258 million, that’s also sequentially higher than the $249 million that we reported for the fourth quarter.

* * *


Gentiva’s first-quarter results are highlighted by the strong overall financial performance from our core Home Health business and the continued successful execution of our growth strategy. . . . Total episodic revenue for the quarter grew by 29% to over $202 million with about $186 million of that amount relating to Medicare PPS . The growth in episodic revenue was driven by double-digit increases in both number of episodes and revenue per episode, about 4 percentage points of the growth in episodic revenue resulted from the impact of acquisitions completed during the year 2008.

During the quarter 78% of our total Home Health revenue was paid on an episodic bases compared with 72% in the prior year period. All but 6 percentage points of the 78% figure was Medicare revenue. . . .

Revenue per episode was about $3,030, up about 16% compared to the prior year period. The increase in revenue per episode between the 2008 and 2009 first quarters resulted from the continuing shift in mix toward higher acuity patients and a very conservative view for the revenue recognition in the initial months following revisions to the Medicare reimbursement system implemented in January 2008.

* * *


Just looking at your numbers it’s implied that maybe your recertification rate is starting to move up a little bit. Is that the case or is there something we’re missing?


On a percentage basis, yes, it’s moving up a little bit. But I think, John, when I look at—one statistic I look at is episodes per admission, for the quarter I believe that was 1.42. And when I go back over the last year, year and a half it’s been hovering around that 1.4 mark.

58



That was a quantitative response to your question. A qualitative response is that as we roll out—as we roll out these additional specialty programs, specifically within senior health and within the neuro rehabilitation program, that patient, that patient profile, that CVA patient, that patient is going to stay on our service longer because of the acuity levels of the patient. So as we get those programs rolled out it wouldn’t surprise me if that number were to eke up a little bit, but we don’t expect massive changes in it anytime soon.

(emphasis added).








116. On May 8, 2009, the Exchange Act Defendants caused Gentiva to file its

quarterly report with the SEC on Form 10-Q for the fiscal quarter ended April 4, 2009 (the “Q1

2009 10-Q”). The Q1 2009 10-Q was signed by Strange and Potapchuk, repeated the

Company’s financial results set forth in the April 30, 2009 press release and made the following

representations:

Revenues generated from Medicare were $186.1 million in the first quarter of 2009 as compared to $145.1 million in the first quarter of 2008, an increase of $41.0 million or 28.2 percent . . . .

Net revenues from the combination of Medicare and non-Medicare PPS business paid at episodic rates were $202.2 million in the first quarter of 2009, an increase of 29.4 percent from $156.2 million in the first quarter of 2008. Total episodes of care approximated 66,700 in the first quarter of 2009, an increase of approximately 12 percent from the 59,700 episodes serviced in the first quarter. The increase in episodes of care was driven primarily by increased volume in

59


specialty programs in both existing and new markets and the impact of the HHCA and PHHC acquisitions as noted below. Revenue per episode for the first quarter of 2009 was $3,030, an increase of about 16 percent from revenue per episode of $2,610 in the first quarter of 2008. Factors contributing to the improvements in revenue per episode for the first quarter of 2009 include growth in the Company’s therapy-based specialty programs that have a higher level of reimbursement, and a shift in mix toward higher acuity cases. Episodic revenue growth, excluding the impact of HHCA and PHHC acquisitions, was approximately 25 percent for the first quarter of 2009. . . .

The changes in revenue mix in the Home Health segment resulted from (i) organic revenue growth in Medicare, particularly in the Company’s specialty programs, and the non-Medicare PPS business and (ii) the elimination or reduction of certain low margin Medicaid and local government business and commercial business, including pediatric services and other business in home health branch offices that were sold in the first quarter of 2009. These changes contributed to an overall increase in gross margin within the Home Health segment from 50.8 percent in the first quarter of 2008 to 52.1 percent in the first quarter of 2009.







paragraph 65.

118. The Exchange Act Defendants repeated the representations about the Company’s

compliance with Medicare standards and regulations as alleged above in paragraph 78.

119. The representations were materially false and misleading for the reasons set forth

above in paragraph 79.

120. The Q1 2009 10-Q contained SOX Certifications by Strange and Potapchuk that


60


121. The representations were materially false and misleading for the reasons set forth

above in paragraph 81.

122. On June 17, 2009, Gentiva participated in the Jefferies Healthcare Conference .

During the Management Discussion Section with Jefferies & Company analyst Arthur I.

Henderson, defendant Potapchuk made the following representations about Gentiva’s financial

results and the Company’s potential for growth:

On the EBITDA front, you see where we’ve gone from a little over $30 million of EBITDA in 2005, up to close to 117 in 2008. I will point out that all of these results for consistency purposes include the CareCentrix business. . . . Our EBITDA percentages, you see that more than doubling over a period of time. And then our operating cash flow has been very strong, we’ve more than tripled over that four-year period. So good strong financial results and good continued growth. . . .

[O]ur revenue growth has really been driven by our home health segment. And that home health growth is really driven by episodic revenue, both Medicare and Medicaid Advantage is paid at episodic rates. You see that up 29% year-over-year. That growth, it’s a combination of both volume and increase in revenue per episode. Volume, most of that comes from same-store growth. Overall I’d say roughly 4% of that 12% growth in volume is the full-year impact or full period impact of acquisitions that we’ve completed.

The increases in revenue per episode 7% for the year ’08 and 16% in the first quarter, it’s really driven by continued focus on higher acuity patients and that’s particularly the specialty programs. I would point out though that the 16% in the first quarter I think is artificially high given the fact that the first quarter of ’08 was the first quarter where we had a change in Medicare reimbursement and it was a particularly conservative view on revenue recognition back then and so a word there is certainly wouldn’t expect that 16% to continue at that pace throughout the remainder of the year.






61



paragraph 65.


124. On July 30, 2009, the Exchange Act Defendants caused Gentiva to issue a press

release announcing its financial results for the fiscal quarter ended June 28, 2009 that reported

net revenues of $298.1 million, an increase of $33 million, or 12% (when excluding CareCentrix

revenue) and adjusted net income of $17.5 million, an increase of 43% compared with the prior

year period.

125. Defendant Strange made the following representations in the July 30, 2009 press

release:

Gentiva had a very good second quarter driven by continued success in executing our core strategies: rolling out our specialty programs, serving the needs of higher acuity seniors and increasing both the capacity and productivity of our growing clinician base. . . . Our performance demonstrates the commitment of our employees as well as the growing belief of the healthcare community in the power of home care as a key part of the solution to the nation’s healthcare challenges.

126. On July 30, 2009, the Exchange Act Defendants also conducted a conference call

with investors during which Strange and Potapchuk made the following representations:


I am very pleased with Gentiva’s recent operating and financial performance. . . This earnings performance is the end of result of solid execution of the business strategy that we have been discussing on earnings calls for some time now.

These business strategies include the following . . . growing revenue for services provided to the geriatric population, with a particular emphasis on expanding the penetration of our innovative specialty programs . . . expanding our margins by operating efficiently and leveraging our corporate and administrative infrastructure in serving nearly 400 branches in 39 states . . . .

Let me start with our first strategy relating to growing revenue with a focus on serving the needs of the geriatric population. For the 2009 second quarter, net

62


revenues were just over $298 million, representing sequential growth of over $9 million from the 2009 first quarter and revenue growth of over $33 million or $12.3% compared with the second quarter of 2008.

However, when we examine revenues from services primarily to the geriatric population we see even higher growth rates. For example, home heath episodic revenues were over $213 million in the 2009 second quarter, an increase of about $38.6 million or 22% compared to the prior year second quarter. . . .

Let’s take a closer look at the major component of our revenue mix, home health episodic revenue. Episodic revenue now represents 80% of total home health revenues, up significantly from 73% in the 2008 second quarter and 78% of the total in the first quarter of this year. In addition, as a percentage of our Medicare home health revenues, revenues from specialty programs represented nearly 38% in the 2009 second quarter, compared to 31% in the second quarter of last year and 35% in the 2009 first quarter.

I’ll now review some of the underlying data that is supporting our home health episodic revenue growth. During the second quarter, there were about 46,600 admissions on an episodic basis, more than a 5% increase from the same period last year. Total episodes in the second quarter were approximately 67,600. This represented an increase from the second quarter of last year of nearly 10% of which 1% resulted from acquisitions and 9% resulted from same store growth.

Revenue per episode was about $3,160, up 12% from the prior year period. The increase in revenue per episode resulted from the continuing shifting mix towards higher acuity patients driven by the significant growth in our specialty programs. .

However, we were able to increase our margins during the current quarter due to several factors including the following. The favorable change in our revenue mix that I just discussed . . . .

* * *


. . . [Y]ou’ve done extremely well taking a company, Tony, that was not really participating in Medicare programs and obviously perhaps to its profitability detriment, its growth detriment, and its patient service detriment, and clearly turned it around in terms of—with your members of management and the Board.

And you are now in a situation where you are very nicely healthily profitable and growing—growing rather nicely Medicare-oriented company, both in terms of hospice and home care . . . .

63



I’m making no apologies for the performance of our Company. I’m proud of our results. I’m proud of our employees, this group of people who have executed flawlessly against our strategy. And I’ll make no apologies to anybody about how our Company has performed. As it relates to the latter part of that, the demand for our services is increasing. And you can’t legislate that away. The senior population is the fastest growing segment of our population today. . . .

[T]he demand is going to be here and it’s a cost-effective alternative to hospitalization. So I go back and not apologizing for our growth. Matter of fact, I will tell you that our growth is—we’ve not seen what our growth is going to be yet. I believe that the growth in this industry will accelerate over the next decade. And I plan on being here and being part of that.








128. Gentiva’s second quarter results beat analyst expectations. In fact, Jefferies &

Company, Inc. was surprised by the “magnitude of the company’s EPS beat” and credited

Gentiva’s good Q2 results to Gentiva’s focus on “revenue growth and margin expansion.” The

Jefferies & Company, Inc. report noted that margins benefited in part from Gentiva’s specialty

program rollout and rated Gentiva a “buy.”


quarterly report with the SEC on Form 10-Q for the fiscal quarter ended June 28, 2009 (the “Q2

2009 10-Q”). The Q2 2009 10-Q was signed by Strange and Potapchuk, repeated the

64


Company’s financial results set forth in the July 30, 2009 press release and made the following

representations:

The Company’s episodic revenues grew at 22.1 percent and 25.6 percent for the second quarter and first six months of 2009, respectively. . . .

Factors contributing to the improvements in revenue per episode for the second quarter of 2009 include growth in the Company’s therapy-based specialty programs that have a higher level of reimbursement, and a shift in mix toward higher acuity cases. Episodic revenue growth, excluding the impact of recent acquisitions, was approximately 21 percent for the second quarter of 2009 and 23 percent in the first six months of 2009.

In the second quarter and first six months of 2009, Medicare and non-Medicare PPS revenues as a percent of total Home Health revenues were 80 percent and 79 percent, respectively, as compared to 74 percent and 73 percent for the corresponding periods in 2008. In the second quarter and first six months of 2009, revenues from specialty programs as a percent of total Medicare Home Health revenues were 38 percent and 36 percent, respectively, as compared to 31 percent and 30 percent, respectively, for the corresponding periods of 2008. . . .

The changes in revenue mix in the Home Health segment resulted from (i) organic revenue growth in Medicare, particularly in the Company’s specialty programs, and the non-Medicare PPS business, and (ii) the elimination or reduction of certain low margin Medicaid and local government business and commercial business, including pediatric and adult hourly services and other business in home health branch offices that were sold in the first quarter of 2009. These changes contributed to an overall increase in gross margin within the Home Health segment from 52.3 percent in the second quarter of 2008 to 53.4 percent in the second quarter of 2009 and from 51.6 percent for the first six months of 2008 to 52.8 percent for the first six months of 2009.







paragraph 65.

65


131. The Q2 2009 10-Q repeated the representation that Gentiva was in compliance

with Medicare standards and regulations as alleged above in paragraph 78.



133. The Q2 2009 10-Q contained SOX Certifications signed by Strange and

Potapchuk that were virtually identical to the certification referred to above in paragraph 80.




reporting were not effective as they permitted Gentiva to report financial results that were, in

material part, the product of the wrongful manipulation of the Medicare reimbursement system.


135. On October 29, 2009, the Exchange Act Defendants caused Gentiva to issue a

press release announcing its financial results for the fiscal quarter ended September 27, 2009 that

reported net revenues of $295.6 million, an increase of $25 million, or 9% (excluding revenue

from CareCentrix) and adjusted net income of $15.9 million, an increase of 27% compared with

the prior year period. The press release highlighted revenue growth of 9% to $261.4 million and

operating contribution growth of 7% to $41.4 million in the Company’s Home Health segment.

136. Defendant Strange made the following representations in the October 29, 2009

press release:

Growth trends in both our Home Health and Hospice business units remain solid as we intensify our focus on serving the needs of the nation’s growing high-acuity senior population. We are delivering on the key initiatives that will grow our company, including increasing the penetration of our specialty care programs,

66


recruiting and retaining the best caregivers in the business, and operating efficiently, with a strong balance sheet.

137. On October 29, 2009, the Exchange Act Defendants also conducted a conference

call with investors during which Strange and Potapchuk made the following representations:

Tony Strange – Gentiva Health Services – CEO & President

Gentiva had a good quarter, right in line with our expectations. Excluding CareCentrix, revenues were for the quarter were approximately $296 million, up 9% over prior year; and EBITDA was $32 million, up 25% over prior year. The Company continues to experience double-digit growth in our core business, resulting in a strong cash flow.

In addition, we continue to strengthen our balance sheet with cash in excess of $120 million, and we’ve reduced our leverage ratio to under 1.8 times.

Our largest segment, Home Health, produced solid results for the quarter. Home Health episodic revenues for the quarter were $210 million, up 17.5% over prior year.

* * *

John Potapchuk – Gentiva Health Services – EVP, CFO & Treasurer

As Tony [Strange] has indicated, Gentiva’s third-quarter performance was in line with our expectations and puts us in a good position to achieve our full-year 2009 financial goals. . . .

Let’s take a closer look at the major component of our revenue mix, Home Health episodic revenue. Episodic revenue is now approaching 81% of total Home Health revenues, up significantly from 75% in the 2008 third quarter.

In addition, as a percentage of our Medicare Home Health revenues, revenues from specialty programs represented nearly 38% in the 2009 third quarter, compared to 32% in the third quarter of last year.

I’ll now review some of the underlying data that is supporting our Home Health episodic revenue growth. During the third quarter, there were about 46,100 admissions on an episodic basis, an increase of over 6% from the same period last year. Total episodes in the third quarter were approximately 66,700. This represented an increase from the third quarter of last year of about 8.5%, most of which related to same-store growth.

67


Revenue per episode in the 2009 third quarter was about $3160, also up about 8.5% from the prior-year period, and relatively flat on a sequential basis with the revenue per episode reported in second quarter. The increase in revenue per episode from the prior-year period resulted from the continuing shift in mix toward higher acuity patients, driven by the significant growth in our specialty programs.

* * *


. . . John, you’ve also been sharing gross margin numbers with us by segment, if you could please do that for us. . . .


On the gross margins, Darren, if you look at our Home Health segment, we were at 52%. And again, the prior quarter, the second quarter was 53.5%. And I talked earlier about the impact of things like PPO and that sort of thing, which bring that down seasonally in the third quarter.

Sheryl Skolnick – Pali Capital – Analyst

Good morning, and you may not be aware, but the House just unveiled their plan with the public option and the millionaire tax. So if we’re lucky, some of us on the call may, in fact, pay more taxes. But that isn’t my question. Tony, if you said it—actually, I’m going to lump a few things in. I apologize, but if you said it at the beginning of the call I missed it.

Did you give an estimate of what the impact on the home health industry revenue would be for Medicare under the House version as contemplated over the last 24 hours, kind of thinking about $500 million in cuts over (inaudible) billion dollars in cuts over 10 years? And that’s question number one.

Question number two is more of a detailed question. John, did you say—I think you said over 19 visits per episode for this year. Can you give me the specific number again and then compare it to last year, because I checked the transcript and I didn’t see it for last year?

And then can you give me a sense of why it is that the—and I suspect it’s up significantly—why it is that Gentiva’s business is moving more towards that 19, more towards that 20, which is the next sort of step-up in reimbursement in the rehab function, if you will, of the new reimbursement scheme?

I’m a little bit concerned about what that means, quite frankly; whether we’re not sort of seeing a bit of—I mean there is nothing illegal about it, there is nothing

68


inappropriate about it. We’ll talk about focus on patients who can optimize your reimbursement and, therefore, optimize your performance.

And then the final question is as we look at your completed episodes or your total episodes in the quarter versus your admissions, for last year I think I calculated 1.42 as the ratio, and this year 1.44 or 1.45. Is that a good proxy for recertification in the quarter? And if it isn’t, can you walk me through how we can understand what they are?


. . . I did not comment specifically what that meant to Gentiva nor what that meant to the quote/unquote average home health agency. There is some variability in that, so I didn’t—I don’t think I made a comment specifically what that could mean to Gentiva. At this point, we’re just not signing up for that program.

The second question was about the 19 visits per episode. I want to make sure that I clarify that, because you made a kind of an intuition that that was related to therapy. And that 19 visits per episode are all visits, including skilled nursing, home health aides, social workers, on and on. Your question about what it was a year ago, that number was about 17 a year ago, and has increased to about 19 today.

The third or fourth part of your question was why the increase. And you’ve heard both John [Potapchuk] and I talk about the continuing rolling out of our specialty programs, which really are targeted toward a higher acuity patient. So as we expand specialties, and I think John mentioned in his comments that specialities now represents 38% of our revenues.

And as we continue to expand those specialty programs and develop new specialties, we will expect to see the—we could expect to see the visits per episode continue to slightly tick up. That doesn’t mean that that’s all in therapy. We’ve not really commented about the mix of our business as to what could be rehab or not, so I think that addresses all of those questions.

The last component, part D of your four-part question, was the total episodes, and really talking about our episodes per admit. And I think that is a good way to look at the back side of recertifications, and our number has typically been about in the 1.4 to 1.5. John, do you have that number for this quarter?


Yes, year-to-date is 1.44. The third quarter was 1.45.


69


So we’ve kind of stayed in line if you look at the inverse of the recertification number.


Right.

Sheryl Skolnick – Pali Capital – Analyst

Okay, that’s very helpful. And I guess since you haven’t broken down your revenues to therapy or non-therapy, I could push you and say please do it. I’m not sure what that would get me, though.

I guess what I’m really asking is how nervous should we be from an enforcement or industry oversight perspective that you and others are moving your visits up and going after more acute patients which clearly is a legitimate business strategy. But in going after more acute patients and—but at the same time getting that bump-up in reimbursement for the 20th visit.

And from an oversight perspective, what I’m worried about is in the different administration with a different viewpoint perhaps, looking at that askance rather than looking at that and saying this is just simply good business practice.


Well, I can’t comment on the mental health of most people. It’s all I can do to take care of my own. I can tell you how comfortable I am. And it starts with some of the investments that we’ve made. I think if you go back a little over a year ago, we brought in Dr. Charlotte Weaver to head up our clinical programs. And with her hand on the throttle, I feel very comfortable that everything that we are doing is clinically appropriate.

In addition to that, I think that one of the things that really separates Gentiva from our competitors is our compliance program. And John Camperlengo is the Chief Compliance Officer for Gentiva, and he has probably got 40 people that work in his area . . . So between the development and the implementation of our clinical protocols from Dr. Weaver’s perspective, as well as the checks and balances that we get from John Camperlengo and our compliance staff, I sleep really good at night.

(emphasis added).



70







139. On October 29, 2009, analysts at Deutsche Bank commented favorably about

Gentiva’s “solid” third quarter results, noting that the Company’s home health episodic revenue

growth “continue[d] to be fueled by specialty programs.” Deutsche Bank maintained Gentiva’s

“buy” rating and raised the Company’s price target from $27 to $28.


quarterly report with the SEC on Form 10-Q for the fiscal quarter ended September 27, 2009 (the

“Q3 2009 10-Q”). The Q3 2009 10-Q was signed by Strange and Potapchuk, repeated the

Company’s financial results set forth in the October 29, 2009 press release and stated, in part, the

following:

The Company’s episodic revenues grew at 17.5 percent and 22.7 percent for the third quarter and first nine months of 2009, respectively. . . .

Factors contributing to the improvements in revenue per episode for the third quarter of 2009 include growth in the Company’s therapy-based specialty programs that have a higher level of reimbursement, and a shift in mix toward higher acuity cases. Episodic revenue growth, excluding the impact of recent acquisitions, was approximately 17 percent for the third quarter of 2009 and 21 percent in the first nine months of 2009.

In the third quarter and first nine months of 2009, Medicare and non-Medicare PPS revenues as a percent of total Home Health revenues were 81 percent and 80 percent, respectively, as compared to 75 percent and 74 percent, respectively, for the corresponding periods in 2008. In the third quarter and first nine months of 2009, revenues from specialty programs as a percent of total Medicare Home Health revenues were 38 percent and 37 percent, respectively, as compared to 32 percent and 30 percent, respectively, for the corresponding periods of 2008. . . .

71


The changes in revenue mix in the Home Health segment resulted from (i) organic revenue growth in Medicare, particularly in the Company’s specialty programs, and the non-Medicare PPS business, and (ii) the elimination or reduction of certain low margin Medicaid and local government business and commercial business, including pediatric and adult hourly services and other business in home health branch offices that were sold in the first quarter of 2009. These changes contributed to an overall increase in gross margin within the Home Health segment from 51.9 percent and 51.7 percent in the third quarter and for the first nine months of 2008, respectively, to 52.0 percent and 52.5 percent in the third quarter and first the first nine months of 2009, respectively.







paragraph 65.




forth in paragraph 79.



145. The representations in the SOX Certifications were materially false and

misleading for the reasons set forth above in paragraph 81.

146. On January 27, 2010, Potapchuk made the following representations at the

Jefferies Global Healthcare Services Conference :

72


[T]he average revenue per episode is a little over $3,000 on a 60-day basis. . . . [W]e’re all about growth, growth in both organically and through acquisition. . . . When you look at the growth in episodic revenue, again that 23% is broken down fairly evenly at this point in terms of volume, the meaning—that’s up, you see on the bottom, the 10% year-to-date, and increases in revenue per episode. That revenue per episode increase is really driven by the fact that we continue to change our mix, really driven by the specialty programs, into those services that, where we’re reimbursed at higher levels. . . .


press release announcing its financial results for the fiscal quarter and year ended January 3,

2010 and reported net revenues for 2009 of $1.15 billion, an increase of $144 million or 14%

(excluding the revenue from CareCentrix) and net income of $59.2 million or $1.98 per diluted

share.

148. Also in the February 18, 2010 press release, Strange represented:

Gentiva finished 2009 with strong fourth quarter results, and we have set the stage for solid growth in 2010 as well. . . . We have done that by executing on core strategic initiatives and narrowing our focus to our home health and hospice operations. We enter 2010 with a business that is performing well and a strong balance sheet that gives us the financial flexibility to invest both internally and externally in initiatives that will further solidify our industry leadership.

149. In addition, Gentiva announced its financial outlook for fiscal 2010 in the

February 18, 2010 press release:

The Company expects net revenues will range between $1.23 billion to $1.26 billion and adjusted net income on a diluted earnings per share basis will range between $2.57 and $2.67. Gentiva’s outlook is consistent with the past several years of strong episodic revenue growth in the Home Health business. Revenue growth in 2010 is expected to be driven primarily by organic volume growth and expansion of the Company's innovative specialty programs.

150. On February 18, 2010, the Exchange Act Defendants also conducted a conference

call with investors during which Strange and Potapchuk made the following representations:

Tony Strange – Gentiva Health Services, Inc. – President, CEO

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Perhaps the most impressive result for 2009 is the improvement in margin . We have done a good job in translating top-line growth into profitability. For 2009, our EBITDA margin is 11% compared to 9% in 2008, further demonstrating our ability to leverage operating overhead as we continue to focus our resources on our core home health and hospice operations. I am proud of the discipline that our team has demonstrated, and I am confident in our ability for further improvement. . . .

Based on these priorities and the business plans that have been developed, we expect our episodic revenues to continue to grow by double digits.

* * *

John Potapchuk – Gentiva Health Services, Inc. – EVP, CFO, Treasurer

To put this point in perspective, in comparing the 2009 and 2008 fourth quarters, home health episodic revenues increased over 23% to $235.6 million , and hospice revenues increased nearly 16% to $19.7 million, while Gentiva’s remaining revenues decreased by 7% to less than $55 million.

Revenue per episode in the 2009 fourth quarter was approximately $3190, up 4.3% from the prior-year period and up about 1% on a sequential basis. The increase in revenue per episode resulted from the continued shift in mix toward higher acuity patients, driven by the significant growth in our specialty programs.

For 2009, episodic admissions were 190,300, up about 8% on a weekly basis. Episodes were 274,200, up about 10% on a weekly basis. And revenue per episode was about $3140, also up about 10% as compared to the prior year.

Gentiva is successfully executing on its business strategy of organically growing services to the geriatric population, building the capacity and productivity of our dedicated clinicians and enhancing its clinical outcomes and operating systems.

* * *

Unidentified Participant

[I]n terms of your guidance for 2010, could you just maybe give us a sense of kind of what is embedded within that guidance in terms of margins, and kind of how you guys are thinking about just the margin ramp going into this year?


Certainly we’ve talked about double-digit episodic growth, so would continue to have strong volumes in that business. From a margin standpoint, we finished the

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year at 11%, and I think it is fair to say that the expectation is that those margins would overall increase by somewhere in excess of 100 basis points.

* * *

Brian Tanquilut – Jefferies – Analyst

Looking at the revenue guidance range, you did $310 million of revenue in Q4. If you annualize that, it gets us $1.24 billion. Just wondering what drives the revenue from the top end to the low end of the guidance range.


. . . So we are reflecting from that run rate, if you will, growth of somewhere between $70 million and $100 million. And as we said before, really driven by the episodic revenue growth. . . .

* * *


Just wanted to go back to sort of margin and your margin profile. With you becoming (technical difficulty) a pure play home nursing and hospice, is there any reason to think that you can’t ultimately get your margins up to levels where some of your peers are? Or is there anything in the model that would prevent that?

Tony Strange – Gentiva Health Services, Inc. – President, CEO

I think what I talked about on the call was that when I made the reference to in 2008, we were at 9% EBITDA, and then in 2009, we were at 11% and I think John made it in one of his remarks already as well, that we expect that to continue to improve.

In terms of referencing other people’s margin, you know more about their business than I do, and I can’t comment on theirs. But I think with steady reimbursement as we know it today, that we will continue to see margin expansion in 2010 and ’11, based on current reimbursement methodologies .

(emphasis added).

151. On March 9, 2010, Defendant Potapchuk made the following representations at

the Raymond James Institutional Investors Conference :

[W]e are all about growth . . . . Getting into our core strategies, you can see up here that there are five that I’d like you to understand and come away with in

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terms of Gentiva. First of all about growth, growing our revenue focused on the geriatric population. You do that through increasing your episodic business within home health and also increasing your Hospice revenue. . . .

[W]hat’s really important to note is the episodic home health revenue. . . . [T]hey each grew by over 20%. . . . From a statistical basis, you can see that our episodic volume grew by 10% for the year, 11% in the fourth quarter . . . .

You can see that in the fourth quarter of 2009, that representing 81% of our home health revenue. Two years prior to that there was little over 70% of our revenue and I will point out, while it’s not on the chart, if you go back two years before that to 2005, it was less than half of our revenue was reimburse on an episodic basis. We’ve done a lot over the last number of years to significantly change our mix of business.

I mentioned earlier our specialty programs and they clearly have been a driver of our revenue growth and continued expansion possibilities. We introduced the first specialty program, which is Gentiva Orthopedics, back in 2003, and have added a number of different programs that you see in right on the bottom of this slide over a period of—of number of years. . . .

So we continue to grow by rolling out these programs to more branch locations. We certainly have growth possibilities within the programs that we have opened today and in the—our clinical corporate group are working on new programs to be rolled out in the future. So clearly going to continue to be a source of our growth. And again, this slide quickly shows what happened relating to those specialties over a two-year period, where within our Medicare home health revenue, two years ago specialties were 28% of our—of that revenue component; today it’s running at 42% of our home health Medicare revenue. So significant growth in those couple of years.








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153. On March 17, 2010, the Exchange Act Defendants caused Gentiva to file its

annual report with the SEC on Form 10-K for the fiscal year ended January 3, 2010 (the “2009

10-K”). The 2009 10-K was signed by Strange, Potapchuk, and Malone, repeated the

Company’s financial results set forth in the February 18, 2010 press release and represented that

Gentiva’s “episodic revenues grew 22.9% during fiscal 2009” and revenue per episode was

$3,160, an increase of 10.9% and that “[f]actors contributing to the improvements in revenue per

episode for fiscal 2009 include growth in the Company’s therapy-based specialty programs that

have a higher level of reimbursement, and a shift in mix toward higher acuity cases.”







paragraph 65.

155. The 2009 10-K repeated the representations that Gentiva was in compliance with

Medicare standards and regulations as alleged above in paragraph 78.



157. The 2009 10-K contained SOX Certifications by Strange and Potapchuk that were


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materially false and misleading for the reasons set forth above in paragraph 81.

159. On May 4, 2010, Defendant Strange made the following representations at the

Deutsche Bank Securities Health Care Conference :

When you look at that margin expansion, the real driver behind that margin expansion is the change in mix. As you can see from this slide that 81% of our revenues now are really—in our Home Health segment are derived from episodic reimbursement. And that’s really driving the margin improvement. . . . If you look at the growth in our Specialties, back in ’07, 28% of Home Health revenues for Medicare came from our Specialties. Today that number is in excess of 42%.




episode) and the purported reasons were materially false and misleading because they failed to

disclose that these reported figures were materially and artificially inflated as a result of the

improper manipulations of the Medicare reimbursement system, as alleged in paragraph 65.


161. On May 6, 2010, the Exchange Act Defendants caused Gentiva to issue a press

release announcing its financial results for the fiscal quarter ended April 4, 2010 that reported net

revenues of $297.1 million, an increase of 7.5%, adjusted income from continuing operations of

$19.7, an increase of 53% and net income of $9.3 million.

162. In the May 6, 2010 press release, Strange represented “Gentiva’s solid first

quarter performance was driven by patient admission growth of more than 10% and improving

profitability as we continue to narrow our strategic focus to our home health and hospice

operations . . . .”

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163. Further, in the May 6, 2010 press release Gentiva “reaffirmed its outlook for

fiscal 2010 full-year net revenues in a range of $1.23 billion to $1.26 billion and raised its

outlook for adjusted net income from continuing operations on a diluted earnings per share basis

to between $2.67 and $2.75 as compared to prior guidance of between $2.57 and $2.67.”

164. On May 11, 2010, Defendant Strange made the following representations at the

Bank of America Merrill Lynch Healthcare Conference :

When you look underneath the payer mix of that growth, and I think this is significant, if you go back ever further, if you go back to the 2005, early 2006, the episodic business represented less than 50% of our business and today our episodic care represents 83% of our business. So, the company has done a really good job of changing that payer mix over the past several years.









quarterly report with the SEC on Form 10-Q for the fiscal quarter ended April 4, 2010 (the “Q1

2010 10-Q”). The Q1 2010 10-Q was signed by Strange and Potapchuk and repeated the

Company’s financial results set forth in the May 6, 2010 press release and stated, in part, the

following:

The Company’s episodic revenues grew 13.0 percent for the first quarter of 2010. . . . Episodic revenue growth, excluding the impact of acquisitions completed in 2009 and the first quarter of 2010, was 11 percent for the first quarter of 2010 compared to the corresponding period of 2009. . . .

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Growth in episodes was driven by an increase in admissions of more than 10 percent, from 46,900 admissions in the first quarter of 2009 to 51,600 admissions in the first quarter of 2010. There were approximately 1.4 episodes for each admission during both the 2009 and 2010 first quarter periods. Factors contributing to the improvements in revenue per episode for the first quarter of 2010 include growth in the Company’s therapy-based specialty programs that have a higher level of reimbursement, and shift in mix toward higher acuity cases.

The changes in revenue mix in the Home Health segment resulted from (i) organic revenue growth in Medicare, particularly in the Company’s specialty programs, and the non-Medicare PPS business, and (ii) the elimination or reduction of certain low margin Medicaid and local government business and commercial business, including pediatric and adult hourly services and other business in home health branch offices that were sold in the first quarter of 2009. These changes contributed to an overall increase in gross margin within the Home Health segment from 52.2 percent in the first quarter of 2009 compared to 53.2 percent in the first quarter of 2010.







paragraph 65.

168. The Q1 2010 10-Q repeated the representations that Gentiva was in compliance






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materially false and misleading for the reasons set forth above in paragraph 81.



release that disclosed the Company’s financial results for the fiscal quarter ended July 4, 2010

that reported net revenue of approximately $297 million, an increase of 4% and adjusted income

from continuing operations of approximately $22.6 million, an increase of approximately 26%.

173. The July 20, 2010 press release represented the following concerning Gentiva’s

full-year 2010 outlook:

Gentiva reaffirmed its 2010 full-year outlook for adjusted income from continuing operations of $2.67 to $2.75 on a diluted share basis. However, in light of recent softness in home health episodic volumes and the anticipated seasonality in third quarter volumes as experienced by the Company historically, Gentiva has reduced its full-year revenue guidance to a range of $1.20 billion to $1.23 billion from its prior guidance of between $1.23 billion to $1.26 billion. The outlook for adjusted income from continuing operations excludes the costs of restructuring, legal settlements and merger and acquisition activities, the results of discontinued operations and the impact of pending the future acquisitions.

(emphasis added).

174. The representations in paragraphs 172-73 were materially false and misleading for

the reasons set forth above in paragraph 65 and because Gentiva’s reduced guidance and

“softness in home health episodic volumes” was, in truth, the result of the Exchange Act

Defendant curtailing their wrongful conduct in response to scrutiny by regulators.

175. On July 21, 2010, the Exchange Act Defendants conducted a conference call with

investors. In light of the Senate Finance Committee investigation and revelations of that the SEC

was investigating Gentiva (which was disclosed on July 13, 2010), Wall Street analysts were

concerned about the impact of the investigations on Gentiva’s business and specifically whether

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they would negatively affect Gentiva’s proposed acquisition of Odyssey. Despite knowing, or at

least recklessly disregarding the conduct alleged above in paragraph 65, including accusations

made in the Parting Comments Letter dated May 2010, Defendant Strange downplayed the

investigation as “distractions,” denied that the investigations had or would have a negative

impact on the Company’s business, and specifically denied that the Company engaged in

improper upcoding:

Tony Strange

But I think we’ve said in our comments that we’re confident in our ability to close [the Odyssey transaction] and we are moving forward, and these are just—think I refer to them as distractions in the SEC probe of the industry and Senate Finance probe and those types of things, but we are moving [to] close. . . .

Sachin Shah

Okay. Just one last question. You mentioned distractions. Do you foresee any more distractions between now and the closing of the merger? Is there anything else that we should know or something that is unexpected that is known in the industry that might come up between now and closing?

Tony Strange

Let me restate your question. Is there anything that I don’t know about today that I should know about in the future. You know, and the answer is nothing that I know of.

Sachin Shah

Okay, so the SEC Senate Finance Committee, the CMS financing, that is left on the table; there is nothing else that we should expect coming from the industry— regulations, investigations, etc.—about the Company’s industry and for that matter, the completion of the deal?

Tony Strange

And let me restate what I said. Nothing that we are aware of . . . . But with that, I don’t have a crystal ball any more than anybody else on this call does. But there is nothing that I know of that would impede us from closing this transaction just as we had planned. . . . I think the SEC has been thoughtful in their approach, and as John said, we will cooperate fully as we have done with the Senate Finance

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Committee, and we will help them in any way we can. We don’t really view this as something that is negative for us. We are proud of the services that we provide and proud of the information that we will give them.

* * *

Sheryl Skolnick

Yes, because I think that trying to control CMS administratively, yes, that’s a stopgap measure but it still doesn’t get the industry out from under the cloud of— I will say the word—are they upcoding; is the industry upcoding, which is essentially what CMS is saying. . . .

Tony Strange

I don’t think the industry at large is practicing at anything that could be considered upcoding. I really do believe that the patients that we are taking care of are coming to us sicker and sicker with higher acuity levels and comorbidities, and that they really are in need of that care at home.

(emphasis added).

176. Strange’s representations were materially false and misleading because he knew,

or at least recklessly disregarded, that Gentiva was providing medically unnecessary services in

violation of Medicare standards and regulations as alleged above in paragraphs 37-61, and

specifically that Gentiva was wrongly “upcoding” in order to increase a patient’s “case-mix

weight” and thereby wrongfully increased the amount of reimbursement from Medicare (¶¶ 53-

61).


release concerning the Company’s financial results for the quarter ended July 4, 2010 that

reported net revenues of $297.1 million, an increase of 4%, and net income of $18.9 million or

$0.62 per diluted share compared to $17.1 million or $0.59 per diluted share in the second

quarter of 2009.

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178. In the July 29, 2010 press release Strange represented that “Gentiva had a good

second quarter that featured continued strong growth in Hospice, improved operating margins

and solid execution as we managed through somewhat softer Home Health episodic volumes . . .

.”

179. Also on July 29, 2010, the Exchange Act Defendants conducted a conference call

with investors during which Strange made the following representations:

Revenue per episode for the period was approximately $3,280, up 3.3% from the prior-year period. The increase in revenue per episode is attributable to the continued shift in mix towards higher acuity patients as our specialty programs continue to expand, as well as increased rates related to the 2010 Market Basket update. . . . The gross margin improvements in Home Health were driven by a favorable change in revenue mix. . . .






artificially inflated as a result the improper manipulations of the Medicare reimbursement


181. Also on the July 29, 2010 conference call Strange made the following

representations:

We also believe we have a robust compliance program that we believe is best-of-class. In my short time with Gentiva I have come to appreciate the regulatory scrutiny that this industry is under; but I am confident in Gentiva’s commitment to continue to operate our business with the highest levels of operating, financial, and regulatory integrity.


forth above in paragraph 65 and because Gentiva’s compliance program was not “best-of-class”

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and was not “robust.” Indeed, by this point in time, not only had Strange received the Parting

Comments Email, to which there was apparently no response, but numerous other Gentiva

employees and managers throughout the country had expressed concerns to Company Human

Resource, Compliance and other executives about chronic pressure being placed on them to

violate Medicare standards and regulations. (¶¶49; 53-61).

183. Following Gentiva’s July 29, 2010 press release and conference call, Jefferies &

Company, Inc. published an analyst report stating, in part, as follows:

We remain very bullish on GTIV given the company’s solid and expanding margin profile . . . . [T]he company’s robust Q2 gross margin (+180 bps Q/Q on flat revenues) gives us increased confidence that the company is well-positioned for operating and financial outperformance once volume growth re-accelerates. Mgmt’s comments about volume trend improvement in June and July coupled with their expectation for a bounceback in volumes in 2H10 leads us to believe that GTIV can easily meet or beat its earnings guidance and investor expectations

184. On July 30, 2010, the Exchange Act Defendants caused Gentiva to file its

quarterly report for the quarter ended July 4, 2010 (“Q2 2010 10-Q”) that repeated the financial

results reported in the July 29, 2010 press release. The Q2 2010 10-Q was signed by Strange and

Slusser and made the following representations:

The Company’s episodic revenues grew 7.2 percent and 10.0 percent for the second quarter and first six months of 2010. . . . Episodic revenue growth, excluding the impact of acquisitions completed in 2009 and the first six months of 2010, was 5 percent and 8 percent, respectively for the second quarter and first six months of 2010 compared to the corresponding periods of 2009. . . .

Growth in episodes was driven by an increase in admissions of more than 4 percent, from 46,600 admissions in the second quarter of 2009 to 48,600 admissions in the second quarter of 2010 and by more than 7 percent, from 93,500 admissions in the first six months of 2009 to 100,250 admissions in the first six months of 2010. There were approximately 1.4 episodes for each admission during the second quarter and first six months of both the 2009 and 2010 periods. Factors contributing to the improvements in revenue per episode for the second quarter and first six months of 2010 include (i) growth in the Company’s therapy-based specialty programs that have a higher level of reimbursement, (ii) a shift in

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mix toward higher acuity cases, (iii) a 3.0 percent add-on to Medicare payments for services to patients in rural areas effective April 1, 2010 in which the Company generated approximately 20 percent and 22 percent of its episodic revenue during the second quarter and first six months of 2010, respectively, and (iv) a 2.0 percent market basket update for Medicare home health payments effective January 1, 2010. . . .

The changes in revenue mix in the Home Health segment resulted from (i) organic revenue growth in Medicare, particularly in the Company’s specialty programs, and the non-Medicare PPS business, and (ii) the elimination or reduction of certain low margin Medicaid and local government business and commercial business, including pediatric and adult hourly services and other business in home health branch offices that were sold in 2009. These changes contributed to an overall increase in gross margin within the Home Health segment from 53.6 percent and 52.9 percent in the second quarter and first six months of 2009 compared to 55.2 percent and 54.2 in the second quarter and first six months of 2010.












188. The Q2 2010 10-Q contained SOX Certifications by Strange and Slusser that were


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189. Strange’s and Slusser’s representations in the SOX Certifications were materially

false and misleading because, in contrast to the representations made in their certifications,

Gentiva’s disclosure controls and procedures and internal controls over financial reporting were

not effective as they permitted Gentiva to report financial results that were, in material part, the

product of the wrongful manipulation of the Medicare reimbursement system.

190. On September 16, 2010 Defendant Strange made the following representations at

the Stifel, Nicolaus & Company Healthcare Conference :

So we’ve been working with Senate Finance Committee, we engaged them early on in the process. We’ve now sent over 300,000 pages of documentation to the Senate Finance Committee. We’ve been engaged back and forth with helping to understand that information. If you look at the inquiry, the first half of the inquiry is related to therapy utilization, the second half of the inquiry is related to relationship between the company and its referral sources. In both cases if you look at our utilization patterns in ’07 and ’08 compared to ’08 and ’09 there is virtually no change in the utilization pattern. So we feel very comfortable about that.

(emphasis added).


forth above in paragraph 65 and because, in stark contrast to Strange’s representations about

Gentiva’s utilization policies, the SFC concluded that based on Gentiva’s own documents there

was a statistically significant shift in the Company’s utilization patterns after changes to the PPS

system in 2008 that reflect the Exchange Act Defendants’ efforts to cause Gentiva employees,

staff and clinicians to wrongfully increase therapy visits and expand specialty programs, and

thereby increase Medicare reimbursements, without regard to patient medical needs. (¶ 65).


192. On November 9, 2010, the Exchange Act Defendants caused Gentiva to issue a

press release reporting its financial results for the quarter ended October 3, 2010. The November

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9, 2010 press release reported total net revenues of $387.8 million, an increase of 38% compared

to $281.2 million for the quarter ended September 27, 2009, and adjusted EBITDA of $54.9

million in the third quarter of 2010, an increase of 80%.

193. Gentiva also reported in the November 9, 2010 press release that, including the

impact of the closing of the Odyssey transaction, the Company expected full-year 2010 net

revenues to be in a range of $1.42 billion to $1.45 billion and adjusted income from continuing

operations of $2.75 to $2.80 on a diluted per share basis.

194. Also on November 9, 2010, the Exchange Act Defendants conducted a conference

call with investors during which Slusser made the following representations:

Revenue per episode for the period was approximately $3,291, up 4.1% from the prior-year period. The increase in revenue per episode is attributable to the continued shift in mix towards higher acuity patients as our specialty programs continue to expand, as well as increased rates year-over-year.








196. Gentiva’s third quarter results beat Wall Street estimates, and analysts, including

Deutsche Bank, BB&T Capital Markets and Jefferies & Company, Inc., continued to rate the

stock a “buy.”


quarterly report for the quarter ended October 3, 2010 (“Q3 2010 10-Q”). The Q3 2010 10-Q

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was signed by Strange and Slusser and repeated the financial results reported in the November 9,

2010 press release and made the following representations:

The Company’s episodic revenues grew 7.9 percent and 9.3 percent for the third quarter and first nine months of 2010. . . . Episodic revenue growth, excluding the impact of acquisitions completed in 2009 and the first nine months of 2010, was 6 percent and 7 percent, respectively, for the third quarter and first nine months of 2010 compared to the corresponding periods of 2009. . . .

Growth in episodes was driven by an increase in admissions of 4 percent, from 46,600 admissions in the third quarter of 2009 to 47,600 admissions in the third quarter of 2010 and by 6 percent, from 139,500 admissions in the first nine months of 2009 to 147,900 admissions in the first nine months of 2010. There were approximately 1.45 episodes for each admission during the third quarter and first nine months of both the 2009 and 2010 periods. Factors contributing to the improvements in revenue per episode for the third quarter and first nine months of 2010 include (i) growth in the Company’s specialty programs that have a higher level of reimbursement, (ii) a shift in mix toward higher acuity cases, and (iii) Medicare home health payment changes . . . .

The changes in revenue mix in the Home Health segment resulted from (i) organic revenue growth in Medicare, particularly in the Company’s specialty programs, and the non-Medicare PPS business, and (ii) the elimination or reduction of certain low margin Medicaid and local government business and commercial business, including pediatric and adult hourly services and other business in home health branch offices that were sold in 2009. These changes contributed to an overall increase in gross margin within the Home Health segment . . . .

198. These representations were materially false and misleading because as set forth

above in paragraph 65, the Exchange Act Defendants’ representations concerning Gentiva’s

financial results, including reported increases in revenue and profit margins (specifically revenue

per episode and margins per episode) and the purported reasons behind those increases were

materially false and misleading because they failed to disclose that these reported figures were

materially and artificially inflated as a result of the improper manipulations of the Medicare

reimbursement system, as alleged in paragraphs 37-61.

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virtually identical to the certification referred to above in paragraph 80 above.


false and misleading for the reasons set forth above in paragraph 81.

203. On December 16, 2010, the Exchange Act Defendants caused Gentiva to issue a

press release that set forth Gentiva’s 2011 net revenue and earnings guidance and represented the

following:

For 2011, Gentiva expects full-year net revenues to be in the range of $1.90 billion to $1.95 billion and adjusted income from continuing operations to be $2.70 to $2.80 on a diluted per share basis. Gentiva’s 2011 outlook includes the full-year impact of its Odyssey HealthCare, Inc. acquisition and the final rules regarding Medicare home health reimbursement rates for 2011 which were issued by the Centers for Medicare & Medicaid Services (CMS) on November 2, 2010.

204. On December 16, 2010, the Exchange Act Defendants conducted a conference

call with investors during which Slusser represented the following:

Based on the strategic priorities Tony [Strange] outlined and our business plans, for 2011 we expect full-year net revenues to be in the range of $1.9 billion to $1.95 billion. This reflects the full-year impact from the Odyssey Hospice acquisition and the negative impact associated with the recently announced CMS rate cuts. . . .

I just want to clarify one comment, now that I understand the question further that was asked, around our episodic volume growth. If you look at the number I gave around expected 8% to 10% growth, around 6% to 7% of our growth is expected to come from episodic volume. The remainder of that range would come from change in revenue per episode and growth from that. I just wanted to clarify that, now that I looked at the question and understood it.

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press release disclosing the Company’s fourth quarter and full-year 2010 financial results. For

full-year 2010, Gentiva reported net revenues increased by 26% to $1.45 billion and adjusted

EBITDA increased approximately 57% to $200.2 million. For the fourth quarter of 2010,

Gentiva reported total net revenues of $465.0 million, an increase of 50% and adjusted EBITDA

of $64.9 million, an increase of 91%.

207. Moreover, the February 17, 2011 press release made the following representations

about Gentiva’s full-year 2011 outlook:

For 2011, Gentiva expects full-year net revenues to be in the range of $1.90 billion to $1.95 billion and adjusted income from continuing operations attributable to Gentiva shareholders to be in the range of $2.70 to $2.80 on a diluted per share basis. Gentiva’s 2011 outlook includes the full-year impact of its Odyssey HealthCare, Inc. acquisition and the final rules regarding Medicare home health reimbursement rates for 2011, which were issued by the Centers for Medicare & Medicaid Services (CMS) on November 2, 2010.

208. Also on February 17, 2011, the Exchange Act Defendants conducted a conference

call with investors during which Defendant Slusser made the following representations:

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[H]ome health episodic revenue grew year over year by approximately 6%. . . . Revenue per episode for the fourth quarter was approximately $3242, up approximately 2% from the prior year period.

The increase in revenue per episode is primarily attributable to the year-over-year episodic payment updates including the benefit of the [rural add-on] provision as well as the continued shift in mix towards higher acuity patients as our specialty programs continue to expand. . . .

During the fourth quarter, home health gross margins improved to 52.8% compared to 52.4% in the prior year driven by a favorable change in the PPS revenue mix and an increase in the number of clinicians compensated on a pay-per-visit basis compared with a year ago and a decline in the percent of per diem clinicians.








210. On March 11, 2011, the Exchange Act Defendants caused Gentiva to file the 2010

10-K. The 2010 10-K, which was signed by Strange, Slusser, and Malone, repeated the financial

results reported in the February 17, 2011 press release and represented the following:

The operation of our home health services business and hospice services business is subject to federal and state laws prohibiting fraud by healthcare providers . . . . We have established policies and procedures that we believe are sufficient to ensure that we will operate in substantial compliance with these anti-fraud and abuse requirements. . . .

The Company’s episodic revenues grew 5.5 percent during fiscal 2010. . . . Factors contributing to the improvements in revenue per episode for the year ended December 31, 2010 included (i) Medicare home health payment changes for 2010 . . . and (ii) the continued shift in mix toward higher acuity patients as

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the Company’s specialty programs continued to expand offset somewhat by the impact of the 2011 rate reductions which negatively affected episodes that began in 2010 and remained open at year-end. . . .

There are certain standards and regulations that the Company must adhere to in order to continue to participate in Medicare, Medicaid and other federal and state healthcare programs. As part of these standards and regulations, the Company is subject to periodic audits, examinations and investigations conducted by, or at the direction of, governmental investigatory and oversight agencies. Periodic and random audits conducted or directed by these agencies could result in a delay or adjustment to the amount of reimbursements received under these programs. Violation of the applicable federal and state health care regulations can result in the Company’s exclusion from participating in these programs and can subject the Company to substantial civil and/or criminal penalties. The Company believes that it is currently in compliance with these standards and regulations.


forth above in paragraph 65 and because Gentiva’s compliance program was a sham, as alleged

in paragraph 182.

212. The 2010 10-K contained SOX Certifications by Strange and Slusser that were




214. On March 14, 2011, Defendant Strange made the following representation in a

“Dear Shareholder” letter transmitted to shareholders with the 2010 10-K:

The results reflect improved home health operating margins as we get more efficient and leverage the benefits of our growing scale, as well as strong performance throughout 2010 from our legacy hospice business.

It’s important to note that these results were generated in a year in which patient volumes temporarily declined as seniors grappled with the changes brought on by healthcare reform, and in which late in the year, we faced Medicare home health reimbursement cuts.



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216. The Dear Shareholder letter further represented that maintaining a “strong culture

of regulatory compliance” was one of Gentiva’s strategic priorities for 2011.

217. The representations in the “Dear Shareholder” letter were materially false and

misleading for the reasons set forth above in paragraph 182.

218. On March 15, 2011, Strange made the following representations at the Barclays

Capital Global Healthcare conference:

And the last thing is it really is a part of Gentiva and who we are and that’s a company with a culture of compliance. We play right down the middle of the fairway, there’s a lot of noise around our industry about people that are participating in activities that might border on fraud and abuse, but Gentiva because of our size and commitment to playing by the rules, we have a very strong culture of compliance, and that’s something that we’ll maintain as we continue to grow.


above in paragraphs 49, 53-61, Gentiva did not have a “strong culture of regulatory compliance.”

Indeed, in stark contrast, by this point in time, not only had Strange received the Parting

Comments Email, to which there was apparently no response, but numerous other Gentiva

employees and managers throughout the country had expressed concerns to Company Human

Resource, Compliance and other executives about chronic pressure being placed on them to

violate Medicare standards and regulations. ( Id. )

220. Further, Strange’s representation on March 15, 2011 that Gentiva was “playing by

the rules” was materially false and misleading because the Exchange Act Defendants knew, or at

least recklessly disregarded, that Gentiva was engaging in practices that violated Medicare

standards and regulations and resulted in the provision of medically unnecessary services as

alleged above in paragraph 65.

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221. Also, Slusser made the following representations at the Barclays Capital Global

Healthcare Conference:

Probably the really thing that stands out here is the continued margin expansion that we have been able to get out of the company, we finished the year overall at 13.8%, including the new Hospice business, that’s up from 11% in ’09. And not too many years ago, about five years ago, that number was about 5%, so there’s been a significant amount of focus over the last five to six years on margins and expansion. And again, we continue to see good results out of that focus and as we approach a 14% number. . . .

[I]f you look at the total net revenue line, a little softer growth number than we’ve seen in the past. . . . One of the key things here though that we did to offset that, a lot of margin focus. Gross margin in the 53.7%, that’s getting to the high end of our historical numbers. We’re very pleased with that and also our contribution margin business at the 20% level again continued to expand that up 200 basis points year-over-year. So, while the revenue growth is a little slower than expected, we’re able to overcome and compensate for that by focusing on cost and margin expansion to improve our numbers . . . .

From an outlook perspective, we did give guidance back in December and reiterated that at our year end results this year. Revenue, our expectations are $1.9 billion to $1.950 billion.

222. These representations were materially false and misleading because as set forth

above in paragraph 65, Gentiva’s revenue growth was being achieved by providing patients with

medically unnecessary services, in direct violation of Medicare regulations and standards.

223. On March 24, 2011, Slusser made the following representations at the Barclays

Capital High Yield Bond & Syndicated Loan Conference :

[W]e believe that we are the most compliant company out there that we have the best industry compliance program and we will continue to maintain that focus on our—on that compliance culture that we have in place.



225. Also Slusser made the following representations at the Barclays Capital High

Yield Bond & Syndicated Loan Conference :

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We are able to focus on margin expansion. 2009 we are in 11% EBITDA range and we finished at 13.8%. So, it wasn’t more than about five, six years ago that number was 5%. So, there has been a significant focus in the company on margin growth, margin expansion and getting up to more to where the industry numbers are, so very pleased with those results.







paragraph 65.


227. On May 5, 2011, the Exchange Act Defendants caused Gentiva to issue a press

release disclosing the Company’s financial results for the quarter ended April 4, 2011 that

reported net revenues of $458.8 million, an increase of 54% and net income attributable to

Gentiva shareholders of $13.5 million, or $0.44 per diluted share, compared to $9.3 million, or

$0.31 per diluted share, in the first quarter of 2010.


Act Defendants’ representations concerning Gentiva’s financial results were materially false and


artificially inflated as a result the improper manipulations of the Medicare reimbursement



quarterly report for the quarter ended March 31, 2011 (“Q1 2011 10-Q”). The Q1 2011 10-Q

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was signed by Strange and Slusser, and repeated the financial results reported in the May 5,

2011.


Act Defendants’ representations concerning Gentiva’s financial results were materially false and





with Medicare regulations and standards as alleged above in paragraph 78.








235. On August 4, 2011, the Exchange Act Defendants caused Gentiva to issue a press

release disclosing its financial results for the quarter ended August 4, 2011 that reported net

revenues of $456.9 million, an increase of 54%, net income attributable to Gentiva shareholders

of $5.2 million, or $0.17 per diluted share, compared to $18.9 million, or $0.62 per diluted share,

in the second quarter of 2010. The press release announced that Gentiva was adjusting its full-

year 2011 outlook as follows:

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Given the Company’s results for the first half of 2011 and the expectation of a continued difficult operating environment through the remainder of the year, Gentiva has adjusted its 2011 outlook. Full-year 2011 net revenues are expected to be in the range of $1.8 billion to $1.85 billion and adjusted income from continuing operations attributable to Gentiva shareholders is expected to be in the range of $2.00 to $2.20 on a diluted per share basis.

236. On August 4, 2011, the Exchange Act Defendants conducted a conference call

with investors during which Strange made the following representations:

The complexity of the new regulatory requirements along with the overall softness in health care services volumes, has impacted our ability to meet our growth expectations. . . [and] the additional costs of the regulations have pressured margins. . . . [T]he administrative burden of meeting the new regulations was dilutive to our margins. . . .

That brings me to our outlook for the remainder of 2011. The impact of continued softness in volumes, the cost burden of additional regulations, ongoing debates over Medicare cuts and potential co-pays, as well as the softness across all of healthcare services sector, has led us to lower our expectations for the remainder of this year.


quarterly report for the quarter ended June 30, 2011 with the SEC on Form 10-Q (“Q2 2011 10-

Q”). The Q2 2011 10-Q that was signed by Strange and Slusser and repeated the financial

results reported in the August 4, 2011 press release.

238. The representations in paragraphs 235-37 were materially false and misleading for

the reasons set forth above in paragraphs 65-66 and for the additional reason that the “softness in

health care service volumes” and decline in home health revenues was due to the fact that the

Exchange Act Defendants would have to curtail their wrongful conduct as a result of regulatory

scrutiny of Gentiva’s business practices and for the additional reason that the Exchange Act

Defendants’ representations concerning Gentiva’s financial results were materially false and


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243. On September 14, 2011, Defendant Strange made the following representations at

the Morgan Stanley Healthcare Conference :

The other thing they’ve done is redistributed dollars amongst the 153 HHRGs. And so depending on a patient or a company’s mix within those HHRGs, as to whether that is slightly positive, negative, or even potentially largely negative.

But, that’s unless you had the data on a—on all of the companies, all of their episodes, it would be almost impossible to model that. What we have said, the combination of those three buckets, what Eric [Slusser] has said publically last week, with the net impact of that should be a $40 million to $45 million reduction in reimbursement to Gentiva for 2012 and you can kind of back into that third piece from those numbers. . . .

I think we would be naïve to think that the margin pressures go away. With the margin pressure we’ve seen in 2011, we had about a 5% rate reduction. We’ve had—we just talked about the $40 to $45 million in ’12. I think that it would be naïve to think that all of a sudden we’ll wake in ’13 and everything is going to be rosy. But, in terms of predicting what those rates look like in ’13, I couldn’t do that.

[I]f you look at the average revenue per episode and the average revenue per episode is driven by that acuity that you talked about, we perform an OASIS assessment with the patient and based on the outcome of this assessment, it really drives the case mix or the acuity which in turn drives revenue for us. If the

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question that you asked when overall healthcare volumes were down, would we see a corresponding decrease in the kind of acuity that we took care of, if that were the case, you would see a corresponding reduction in revenue per episode. If you look at our revenue per episode over the last several quarters, you would see it consistently running, I think, the number we put out was just over $3,000 an episode, which is somewhat consistent with industry—with our industry peers.


forth above in paragraph 65-66.

D. Loss Causation/Economic Loss

245. During the Class Period, as detailed herein, the Exchange Act Defendants

engaged in a scheme to deceive the market and a course of conduct that artificially inflated the

price of Gentiva securities and operated as a fraud or deceit on Class Period purchasers of

Gentiva securities by misrepresenting the Company’s operating condition and financial

performance. The Exchange Act Defendants achieved this by making positive statements about

Gentiva’s business and earnings for the Company while they knew, or at least recklessly

disregarded, that the Company was engaging practices that violated Medicare standards and

regulations and resulted in the provision of medically unnecessary services, as alleged herein.

Later, however, when the Exchange Act Defendants’ prior misrepresentations were revealed and

became apparent to the market, the price of Gentiva securities declined as the prior artificial

inflation came out of the price of Gentiva securities through partial disclosures described below.

As a result of their purchases of Gentiva securities during the Class Period, Lead Plaintiff and

other members of the Class suffered economic loss, i.e. , damages under the federal securities

laws.

246. As a direct result of the public revelations regarding the truth about the condition

of Gentiva’s business and the negative adverse factors that had been impacting Gentiva’s

business during the Class Period, the price of Gentiva’s securities materially declined. These

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declines removed the inflation from Gentiva’s securities, causing real economic loss to investors

who purchased Gentiva securities during the Class Period.

247. The timing and magnitude of the decline in the price of Gentiva securities negate

any inference that the loss suffered by Lead Plaintiff and other Class members was caused by

changed market conditions, macroeconomic or industry factors, or Company-specific facts

unrelated to the Exchange Act Defendants’ fraudulent conduct.

a. May 13, 2010 Partial Disclosure

248. On May 13, 2010, before the market opened, the Wall Street Journal reported that

the SFC launched an investigation into the practices of companies that provide in-home therapy

visits reimbursed by Medicare, including Gentiva.

249. On May 13, 2010, Gentiva shares declined from a closing price on May 12, 2010

of $29.75 per share to close at $27.55 per share, a decline of $2.20 per share or approximately

7% on heavier than usual volume.

250. However, the Exchange Act Defendants continued to represent that Gentiva was

in compliance with Medicare standards and regulations. Indeed, also on May 13, 2010, as

alleged above, the Exchange Act Defendants caused Gentiva to file its quarterly report on Form

10-Q for the quarter ended March 29, 2010 that represented that the “Company believes that it is

currently in compliance” with Medicare standards and regulations.

b. July 1, 2010 Partial Disclosure

251. On July 1, 2010, prior to the market opening, the Exchange Act Defendants

caused Gentiva to issue a press release, filed with the SEC on Form 8-K, that attempted to allay

investors concerns caused by the SFC’s investigation by representing the following:

In light of recent reports from other companies in the home healthcare industry, Gentiva Health Services, Inc., a Delaware corporation (“Gentiva”), reported today

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that it has not received a notice of formal investigation from the Securities and Exchange Commission (“SEC”) and has not received a subpoena for documents related to the matters under review by the Senate Finance Committee.

Gentiva is actively cooperating with the Senate Finance Committee in their review of the home healthcare industry and expects to be fully compliant with the Committee’s requests.

252. On July 1, 2010, Gentiva shares declined from a close on June 30, 2010 of $27.01

per share, to close at $23.93 per share, a decline of $3.08 per share or approximately 11% on

heavier than usual volume. Had the Exchange Act Defendants revealed the truth about their

conduct, Gentiva shares would have declined further.

c. July 13, 2010 Partial Disclosure

253. On July 13, 2010 Gentiva disclosed that the SEC commenced an investigation

relating to Gentiva’s participation in the Medicare Home Health PPS.

254. On July 13, 2010, Gentiva shares declined from a close on July 12, 2010 of

$24.17 per share, to close at $22.30 per share, a decline of $1.87 per share or over 7% on heavier

than usual volume. On July 14, 2010, Gentiva shares declined an additional $0.31 per share to

close at $21.99 per share, for a two day decline of approximately 9%.

d. July 20, 2010 Partial Disclosure

255. On July 20, 2010, after the close of trading, Gentiva disclosed its financial results

for the fiscal quarter ended July 4, 2010. Among other things, the Company disclosed that “in

light of recent softness in home health episodic volumes and the anticipated seasonality in third

quarter volumes as experienced by the Company historically, Gentiva has reduced its full-year

revenue guidance to a range of $1.20 billion to $1.23 billion from its prior guidance of between

$1.23 billion to $1.26 billion.” However, as alleged above, the Exchange Act Defendants

explanations for “recent softness in home health episodic volumes” were not true. In truth, the

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“softness” in revenues was due to the fact that the Exchange Act Defendants would have to

curtail their fraudulent conduct as a result of regulatory scrutiny of Gentiva’s business practices.

256. On July 21, 2010, Gentiva shares declined from a close on July 20, 2010 of

$21.60 per share, to close at $19.96 per share, a decline of $1.64 per share or over 7% on heavier

than usual volume. The next trading day, Gentiva shares declined an additional $0.56 per share,

for a two day decline of approximately 10%.

e. August 4, 2011 Partial Disclosure

257. On August 4, 2011, before the market opened, Gentiva issued a press release

announcing its financial results for the quarter ended July 4, 2011.

258. Also on August 4, 2011, the Exchange Act Defendants conducted a conference

call with investors during which Strange stated that “[t]he complexity of the new regulatory

requirements along with the overall softness in health care services volumes, has impacted our

ability to meet our growth expectations . . . the additional costs of the regulations have pressured

margins” (CMS had announced a number of proposed changes to PPS rates in July 2011 in

order to “decrease incentives for upcoding” and reduce “billing practices [] not related to

changes in the health status of patients”)

259. For the quarter ended July 4, 2011, the implementation of new regulations caused

Gentiva’s home health revenue to decline 4.9% year over year, driven by a decline in revenue

per episode of over 6%.

260. Again, the Company’s profitability declined because the Exchange Act

Defendants would have to curtail their fraudulent conduct as a result of regulatory scrutiny of

Gentiva’s business practices.

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261. Also on August 4, 2011, it was reported that Moody’s Investors Service said it

was reviewing Gentiva’s ratings for a possible downgrade deeper into junk territory because of a

“confluence of negative factors” in the home health sector.

262. On August 4, 2011, Gentiva shares declined from a closing price on August 3,

2011 of $13.36 per share to close at $8.85 per share August 4, 2011, a decline of $4.51 per share

or approximately 34% on heavier than usual volume. Between August 4 and August 9, 2011,

Gentiva’s 11.5% Notes declined approximately 9%.

263. On August 10, 2011, Bloomberg reported that according to Credit Suisse, cuts in

Medicare payments may force Gentiva to breach loan covenants in 2011.

264. On August 12, 2011, it was reported that Standard & Poor’s Ratings Services

downgraded Gentiva, partly because of Gentiva’s “weak earnings” this year. Reportedly, S&P

analyst Tahira Wright said the downgrade was driven by Gentiva’s significantly lower-than-

expected performance and prospects that Medicare cuts could hurt margin enough to force

Gentiva to violate certain debt covenants.

f. October 3-4, 2011 Disclosure

265. On October 3, 2011, before the market opened, the Staff Report on Home Health

and the Medicare Therapy Threshold, discussed above, was publicly disclosed.

266. On October 3, 2011, Gentiva shares declined from the prior trading day closing

price on September 30, 2011 of $5.52 per share, to close at $3.68 per share, a decline of $1.84

per share or approximately 33% on heavier than usual volume.

267. After the close of trading on October 3, 2011, Gentiva issued a press release that,

among other things, denied many of the findings of the SFC Report. Specifically, Gentiva

represented that it “maintains its belief that the company is providing the highest quality care and

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receives payments within the standards set forth by the reimbursement system established by the

Center for Medicare and Medicaid Services (CMS).”

268. On October 4, 2011, Gentiva shares declined from a closing price on October 3,

2011 of $3.68 per share to close at $3.02 per share, a decline of 18% on heavier than usual

volume. Gentiva’s 11.5% Notes similarly declined.

E. Fraud-On-The-Market Doctrine

269. At all relevant times, Gentiva’s securities traded in an efficient market for the

following reasons, among others:

(a) The Company’s common stock met the requirements for public listing and was

listed and actively traded on the Nasdaq, a highly efficient market;

(b) As a regulated issuer, the Company filed periodic public reports with the SEC,

including Form S-3, and Form S-4 in connection with the issuance of the 11.5% Notes;

(c) The 11.5% Notes were actively traded during the Class Period and transactions in

the 11.5% Notes were required to be reported on FINRA’s Trade Reporting and

Compliance Engine (TRACE); and

(d) the Company regularly issued press releases which were carried by national news

wires. Each of these releases was publicly available and entered the public

marketplace;

270. The Company was covered by several research analysts that regularly issued

reports throughout the Class Period concerning Gentiva’s business.

271. As a result, the market for the Company’s publicly traded securities promptly

digested current information with respect to Gentiva from all publicly available sources and

reflected such information in the price of the Company’s securities. Under these circumstances,

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all purchasers of the Company’s publicly traded securities during the Class Period suffered

similar injury through their purchase of the Gentiva securities at artificially inflated prices and a

presumption of reliance applies.

F. Additional Scienter Allegations

272. As alleged herein, the Exchange Act Defendants acted with scienter in that they

knew that the public documents and statements issued or disseminated in the name of the

Company were materially false and misleading; knew that such statements or documents would

be issued or disseminated to the investing public; and knowingly and substantially participated or

acquiesced in the issuance or dissemination of such statements or documents as primary

violations of the federal securities laws. As set forth elsewhere herein in detail, the Exchange

Act Defendants, by virtue of their receipt of information reflecting the true facts regarding

Gentiva, their control over, and/or receipt and/or modification of Gentiva’s allegedly materially

misleading misstatements and/or their associations with the Company which made them privy to

confidential proprietary information concerning Gentiva, participated in the fraudulent scheme

alleged herein.

273. The Exchange Act Defendants knew and/or recklessly disregarded the falsity and

misleading nature of the information which they caused to be disseminated to the investing

public. The ongoing fraudulent scheme described in this complaint could not have been

perpetrated over a substantial period of time, as has occurred, without the knowledge and

complicity of the personnel at the highest level of the Company, including the Individual

Exchange Act Defendants.

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274. Malone served on Gentiva’s Clinical Quality Committee. The Clinical Quality

Committee reportedly met three times per year during the 2008 to 2010 time period . The

principal functions and responsibilities of Gentiva’s Clinical Quality Committee included:

• Providing oversight of our clinical leadership in the development of leading edge clinical strategies and practices;

• Monitoring our performance against established internal and external benchmarking regarding clinical performance and outcomes;

• Facilitating the development of industry best practices based on internal and external data comparisons;

• Fostering enhanced awareness of our clinical performance by the Board of Directors and external sources;

~ Establishing a long term, strategic clinical vision for Gentiva; and

• Reporting to the Board of Directors a summary of its findings and recommendations.

275. The Exchange Act Defendants had the motive and opportunity to perpetrate the

fraudulent scheme and course of business described herein because the Individual Exchange Act

Defendants were the most senior officers of Gentiva, issued statements and press releases on

behalf of Gentiva and had the opportunity to commit the fraud alleged herein.

276. As alleged above in paragraphs 19-21, during the Class Period, Malone,

Potapchuk and Strange collectively sold approximately 291,979 Gentiva shares at artificially

inflated prices for proceeds of approximately $7.1 million.

277. Further, the Exchange Act Defendants were motivated to engage in the fraudulent

conduct alleged herein in order to acquire Odyssey. The Exchange Act Defendants needed to

acquire Odyssey in order to diversify their business beyond home health care which was

becoming less profitable as regulatory scrutiny of Gentiva’s business practices increased.

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278. In connection with the Odyssey transaction, Gentiva sold $325 million in 11.5%

Notes.

G. No Safe Harbor

279. The statutory safe harbor provided for forward-looking statements under certain

circumstances does not apply to any of the allegedly false statements pleaded in this Complaint

because the Exchange Act Defendants’ representations were false when made and concerned

historical or present facts.

280. Many of the specific statements pleaded herein were not identified as “forward-

looking statements” when made. To the extent there were any forward-looking statements, there

were no meaningful cautionary statements identifying important factors that could cause actual

results to differ materially from those in the purportedly forward-looking statements.

Alternatively, to the extent that the statutory safe harbor does apply to any forward-looking

statements pleaded herein, the Exchange Act Defendants are liable for those false forward-

looking statements because at the time each of those forward-looking statements was made, the

particular speaker knew that the particular forward-looking statement was false, and/or the

forward-looking statement was authorized and/or approved by an executive officer of Gentiva

who knew that those statements were false when made.

H. Claims for Relief under the Exchange Act.

FIRST CLAIM FOR RELIEF For Violation of Section 10(b) of the 1934 Act

and Rule 10b-5 Against the Exchange Act Defendants

281. Lead Plaintiff incorporates ¶¶ 1-280 by reference.

282. During the Class Period, the Exchange Act Defendants disseminated or approved

the false statements specified above, which they knew or recklessly disregarded were materially

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false and misleading in that they contained material misrepresentations and failed to disclose

material facts necessary in order to make the statements made, in light of the circumstances

under which they were made, not misleading.

283. The Exchange Act Defendants violated Section 10(b) of the 1934 Act and Rule

10b-5 in that they:

(a) Employed devices, schemes and artifices to defraud;

(b) Made untrue statements of material facts or omitted to state material facts

necessary in order to make statements made, in light of the circumstances under which they were

made not misleading; or

(c) Engaged in acts, practices, and a course of business that operated as a fraud or

deceit upon Lead Plaintiff and others similarly situated in connection with their purchases of

Gentiva publicly traded securities during the Class Period.

284. Lead Plaintiff and the Class have suffered damages in that, in reliance on the

integrity of the market, they paid artificially inflated prices for Gentiva’s publicly traded

securities. Lead Plaintiff and the Class would not have purchased Gentiva securities at the prices

they paid, or at all, if they had been aware that the market prices had been artificially and falsely

inflated by the Exchange Act Defendants misleading statements.

285. As a direct and proximate result of the Exchange Act Defendants’ wrongful

conduct, Lead Plaintiff and the other members of the Class suffered damages in connection with

their purchases of Gentiva securities during the Class Period.

SECOND CLAIM FOR RELIEF For Violation of Section 20(a) of the 1934 Act

Against the Individual Exchange Act Defendants

286. Lead Plaintiff incorporates ¶¶ 1-280 by reference.

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287. The Individual Exchange Act Defendants acted as a controlling person of Gentiva

within the meaning of Section 20(a) of the Exchange Act as alleged herein. By virtue of their

high-level positions, and their ownership and contractual rights, participation in and/or

awareness of the Company’s operations and/or intimate knowledge of the statements filed by the

Company with the SEC and disseminated to the investing public, the Individual Exchange Act

Defendants had the power to influence and control and did influence and control, directly or

indirectly, the decision-making of the Company, including the content and dissemination of the

various statements which Lead Plaintiff contends are false and misleading. The Individual

Exchange Act Defendants were provided with or had unlimited access to copies of the

Company’s reports, press releases, public filings and other statements alleged by Lead Plaintiff

to be misleading prior to and/or shortly after these statements were issued and had the ability to

prevent the issuance of the statements or cause the statements to be corrected.

288. In particular, the Individual Exchange Act Defendants had direct and supervisory

involvement in the day-to-day operations of the Company and, therefore, are presumed to have

had the power to control or influence the particular transactions giving rise to the securities

violations as alleged herein, and exercised the same.

289. As set forth above, the Exchange Act Defendants each violated Section 10(b) and

Rule 10b-5 by their acts and omissions as alleged in this Complaint. By virtue of their positions

as a controlling person, the Individual Exchange Act Defendants are liable pursuant to Section

20(a) of the Exchange Act. As a direct and proximate result of the Exchange Act Defendants’

wrongful conduct, Lead Plaintiff and other members of the Class suffered damages in connection

with their purchases of the Company’s securities during the Class Period.

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IV. SECURITIES ACT CLAIMS

290. The allegations in Section IV are in effect a separate complaint (the “Securities

Act Claims”).

291. For the Securities Act Claims there is no allegation of fraud, scienter or

recklessness and these claims do not incorporate any of the allegations contained in Section III.

292. The only claim is that there were material misrepresentations and/or omissions of

material fact in the Registration Statements filed with the SEC on October 21 and 27, 2010 on

Form S-4 (the “Registration Statements”) and Prospectus dated November 18, 2010 (the

Registration Statements and Prospectus are collectively referred to as the “Offering Documents”)

in connection with Gentiva’s offering of $325 million in 11.5% Notes (the “Offering”)

293. Under Section 11 of the Securities Act, Gentiva and the individual defendants (as

defined below) that signed the Registration Statements are strictly liable for the

misrepresentations and/or omissions of material fact in the Offering Documents alleged below.

A. The Securities Act Parties

294. On January 26, 2012 LACERS was appointed Lead Plaintiff pursuant to the

Private Securities Litigation Reform Act of 1995 and brings the Securities Act Claims on behalf

all persons that purchased Gentiva securities in the Offering and were damaged thereby.

295. Defendant Gentiva is incorporated in Delaware and its current principal executive

offices are located at 3350 Riverwood Parkway, Suite 1400, Atlanta, GA 30339. During the

Class Period, Gentiva maintained executive offices in Melville, New York. On November 18,

2010, Gentiva sold $325 million in 11.5% Notes in the Offering.

296. Defendant Ronald A. Malone (“Malone”) was the Company’s Chairman of the

Board of Directors at the time of the Offering and signed the Registration Statements.

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297. Defendant Anthony H. Strange (“Strange”) was Gentiva’s Chief Executive

Officer at the time of the Offering and signed the Registration Statements.

298. Defendant Eric R. Slusser (“Slusser”) was Gentiva’s Chief Financial Officer,

Treasurer and Executive V.P. at the time of the Offering and signed the Registration Statements.

299. Strange, Malone, and Slusser are referred to herein as the “Individual Securities

Act Defendants.” Gentiva, along with the Individual Securities Act Defendants, are collectively

referred to as the “Securities Act Defendants.”

B. Gentiva’s False and Misleading Offering Documents

300. On October 21 and 27, 2010, the Securities Act Defendants caused Gentiva to file

the Registration Statements with the SEC.

301. The Registration Statements were signed by Strange, Slusser, and Malone.

302. The Registration Statements incorporated by reference Gentiva’s annual report for

the fiscal year ended January 3, 2010 filed with the SEC on Form 10-K (the “2009 10-K”);

Gentiva’s quarterly report for the fiscal quarter ended April 4, 2010 filed with the SEC on Form

10-Q (“Q1 2010 10-Q”); Gentiva’s quarterly report for the fiscal quarter ended July 4, 2010 filed

with the SEC on Form 10-Q (“Q2 2010 10-Q”); and Gentiva’s quarterly report for the fiscal

quarter ended October 3, 2010 filed with the SEC on Form 10-Q (“Q3 2010 10-Q.”)

303. On November 18, 2010 the Securities Act Defendants caused Gentiva to file a

prospectus with the SEC on Form 424B3, relating to Gentiva’s offering of $325 million in 11.5%

Senior Notes due 2018. The November 18, 2010 prospectus incorporated by reference the 2009

10-K, Q1 2010 10-Q, Q2 2010 10-Q and Q3 2010 10-Q.

304. The Registration Statements represented, in part, the following:

The operation of our home health services business and hospice services is subject to federal and state laws prohibiting fraud by healthcare providers, including laws

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containing criminal provisions, which prohibit filing false claims or making false statements in order to receive payment or obtain certification under Medicare and Medicaid programs, or failing to refund overpayments or improper payments. . . . We have established policies and procedures that we believe are sufficient to ensure that we will operate in substantial compliance with these anti-fraud and abuse requirements.

1. The 2009 10-K

305. The 2009 10-K made the following representations:


The Company’s business is subject to extensive federal, state and, in some instances, local regulations which govern, among other things:

• Medicare . . .; • reporting requirements, certification and licensing standards for certain home health agencies and hospice; and . . . .

There are certain standards and regulations that the Company must adhere to in order to continue to participate in Medicare, Medicaid and other federal and state healthcare programs. As part of these standards and regulations, the Company is subject to periodic audits, examinations and investigations conducted by, or at the direction of, government investigatory and oversight agencies. Periodic and random audits, conducted or directed by these agencies could result in a delay or adjustment to the amount of reimbursements received under these programs. Violation of the applicable federal and state health care regulations can result in the Company’s exclusion from participating in these programs and can subject the Company to substantial civil and/or criminal penalties. The Company believes that it is currently in compliance with these standards and regulations.

306. The 2009 10-K represented that Gentiva’s “episodic revenues grew 22.9% during

fiscal 2009” and revenue per episode was $3,160, an increase of 10.9% and that “[f]actors

contributing to the improvements in revenue per episode for fiscal 2009 include growth in the

Company’s therapy-based specialty programs that have a higher level of reimbursement, and a

shift in mix toward higher acuity cases.”

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307. The 2009 10-K contained certifications pursuant to the Sarbanes-Oxley Act of

2002 (“SOX Certifications”) that were signed by Strange and Potapchuk and stated, in part, the

following:

I have reviewed this annual report on Form 10-K of Gentiva Health Services, Inc.;

Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a. Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b. Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles.

c. Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d. Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the

114


registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a. All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b. Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

2. The Q1 2010 10-Q

308. The Q1 2010 10-Q disclosed Gentiva’s financial results for the fiscal quarter

ended April 4, 2010, reporting net revenues of $297.1 million.

309. The Q1 2010 10-Q made the following representations:

The Company’s episodic revenues grew 13.0 percent for the first quarter of 2010. . . . Episodic revenue growth, excluding the impact of acquisitions completed in 2009 and the first quarter of 2010, was 11 percent for the first quarter of 2010 compared to the corresponding period of 2009. . . .

Growth in episodes was driven by an increase in admissions of more than 10 percent, from 46,900 admissions in the first quarter of 2009 to 51,600 admissions in the first quarter of 2010. There were approximately 1.4 episodes for each admission during both the 2009 and 2010 first quarter periods. Factors contributing to the improvements in revenue per episode for the first quarter of 2010 include growth in the Company’s therapy-based specialty programs that have a higher level of reimbursement, and shift in mix toward higher acuity cases. . . .

The changes in revenue mix in the Home Health segment resulted from (i) organic revenue growth in Medicare, particularly in the Company’s specialty programs, and the non-Medicare PPS business, and (ii) the elimination or reduction of certain low margin Medicaid and local government business and commercial business, including pediatric and adult hourly services and other

115


business in home health branch offices that were sold in the first quarter of 2009. These changes contributed to an overall increase in gross margin within the Home Health segment from 52.2 percent in the first quarter of 2009 compared to 53.2 percent in the first quarter of 2010.

310. The Q1 2010 10-Q also represented, in part, the following:

There are certain standards and regulations that the Company must adhere to in order to continue to participate in Medicare, Medicaid and other federal and state healthcare programs. As part of these standards and regulations, the Company is subject to periodic audits, examinations and investigations conducted by, or at the direction of, governmental investigatory and oversight agencies. Periodic and random audits conducted or directed by these agencies could result in a delay in or adjustment to the amount of reimbursements received under these programs. Violation of the applicable federal and state health care regulations can result in our exclusion from participating in these programs and can subject the Company to substantial civil and/or criminal penalties. The Company believes that it is currently in compliance with these standards and regulations.



3. The Q2 2010 10-Q

312. The Q2 2010 10-Q disclosed Gentiva’s financial results for the quarter ended July

4, 2010 that reported net revenues of $297 million.

313. The Q2 2010 10-Q made the following representations:

The Company’s episodic revenues grew 7.2 percent and 10.0 percent for the second quarter and first six months of 2010. . . . Episodic revenue growth, excluding the impact of acquisitions completed in 2009 and the first six months of 2010, was 5 percent and 8 percent, respectively for the second quarter and first six months of 2010 compared to the corresponding periods of 2009. . . .

Growth in episodes was driven by an increase in admissions of more than 4 percent, from 46,600 admissions in the second quarter of 2009 to 48,600 admissions in the second quarter of 2010 and by more than 7 percent, from 93,500 admissions in the first six months of 2009 to 100,250 admissions in the first six months of 2010. There were approximately 1.4 episodes for each admission during the second quarter and first six months of both the 2009 and 2010 periods. Factors contributing to the improvements in revenue per episode for the second quarter and first six months of 2010 include (i) growth in the Company’s therapy-based specialty programs that have a higher level of reimbursement, (ii) a shift in

116


mix toward higher acuity cases, (iii) a 3.0 percent add-on to Medicare payments for services to patients in rural areas effective April 1, 2010 in which the Company generated approximately 20 percent and 22 percent of its episodic revenue during the second quarter and first six months of 2010, respectively, and (iv) a 2.0 percent market basket update for Medicare home health payments effective January 1, 2010. . . .

The changes in revenue mix in the Home Health segment resulted from (i) organic revenue growth in Medicare, particularly in the Company’s specialty programs, and the non-Medicare PPS business, and (ii) the elimination or reduction of certain low margin Medicaid and local government business and commercial business, including pediatric and adult hourly services and other business in home health branch offices that were sold in 2009. These changes contributed to an overall increase in gross margin within the Home Health segment from 53.6 percent and 52.9 percent in the second quarter and first six months of 2009 compared to 55.2 percent and 54.2 in the second quarter and first six months of 2010.

314. The Q2 2010 10-Q also included representations that the Company was in

compliance with applicable Medicare standards and regulations that were virtually identical to

the representations alleged above in paragraph 305.


virtually identical to the certification in the 2009 10-K alleged in paragraph 307.

4. The Q3 2010 10-Q

316. The Q3 2010 disclosed Gentiva’s financial results for the quarter ended October

3, 2010, reporting net revenues of $387.8 million, compared to $281.2 million for the quarter

ended September 27, 2009.

317. The Q3 2010 made the following representations:

The Company’s episodic revenues grew 7.9 percent and 9.3 percent for the third quarter and first nine months of 2010. . . . Episodic revenue growth, excluding the impact of acquisitions completed in 2009 and the first nine months of 2010, was 6 percent and 7 percent, respectively, for the third quarter and first nine months of 2010 compared to the corresponding periods of 2009. . . .

Growth in episodes was driven by an increase in admissions of 4 percent, from 46,600 admissions in the third quarter of 2009 to 47,600 admissions in the third

117


quarter of 2010 and by 6 percent, from 139,500 admissions in the first nine months of 2009 to 147,900 admissions in the first nine months of 2010. There were approximately 1.45 episodes for each admission during the third quarter and first nine months of both the 2009 and 2010 periods. Factors contributing to the improvements in revenue per episode for the third quarter and first nine months of 2010 include (i) growth in the Company’s specialty programs that have a higher level of reimbursement, (ii) a shift in mix toward higher acuity cases, and (iii) Medicare home health payment changes . . . .

The changes in revenue mix in the Home Health segment resulted from (i) organic revenue growth in Medicare, particularly in the Company’s specialty programs, and the non-Medicare PPS business, and (ii) the elimination or reduction of certain low margin Medicaid and local government business and commercial business, including pediatric and adult hourly services and other business in home health branch offices that were sold in 2009. These changes contributed to an overall increase in gross margin within the Home Health segment . . . .

318. The Q3 2010 also included representations that the Company was in compliance

with applicable Medicare standards and regulations that were virtually identical to the

representations alleged above in paragraph 305.


virtually identical to the certification in the 2009 10-K alleged above in paragraph 307.

320. The statements alleged in paragraphs 300-19 contained untrue statements of

material facts and/or omitted material facts required to be stated in order to make the statements

contained therein not misleading because, at the time of the Offering: i) Gentiva, in violation of

Medicare standards and regulations, sought reimbursement from Medicare for medically

unnecessary services and that Gentiva’s reported financial results, including reported increases in

revenue and profit margins (specifically revenue per episode and margins per episode) failed to

disclose that such results were materially and artificially inflated and the product of the

Company’s violation of Medicare standards and regulations; ii) that Gentiva’s compliance

program was materially defective; and iii) the SOX Certifications signed by Strange and Slusser

118


failed to disclose that Gentiva’s disclosure controls and procedures and internal control over

financial reporting were materially defective because they allowed Gentiva to report financial

results that were based on reimbursements from Medicare for medically unnecessary services.

321. On October 4, 2011, Gentiva’s Notes reportedly traded at $73 per unit, a 27%

decline from par value at the time the 11.5% Notes were issued.

C. Claims for Relief Under the Securities Act.

COUNT III

(Against the Securities Act Defendants for Violations of Section 11 of the Securities Act in Connection with the Offering)

322. Lead Plaintiff repeats and realleges the allegations above at paragraphs 1-6 as

they pertain to the Securities Act Claims and starting at paragraph 290 through 321, as if fully set

forth herein.

323. For purposes of this claim, Lead Plaintiff expressly excludes and disclaims any

allegation that could be construed as alleging or sounding in fraud or intentional or reckless

misconduct.

324. This claim is brought pursuant to Section 11 of the Securities Act, on behalf of all

purchasers of Gentiva 11.5% Notes in or traceable to the Offering.

325. The Registration Statements contained untrue statements of material facts and

omitted material facts required to be stated in order to make the statements contained therein not

misleading, as set forth more fully above.

326. The Individual Securities Act Defendants signed the Registration Statements or

authorized that the Registration Statements be signed on their behalf.

119


327. Gentiva is the issuer of the Offering Documents. As the issuer, Gentiva is strictly

liable to the members of the Class who purchased shares pursuant to the Registration Statements

for the materially untrue statements and omissions alleged herein.

328. Class members purchased securities issued under or traceable to Registration

Statements.

329. Class members who purchased securities pursuant to the Registration Statements

were damaged by Securities Act Defendants as a direct and proximate result of the untrue

statements and omissions in the Registration Statements.

330. This claim is brought within the applicable statute of limitations.

331. By reason of the foregoing, the Securities Act Defendants have violated Section

11 of the Securities Act.

COUNT IV

(Against the Individual Securities Act Defendants for Violations of Section 15 of the Securities Act)

332. Lead Plaintiff repeats and realleges the allegations above at paragraphs 1-6 as

they pertain to the Securities Act Claims and starting at paragraph 290 through 321, as if fully set

forth herein.

333. For purposes of this claim, Lead Plaintiff expressly excludes and disclaims any

allegation that could be construed as alleging or sounding in fraud or intentional or reckless

misconduct.

334. This Count is brought pursuant to Section 15 of the Securities Act on behalf of the

Class.

335. The Individual Securities Act Defendants at the time that they signed the

Registration Statements alleged to contain false and misleading statements, participated in the

120


operation and management of Gentiva and conducted and participated, directly and indirectly, in

the conduct of those Gentiva’s business affairs.

336. Because of their positions of control and authority over Gentiva and as senior

officers of Gentiva, the Individual Securities Act Defendants were able to, and did, control the

contents of the Registration Statements that contained materially false and misleading

information.

337. Each signed or caused to be signed on their behalf the Registration Statements

and caused Gentiva to file the Prospectus with the SEC and caused Gentiva to offer 11.5% notes

in the Offering. The Individual Securities Act Defendants were therefore controlling persons of

Gentiva within the meaning of Section 15 of the Securities Act.

338. The conduct alleged herein of Gentiva constitutes a violation of Section 11 of the

Securities Act.

339. The Individual Securities Act Defendants are liable to members of the Class,

jointly and severally with and to the same extent as Gentiva for violations of Section 11.

V. CLASS ACTION ALLEGATIONS

340. Lead Plaintiff brings this action as a class action pursuant to Federal Rules of

Civil Procedure 23(a) and 23(b)(3) on behalf of a class of all persons or entities that purchased

the publicly traded securities of Gentiva during the period from July 31, 2008 through October 4,

2011, inclusive, including all persons that purchased or otherwise acquired Gentiva 11.5% Notes

in or traceable to the Offering (the “Class”).

341. The members of the Class are so numerous that joinder of all members is

impracticable. While the exact number of Class members is unknown to Lead Plaintiff at the

present time and can only be ascertained through appropriate discovery, Lead Plaintiff believes

121


that there are hundreds of members of the Class located throughout the U.S. Throughout the

Class Period, Gentiva had over approximately 30 million shares of common stock outstanding,

which were actively traded on the Nasdaq in an efficient market and Gentiva issued $325 million

in 11.5% Notes that traded in an efficient market.

342. Lead Plaintiff’s claims are typical of the claims of the members of the Class.

Lead Plaintiff and all members of the Class have sustained damages because of defendants’

unlawful activities alleged herein. Lead Plaintiff has retained counsel competent and

experienced in class and securities litigation and intends to pursue this action vigorously. The

interests of the Class will be fairly and adequately protected by Lead Plaintiff. Lead Plaintiff has

no interests which are contrary to or in conflict with those of the Class that Lead Plaintiff seeks

to represent.

343. A class action is superior to all other available methods for the fair and efficient

adjudication of this controversy. Lead Plaintiff knows of no difficulty to be encountered in the

management of this action that would preclude its maintenance as a class action.

344. Common questions of law and fact exist as to all members of the Class and

predominate over any questions solely affecting individual members of the Class. Among the

questions of law and fact common to the Class are:

(a) whether the federal securities laws were violated by the Exchange Act

Defendants’ and the Securities Act Defendants’ acts and omissions as alleged herein;

(b) whether the Exchange Act Defendants and the Securities Act Defendants

misstated and/or omitted to state material facts in their public statements and filings with the

SEC;

122


(c) whether the Exchange Act Defendants and the Securities Act Defendants

participated directly or indirectly in the course of conduct complained of herein; and

(d) whether the members of the Class have sustained damages and the proper

measure of such damages.

PRAYER FOR RELIEF

WHEREFORE, Lead Plaintiff prays for judgment as follows: declaring this action to be a

proper class action; awarding damages, including interest; awarding reasonable costs, including

attorneys’ fees; and such equitable/injunctive relief as the Court may deem proper.

JURY DEMAND

Lead Plaintiff demands a trial by jury.

Dated: April 16, 2012 KAPLAN FOX & KILSHEIMER LLP

By: /s/ Frederic S. Fox

Frederic S. Fox Joel B. Strauss Jeffrey P. Campisi Gwendolyn N. Cutini 850 Third Avenue, 14th Floor New York, NY 10022 Tel: (212) 687-1980 Fax: (212) 687-7714

KAPLAN FOX & KILSHEIMER LLP Justin B. Farar 11111 Santa Monica Blvd. Suite 620 Los Angeles, CA 90025 Tel: (310) 575-8604 Fax: (310) 575-8697

123


KAPLAN FOX & KILSHEIMER LLP Laurence D. King 350 Sansome Street, Suite 400 San Francisco, California 94104 Tel: (415) 772-4700 Fax: (415) 772-4707

Lead Counsel for Lead Plaintiff the Los Angeles City Employees’ Retirement System and the Proposed Class

124


CERTIFICATION OF THOMAS MOUTES

I, Thomas Moutes, General Manager of the Los Angeles City Employees' Retirement

System ("LACERS"), hereby declare that:

I. I am authorized to make a certification on behalf of LACERS.

2. 1 have reviewed the Consolidated Class Action Complaint relating to In re Gentiva

Securities Litigation. (1 O-cv-5064) (ED.N.Y.) alleging violations of securities laws (the

"Action") and authorize its filing.

3. LACERS did not purchase the securities that are the subject of this action at the

direction of the plaintiffs counsel or in order to participate in any private action arising under the

federal securities laws.

4. LACERS is willing to serve as a representative party on behalf of a class, including

providing testimony at deposition and trial if necessary. LACERS fully understands the duties

and responsibilities of the Lead Plaintiff under the Private Securities Litigation Reform Act of

1995, specifically concerning its selection and retention of counsel and overseeing and directing

the prosecution of the action on behalf of the class.

5. LACERS' transactions in Gentiva Health Services, Inc. common stock during the

proposed class period are set forth in Schedule A hereto.

6. LACERS sought to serve as, and was appointed lead plaintiff in this Action and in

In re Sequenom, Inc. Securities Litigation, Master File No. 3 :09-cv-0092 l-LAB.WMC (S.D.

Cal.).

7. LACERS will not accept any payment for serving as a representative party on

behalf of a class beyond its pro-rata share of any recovery, except as ordered or approved by the


court, including any reward to a representative plaintiff of reasonable costs and expense directly

related to the representation of the class.

I declare under penalty of peijury that the foregoing is true and correct, executed on

this tiay of April, 2012,

THOMAS MOUTES

PA


SCHEDULE A

GENTIVA HEALTH SVCS INC COM GENTIVA HEALTH SVCS INC COM GENTIVA HEALTH SVCS INC COM GENTIVA HEALTH SVCS INC COM GENTIVA HEALTH SVCS INC COM GENTIVA HEALTH SVCS INC COM GENTIVA HEALTH SVCS INC COM GENTIVA HEALTH SVCS INC COM GENTIVA HEALTH SVCS INC COM GENTIVA HEALTH SVCS INC COM GENTIVA HEALTH SVCS INC COM GENTIVA HEALTH SVCS INC COM GENTIVA HEALTH SVCS INC COM GENTIVA HEALTH SVCS INC COM GENTIVA HEALTH SVCS INC COM GENTIVA HEALTH SVCS INC COM GENTIVA HEALTH SVCS INC COM GENTIVA HEALTH SVCS INC COM GENTIVA HEALTH SVCS INC COM GENTIVA HEALTH SVCS INC COM GENTIVA HEALTH SVCS INC COM GENTIVA HEALTH SVCS INC COM GENTIVA HEALTH SVCS INC COM GENTIVA HEALTH SVCS INC COM GENTIVA HEALTH SVCS INC COM GENTIVA HEALTH SVCS INC COM GENTIVA HEALTH SVCS INC COM GENTIVA HEALTH SVCS INC COM GENTIVA HEALTH SVCS INC COM GENTIVA HEALTH SVCS INC COM GENTIVA HEALTH SVCS INC COM GENTIVA HEALTH SVCS INC COM GENTIVA HEALTH SVCS INC COM GENTIVA HEALTH SVCS INC COM GENTIVA HEALTH SVCS INC COM GENTIVA HEALTH SVCS INC COM GENTIVA HEALTH SVCS INC COM GENTIVA HEALTH SVCS INC COM GENTIVA HEALTH SVCS INC COM GENTIVA HEALTH SVCS INC COM GENTIVA HEALTH SVCS INC COM GENTIVA HEALTH SVCS INC COM GENTIVA HEALTH SVCS INC COM GENTIVA HEALTH SVCS INC COM GENTIVA HEALTH SVCS INC COM GENTIVA HEALTH SVCS INC COM GENTIVA HEALTH SVCS INC COM GENTIVA HEALTH SVCS INC COM GENTIVA HEALTH SVCS INC COM GENTIVA HEALTH SVCS INC COM GENTIVA HEALTH SVCS INC COM GENTIVA HEALTH SVCS INC COM GENTIVA HEALTH SVCS INC COM GENTIVA HEALTH SVCS INC COM GENTIVA HEALTH SVCS INC COM GENTIVA HEALTH SVCS INC COM GENTIVA HEALTH SVCS INC COM GENTIVA HEALTH SVCS INC COM GENTIVA HEALTH SVCS INC COM GENTIVA HEALTH SVCS INC COM

C37247A102 C37247A102 C37247A102 C37247A102 C37247A102 C37247A102 C37247A102 C37247A102 C37247A102 C37247A102 C37247A102 C37247A102 C37247A102 C37247A102 C37247A102 C37247A102 C37247A102 C37247A102 C37247A102 C37247A102 C37247A102 C37247A102 C37247A102 C37247A102 C37247A102 C37247A102 C37247A102 C37247A102 C37247A102 C37247A102 C37247A102 C37247A102 C37247A102 C37247A102 C37247A102 C37247A102 C37247A102 C37247A102 C37247A102 C37247A102 C37247A102 C37247A102 C37247A102 C37247A102 C37247A102 C37247A102 C37247A102 C37247A102 C37247A102 C37247A102 C37247A102 C37247A102 C37247A102 C37247A102 C37247A102 C37247A102 C37247A102 C37247A102 C37247A102 C37247A102

Purchases Purchases Purchases Purchases Purchases Purchases Purchases Purchases Purchases Purchases Purchases Purchases Purchases Purchases Purchases Purchases Purchases Purchases Purchases Purchases Purchases Purchases Purchases Purchases Purchases Purchases Purchases Purchases Purchases Purchases Purchases Purchases Purchases Purchases Purchases Purchases Purchases Purchases Purchases Purchases Purchases Purchases Purchases Purchases Purchases Purchases Purchases Purchases Purchases Purchases Purchases Purchases Purchases Purchases Purchases Purchases Purchases Purchases Purchases Purchases

11/14/2008 11/18/2008 2/24/2009 3/17/2009 4/8/2009 5/7/2009 5/8/2009

5/11/2009 5/12/2009 5/13/2009 5/15/2009 5/18/2009 5/19/2009 5/20/2009 5/22/2009 5/26/2009 5/27/2009 7/22/2010 7/23/2010 7/26/2010

12/15/2010 12/15/2010 12/15/2010 12/15/2010 12/16/2010 12/16/2010 12/16/2010 12/17/2010 12/17/2010 12/17/2010 12/17/2010 12/20/2010 12/27/2010 12/28/2010

1/13/2011 1/13/2011 1/18/2011 1/19/2011 1/21/2011 1/27/2011 1/28/2011 2/8/2011

2/17/2011 2/17/2011 2/18/2011 2/22/2011 2/23/2011 2/24/2011 2/25/2011

3/1/2011 3/8/2011

3/14/2011 3/15/2011 3/15/2011 3/16/2011 3/16/2011 3/17/2011 3/18/2011 3/21/2011 3/31/2011

1,300 800 200 700 300 500 200 400 450 150 400 600

50 300 600 300

50 950 300 150

2,600 2,900

14,400 9,700

300 500 900

8,600 1,200 7,900

400 700 300

1,400 900

4,000 2,600 5,700

12,000 900

4,800 100 256 262 130 348 292 249

1,200 252

2,300 121 800

95 2,100

35 121

13 1,300

100

$24.5409 $24.0178 $25.7494 $16.0016 $16.1500 $18.3741 $18.9716 $18.8945 $19.1800 $18.9900 $18.2273 $17.1924 $17.1857 $17.3453 $16.0981 $16.1607 $16.2124 $19.1934 $19.2270 $19.5000 $23.0998 $23.1096 $23.1283 $23.0999 $24.4500 $24.5836 $24.5251 $25.4777 $24.6472 $24.8944 $24.6982 $26.0381 $26.3994 $26.7606 $26.0951 $26.1426 $25.2354 $25.2301 $24.2396 $24.2380 $24.2368 $24.0833 $27.0542 $26.8889 $26.9846 $27.0683 $27.0131 $26.9901 $27.4534 $28.2568 $28.6117 $28.6764 $28.2777 $28.4453 $28.2281 $28.4677 $28.0286 $28.2877 $28.3353 $27.4400


SCHEDULE A

GENTIVA HEALTH SVCS INC COM GENTIVA HEALTH SVCS INC COM GENTIVA HEALTH SVCS INC COM GENTIVA HEALTH SVCS INC COM GENTIVA HEALTH SVCS INC COM GENTIVA HEALTH SVCS INC COM GENTIVA HEALTH SVCS INC COM GENTIVA HEALTH SVCS INC COM GENTIVA HEALTH SVCS INC COM GENTIVA HEALTH SVCS INC COM GENTIVA HEALTH SVCS INC COM GENTIVA HEALTH SVCS INC COM GENTIVA HEALTH SVCS INC COM GENTIVA HEALTH SVCS INC COM GENTIVA HEALTH SVCS INC COM GENTIVA HEALTH SVCS INC COM GENTIVA HEALTH SVCS INC COM GENTIVA HEALTH SVCS INC COM GENTIVA HEALTH SVCS INC COM GENTIVA HEALTH SVCS INC COM GENTIVA HEALTH SVCS INC COM GENTIVA HEALTH SVCS INC COM GENTIVA HEALTH SVCS INC COM GENTIVA HEALTH SVCS INC COM GENTIVA HEALTH SVCS INC COM GENTIVA HEALTH SVCS INC COM GENTIVA HEALTH SVCS INC COM GENTIVA HEALTH SVCS INC COM GENTIVA HEALTH SVCS INC COM

C37247A102 C37247A102 C37247A102 C37247A102 C37247A102 C37247A102 C37247A102 C37247A102 C37247A102 C37247A102 C37247A102 C37247A102 C37247A102 C37247A102 C37247A102 C37247A102 C37247A102 C37247A102 C37247A102 C37247A102 C37247A102 C37247A102 C37247A102 C37247A102 C37247A102 C37247A102 C37247A102 C37247A102 C37247A102

Purchases Purchases Purchases Purchases Purchases Purchases Purchases Purchases Purchases Purchases Purchases Purchases Purchases Purchases Purchases Purchases Purchases Purchases Purchases Purchases Purchases Purchases Purchases Purchases Purchases Purchases Purchases Purchases Purchases

3/31/2011 3/31/2011 4/1/2011

4/13/2011 4/13/2011 4/14/2011 4/14/2011 4/15/2011

5/5/2011 5/6/2011

5/10/2011 5/11/2011 5/11/2011 6/13/2011 6/15/2011 6/16/2011 6/17/2011 6/20/2011 6/20/2011 6/21/2011 6/22/2011 6/23/2011 6/23/2011 6/27/2011 6/28/2011 6/30/2011

7/1/2011 7/15/2011

8/3/2011

76 6,600 5,200

82 123 52 83

117 114 97 86 51

147 15,000

500 2,800

11,600 45

2,300 296 230 600 267 105 164 62 71

11,100 1,000

$27.5450 $27.5498 $27.6900 $27.5229 $27.1052 $26.8109 $26.8100 $27.5477 $26.1620 $25.4536 $25.7527 $25.8386 $25.5792 $20.6778 $20.7994 $21.1210 $21.7626 $18.9294 $19.0325 $19.8501 $19.7540 $19.0488 $19.3761 $20.0762 $20.1495 $20.5913 $21.3076 $18.8656 $12.8957

Sales Sales Sales Sales Sales Sales Sales Sales Sales Sales Sales Sales Sales Sales Sales Sales Sales Sales Sales Sales Sales Sales

GENTIVA HEALTH SVCS INC COM GENTIVA HEALTH SVCS INC COM GENTIVA HEALTH SVCS INC COM GENTIVA HEALTH SVCS INC COM GENTIVA HEALTH SVCS INC COM GENTIVA HEALTH SVCS INC COM GENTIVA HEALTH SVCS INC COM GENTIVA HEALTH SVCS INC COM GENTIVA HEALTH SVCS INC COM GENTIVA HEALTH SVCS INC COM GENTIVA HEALTH SVCS INC COM GENTIVA HEALTH SVCS INC COM GENTIVA HEALTH SVCS INC COM GENTIVA HEALTH SVCS INC COM GENTIVA HEALTH SVCS INC COM GENTIVA HEALTH SVCS INC COM GENTIVA HEALTH SVCS INC COM GENTIVA HEALTH SVCS INC COM GENTIVA HEALTH SVCS INC COM GENTIVA HEALTH SVCS INC COM GENTIVA HEALTH SVCS INC COM GENTIVA HEALTH SVCS INC COM

C37247A102 C37247A102 C37247A102 C37247A102 C37247A102 C37247A102 C37247A102 C37247A102 C37247A102 C37247A102 C37247A102 C37247A102 C37247A102 C37247A102 C37247A102 C37247A102 C37247A102 C37247A102 C37247A102 C37247A102 C37247A102 C37247A102

11/3/2009 11/11/2009 11/20/2009

8/1/2011 8/2/2011 8/4/2011 8/4/2011 8/5/2011 8/5/2011 8/5/2011 8/8/2011 8/9/2011

8/10/2011 8/11/2011 8/16/2011 8/17/2011 8/29/2011 8/30/2011 8/31/2011 10/3/2011 10/3/2011 10/4/2011

1,100 1,100 1,100

17,600 20,600 39,900

2,393 793

68,200 1,750

150 779 367 110 400 100

1,000 400 200 300 400

1,700

$24.3754 $23.8804 $24.0800 $14.9429 $13.8631

$8.9071 $10.5864

$8.2879 $7.5044 $7.8496 $7.6420 $6.6953 $6.2332 $6.3536 $7.5926 $7.5954 $8.2145 $7.9732 $7.8547 $3.7690 $3.7244 $2.8966


CERTIFICATE OF SERVICE

I, Frederic S. Fox, hereby certify that on April 16, 2012, I electronically filed the

foregoing using the Court's CM/ECF system, which will automatically send a notice of

electronic filing to counsel of record.

/s/ Frederic S. Fox Frederic S. Fox

Download - Joel B. Strauss Gwendolyn N. Cutini 850 Third Avenue, 14th ...securities.stanford.edu/filings-documents/1045/GTIV10_01/2012416_r... · Gwendolyn N. Cutini 850 Third Avenue, 14th Floor

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