CardioNet hits a lifetime low as DOJ probes allegations of false Medicare claims

September 14, 2011 By MassDevice staff Leave a Comment

Shares of CardioNet Inc. (NSDQ:BEAT) hit a new lifetime low of $3.01 per share on news that the company is undergoing a U.S. Dept. of Justice probe on allegations of making false Medicare claims.

The Pennsylvania-based company revealed that it received a civil investigative demand from the DOJ, prior to which it had no knowledge of a pending investigation, according to the SEC filing.

Shares dropped hard and fast for the cardiac rhythm device maker, hitting a lifetime low of $3.01 on August 31, an 18 percent drop from the prior day’s close at $3.67, making it the biggest loser on the Nasdaq that day, according to Reuters. The stock inched up to $3.16 last week, but sank back down to $3.03 yesterday, where it continued to languish in afternoon trading today.

While the probe came as a surprise, analysts seemed confident that the company will come out relatively clean since it audited its reimbursement systems recently.

"Over the last couple of years, the company went through a major reduction in reimbursement for their services and in that process they had an audit which I think would have highlighted any major issues here," Roth Capital analyst Matt Dolan told the wire service, suggesting that the company begin finding capital to pay off the financial settlement that is a likely result.

Meanwhile, the company lost a bid to dismiss a class action shareholder lawsuit alleging that CardioNet misrepresented its reimbursement status as it prepared for its initial public offering.

A California Superior Court judge denied CardioNet’s request for a demurrer in the shareholder case, the California state equivalent of a dismissal, Law360.com reported (paid).

Judge Joan Lewis concluded that the challengers had "sufficiently pled a material misrepresentation or omission in the registration settlements."

The new lawsuit shares earlier complaints that CardioNet, then-president and CEO Randy Thurman and CFO Martin Galvan mislead investors about Medicare reimbursement and issued too-aggressive earnings forecasts that sent the company’s stock soaring to artificially high levels.

The prior case was dismissed by a Pennsylvania judge in August 2010.

CardioNet reported that it plans to participate fully in the DOJ’s investigation. Company officials did not immediately respond to requests for comment.

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