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Health insurer Humana and two executives were hit with an investor class action on Monday, claiming they misled shareholders about the cost of pent-up demand for medical treatments once the COVID-19 pandemic subsided.

The Iron Workers Local 401 Annuity Fund filed a complaint against Humana, its CEO Bruce Broussard, and its Chief Financial Officer Susan Diamond on behalf of a proposed class of individuals and entities who purchased or acquired Humana common stock between July 27, 2022, and Jan. 24, 2024.

The start of the class period coincides with Humana's announcement of its financial results for the second quarter of 2022, according to the complaint. The annuity fund says Humana reported "outperforming" adjusted earnings per share and attributed it to "better-than-anticipated medical cost trends in the company's individual Medicare Advantage and Medicaid businesses."

The annuity fund says the defendants continued to assure investors and analysts that "in-patient unit costs and non-in-patient trends [were] coming in lower than [the company] initially estimated" and that "'there really isn't pent-up demand that [the company has] to be concerned about' negatively impacting utilization rates and profitability," throughout the class period.

However, the reality and truth about the pressures on Humana's profitability began to emerge in June 2023 when one of Humana's primary competitors, UnitedHealth Group, revealed it was seeing increased levels of outpatient care activity and suggested that higher utilization rates were due to "pent-up demand or delayed demand being satisfied."

"UnitedHealth further explained that it was 'seeing very strong volumes' in certain areas, including ambulatory surgery, and an overall 'higher number of cases that are being performed,'" the complaint says.

According to the complaint, the similarities between Humana and UnitedHealth's businesses and the likelihood that Humana was also suffering from increased utilization and costs due to pent-up demand caused Humana's stock price to fall $57.63 per share, more than 11%, from $512.63 per share on June 13, 2023, to close at $455 per share on June 14, 2023.

Three days later, Humana suffered another stock price drop when it confirmed seeing similar trends to UnitedHealth.

"Although the company reaffirmed its full year insurance segment benefits expense ratio guidance (a key measure of profitability) of between 86.3% and 87.3%, it warned investors that it 'now expects to be at the top end of this full year range' — i.e., reduced profitability," the complaint says. "Additionally, Humana explained that it now 'assume[d] it will continue to experience moderately higher-than expected trends for the remainder of the year.'"

On this news, Humana's stock price fell by $18.20 per share, or almost 4%, from $463.85 per share on June 15, 2023, to close at $445.65 per share on June 16, 2023, according to the complaint.

Humana then announced additional increases in its expected medical costs, and in August 2023, it revealed the utilization rate increases it disclosed in June had now stabilized at new higher levels, the complaint says.

A third stock drop occurred in January, according to the complaint, when Humana preliminary released its financial results for the fourth quarter and full year of 2023 and "shocked" investors by revealing its benefits expense ratio increased to roughly 91.4% for the fourth quarter of 2023 and approximately 88% for the full year.

"As a result, the company's 2023 adjusted EPS were only $26.09 per share, or more than $2 per share less than what the company had predicted in November 2023," the complaint says. "In response to this announcement, the price of Humana common stock fell $35.78 per share, or approximately 8%, from a close of $447.76 per share on Jan. 17, 2024, to close at $411.98 per share on Jan. 18, 2024."

The annuity fund says a final stock drop occurred in late January when Humana announced a loss for the fourth quarter of 2023 and said it expected the higher level of medical costs to continue throughout 2024.

On this news, Humana common stock declined an additional $47.04 per share, or nearly 12%, from $402.40 per share on Jan. 24, 2024, to close at $355.36 per share on Jan. 25, 2024, according to the complaint.

The suit seeks damages, attorney fees and a jury trial.

Representatives for the parties did not immediately respond to requests for comment Monday.

The Iron Workers Local 401 Annuity Fund is represented by Gregory V. Varallo of Bernstein Litowitz Berger & Grossmann LLP and Naumon A. Amjed, Ryan T. Degnan and Jonathan Z. Naji of Kessler Topaz Meltzer & Check LLP.

Counsel information for the defendants was not immediately available.

The case is Iron Workers Local 401 Annuity Fund v. Humana Inc. et al., case number 1:24-cv-00655, in the U.S. District Court for the District of Delaware.