Healthways Agrees to Settlement In Shareholder Class Action

June 2010 - A class action settlement has been reached in a class action lawsuit pending against Healthways Inc. and others, alleging, among other things, that Defendants violated the securities laws by causing Healthways to issue materially false and misleading statements during the Class Period, according to the Healthways securities class action settlement notice. Under the proposed Healthways securities class action lawsuit settlement, Defendants have reportedly created a $23,600,000 cash Settlement Fund, the balance of which, after payment of court-approved attorneys’ fees and expenses, any incentive award to plaintiffs, the costs of claims administration, including the costs of printing and mailing Notice and the cost of publishing notice, and payment of any taxes assessed against the Settlement Fund, will be divided among all Healthways settlement Class members who submit timely and valid claim forms.

June 2008 - According to a press release dated June 5, 2008, the complaint charges Healthways and certain of its officers and directors with violations of the Securities Exchange Act of 1934. Healthways provides disease management and wellness programs for health plans, hospitals and small businesses, helping members with diabetes, cancer and other diseases to coordinate care, keep up with treatment and maintain healthy behaviors.

The complaint alleges that, during the Class Period, defendants issued a series of materially false and misleading statements concerning the Company’s financial performance and prospects. According to the complaint, starting in 2005, Healthways, along with four other companies, became involved in the Medicare Health Support (“MHS”) pilot program launched by the Centers for Medicare & Medicaid Services (“CMS”). The MHS program was designed to improve quality of care and life for people with multiple chronic conditions, and to help the Medicare program and its beneficiaries save money. Under the plan’s first three-year phase, patients were tracked to evaluate care, satisfaction and whether the plan achieved savings targets. Based on those results, CMS would decide whether to expand the program to a second phase.

Specifically, the complaint alleges that Healthways failed to disclose that: (i) Healthways was not meeting the savings targets, among other requirements, set by CMS. As a result of Healthways’ failure, CMS would not expand the MHS program to a second phase and the Company would be required to reimburse CMS for the fees they had already received through the program; (ii) Healthways was in danger of losing at least two existing contracts and was experiencing slower enrollment in an existing contract due to a decline in the need for the Company’s services; and (iii) as a result of the foregoing, the Company had no reasonable basis for its revenues and earnings guidance for fiscal 2008.

Then, on February 26, 2008, the Company announced that it was lowering its financial guidance for fiscal 2008 “due to slower-than-projected enrollment in a new Health Support program with one large health plan customer and the recent indication that two previously anticipated contracts will not materialize during this fiscal year.” Upon this news, shares of the Company’s stock fell $13.42 per share, or approximately 30%, to close at $31.93 per share, on heavy trading volume.