Skilled Healthcare And Our Absurd Judicial System

July 7, 2010
Today, Skilled Healthcare Group announced that a jury in California returned a verdict against the company related to a complaint filed more than four years ago. The jury awarded the plaintiffs $613 million in statutory damages and $58 million in restitutionary damages.

 They have not decided on punitive damages, but we know where they are likely to go on that.  What was the crime?  Not maintaining 3.2 nursing hours per patient per day at 22 skilled nursing facilities in California.  And the jury went for the maximum damages, which is $500 per patient per day that these 22 nursing facilities were in violation of the staffing requirements.  Not just for a patient who may have received poor care, but for each and every patient in these 22 facilities, whether they were part of the complaint or not, and even if they received outstanding care.

In order to appeal the verdict, the company must post a bond equal to 150% of the judgment, which it most likely will be unable to do. It does not have the cash or the access to the cash, even if it sells all its buildings, to pay anything close to the full judgment.  And to make matters worse, the company's primary professional liability insurance coverage has already been exhausted, and the excess insurance carrier may not cover it because of a lack of any allegation of injury or harm to the plaintiffs.  That's right, no claim of injury or harm, and this group wants to receive $671 million!  Why not sue the state of California for not properly supervising the staffing levels?  Oh, we forgot, the state is already basically bankrupt and can't pay its bills, so why not go after a public company with supposedly deep pockets?  This is so absurd, and perhaps the judge will modify the judgment, but this is the California court system, afterall, so don't look for much sympathy.

So what has happened to Skilled Healthcare?  Its stock price plunged by more than 75% and was trading near $1.50 per share late today.  Its predecessor company had to file for bankruptcy protection years ago to survive a stupid court verdict, and it may be forced to do so again.  We hope not, but it may have no choice.  Other skilled nursing stocks declined a bit in an otherwise bull market today as investors took note.  It the company goes down as a result of this verdict, it will just mean more people in California waiting for unemployment checks.  Just what we need.