Dive Brief:
- An Illinois-based subsidiary of for-profit hospital operator Universal Health Services was ordered by a jury to pay $535 million after an assault occurred at one of its psychiatric facilities.
- The size of the damages levied against Pavilion Behavioral Health System was “unexpected” and “unprecedented” for a lawsuit of its type in Champaign County, Illinois, UHS said in a Monday filing with the Securities and Exchange Commission.
- Pavilion has professional liability insurance to cover some of the amount, and also plans to challenge the verdict in post-trial proceedings and on appeal. However, the final damages awarded could “have a material adverse effect” on UHS’ finances, executives warned.
Dive Insight:
The case, filed in Champagin County on behalf of the plaintiff and her mother, centered on the rape of a 13-year-old female patient by 16-year-old male patient in 2020, according to the News-Gazette. The full complaint against Pavilion is not available online, per county policy, due to its depiction of juvenile abuse and neglect.
One evening, attorneys allege the boy covered hallway cameras with toothpaste, distracted mental health technicians on patrol and invited the girl to his room, where he then assaulted her.
Attorneys for the plaintiff accused Pavilion of negligence, saying the assault occurred in part because the ward was understaffed and therefore difficult to monitor. Pavilion’s lawyers refuted that assertion, noting that none of the employees who worked during the evening of the assault said the unit was short-staffed, according to the News-Gazette.
The jury ultimately awarded the plaintiff $60 million in compensatory damages — $20 million for the girl's “loss of normal life” and $40 million for her “pain and suffering,” according to the News-Gazette. It further fined Pavilion $475 million in punitive damages.
The judgment will likely have ripple effects for UHS’ finances, warned analysts from Stephens and J.P. Morgan in research briefs published this week.
While UHS called the damages unprecedented, both Stephens and J.P. Morgan pointed to a similarly sized settlement in the industry reached last year. Acadia Healthcare paid about $400 million in damages in a case involving sexual abuse of a minor in New Mexico.
UHS has malpractice insurance to cover at least some of its liability from the Pavilion judgment.
The health system had $250 million in malpractice insurance coverage for 2020, the majority of which is still available, UHS confirmed to J.P. Morgan.
However, analysts estimate UHS’ maximum net exposure from the event may still be approximately $385 million.
UHS, which reported $717.8 million in net income in 2023, had approximately $119 million of cash on its balance sheet as of the fourth quarter of 2023. That amount of cash may require UHS to utilize “debt financing to satisfy the potential liability depending on the final amount,” according to J.P. Morgan.
