Largest Ever Jury-granted Award for Damages in America

A jury returned a $677 million judgment against Skilled Healthcare Group, Inc. in a more than four-year-old class action lawsuit alleging that the company violated state mandated nursing coverage requirements in 22 of its nursing facilities over a six-year period, on Tuesday, July 6, 2010. At issue was a California statute that mandates 3.2 nursing hours per patient per day.

The class action lawsuit (Lavender v. Skilled Healthcare Group, Inc., formerly known as Bates v. Skilled Healthcare Group, Inc., Case No. DR 060264) was filed April 16, 2008, in the Superior Court of California, County of Humboldt by trial lawyers, but never included any patient claims of harm or endangerment. Nevertheless, there were reportedly several witnesses who testified against the nursing home operator, providing moving and sometimes chilling accounts of problems relating to understaffing, directly affecting their relatives living at the facilities.

Mistrial Motion Denied, Appeal Unlikely

After the verdict and awards were announced, the attorneys for Skilled Healthcare filed a motion demanding a mistrial based on juror misconduct. Skilled Healthcare even created an entire website devoted to their response about the verdict.

Humboldt County Superior Court Judge Bruce Watson denied the motion on Thursday, August 26, 2010, stating that the defendant failed to prove any misconduct.

Other options for appeal seem out of reach for Skilled Healthcare. To file an appeal and defer payment of the damages, the company would have to post bond for 150% of the judgement, which would amount to over $1 billion. With current debt reported to be $450 million and credit lines available for less than $100 million, it is perhaps unlikely that the company can secure such a bond. The other alternative, of course, would be to file for bankruptycy under Chapter 11, allowing the company to reorganize, and perhaps at least delay the payments to the class, reportedly now representing some 32,000 people.

Shock Waves

The verdict is now thought to be the largest in the country ever and its effects are still being debated, weeks after the size of the award surprised even the plantiffs’ lawyers. The verdict is seen in some circles as just the latest example of litigation abuse and the need for tort reform, particularly in the state of California.

According to statistics from the American Health Care association, there are almost 17,000 nursing home facilities in operation, today, with 1.8 million beds. Of those facilities, a majority (52%) are operated by a large chain, and two-thirds (66%) are operated for profit.

Skilled Healthcare Group, based in Foothill Ranch, California, operates skilled nursing facilities, assisted living facilities, a rehabilitation therapy business, and a Hospice, largely in California, Texas, Kansas, Missouri, New Mexico, Nevada and Iowa, together totalling approximately 10,500 licensed beds. Some estimates place this group as the fifth largest “chain” of nursing homes in the country.

The California Association of Health Facilities, a nonprofit trade association serving long-term care staff, owners, managers and residents in nursing facilities in California, issued a statement on Friday, July 2, 2010, from President and CEO James Gomez.

”The July 6, 2010, verdict against Skilled Healthcare Group Inc. and subsidiary Skilled Healthcare LLC is outlandish, excessive and extreme. If this verdict is allowed to stand, it will likely result in bankruptcy to a company that is widely regarded as a good provider of skilled nursing care in California and elsewhere. Given the award of damages and the costs of a bond to support an appeal, Skilled Healthcare’s right to appeal may have been practically eliminated and, tragically, so has its right to receive equal justice under the law.”

If the company files for bankruptcy and is forced to close down its facilities in California, there is the possibility that the state may step in and take over the homes.

One other scenario facing Skill Healthcare is that the State of California could also file a claim against the large portion of Medi-Cal money that goes to fund nursing homes, which amounted to some $3 billion dollars in total from 2003 to 2009, the years of the lawsuit.

Well Known Issues

Serious or potentially life-threatening care problems were found by federal survey and state complaint investigations in almost one-third of California nursing homes (407 of 1,370, representing 95% of Medicare- and Medicaid-certified homes in California in operation between July, 1995 and February, 1998), according to a U.S. General Accounting Office (GAO) report filed with the U.S. Senate Special Committee on Aging, in July 1998, entitled, “CALIFORNIA NURSING HOMES, Care Problems Persist Despite Federal and State Oversight.“

A later report by GAO found that while CMS’s nursing home survey data show a significant decline in the proportion of nursing homes with serious quality problems since 1999, that trend nevertheless masked two important and continuing issues: inconsistency in how states conduct surveys and understatement of serious quality problems. The report goes on to state that “…inconsistency in states’ surveys is demonstrated by wide interstate variability in the proportion of homes found to have serious deficiencies—for example, about 6 percent in one state and about 54 percent in another. Continued understatement of serious deficiencies is shown by the increase in discrepancies between federal and state surveys of the same homes from 2002 through 2004, despite an overall decline in such discrepancies from October 1998 through December 2004. In five large states that had a significant decline in serious deficiencies, federal surveyors concluded that from 8 percent to 33 percent of the comparative surveys identified serious deficiencies that state surveyors had missed. This finding is consistent with earlier GAO work showing that state surveyors missed serious care problems. These two issues underscore the importance of CMS initiatives to improve the consistency and rigor of nursing home surveys.” (emphasis added)

Find documents, press releases and other articles about this case here: Skilled Healthcare Group Class Action Lawsuit – Resources