UHS to appeal 'unexpected' $535M negligence decision against behavioral health subsidiary

Universal Health Services (UHS) was caught off guard by a $535 million jury decision against one of its behavioral health subsidiaries and plans to contest the case, which could have a material adverse effect on its business, the company wrote in a Monday Securities and Exchange Commission filing.

A jury in Illinois’ Champaign County delivered the verdict of negligence on Thursday against Pavilion Behavioral Health System, UHS’ indirect subsidiary. The case involved the 2020 rape of a 13-year-old patient by a 16-year-old patient.

Attorneys for the 13-year-old and her mother highlighted testimonies from former employees who said the adolescent floor was understaffed and difficult to monitor, according to a courtroom report from The News-Gazette. Expert witnesses voiced concerns that male and female patients were housed on the same floor and that the 13-year-old’s room was next to the 16-year-old’s.

Legal representation for Pavilion argued that the 16-year-old, who is now deceased, was solely responsible for the rape, and that no employees on duty that night testified that they believed the unit was understaffed, The News-Gazette reported.

The jury’s $535 million decision is split between $60 million in compensatory damages and $475 million in punitive damages. A separate charge accusing Pavilion of fraud was rejected by the jurors.

Pavilion is a 122-bed behavioral health facility offering inpatient, outpatient and other services to patients as young as 4 as well as adults and seniors.

UHS wrote in its notice of an unscheduled material event that “based on a search of verdicts in comparable cases, the magnitude of this verdict was unexpected and is unprecedented for a single-plaintiff injury case of this type in Champaign County, Illinois.”

As such, UHS wrote that Pavilion “is evaluating all legal options and intends to challenge this verdict in post-judgment trial court proceedings and on appeal.”

UHS noted that the subsidiary has professional liability insurance that would “cover a portion of these amounts.” However, the case’s ultimate outcome and awarded damages “may have a material adverse effect on the company,” UHS wrote.

King of Prussia, Pennsylvania-based UHS recently reported $717.8 million in net income across 2023. Its net revenues across both the acute and behavioral sides of its business rose 6.6% from 2022 to about $14.3 billion.

In a research brief from Stephens issued Monday, analysts agreed that the case could dig at UHS’ financials “despite Pavilion’s professional liability insurance coverage.” They noted that “the vast majority” of UHS’ subsidiaries are self-insured for liability exposure up to $10 million, and $3 million per occurrence, for 2020. The subsidiaries are also provided with excess coverage policies, with total insurance coverage of up to $250 million for 2020.

Despite UHS’ claim in the filing, the Stephens analysts also said that the verdict “mirrors” a New Mexico jury’s $405 million ruling against Acadia Healthcare, which the fellow behavioral health care services provider settled last year for about $400 million.