Skilled Healthcare stock takes a nosedive

Outlook for company grim after Humboldt County jury renders verdict

By Matt Drange - July 8, 2010

Skilled Healthcare Group Inc. stock crashed dramatically Wednesday -- dropping over 75 percent -- after what may be the largest damage award from a jury this year. 
 
The company, which is one of the biggest nursing home chains in the country, has been ordered to pay nearly $677 million for failing to provide adequate staffing at 22 assisted-living facilities across California. 
 
”This is very rare for a company in the health care industry,” said Jason Gurda, a stock analyst for Leerink Swann, a firm that focuses on health care services. “I have not seen anything like this.” 
 
Gurda said the drop is unprecedented, and added that the verdict could push the company into bankruptcy. Skilled Healthcare's stock closed Wednesday at $1.52 a share, down from $6.22 the previous day. 
 
The case represents some 32,000 patients, and spans from 2003 to 2009. Many in the investing world believe that the verdict -- which could amount to more if additional punitive damages are awarded -- is the largest ever in the health care industry. 
 
The jury assessed the maximum amount of damages allowed by California statute, which requires nursing homes to maintain 3.2 nursing hours of direct patient care per day. According to a verdict form signed in Humboldt County Superior Court, the total damages were assessed at a rate of $500 per patient per day that the 22 nursing facilities implicated in the suit were in violation of the law. 
 
This amounts to nearly $619 million in statutory damages along with another $58 million in restitution, bringing the total to almost $677 million. 
A statement released by Skilled Healthcare on Wednesday left open the possibility of an appeal once a final judgment is issued, which is expected later this month. 
 
“We are deeply disappointed in the verdict, and continue to firmly believe that our facilities are appropriately staffed,” said Boyd Hendrickson, Chairman and CEO of Skilled Healthcare. “We strongly disagree with the outcome of this legal matter, and we intend to vigorously challenge it.” 
 
While it remains to be seen if an appeal is filed, many question whether or not such a remedy is possible given the current financial situation of the company. Skilled Healthcare's primary insurance coverage has been exhausted, and the excess insurance carrier will not cover the amount of the damages, citing little allegation of injury or harm to the plaintiffs. 
 
In order to defer payment of the damages, the company would need to post a bond for 150 percent of the final judgment -- upwards of $1 billion. Even if Skilled Healthcare is successful in obtaining insurance coverage, the amount of the jury verdict would far exceed policy limits. 
 
Plaintiff's attorney Michael Crowley said that his office is not going to worry about what Skilled Healthcare does next, and that any appeal would be up to the defense. 
 
”That is out of our control,” said Crowley, who added that while there was talk of a possible settlement early on in the case, neither team of lawyers could agree on anything definitive. “We're going to move forward one step at a time to protect the people in the class.” 
 
The lawsuit is somewhat unique in that the amount of damages was decided by a jury rather than a judge. The case now moves on to the punitive damages phase, which will establish the net worth of Skilled Healthcare and the extent of any additional punitive damages the jury could assess. 
 
The short trial is slated to begin next week, after which judge Bruce Watson will determine if an injunction is imposed by the court that would mandate Skilled Healthcare to keep staffing levels compliant with the law.

reprinted from the The Times-Standard