UHS Forced To Pay More Damages Related To Child Sexual Abuse Allegations At Behavioral Care Facilities

Dive Brief:

• Univeral Health Services may be forced to pay millions in damages related to the alleged sexual abuse of minors at one of its subsidiaries, the health system disclosed in a securities filing last week.
• A jury awarded three plaintiffs $360 million in damages related to alleged abuse at the hands of a physician at UHS’ indirect subsidiary Cumberland Hospital for Children and Adolescents. Approximately 40 additional plaintiffs have pending litigation and could also be entitled to damages, according to the filing.
• The judgment, in combination with an April judgment of a similar size, could have a “material adverse effect” on UHS’ operations and capital resources if the health system cannot get the amounts reduced during post-trial motions, UHS said. UHS’ insurance is not expected to cover the damages fully.

Dive Insight:

The Cumberland settlement marks the second time this year that conduct at one of UHS’ behavioral health subsidiaries has left the health system with hefty fines.

This spring, UHS disclosed it would have to pay $535 million after a jury ruled that another of its subsidiaries, Pavilion Behavioral Health System, acted negligently when it allowed a minor patient to sexually assault another.

UHS said that judgment was “unexpected and is unprecedented for a single-plaintiff injury case” in the region. The health system appealed the amount in August and is awaiting the court’s decision.

The judgments combined total $895 million.

Should UHS have to shoulder both judgments as initially outlined, the health system will be at least $555 million above its remaining insurance coverage for the year, warned analysts from TD Cowen in a research note published Monday.

In order to pay the amounts, UHS would likely have to take on more debt, according to the analysts.

UHS said it remained “uncertain as to the ultimate financial exposure” related to Cumberland and Pavilion, given ongoing post-trial motions underway to reduce the awards.

However, the system warned that UHS could suffer an operational and financial hit if required to post “large bonds” or other collateral during the appeals process.

In a separate Sept. 26 filing, the health system issued $1 billion in senior secured notes. Such notes can be issued to increase health systems’ flexibility in using funds or generate additional liquidity to fund operations. 

This is not the first time UHS’ behavioral health portfolio has created problems for the King of Prussia, Pennsylvania-based operator.

UHS has been dogged by allegations of inappropriate conduct at some of its behavioral health facilities for years. 

The health system settled with the U.S. Department of Justice in 2020 for $122 million, following allegations UHS improperly admitted patients who did not need to be there and failed to discharge patients who no longer needed care. The DOJ said UHS improperly used physical and chemical restraints, as well as seclusion.

Problem at UHS’ behavioral health facilities remain ongoing, according to a two year investigation from the Senate Finance Committee published this May — which references both the Cumberland Health and Pavilion Health assault allegations.

The committee’s report slammed UHS for using residential facilities to maximize revenues at the expense of care. The report noted specific instances of sexual assaults at UHS facilities across multiple states, including South Carolina, Alabama, Virginia and Illinois. 

Still, UHS has built its book of business on offering inpatient behavioral healthcare centers. The health system had 332 inpatient behavioral health facilities as of the second quarter, compared with just 27 inpatient acute care hospitals.

While acute hospitals tend to bring in more total cash than the behavioral care facilities, during the first half of the year, behavioral health facilities demonstrated stronger year over year same facility revenue growth than acute care hospitals. 

Leadership says they plan to continue its investment in the behavioral space and hope to grow patient volumes.

During an October 2023 earnings call, CFO Steve Filton said, “broadly increasing occupancy [of our behavioral business] is the most significant opportunity we see in our behavioral business.”

CEO Marc Miller doubled-down on that during the company’s most recent earnings call, stating, “we believe that, virtually across the board, demand for behavioral treatment continues to increase.”