Shakedown threatens nursing homes

AUGUST 11, 2010

A Humboldt County jury recently awarded $677 million in a class-action lawsuit against a nursing home operator — an award that may put Skilled Healthcare Group‘s nursing homes out of business, and could mark the entire industry for extinction. The case, marred by allegations of jury misconduct, does not even involve allegations of patient abuse, but rather centered on whether the company maintained adequate staff-to-patient ratios.

The record jury award was handed down July 6, causing a one-day, 75 percent drop in the company stock, and has apparently raised the specter of possible bankruptcy for the large company.

The crux of the case was whether the nursing homes complied with California statute mandates that nursing homes provide 3.2 nursing hours per patient, per day. Many in the health care industry claim that the ratio is an arbitrary number. And in this case, no patient injury was claimed.

California Health & Safety Code section 1430(b) allows a patient to sue for a violation of their personal rights for up to a $500 per day fine. This jury award was based on that $500 per day, per patient in the entire company, for each day the “deficiency” was found. The California code of “patient rights” lists more than 26 rights that a facility must ensure are not violated. Legal sources say that there is no reference to a right to staffing or a requirement of 3.2 hours or care per day.

With more and more lawsuits against nursing homes occurring – partially because there doesn’t have to be any actual injury, legal experts claim that nursing homes are “low-hanging fruit” for plaintiff’s lawyers. This case shows the degree to which these nice-sounding regulations designed to protect people end up as little more than fodder for unscrupulous lawsuits that seek profit rather than improvement in patient care.

The successful 2004 ballot initiative, Proposition 64, changed the law preventing any one person from bringing a lawsuit for unfair competition, unless the person suffered injury and lost money or property. In the Skilled Healthcare case, there was no patient injury required for this case and instead, the plaintiffs claimed “potential injury.”

According to Skilled Healthcare’s attorney Kippy Wroten, the judge in this case allowed the case to move forward in spite of the Proposition 64 law, and should not have. The plaintiffs in this case alleged that the defendants violated California health and safety code, as well as unfair competition laws, by staffing their facilities at levels below those required by state and federal law.

However, according to Wroten, every one of the 22 facilities named in the lawsuit were closely examined by inspectors with the California Department of Health at least every 12 to 18 months, and every time a complaint is reported by patients, staff, or local Ombudsmen. Wroten said that the failure to meet 3.2 hours per patient per day, even for a few seconds, is enough for every patient to claim their $500 per day penalty.

The plaintiff’s lawyers used the “opt out” process for establishing clients in the class action, where patients of the 22 nursing homes were mailed information about the lawsuit. If they did not contact the law firm to “opt out,” they were added to the lawsuit. Consequently, the defense attorneys for Skilled Healthcare and the 22 defendant facilities, were not allowed to communicate with any of the patients once this “opt out” occurred and the class was created.

Plaintiff’s attorneys presented their case on behalf of 32,000 people in 22 facilities, yet only presented fewer than 10 witnesses from the class, only two of which were actual nursing home patients. Five former employees testified at the trial as well.  Because all but two of the plaintiff’s witnesses were from three local Humboldt County facilities, not one person testified against 15 of the defendant’s other 22 nursing homes now facing bankruptcy as a result of this verdict.

The law used in this case, as well as the rulings, will now allow any attorney to now comb through public health records for technical violations of state regulation and then sue any nursing home for violations, for up to $500 per patient per day. The law can punish facilities multiple times, for the same violation, because now a judge has ruled that every resident has an individual right that can result in a per-patient multiplier of the facility wide, $500 fine.

It appears that plaintiffs’ attorneys exploited the ambiguity in the way staffing levels are calculated in California nursing homes for this case, and the judge bought in. The case is a documentation issue (no actual personal injury was alleged), and solely about how a nursing home documented its compliance with state regulations.

Wroten said that if Skilled Healthcare is to pursue an appeal, state law requires that the company post a bond totaling 150 percent of the award, or 15 times the financial resources available to the entire business enterprise, which includes long-term care operators across several states. The bond for Skilled Healthcare would be more than $1 billion.  “The company is wiped out before they can even appeal,” said Wroten.

Criticism has been leveled at the judge who should have referred the issues surrounding the case to the California Health Department, the state’s regulating agency, and not heard in a civil courtroom with a jury. All such previous cases have been ordered back to the regulating agency.

And in a surprising and recent twist in the case, Wroten said in an interview with CalWatchdog Friday that there was evidence of jury misconduct, which “poisoned the entire case.” Last week, allegations surfaced that a member of the jury lied on court documents about her prior employment for the Humboldt County Coroner’s Office. And, apparently, retired Coroner Frank Jager has confirmed the allegations according to a story by Matt Drange, a reporter with Eureka’s The Times-Standard.

While working with the county coroner, the juror was part of the coroner’s team that examined the body of a patient who died at one of the defendant Humboldt facilities.  This important information was not disclosed to the defense during jury selection.

McGregor Scott, a former U.S. attorney in Sacramento, and former elected district attorney, currently is a litigation attorney with the Orrick law firm, and has dealt first hand with juror misconduct. Scott explained that when a judge is facing allegations of juror misconduct, “something either happened during jury deliberations, which judges typically will give some leeway with, or a juror did not disclose to the court some pre-existing experience or relationship, or attitude in the case. The judge will most likely look into this juror non-disclosure. This type of juror misconduct goes to the very concept of the jury system — 12 unbiased persons listening to law and coming to a verdict,” said Scott.

“The juror misconduct allegation in this case is not something thrown against a wall to see if it will stick by defense attorneys — it is very basic to the jury system,” said Scott. “It is a serious allegation, and does threaten the verdict,” said Scott, “if the judge finds it leads to juror disqualification.”

Scott said he followed the case because he grew up in Eureka and was interested in the size and scope of the trial, but has no ties to this case.

Wroten explained that the juror “created hostility during the course of deliberations,” and apparently tried to influence other jurors, “supplanting expert testimony with her personal knowledge.”

In addition to juror misconduct concerns, criticism is also being levied at Humboldt District Attorney Paul Gallegos. Legal experts familiar with the case say that Gallegos appears more concerned that a mistrial would deprive his cash-strapped department of funds, or worse, deny his re-election campaign a victory to boast about in the upcoming elections. Regardless of motive, it’s clear that as an officer of the court, Gallegos would best serve the public interest by addressing the juror misconduct.

A call to the plaintiffs’ attorneys was not returned.

It appears that declaring a mistrial and moving the case to a new venue to remove any taint of bias, which appears to have permeated the entire lawsuit, could best serve the public interest.

And maybe even more importantly, state legislators need to deal with a legal process that allows statutory damages that are outrageous, especially where plaintiffs don’t need to show any injury, and appear designed only to put defendants out of business, or make way for more government regulation and intrusion.

–Katy Grimes