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Nursing Home Co. Settles $677M Lawsuit For $50M

Sacramento Bee
Associated press Writer
Sept 8, 2010

SAN FRANCISCO -- A California nursing home operator has agreed to pay $50 million to settle a lawsuit that threatened to bankrupt the company after a jury ordered it to pay $677 million for failing to provide enough nurses and staff. Orange County-based Skilled Healthcare Group Inc. announced the settlement late Tuesday. The money will go to the roughly 32,000 patients covered by the class-action lawsuit. It will also cover attorneys' fees.

Once a judge approves the settlement, lawyers representing the patients have agreed to dismiss the Humboldt County Superior Court jury's verdict, thought to be the largest damages award in the country this year.

The lawsuit was filed in 2006 and the jury returned its verdict in July after a six month trial.

The jury determined that Skilled Healthcare illegally skimped on state-mandated staffing levels at its 22 nursing homes in California. State law requires that nursing homes maintain 3.2 hours of nursing care per patient per day.

Critics of the nursing home business such as Pat McGinnis, executive director and founder of the California Advocates for Nursing Home Reform, say staffing shortages are a problem throughout the industry.

After Wall Street investment firms went on a nursing home buying spree during the early years of the new century, critics charge that many companies drastically cut payroll expenses to prop up stock prices.

Skilled Healthcare is the 10th largest nursing home company in the country, operating 79 homes and employing 14,500 throughout the United States.

The company's share price shot up 88 cents, or 25 percent, Wednesday to close at $4.38. The shares had been trading in the $6 to $8 range earlier this year until they plummeted after the verdict.

Morgan Keegan analyst Robert M. Mains said in a research note that the much smaller settlement was expected, given that a company bankruptcy would hurt the patients as well as Skilled Healthcare.

"Obviously, $50 million is a whole lot less than $677 million," he said in the note.