Acadia Healthcare Agrees to Pay $400 Million to Settle Three Child Abuse Suits

November 7, 2023

Acadia Healthcare Co. Inc. (Nasdaq: ACHC) has agreed to pay $400 million to settle three cases filed against the company and former subsidiary Youth and Family Centered Services of New Mexico, which also operated under the name Desert Hills, according to a public SEC filing.

In July, a jury awarded $485 million in compensatory and punitive damage in one of the cases, of which $405 million applied to Acadia Healthcare.

“The settlement agreements … fully resolve each of the cases and include no admission or finding of liability by Acadia or Desert Hills,” the filing states.

The civil proceedings paralleled criminal proceedings on the same matter, which alleged that a foster parent affiliated with Youth and Family Centered Services of New Mexico sexually abused a child, according to the Albuquerque Journal.

The plaintiffs in the case with the $485 million judgment, which includes a child simply known as G.S., will receive $200 million. The plaintiffs in the two other cases will each receive $100 million.

Acadia Healthcare will pay the funds from a combination of insurance, cash on hand and existing credit lines, the filing states. The expense will be excluded from the company’s profitability target for 2023.

The settlement could be seen as a positive for the company.

“ACHC’s potential liability was perceived to be as high as ~$1B, so settling the cases meaningfully below that amount should be viewed positively,” a note from the firm Jefferies states. “The [New Mexico] legal issue was an overhang that prevented some investors from owning the stock, so this settlement, along with ACHC’s post-settlement valuation at 11.2x EBITDA, should drive fund flows into the name.”

The news of the settlement comes a few days before the Franklin, Tennessee-based company releases its third-quarter earnings results. Acadia Healthcare has beat earnings estimates in the two previous quarters because of improving insurance rates and lessening labor pressures.

The company has also made good on its long-promised plan to rev up its M&A activity by acquiring a Utah-based behavioral health system. M&A is a de-emphasized part of Acadia Healthcare’s multi-pronged growth strategy.

Source: Chris Larson, “Acadia Healthcare Reaches $400M Settlement for Abuse Litigation,” Behavioral Health Business, Oct. 31, 2023, URL: https://bhbusiness.com/2023/10/31/acadia-healthcare-reaches-400m-settlement-for-abuse-litigation/