Universal Health Services (UHS) Must Face Claims That It Held Patients Illegally, Investors Say

April 13, 2019

Shareholders who have been in a legal fight with Universal Health Services since 2017 have argued the King of Prussia, Pa.-based hospital operator can't dismiss claims it fueled revenues by exaggerating patients' risk of suicide and involuntarily committing them to its psychiatric hospitals.

Shareholders filed the derivative lawsuit [a legal action based upon a primary right of a corporation but asserted on its behalf by its stockholders due to the corporation's failure, deliberate or otherwise, to act upon the primary right] against UHS in May 2017, roughly five months after Buzzfeed News reported that UHS psychiatric hospitals kept patients longer than necessary and against their will to maximize reimbursement from insurers. The report, which was based on a yearlong investigation, described how the company allegedly manipulated the patient admission process and also raised questions about the quality of care provided at the psychiatric hospitals. 

Shareholders filed an amended complaint in November 2018, and UHS brought a motion to dismiss the lawsuit about three months later.

UHS argues the amended complaint should be dismissed because the shareholders failed to adequately plead demand futility [a specific type of civil lawsuit in which a company's board decisions and/or decision-making skills, in general, are challenged].

Before bringing a derivative lawsuit, shareholders must first demand that the company's directors prosecute the action or state the reasons why such demand would have been futile. The shareholders failed to take these steps before filing suit against UHS, the company claims.

The shareholders recently responded to the motion. They argue that the presuit demand is excused under state law in this case for several reasons, including because the complaint alleges that UHS' board likely faces personal liability for incentivizing illegal activity and the majority of the board lacks the level of independence needed to fairly evaluate litigating a claim against senior managers and the board.

UHS has until April 29 to file its reply brief in support of its motion to dismiss.

The company and its behavorial health facilities are also the subject of an ongoing investigation by the Department of Justice. In the fourth quarter of 2018, UHS said it added $31.9 million to its reserve for the investigation. The reserve now totals about $123 million.

Source: “UHS can't dodge claims it held patients illegally, investors say,” Becker’s Hospital Review, April 12, 2019, URL: https://www.beckershospitalreview.com/legal-regulatory-issues/uhs-can-t-dodge-claims-it-held-patients-illegally-investors-say.html