Can All Children’s hospital afford $261 million in damages?

Attorneys for Johns Hopkins All Children’s Hospital appeared shell-shocked after a jury Thursday ruled against the hospital on every count of the high profile lawsuit decided in a Venice courtroom.

They had good reason.

The $261 million award of compensatory and punitive damages to Maya Kowalski and her family amounts to close to half of the $592 million in revenue that the St. Petersburg hospital reported on its 2021 tax return, the most recent available.

The jury in the eight-week civil trial found that All Children’s falsely imprisoned and battered Maya, who was 10 when her family brought her to the hospital’s emergency room in October 2016. The hospital was ordered to pay damages for intentional infliction of emotional distress on Maya and on her mother, Beata Kowalski, that contributed to Beata’s suicide. There were also findings of medical negligence and fraudulent billing.

Hospital attorneys announced they plan to appeal the verdict, likely delaying any payment until at least next year. But if unsuccessful, the hospital potentially faces a massive outlay that could force it to tap cash reserves, possibly impacting future credit ratings and delaying future expansion projects, the hospital’s Chief Financial Officer Sherron Rogers testified during the trial.

All Children’s likely has insurance that will cover some of the $211 million awarded by the jury in compensatory damages. But under Florida law, insurance cannot cover the $50 million in punitive damages that the jury awarded.

Although part of the Johns Hopkins health system, All Children’s files its own tax returns. A hospital spokesperson declined to answer whether the hospital has insurance to cover the compensatory damages or if its parent organization would provide financial support.

Hospitals typically rely on a combination of self-insurance carried by physicians and other medical staffers and commercial insurance to cover liability and malpractice claims, said Robert Bonar, a professor and program director of the Master of Health Administration program at George Washington University.

But with such a large award, All Children’s may need to tap into multiple commercial policies to cover the loss, Bonar said. And the hospital will be liable for the self-insured retention, similar to a deductible, which the hospital must pay before the insurer covers any loss. Hospitals could have deductibles of as much as $1 million per policy.

Even if insurance does soften the blow, a huge claim made on liability policies will likely mean the hospital will end up paying more for future insurance, Bonar said.

“Large claims like this will frequently impact the organization across the whole spectrum,” he said. “It will lead to increases in self-insured retentions, increased insurance premiums.”

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All Children’s tax filing shows that the hospital has significant assets. Its balance sheets show a cash reserve of about $32 million. It also has $448 million in stocks and shares.

Almost two-thirds of the children the hospital treats are billed through Medicaid, which Rogers said only covers 70 cents on the dollar of the cost of treating children.

During testimony on punitive damages, Rogers testified that the hospital’s cash reserves and investment portfolio are important to reassure creditors. If those funds and holdings are depleted, the hospital’s credit rating could take a hit, making it more expensive to borrow money for future construction or other capital expenses.

“If we are going to borrow, they want to ensure we are fiscally sound,” Rogers said.

Attorneys for the Kowalskis pointed out that the hospital has turned a profit in recent years. For the fiscal year ending June 2022, it reported $30 million in operating profit. That money is plowed back into the hospital because it is a nonprofit, Rogers said.

The award to Maya and her family dwarfs that given to the families of children who died or were permanently injured at the hospital during heart surgery. The hospital in 2018 suspended heart surgeries after a Tampa Bay Times investigation found the mortality rate had tripled over the previous three years.

All Children’s paid roughly $40 million to settle with the families of two children who were paralyzed after heart surgeries. Two other families whose children died after surgery received settlements totaling $3.1 million.

The hospital, which told investors it was admitting liability in most cases, was reported to be in negotiation with 11 other families. The CEO, the vice president in charge of risk management and the chief heart surgeon all resigned.