Case Study: Healthsouth Corporation Scandal

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Anna James
Case Study: HealthSouth Corporation Scandal
Forensic Accounting: Ethics and Legal Environment
Professor Erskine Hawkins

HealthSouth Corporation is a large, public healthcare company that operates 93 inpatient rehabilitation hospital, 49 outpatient rehabilitation satellites, six long-term acute care hospitals, and 25 home health agencies. According to the company websites, it is “one of the nation’s largest healthcare providers specializing in rehabilitation”.5 The company headquarter is based in Birmingham, Alabama with operation in 26 states across the country and in Puerto Rico. HealthSouth’s stock trades on the New York Stock Exchange (NYSE) under the ticker symbol HLS, it “closing price as of December 15, 2010 is $21.18, giving the company a market capitalization of approximately $1.5 billion. The company’s 2009 revenue was $1.9 billion and its net income was $126.7 million, for basic earnings per share (EPS) of $1.23”.4 About two-thirds of HealthSouth’s revenues come from the Medicare program. In 2003, a massive accounting fraud was discovered that almost let to the company’s bankruptcy. The major problems of the fraud are lack of credulity, lack of integrity on the management part, lack of independence on the auditor part, and negligent of the auditors played role in the fraud. The company went public in 1986 and in order for the company to meet Wall Street’s expectation, the company began to artificially inflate its earning in order to maintain the market price for their stock, this was a credulity problem because the management knew that if they did not fix the earning when they fall short of wall street, their stock will fall and they had to organized meetings to discussed ways which the accounting staff would falsify the HealthSouth’s books to fill in the gap and meet desired earning. Knowing no one will suspect what that the management is cooking the book, it was easier for them to continue to fix the...
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