Fraud

Topics: Balance sheet, Asset, HealthSouth Pages: 29 (3763 words) Published: March 25, 2014
HealthSouth Corporation Case Study

By Robert H. Barr, Jr. - © 2012

In 2002, HealthSouth Corporation was one of North America’s largest outpatient surgery, rehabilitation and diagnostic imaging companies. HealthSouth had over 1800 facilities in all 50 states plus the United Kingdom, Australia, Puerto Rico, Canada and Saudi Arabia. In 2002 HealthSouth had over 50,000 people on staff in sales revenues in excess of $4 billion per year. HealthSouth worked with more than 85,000 referring physicians and had contracts with Walmart, Goodyear, Delta, JetBlue and Anheuser-Busch, among other large corporations, and provided coverage for the PGA of America and its various sectors (including the LPGA and Senior PGA). HealthSouth could claim as patients celebrities such as Michael Jordan, Bo Jackson, Roger Clemens, Shaquille O’Neal, Scottie Pippin and Terry Bradshaw. In 1984, Richard M. Scrushy (pronounced Scroo-shee) and four coworkers founded AmCare and opened its first outpatient center in Birmingham, Alabama. In 1985 AmCare changed its name to HealthSouth rehabilitation Corporation. Its annual revenues in 1985 were approximately $5 million.

In September 1986 HealthSouth made its initial public offering of stock. The 1986 profit of HealthSouth was $1.1 million and Scrushy’s pay was $225,000. Might 1990 HealthSouth had expanded to 50 outpatient locations across the United States. In 1992 Scrushy’s pay had increased to $1.2 million. 1993 was another year for growth for HealthSouth. In 1993 HealthSouth became the largest provider of rehabilitation services after acquiring rehab clinics from Tenet healthcare. In addition in 1993, Scrushy and others founded Med Partners, Inc., a physician management company. This company did very well until 1998 when a merger deal collapsed. Scrushy hired a new CFO who transformed the company into Caremark Rx.

In 1994, the number of HealthSouth locations increased to 250 across the United States. In 1995, HealthSouth announced $2.5 billion acquisitions that would give them more than 850 facilities and over 32,000 employees. In 1996, Scrushy’s bonus was $8 million. In 1997, Scrushy’s pay was a total of $106.8 million.

The founder and CEO of HealthSouth Corporation was Richard M. Scrushy. Scrushy was a native of Selma, Alabama. He came from very humble beginnings. At age 17 he was married and had a child. He worked pumping gas. With his mother’s help he got a job as a respiratory

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therapist assistant. He attended University of Alabama at Birmingham and graduated in 1979 with a degree in respiratory therapy.
After he graduated, Scrushy worked for five years as a respiratory therapist for hospital chain and taught respiratory therapy at a community college. By the time he founded HealthSouth Corporation, Scrushy wanted to change healthcare. He wanted to build a network of progressive outpatient surgery centers and rehabilitation clinics. At this time there were three things that would really help. First there were lower reimbursements for medical care. Second, there was increased emphasis on rehabilitation over surgery as a method to get people back to work more quickly. Third there were very few brand names in the rehabilitation area of healthcare. Scrushy wanted to create the McDonald’s of healthcare. According to HealthSouth’s website its founding purpose was to establish a transitional environment between hospital and home and, in so doing, provide both outpatient rehabilitation services and the financial incentive to transition quickly. By the mid-1990s, Scrushy and his company were favorites of Wall Street, and he was profiled in the Wall Street Journal, Business Week, and Fortune, among other publications. HealthSouth had consistently met or beaten earnings forecast, much to the delight of the company’s executives and investors.

Scrushy was a hands-on CEO who routinely summoned the doctors, nurses, administrators, and case managers from the various HealthSouth clinics and hospitals to...
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