Health South

Topics: Business ethics, Corporate governance, Board of directors Pages: 8 (2639 words) Published: March 28, 2013
Scandal erupted at HealthSouth in 2003 when Richard M. Scrushy was accused by the Securities Exchange Commission (SEC) of falsely inflating HealthSouth earnings. Mr. Scrushy’s story began in Selma, Alabama, the middle child of a modest family. He was a high school dropout at the age of seventeen and was married to his first wife with whom he had two children. Richard Scrushy worked diligently to provide for his family. Residing in a trailer park, Mr. Scrushy became dissatisfied by the mundane role of pumping gas and bricklaying. This frustration preceded Scrushy to pursue a college degree as a respiratory technician. Following his clinical training, Scrushy flourished as an instructor of respiratory therapy at the University of Birmingham. Richard Scrushy eventually became the director of the respiratory unit at a Birmingham hospital and in 1979; he started working for Life-mark Corporation, a proprietor who managed hospitals. Mr. Scrushy held various positions including vice president of a corporate development and vice president of Lifemark Shared Services. At the age of twenty-eight, Mr. Scrushy transformed from a blue collar worker to a corporate director (Kellion, 2007). Lifemark was acquired in 1983 and Mr. Scrushy framed an idea for a company that offered outpatient rehabilitation services for less expense and a quicker recovery time for patients. This conception became an actuality and Scrushy formed HealthSouth (Kellion, 2007). Employees often described Mr. Scrushy as a tyrant. He was described as someone who sought to maintain tight control over aspect of the business. Jennings (2012) indicated employees used fictitious names as they posted information on Yahoo describing Mr. Scrushy’s management approach. Mr. Scrushy’s Monday morning meetings frequently resulted in tirades about employees not meeting budgets, even to the dollar. Jennings (2012) implied one officer described the corporation as fraudulent in which both the corporate culture and fraud inveigled one another. HealthSouth began to expand and it became a model for others to follow. Jennings (2012) indicated stocks rose from 1987 through 1997 at thirty-one percent per year. By 1992, HealthSouth was operating one hundred forty five clinics and profiting four hundred million dollars in revenue. Scruchy began to expand HealthSouth even further and at a rapid pace. HealthSouth acquired its competitors, increased efficiencies at its clinics, and offered a reduced health care rate for rehabilitation services (Kellion, 2007). With such success and drive, how was it that Richard M. Scrushy became a relentless, authoritative, devious, and unethical businessman? At the turn of the twenty first century, HealthSouth appeared to be soaring high, but soon it would come to a halt. In July 2002, HealthSouth’s Chief Financial Officer (CFO), William A. Massey Jr. committed suicide after it was revealed he was embezzling money to pay for personal expenses for his mistress. One day after Massey’s suicide, Mr. Scrushy sold twenty-five million dollars in HealthSouth stock (Kellion, 2007). The activity on Mr. Scrushy’s behalf became suspicious to the government; as in the previous year, Scrushy sold seventy-four million dollars of his stock. Shortly after the twenty-five million stock sales, HealthSouth lowered its earnings by one hundred seventy-five million due to the change of the Medicare reimbursement policy. When the announcement came, the company’s stock fell fifty- eight percent to five dollars a share. Stockholders filed lawsuits against HealthSouth; Scrushy claimed he was unaware of the change in policy on behalf of Medicare. HealthSouth banished Scrushy from his position, only to be reinstated shortly after his removal (Kellion, 2007). On March 18, 2003, the FBI raided HealthSouth’s main office and removed documents. The Justice Department of the United States charged HealthSouth with inflating its...

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