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HealthSouth

HealthSouth Corporation based in Birmingham, Alabama, is one of the nation's largest healthcare services providers. Best known for its rehabilitation services, HealthSouth has more than 200 facilities in United States and Puerto Rico. The company operates 100 inpatient rehabilitation hospitals, 15 long-term acute care hospitals, 60 outpatient rehabilitation satellites facilities and 25 home health agencies.

HealthSouth was involved in a corporate accounting scandal in which its Chief Executive Officer, Richard M. Scrushy, was accused of directing company employees to falsely report grossly exaggerated company earnings in order to meet stockholder expectations.

At the company's height, it recorded nearly $4.4 billion in revenue, dominated the rehabilitation services market and employed more than 50,000 people at 2,000 facilities in every state of the U.S. along with its facilities in the United Kingdom, Canada, Australia, Puerto Rico and Saudi Arabia.

By mid to late 2006 HealthSouth completed its recovery and relisted its stock on the New York Stock Exchange under the symbol HLS. The company currently operates one division: inpatient rehabilitation. The company formerly operated an outpatient rehabilitation, surgery center and diagnostics division.

Company beginnings

HealthSouth was incorporated in Delaware on February 22, 1984 as Amcare Inc. by its founder Richard M. Scrushy. The company opened its first facility in Little Rock, Arkansas and one in Birmingham later that year. In 1985 the company changed its name to HealthSouth Rehabilitation Corporation. In 1986 the company went public with its IPO on the NASDAQ Stock Exchange under the ticker symbol HSRC. At the end of the company's last investor roadshow in New York City before its IPO, Scrushy received a standing ovation from the investment bankers in attendance, an extreme rarity. In September 1988 the company moved to the New York Stock Exchange and became listed under the symbol HRC. By 1990 the company had expanded to 50 facilities across the US. HealthSouth finished out 1992 with $400 million in annual revenue. In 1993 the company made its first large acquisition when it bought 28 hospitals and 45 outpatient rehabilitation facilities from National Medical Enterprise for around $300 million in cash. In 1994 HealthSouth announced it would buy fellow Birmingham based ReLife for $180 million in stock.

Growth and scandal

Throughout the mid-1990s, HealthSouth expanded rapidly through mergers and aquistions. In 1995 the company changed its name to HealthSouth Corporation to better reflect its diversified interests in healthcare. On August 31, 1995 HealthSouth CEO Richard Scrushy announced that HealthSouth was going to build a new headquarters on US Highway 280 in Birmingham. The new corporate campus was to be built on 85 acres of land that the company had bought from Southern Company earlier that year. The corporate campus plans included a five story headquarters building with a connecting conference center and parking deck.

In January 1995 the company entered the surgery center business with its $155 million acquisition of Surgical Health Corporation. One month later the company acquired Novacare's entire rehabilitational hospital business for $215 million in cash. In 1996 the company expanded into diagnostics with its purchase of Health Images Inc. HealthSouth made its largest acquisition yet when it purchased Horizon/CMS for $1.8 billion. After the acquisition, HealthSouth sold the assets it did not need to Integrated Health for $1.15 billion in cash. Also in February 1997 the company finally moved into its new corporate headquarters. The headquarters building itself contained a company store and museum. HealthSouth continued on its acquisition spree through 1999 by purchasing the majority of Columbia/HCA's surgical division.

In 2001 the company announced it would, along with Oracle Corporation, build the worlds first all digital hospital on its corporate campus. The 13 story structure was meant as a replacement for its aging Medical Center in downtown Birmingham. Construction began soon after on the new Medical Center. The first of HealthSouth's accounting problems surfaced in late 2002 after Richard Scrushy sold $75 million in stock several days before the company posted a large loss. The U.S. Securities and Exchange Commission (SEC) announced it was investigating Scrushy on whether or not the stock sell was related to HealthSouth posting a large loss. HealthSouth hired an outside law firm to review Scrushy's stock sale, with the firm concluding that the sale and profit loss were not related, although this did not remove the company off the SEC's radar. On the evening of March 18 2003 FBI agents executed search warrants at the company's headquarters after the company's Chief Financial Officer William Owens agreed to wear a wire in a failed attempt to get Scrushy to talk about the fraud.

Accounting scandal

See also: creative accounting
On March 19 2003, HealthSouth and its founder and CEO Richard M. Scrushy were accused by the SEC of an accounting scandal where the company's earnings were falsely inflated by $1.4 billion. In 1996, Scrushy allegedly instructed the company's senior officers and accountants to falsify company earnings reports in order to meet investor expectations and control the price of the company's stock. In certain fiscal years, the company's income was overstated by as much as 4700 percent. The $1.4 billion represents more than 10 percent of the company's total assets.

In June 2005, Scrushy was acquitted on all 36 of the accounting fraud counts against him, most notably one count in violation of the Sarbanes-Oxley Act, which casts doubt on the enforceability of the law. But in June 2006, he was convicted on bribery charges, having stood accused of arranging $500,000 in campaign donations in exchange for a seat on a state hospital regulatory board

Recovery and the new HealthSouth

Following the raid at the company's corporate headquarters, the board of directors held an emergency meeting to discuss what actions needed to be taken. One of the first was the termination of Richard Scrushy as Chairman and CEO, and Bill Owens as CFO. Robert P. May was elected as interim CEO and Joel C. Gordon as Chairman. Another issue that was immediately addressed by the board was how it was going to come up with the cash for interest payments of senior bonds and principal payments due on a $344 million convertible bond. The board agreed that the company's cash flow problems were too great to tackle on its own. At the advice of its lender JPMorgan Chase, the company hired restructuring firm Alvarez & Marsal to bring its finances in order and immediately appointed Bryan Marsal Chief Restructuring Officer. By the end of 2003, the company had most of its finance back in order and was able to avoid Chapter 11 bankruptcy.

Efforts were made at the corporate headquarters to remove the memory of Scrushy. The board removed Scrushy's name from the conference center, closed the company store and museum and opened the fifth floor executive offices to all employees, which under Scrushy, were kept away. The board also sold all but a few of the company's 11 corporate jets which included a Gulfstream V and a Sikorsky S-76 C+ helicopter. In an effort to save money, the company halted construction of its Digital Hospital, for which building costs had doubled to $400 million. On May 10, 2004 Jay Grinney was chosen by the board as the company's permanent CEO. Soon after Grinney's appointment, the company moved forward with its goal of again becoming a current filer with the SEC. By doing so the company restated earnings from 2000 to 2003. The company also sold or closed many underperforming facilities including its medical center division in its effort to return to profitabiity.

On May 15, 2006 the company completed its goal of once again becoming a current filer with the SEC when it filed its first quarter 2006 financial result. It was the first time the company had filed a 10-Q since its accounting scandal began. On August 14, 2006 the company unveiled its restructuring plan which included the sell, spin-off or other disposition of its surgery, outpatient, and diagnostic divisions along with a 1-for-5 reverse stock split to coincide with its relisting on the New York Stock Exchange under the symbol HLS. The reverse stock split was approved by stock holders at a special meeting at the company's corporate headquarters on October 18, 2006. The last step in HealthSouth's recovery from its accounting scandal occurred on October 26, 2006 when it was again relisted on the New York Stock Exchange.

On January 29, 2007 the company announced it would sell its more than 600 outpatient centers to Select Medical Corporation for $245 million in cash. The transaction was completed on May 1, 2007.

On March 26, 2007, HealthSouth announced it will sell its surgery center division to private investment partnership TPG Capital for $920 million in cash and equity interest in the newly-formed company worth between $25 to $30 million dollars. The surgery center division comprises 139 outpatient surgery centers and three surgical hospitals. The new surgery center company will remain headquartered in Birmingham The transaction was completed on June 30, 2007 with the creation of Surgical Care Affiliates.

On April 29, 2007, HealthSouth announced a definitive agreement to sell its diagnostic division to the Gores Group for $47.5 million dollars. The newly formed company will remain in Birmingham. The transaction was completed on July 31, 2007 when Diagnostic Health Corporation was formed.

Affiliated companies

Offspring companies

Previously affiliated companies

  • GG Enterprises (Hoover, Alabama) — founded by Scrushy's mother and brother
  • 21st Century Health Ventures (Birmingham) — founded by Scrushy and former HealthSouth CEO Michael Martin
  • MedCenterDirect.com (Atlanta) — HealthSouth bought 6.4 million shares of this hospital supplies company
  • Integrated Health Services Inc. (Sparks, Maryland) — a nursing homes and rehabilitation center company that Scrushy was a director of in the 1990s
  • HealthTronics Surgical Services Inc. (Marietta, Georgia) — Michael Martin was director while CFO at HealthSouth

External links

References

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