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.
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.
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
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 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.