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When the scandal broke in March 2003 the company
spiraled rapidly towards bankruptcy. Everyone expected it to
go under. Instead it made a remarkable recovery and by 2007
it was doing well. Whether that was a good thing or not is
certainly debatable but it was a monumental achievement.
This web page tells the story of that achievement.
Skadden represented HealthSouth Corporation as coordinating counsel to oversee all matters relating to the crisis that ensued after the SEC filed suit against HealthSouth and its then-CEO, Richard Scrushy, and after former CFO Weston Smith agreed to plead guilty to fraud charges. In the ensuing months, HealthSouth was faced with dozens of class actions, government investigations by the SEC, Department of Justice and Congress, attempts to rescind insurance coverage, and suits by Mr. Scrushy. Skadden lawyers stepped in immediately to provide legal and strategic support in these areas and others to a company that had lost several key officers in a matter of weeks. Skadden provided critical counsel to HealthSouth's board, was instrumental in averting the wholesale departure of professional and skilled partners and employees in a highly competitive industry, and played a key role in managing HealthSouth's relations with several disparate constituencies including the government, senior subordinated creditors, and investor plaintiffs. With Skadden's assistance, HealthSouth avoided a bankruptcy filing, settled all claims filed by the SEC, announced a preliminary agreement in principle to settle the class actions and derivative litigation filed by shareholders, completed a recapitalization of all its outstanding debt, and avoided criminal prosecution.
Skadden Crisis Management web page http://www.skadden.com Accessed August 2007
As I read the articles and wrote this page I found myself identifying with this company and its efforts to save itself - getting behind it and urging it on as it overcame one huge hurdle after anther. Everyone seemed to be getting behind it.
I had to stop and think to realise that this was a company that had perpetrated a massive fraud and quite apart from the financial costs to investors it was the trusting patients who made this possible. We know that a company's culture is deeply rooted and persists even when the head is chopped off. There must still be in the company people who participated in the fraud in some way and others who knew about it but looked the other way. The question is whether this is a company that should be allowed to operate in health care and do we as a community want people like this (including those brought in for the fraud prone HCA) to be looking after us when we are ill. The answer must be an emphatic "NO" but this is not the way any of the participants in this drama think.
That of course brings me back to the topic of probity and its importance as a determinant of who is permitted to operate in the health and aged care sector.
The other question is to ask ourselves what proportion of the available human effort is being devoted to care. As we examine the material on this page we should ask ourselves what all this has to do with society's responsibility to care for its vulnerable sick citizens. How did their care get caught up in all this. What is happening to their care as those who pull the strings and struggle to cut costs are distracted by the market pressures on them.
Another page describing the accounting fraud and its exposure addresses the problems HealthSouth had in 1998 and again in 2002. It documents the attempts made to hide the fraud and its eventual exposure in early 2003.
The stock rapidly plummeted from its once high US$30 to a low of 8 cents. Trading in the stock was suspended and it was removed from the New York stock exchange. HealthSouth seemed to face certain bankruptcy.
This page describes how it handled the crisis and survived. This is a company that professes to care for injured and ill US citizens. It used the care it was providing to defraud those paying for their care in ways which compromised that care. It defrauded the shareholders whom it had a primary fiduciary duty to serve in a US $4 billion accounting scam. In spite of this the market and analysts laud its recovery. The government elects not to prosecute it and put it out of business.
Exposure of the details of the scandal and the tortuous threads between directors, companies, auditors, banks and analysts continued as the company plunged towards Chapter 11 bankruptcy. Analysts continued to speculate about a likely bankruptcy but HealthSouth claimed it could still make it and asked its creditors to be patient. It also went looking for more capital and hired investment bank Credit Suisse First Boston to help avert bankruptcy and raise money
HealthSouth, the troubled hospital company, will probably file for bankruptcy this summer in a prearranged deal with its banks and bondholders, according to the turnaround specialist who is running the company.
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If HealthSouth averts bankruptcy, however, it would need $250 million just for annual interest payments, which it has stopped paying for now, Mr. Marsal said. The company would also have to resume repayments of debt and would need at least $150 million a year for capital spending at hundreds of HealthSouth rehabilitation hospitals, clinics and surgery centers.
HealthSouth Plans Bankruptcy The New York Times April 30, 2003
The Journal reported that HealthSouth would need to raise more than $500 million to avoid bankruptcy. Proceeds would be used for working capital and to pay off a convertible bond that matured in April, the paper said.
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HealthSouth retained turnaround specialists Alvarez & Marsal to stabilize operations and finances.
CSFB Next HealthSouth Adviser? Reuters July 3, 2003
HealthSouth Corp., under investigation for a $2.5 billion accounting fraud, told shareholders and creditors Monday that its core businesses remain solid and the company can probably avoid bankruptcy unless government probes and class action suits push it into the financial abyss.
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Chief restructuring officer Bryan Marsal outlined a plan that calls for draconian cost reductions, tightened spending controls and the sale of noncore assets - - -
HealthSouth on the brink Associated Press July 7, 2003
HealthSouth suspended Scrushy and fired Ernst and Young the auditors who had missed the fraud. It no longer used UBS as its bankers. They could not fire Scrushy without a meeting of shareholder and they could not hold this without accurate accounts to present - and the company's accounts were a mess. Scrushy refused to resign so remained on the board but did not attend meetings.
The board employed a host of outside consultants to help it.
Interim CEO Robert P. May said board members acted quickly to oust Scrushy, fire auditor Ernst & Young and fix any lingering problems. They named an interim leadership team, hired accounting firm PriceWaterhouseCoopers to conduct a forensic audit, placed high-powered law firm Skadden Arps on retainer and contracted turnaround expert Alvarez & Marsal to help stabilize the business.
HealthSouth on the brink Associated Press Jul 7, 2003
HealthSouth, which expects to present a business plan on Monday to creditors and investors, has worked since the scandal erupted to cut costs by eliminating jobs and shrinking its fleet of aircraft.
HealthSouth seeks to raise capital MSNBC July 3, 2003 <http://stacks.msnbc.com>
"Our entire organization, from the board down through the rank and file, was in absolute shock," Gordon said. "We didn't know how much cash we had, the bank closed our line of credit ... needless to say the situation was grim."Chief restructuring officer Bryan Marsal outlined a plan that calls for draconian cost cuts, tighter spending and selling noncore assets -- including at least one of three acute care hospitals. He said an ongoing fact-finding review aimed at determining the extent of the fraud found Medicare reimbursements apparently were not affected.
HealthSouth owes a total of $3.3 billion in bank and bond debt. The company missed $367 million in principal and interest payments on bonds in April and also is in default on a $1.24 billion line of credit. However, officials said it is currently paid up on its operational expenses, and it hopes to resolve some financial troublespots at a creditors' meeting Thursday in Birmingham.
HealthSouth: Bankruptcy not imminent unless probes, penalties too severe http://www.nj.com/newsflash/ (Associated Press) July 8, 2003
HealthSouth Corp. Thursday said it now expects PricewaterhouseCooper's forensic review of its financial statements won't be finished until November.
HealthSouth forensic probe delayed The Boston Globe September 18, 2003
The plan depends on persuading bondholders who haven't gotten principal or interest payments on their loans in three months to not exercise their right to push the company into an involuntary Chapter 11 filing while a detailed repayment plan is worked out in coming months.
Good news for HealthSouth investors : Company stock doubles in wake of announcement Birmingham News July 8,2003
Seven months later, HealthSouth has so far defied the doomsayers. While the company could still stumble, it has managed to survive by owning up to its problems and tackling them head-on. Its board slashed costs, wooed shocked surgeons into staying with the group and convinced the Department of Justice that HealthSouth would cooperate with a federal probe.The company was guided back from the brink by two men thrown into an unlikely partnership: the board's acting chairman, Joel Gordon, a courtly Tennessee health-care entrepreneur, and Bryan Marsal, a brusque New York executive who specializes in salvaging troubled companies.
The company says it is on track to produce $650 million in annual cash flow, though audited financial results won't be available until next year. - - - - - - - - HealthSouth stock, which plummeted to eight cents a share after the scandal broke, recently traded around $3 on the Pink Sheets electronic system, where stocks can trade even after being delisted from the New York Stock Exchange, where HealthSouth once traded.
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Now the board called on one of the firm's top Washington lawyers, Robert Bennett, a former counsel to President Clinton. Mr. Bennett advised the directors to waive attorney-client privilege and provide unrestricted interviews and documents to Justice Department lawyers and FBI agents. He said this was the only way to convince shareholders, lenders and the government that the board hadn't been involved in the fraud -- and that the company was not a criminal enterprise. It was a risky move that would put the company's future in the hands of federal prosecutors. But the board agreed.
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Alvarez & Marsal brought in 24 staffers from across the country. Three set up shop in Mr. Scrushy's sprawling office, one of them striving to sell nine of the company's private jets and a helicopter.Down the hall, A&M executive Guy Sansone dug into HealthSouth's finances. It was a huge undertaking, - - - - .
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Mr. Sansone began tracking cash through the company's 1,200 bank accounts. Plowing through the books, he discovered the company had only $117 million in cash -- not $560 million as it appeared at first. Mr. Sansone says a HealthSouth executive invented a bank account and manipulated its balance, in an apparent effort to reconcile bogus revenue increases with the company's cash holdings.Moving to conserve remaining cash, the board ordered that only Mr. Sansone and Mr. Marsal could approve any expense payments. Vendors were paid only for critical medical supplies. Mr. Sansone shrank the company's security force, with its fleet of black SUVs and a bullet-proof BMW, to 11 people from 24. Mr. Marsal's team slashed $250 million in capital expenditures and cut 225 workers in Birmingham, or 24 percent of the corporate staff, saving $17 million.
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HealthSouth's lenders, in a move that gave HealthSouth breathing room, blocked the company from making a $367 million debt payment on April 1 to bondholders.
HealthSouth seeks recovery from raid, scandal The Associated Press Oct 21, 2003
Yet, as Scrushy prepares for the fight of his life after being indicted Nov. 4 on 85 counts of financial fraud, his prodigy is doing surprisingly well. HealthSouth ( HLSH ) is sticking to its guidance issued last July, four months after Scrushy's departure, that it expects to generate $650 million in earnings before interest, taxes, and amortization in its 2003 fiscal year and to have a healthy $315 million cash on hand next July.
HealthSouth Takes a Turn for the Better Business Week Online NOVEMBER 7, 2003
Facilities were closed or sold off to raise funds and staff were fired.
HealthSouth Corp. is selling a Florida hospital to help pay more than $3.3 billion owed to banks and bondholders.
HealthSouth sells Florida hospital to generate cash Miami Herald (Associated Press) Aug. 10, 2003
Some 330 employees at the company's headquarters were handed pink slips. Underperforming clinics were shuttered. Non-core assets were shed, bringing in $260 million in needed cash.
HealthSouth's new CEO ready for challenges he faces Birmingham Business Journal June 4, 2004
Baptist Health System and Samford University have entered exclusive talks to buy HealthSouth Corp.'s "digital hospital" in Birmingham, Alabama, the parties said on Monday.
HealthSouth in talks to sell digital hospital Reuters Nov 22, 2004
HealthSouth, Birmingham, Ala., signed a letter of intent with UAB Health System to negotiate the sale of 219-bed HealthSouth Medical Center, Birmingham, and its surrounding campus.
HealthSouth negotiating to sell Ala. hospital to UAB Modern Healthcare April 19, 2005
HealthSouth Corp. Chief Executive Officer Jay Grinney told investors that the company plans to sell or close 41 facilities in the fourth quarter and expects to settle charges resulting from a federal investigation of accounting fraud by year-end.
HealthSouth to slim down, settle with government Modern healthcare December 2, 2004
HealthSouth tried to escape some of its obligations and some court actions resulted
The Metro-West Hospital in Alabama
HealthSouth Corp., Birmingham, Ala., said it has begun foreclosure on a suburban Birmingham hospital whose owner owes the rehabilitation giant more than $42 million.
HealthSouth begins foreclosure on Ala. hospital Modern Healthcare's Daily Dose August 14, 2003
A judge set an Oct. 16 trial date over whether HealthSouth Corp. can foreclose on one of its hospitals.
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HealthSouth had planned to foreclose on the Fairfield hospital (HealthSouth Metro West Hospital) Monday, but King issued a temporary restraining order last week stopping those proceedings.
Judge sets foreclosure trial date on HealthSouth hospital Miami Herald (Associated Press) Sep. 21, 2003
HealthSouth is close to an agreement to take over Metro West Hospital, ending a dispute that included foreclosure proceedings by the company and a $10 million lawsuit filed in retaliation, an attorney for the Fairfield Healthcare Authority said.
HealthSouth set to take over Fairfield hospital Miami Herald (Associated Press) Oct. 09, 2003
Meanwhile, the company announced it will close HealthSouth Metro West Hospital, Fairfield, Ala., on Sept. 2, saying efforts to recruit and retain physicians have been unsuccessful and the hospital continues to lose more than $500,000 a month.
HealthSouth execs charged in Saudi bribery case Modern Healthcare July 1, 2004
A foundation has sued HealthSouth Corp., saying the company has shirked legal obligations at Metro West Hospital.The lawsuit by the Lloyd Noland Foundation, former owner of the hospital, says HealthSouth has failed to give hospital retirees promised discounts for health care at Metro West. It also claims HealthSouth blocked the foundation from setting up a 55-bed long-term care facility within the hospital.
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The suit comes days before HealthSouth plans to close the 85-year-old hospital that it has managed at a loss since 1999, when Tenet Healthcare sold it.
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Now the foundation wants to make sure it retains control of those beds and 20 other unused beds from the 120-bed option, instead of allowing HealthSouth to sell them or transfer the license after the hospital closes Thursday.
Foundation sues HealthSouth, says obligations at hospital avoided Miami Herald (Associated Press) Aug. 31, 2004
HealthSouth Doctors' Hospital in Florida
A Florida foundation is suing HealthSouth Corp., Birmingham, Ala., over the company's proposed sale of 157-bed HealthSouth Doctors' Hospital, Coral Gables, Fla. The Dr. John T. Macdonald Foundation alleges that the annual payments HealthSouth agreed to make to the foundation when the company bought the hospital from the foundation in 1992 are in jeopardy because of the proposed sale.
Foundation objects to HealthSouth hospital sale Modern Healthcare's Daily Dose August 20, 2003
Shareholders wanted to rid the company of the directors who had been there during the HealthSouth fraud. They demanded a meeting but HealthSouth could not call a meeting without audited books and these were a long way off. Unscrambling the mess after the fraud was a major task. This came to court and was settled with HealthSouth agreeing to rapidly change directors.
Healthcare services provider HealthSouth Corp. told regulators on Thursday it could not file its quarterly report on time because of an ongoing probe into its finances.
HealthSouth delays filing quarterly report Reuters August 14, 2003
HealthSouth Corp., which said its past financial results cannot be relied upon after an accounting fraud, said on Thursday it will not file its 2004 annual report on time due to the ongoing restatement of its past results.
HealthSouth delays filing 2004 results Reuters Mar 17, 2005
The pension plan, the Teachers' Retirement System of Louisiana, argued that HealthSouth, which is based in Alabama but incorporated in Delaware, is required to hold a shareholder meeting at least every 13 months. It has not held an annual meeting since May 2002.The pension plan hopes to unseat seven directors who the judge said on Monday had "selected and rewarded" 15 former executives of HealthSouth who pleaded guilty to fraud.
Investor Seeks a HealthSouth Meeting The New York Times November 18, 2003
HealthSouth Corp., ceding to the demands of a shareholder lawsuit, agreed Tuesday to replace five directors who were on the company's board while its executives engaged in a huge accounting fraud.Changes in board membership will begin this month under a settlement of a lawsuit filed by the teachers pension system in Louisiana, a major Health-South investor. An attorney for the $10.5 billion Teachers Retirement System of Louisiana said the fund's goal was to remove the directors who presided over HealthSouth's plunge into scandal.
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Departing HealthSouth directors are Larry Striplin Jr., Charles Newhall III., C. Sage Givens, George Strong and John Chamberlin. All have been board members since at least 1999, and all will voluntarily leave the board by Aug. 31, the company said.Interim board Chairman Joel Gordon will remain along with three directors who joined the board after the company's finances began unraveling: interim CEO Robert May, Jon Hanson and Lee Hillman.
HealthSouth to replace five directors under settlement THE ASSOCIATED PRESS December 03, 2003
The lawsuit contended that most board members had conflicts of interest because of numerous side deals with the company and Mr. Scrushy.
2 Step Down From Board of Troubled Health Chain The New York Times December 16, 2003
There were in fact many changes in management and to the board in the following few years. Some staff had already gone. It is interesting that they brought in a senior HCA executive, Joe Grinney, as CEO. It is worth noting that he worked for HCA between 1990 and 1996 during which period HCA perpetrated a US $1.7 billion fraud. He had experience of a big corporate fraud and how to settle when it was discovered.
The head of HealthSouth's corporate compliance program, which failed to prevent the massive fraud that has embroiled the rehabilitation giant in controversy, has quit.THE COMPANY announced the resignation Wednesday of Brandon O. Hale, an executive vice president and corporate secretary whose duties included oversight of the corporate integrity program.
HealthSouth said its longtime general counsel, William Horton, also had resigned.
More HealthSouth executives resign : Compliance chief, general counsel both step down msnbc.com (Associated Press) October 1, 2003
Meanwhile, HealthSouth's former CFO, William Owens, has resigned from the company's board - - - - - .
HealthSouth says one legal trouble nearly over Modern Healthcare's Daily Dose Oct. 9, 2003
Former Blockbuster Entertainment Group CEO Steven R. Berrard and another executive were named to fill vacancies on the revamped board of HealthSouth, the company said Monday.Berrard and Edward A. Blechschmidt, a former chief financial officer at Unisys Corp. who also served as chairman and chief executive of Gentiva Health Services, were named as independent board members, said interim chairman Joel C. Gordon.
HealthSouth Board Fills Two Vacancies newsday.com (Associated Press) February 2, 2004
HealthSouth Corp., Birmingham, Ala., named the president of HCA's Eastern Group hospital unit, Jay Grinney, as its CEO, effective May 10.
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Grinney joined HCA in 1990 and has been president of its 91-hospital, 10-state Eastern Group since 1996. He is a former chairman of the Federation of American Hospitals.
HealthSouth's new CEO knows corporate overhauls Modern Healthcare May 3, 2004
Jay Grinney, 53, who led a 100-hospital division of HCA Inc., was unanimously elected by HealthSouth's board to become the company's new president and chief executive officer. The move was effective May 10, a week after it was announced.
HealthSouth taps HCA exec to take over company helm : The new CEO has experience with corporate overhauls. amednews.com May 24/31, 2004
In that job, Grinney helped rehabilitate HCA, the nation's largest for-profit hospital chain, after the company settled federal charges that it overbilled Medicare and Medicaid and paid kickbacks to doctors to refer patients to HCA hospitals. Nashville, Tenn.-based HCA ended up paying the government $1.7 billion.Grinney, in an interview with The Associated Press, said the experience taught him it is best to disclose everything once trouble starts.
Interview: New HealthSouth CEO Seeks LA Times (Associated Press) June 9, 2004
HealthSouth Corp., Birmingham, Ala., again drew from HCA's pool of top executives for its new management team, naming Mike Snow, president of HCA's $2 billion Gulf Coast Division, as its new chief operating officer, effective June 30.
HealthSouth taps HCA executive as new COO Modern Healthcare June 23, 2004
HealthSouth Corp., Birmingham, Ala., named Robert May, its former acting chief executive officer, as chairman of its board, a move that's been expected for several days.
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HealthSouth also said that Charles Elson, an expert in corporate governance, has agreed to join the company's board as of Sept. 1. Elson, 44, is director of the John L. Weinberg Center for Corporate Governance at the University of Delaware and vice chairman of the American Bar Association's Committee on Corporate Governance. He has been an adviser to HealthSouth since January 2002.
HealthSouth names May as new chairman Modern Healthcare June 30, 2004
Two top executives resigned from HealthSouth Corp., Birmingham, Ala. -- Larry Taylor, 46, president of the company's surgery division, and Patrick Foster, 58, president of inpatient services. HealthSouth said the men were not dismissed but were leaving to pursue other opportunities.
Senior-level turnover continues at HealthSouth Modern Healthcare August 3, 2004
The company, which had been criticized for its corporate governance before the accounting scandal came to light, appointed Lee Higdon and Dr. John Maupin Jr. to its board.Higdon is president of the College of Charleston in Charleston, S.C., and Maupin is president and CEO of Meharry Medical College in Nashville, Tennessee.
Higdon, a former vice chairman at Salomon Brothers, was previously president of Babson College in Wellesley, Massachusetts,
HealthSouth names two directors Reuters Aug 17, 2004
HealthSouth Corp., Birmingham, Ala., named John Workman as its chief financial officer, replacing acting CFO Guy Sansone, who works with the turnaround firm Alvarez & Marsal. - - - - - Workman, 53, was previously the chief executive officer of U.S. Can Corp., a can manufacturer. Workman also had served as U.S. Can's CFO before leaving the company earlier this year.
HealthSouth hires new CFO Modern Healthcare September 7, 2004
HealthSouth Corp. has appointed Yvonne Curl to its board of directors as well as the board's special committee.Curl served as chief marketing officer of Avaya Inc. from October 2000 through April 2004, where she was responsible for the strategic and operational management of Avaya's global marketing organization.
Yvonne Curl joins HealthSouth board The Birmingham Business Journal November 22, 2004
HealthSouth Corp., Birmingham, Ala., said Joel Gordon voluntarily resigned from its board effective May 10, leaving just two directors -- Robert May and Jon Hanson -- who were with HealthSouth before March 2003, - - - .
HealthSouth's pre-scandal board members drop to two Modern Healthcare April 18, 2005
HealthSouth Corporation (OTC Pink Sheets: HLSH) today announced the appointment of L. Edward Shaw Jr., 60, and Donald L. Correll, 54, to its board of directors and to the special committee of its board of directors, effective immediately. Shaw currently serves as of counsel in the New York office of Gibson, Dunn & Crutcher LLP, an 800-person global law firm, and is an independent counsel to the board of directors of the New York Stock Exchange. Correll currently serves as president and chief executive officer of Pennichuck Corporation (NASDAQ:PNNW) , a water services organization and New Hampshire's oldest continuously operating company.
HealthSouth Appoints Two New Members to Board of Directors Birmingham Business News July 5, 2005
HealthSouth Corp. chairman Bob May, who led the rehabilitation chain through the fallout of a massive accounting scandal, has resigned and is being replaced by another director.In a statement, the company said Jon Hanson would replace May, who was named to the HealthSouth board in 2002 after allegations of insider trading and questionable billing sent share prices plunging.
HealthSouth Board Chair May Resigns LA Times (Associated Press) September 7, 2005
Jon Hanson officially assumed his role as HealthSouth Corp.'s chairman of the board Oct. 1.
HealthSouth board member assumes chairman's role The Birmingham Business Journal October 14, 2005
Richard Scrushy resigned from the board of HealthSouth Corp., Birmingham, Ala., having resisted company pressure to vacate his seat for almost three years.
Scrushy leaves HealthSouth board but may push candidate Modern Healthcare December 5, 2005
HealthSouth Corporation (OTC Pink Sheets: HLSH) announced that Dexanne B. Clohan, MD, a board- certified Physical Medicine and Rehabilitation physician, has been named its Chief Medical Officer effective April 24, 2006.
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Prior to accepting this position, Dr. Clohan had experience as a Medical Director for several well-known organizations including Aetna, Inc., Meridian Health Care Management, and Memorial Independent Practice Association. In addition, she practiced medicine with Rehabilitation Associates Medical Group and served as Director of Congressional Affairs for the American Medical Association.
HealthSouth Announces Appointment of Chief Medical Officer Birmingham News May 2, 2006
One of the directors who had been appointed resigned when he became the subject of an investigation into his activities in regard to "aggressive accounting" prior to joining HealthSouth
Lee Hillman, who led the audit committee of the board of directors at HealthSouth Corp., Birmingham, Ala., voluntarily resigned, HealthSouth said. Hillman, a HealthSouth board member since 2003, was chief executive officer until 2002 at Bally Total Fitness Holding Corp., which earlier this month accused him of "creating a culture ... that encouraged aggressive accounting." The Securities and Exchange Commission is conducting an ongoing investigation. No charges have been filed.
Amid scandal, ex-Bally chief leaves HealthSouth board Modern Healthcare February 18, 2005
This month, however, Mr. Hillman's former employer, Bally Total Fitness, accused him and another executive, John W. Dwyer, of "multiple accounting errors" that will force it to restate more than three years of earnings. (Bally also suspended severance payments it has made to Mr. Hillman since he retired in December 2002.)
HealthSouth Loses Mr. Right THE NEW YORK TIMES February 27, 2005
The company succeeded in maintaining its cash flow. Retaining the support of its doctors was the key to this. It persuaded its banks to extend deadlines or renegotiate terms.
It had a major problem when a scavenger bought up its bonds and threatened to force bankruptcy. It paid him off.
It finally updated its accounts and held a shareholders meeting in 2005. It restructured its debt in 2006 then sold off several of its divisions. It found that new Medicare regulations impacted on its profits which were adversely affected in 2006.
Unlike Tenet Healthcare this fraud occurred in the accounting department. The hospitals and services were only involved in some of the Medicare fraud. The facilities were not run down.
Although doctors started to abandon ship HealthSouth managed to persuade most to stay and it did not lose its cash flow.
In addition to concerns about bankruptcy, surgeons were bitter about corporate practices such as paying vendors late and forcing centers to buy equipment from companies associated with Mr. Scrushy or his family. Mr. Gordon worked to pacify the doctors, some of whom he had brought into HealthSouth. Through the spring, he and a senior executive flew to more than 15 cities, meeting with the surgeons. Mr. Gordon told them they would get enough cash to pay employees and vendors. The company also separated partnership funds from other revenue in case HealthSouth filed for bankruptcy."We had to assure them that their money was safe," Mr. Gordon says. The effort paid off when surgeons began to back off the idea of leaving HealthSouth.
HealthSouth seeks recovery from raid, scandal The Associated Press Oct 21, 2003
Grinney said the ambulatory surgery division was the worst hit by the accounting scandal which broke in March of 2003. "Physicians left," he said. "Physicians were embarrassed and wanted nothing to do with HealthSouth."But he said the company had done an excellent job of repairing relationships with physicians and continues to mend fences. The company plans to open new facilities in four states. The division's revenues of $231.7 million were 4 percent above projections.
HealthSouth 1Q earnings exceed estimates Seattle Post-Intelligencer June 30, 2004
The HealthSouth sign was removed without fanfare from the Surgery Center of Des Moines shortly after federal investigators seized truckloads of financial records at the company's headquarters in Birmingham, Ala., two years ago. But the doctors at the Des Moines clinic are still partners with the big national health care chain, doing more cataract and plastic surgery procedures than ever, they say.With the help of doctors like the Iowa group and cash from patients around the country, HealthSouth has survived a business and public relations nightmare that began two years ago when the Justice Department and the Securities and Exchange Commission accused the company of accounting fraud totaling $2.6 billion.
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The fraud scandal was taken as a betrayal of trust by many of HealthSouth's 49,000 employees, now reduced to 44,000. The number of physician-partners has dropped to about 3,300 from 3,500 in March 2003. Some doctors who left were persuaded to return as the dust settled. Without audited financial statements, it was difficult to recruit replacements for the surgery clinics.
Vital Signs Return to HealthSouth The New York Times January 27, 2005
The Lenders cooperate (except bond holders - see later)
HealthSouth Corp., Birmingham, Ala., said it has caught up on $117 million in past due interest payments and intends to keep current with upcoming payments as they come due. The company said asset sales and improved cash flow from its operations allowed it to generate a cash reserve of $445 million before the interest payments resumed.
HealthSouth current on interest payments Modern Healthcare's Daily Dose August 12, 2003
HealthSouth Corp., the operator of rehabilitation centers entangled in an accounting scandal, said on Thursday its lenders would allow it to pay interest on its debt, taking it one step further away from a possible bankruptcy filing.
HealthSouth permitted to pay interest on debt Reuters August 27, 2003
HealthSouth is reorganizing its businesses after defaulting on bond payments and a bank loan agreement. The company is trying to avert a bankruptcy filing, and it made $117 million in past-due payments this month under various borrowing agreements. HealthSouth owes bondholders and bank lenders more than $3.3 billion.
HealthSouth Executive Admits to Falsifying Taxes The New York Times August 28, 2003
In a restructuring unrelated to the personnel moves, HealthSouth said it was dividing its ambulatory services division into two divisions - outpatient rehabilitation and diagnostics. HealthSouth said the move would let it place more emphasis on its 127 diagnostic imaging centers.
More HealthSouth executives resign : Compliance chief, general counsel both step down MSNBC News (ASSOCIATED PRESS) October 1, 2003
HealthSouth Corp., which has been plagued by investigations into its accounting practices, said more than 130 of its outpatient therapy locations will be added to Cigna HealthCare's network of service providers under a new three-year contract.
HealthSouth Adds 130 Locations to Cigna Associated Press November 20, 2003
There was an interesting development when what is known as a scavenger company started buying up HealthSouth bonds at bargain prices until it held a majority. Because HealthSouth was technically in breach of its bond agreements by not submitting audited accounts these groups could now force HealthSouth into bankruptcy. They commenced court actions demanding accelerated payments. What they were negotiating for was for HealthSouth to buy them off by paying a premium. The matter was eventually resolved by HealthSouth paying more.
This sort of conduct should not surprise us. This is the ruthless way in which the corporate market works. What is health care doing here? What are the consequences of such a ruthless dog eat dog environment for care?
The company still owes $344 million of principal to bondholders, payments it missed in April. Those bondholders are up-to-date on interest payments.
The Birmingham News Oct. 03, 2003
The problem: HealthSouth hasn't filed any financial statements in a year, which qualifies on paper as a default. The notice means the senior bondholders could, after a 60-day grace period, begin to ask for all their money back. Given that they're owed $2.7 billion, senior bondholders might even push the company into involuntary Chapter 11 bankruptcy.
HealthSouth Takes a Turn for the Better Business Week Online NOVEMBER 7, 2003
A court barred certain HealthSouth Corp. creditors from accelerating the repayment of bonds, a move that the rehabilitation and surgery center chain said would protect its ongoing financial recovery after a multibillion-dollar accounting scandal. HealthSouth said it requested the temporary restraining order from the Circuit Court of Jefferson County, Ala., to prevent bondholders from demanding immediate repayment of $2.7 billion. The company said it hoped to reach alternative agreements with the lenders.
HealthSouth creditors ordered to back off for now Modern Healthcare's Daily Dose Mar. 12, 2004
HealthSouth Corp. bondholders say the Birmingham company has no legal right to prevent them from forcing accelerated payments on its bonds even if the move means bankruptcy for the struggling health care giant.
Bondholders dispute HealthSouth payment claims in court documents The Birmingham News March 30, 2004
HealthSouth is soliciting consents from its creditors to get waivers to that portion of the bond agreements and is offering to pay $10 in cash for each $1,000 in principal on the bonds."We say they've offered too little," said William Brooks, an attorney for the creditors.
Judge extends HealthSouth restraining order 10 days Reuters Mar 30, 2004
He said HealthSouth could still continue to negotiate with the bondholders, could obtain consent from 51 percent of the bondholders to reverse the acceleration or could refinance the debt.
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However, he conceded that each bondholder group has the power to act on its on and force acceleration if it owns 25 percent or more of any of the groups of bonds.
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He said HealthSouth's financial scandal has made the company a greater credit risk, making the bondholders entitled to greater compensation for continuing to carry the notes.Though HealthSouth is current in its payments to the bondholders, they have declared the company to be in technical default because it has been unable to file quarterly or annual financial statements with the Securities and Exchange Commission.
Bondholders assert HealthSouth could pay them, avoid bankruptcy The Birmingham News April 1, 2004
Jefferson County District Court Judge Allwin Horn on Wednesday refused HealthSouth's request for a preliminary injunction and dissolved a temporary restraining order blocking the bondholders from taking action on the debt.
HealthSouth, bondholders back at negotiating table Modern Healthcare's Daily Dose Apr. 15, 2004
Evidence in the case showed HealthSouth had offered bondholders a premium of 1 percent to waive the right to accelerated repayments, while creditors sought as much as 11 percent.
HealthSouth Loses Bid on Bond Repayments The Mercury News (Associated) Apr. 15, 2004 Press
HealthSouth said it received consents from at least 50.1 percent of the holders of its 8.5 percent notes due in 2008. The company has offered $13.75 for every $1,000 of the company's notes, held primarily by large institutional investors such as banks, mutual funds and hedge funds.
Some bondholders accepting cash offer, HealthSouth says www.nj.com (Associated Press) May 14, 2004
A majority of two groups of HealthSouth Corp. (HLSH.PK: creditors on Thursday rejected as inadequate the scandal-ridden company's offer to pay noteholders in exchange for waiving a default from last year.The Birmingham, Alabama-based company needs consent from a majority of each group of its noteholders to avoid default. A default could eventually force HealthSouth into bankruptcy.
HealthSouth Creditor Groups Reject Offer Reuters May 20, 2004
Last week, more than 100 HealthSouth shareholders -- many of them retail investors united through an Internet stock board -- officially urged the company to investigate a major fund manager who has made a name for himself by profiting from distressed companies.
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Embler is known as an aggressive scavenger who favors the debt of struggling companies like Qwest and WorldCom. His fund scooped up HealthSouth bonds early last year, when the healthcare chain revealed a multibillion-dollar accounting fraud, and has since assumed a prominent role in a bondholder fight against the company. His group is seeking a big wad of cash to keep them from accelerating debt payments -- and triggering a possible bankruptcy -- under a technical default caused by the company's lack of audited financial statements. The group, known as the Unofficial Committee of Bondholders, has so far refused HealthSouth's cash offers as "clearly insufficient" and has accused the company of employing "strong-arm tactics" instead of negotiating in good faith with its creditors.
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"It appears that Embler and Franklin undertook [their] actions pursuant to a carefully crafted plan to extort money from the company," wrote Bryan Prewitt of Zimmer Park Advisors. "It is our view that the demands being made by the UCB, which acts on behalf of a small number of bondholders, would greatly enrich this group at the expense of stockholders, the employees and the patients of the company."
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Prewitt says the bondholders are seeking roughly $300 million -- almost half of HealthSouth's cash -- to compensate them for a default that was already in place when they invested in the company. He also suspects that Embler, who personally sold HealthSouth stock just before seeking a lead role in the bondholder fight, may have unfairly traded on insider information.
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HealthSouth, which questioned the fund manager as it sought an injunction against the possible acceleration, established that Embler was aware of the company's lack of audited financials -- a trigger for default -- when he bought the bonds.
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Moreover, the lawyers got Embler to admit that he "probably" examined specific language that allows big bondholders -- owning at least 25% of a certain class of notes -- to accelerate payment during a time of default.
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Nevertheless, bondholders are asking for an 11% make-whole premium totaling $253 million -- compared to 1.4% offered by the company -- to resolve the current dispute.
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"We have the right to demand anything we want to cure the default," Embler told HealthSouth attorneys bluntly. "The company is already in trouble with us. What we came in to do is try to work with the company to complete their journey out of trouble with us."One attorney immediately shot back by asking, "Is this not a form of extortion?"
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Prewitt, for one, is sickened. He says Embler's group has already "made out like bandits" by doubling their money on HealthSouth bonds but, nevertheless, keep asking for more under a technical default they are trying to exploit."Once you know the whole story, it will turn your stomach," Prewitt said. "It's a nasty scenario.
Vulture Vexes HealthSouth Shareholders The Street.com (Melissa Davis) May 27, 2004
The scandal-plagued operator of rehabilitation and surgery centers said debtholders have agreed to accept as much as $45 per $1,000 of principal amount of debt. Previously the company had offered $13.75. Noteholders have accepted a range of payments starting at $30.
HealthSouth ups payment to settle debts Reuters June 8, 2004
HealthSouth will pay the bondholders $73 million to $80 million and give them the opportunity to redeem some of the bonds early in a restructuring of $2.6 billion of debt.
HealthSouth Reaches an Agreement With Its Bondholders The New York Times June 9, 2004
HealthSouth Corp., which is grappling with an accounting scandal and a default on its debt, will make its $50 million interest payment due in December, acting Chief Financial Officer Guy Sansone said on Friday.The cash position of the provider of rehabilitation and outpatient care has increased to more than $500 million from $117 million since March, Sansone told the Reuters Health Summit in New York.
Healthsouth to make Dec interest payment Reuters November 21, 2003
HealthSouth's stock and bonds have recovered their value in recent months. HealthSouth shares traded at $5.93 on Tuesday, which is far above its price of a dime in late March 2003.HealthSouth is current on all of its payments under its borrowing agreements that cover more than $3 billion of debt.
HealthSouth Fraud Larger Than Estimate Reuters January 20, 2004
Although it has not published audited numbers since the fraud became known, HealthSouth was able to obtain a $355 million seven-year loan at 10.375 percent on Friday from its current banker, Credit Suisse First Boston. The proceeds from the new bonds, which were trading above par yesterday, went to pay off convertible bonds overdue since April.
HealthSouth Audit Finds as Much as $4.6 Billion in Fraud The New York Times January 21, 2004
HealthSouth Corp. on Wednesday reported first quarter results that were better than its expectations and said it was on track to achieve 2004 income goals.
HealthSouth 1Q earnings exceed estimates Seattle Post-Intelligencer June 30, 2004
HealthSouth Corp. (HLSH.PK:, which is attempting to overcome an accounting fraud scandal, on Monday said it completed a $715 million debt refinancing that cures all defaults under its existing debt.
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HealthSouth, which is based in Birmingham, Alabama, said the amended and restated credit facility provides for a $315 million term loan, a $250 million revolving line of credit and $150 million in letter of credit facilities.
HealthSouth completes $715 mln debt refinancing Reuters Mar 21, 2005
HealthSouth Corp. said on Wednesday it will launch a $150 million senior unsecured credit facility that it will use to partially refinance the company's $245 million 6.875 percent senior notes, which are due June 15, 2005.
HealthSouth says to use credit facility to repay debt Reuters May 25, 2005
No more stock options for directors
Ending a practice that may have provided motive for a huge accounting fraud, HealthSouth Corp. said Friday it would quit giving its directors stock options.
HealthSouth ends stock options for execs The Boston Globe (Associated Press) January 23, 2004
Analysts say it will be years before the health services company completely puts the scandal behind it, but they say it has made substantial progress."I think it's amazing they kept the thing out of bankruptcy," said Tom Singleton, president of Cambio Health Solution, a Brentwood-based consulting firm specializing in hospital turnarounds.
Since the scandal broke two years ago, HealthSouth has avoided bankruptcy by refinancing debt and selling assets, including 11 of 13 corporate planes, for cash.
New HealthSouth leaders repairing wounds The Tennessean May 29, 2005
Accounts checked and audited at last
HealthSouth Corp., Birmingham, Ala., issued a restatement of its earnings for 2000 and 2001 and filed complete fiscal-year earnings for 2002 and 2003 for the first time. In 2003, HealthSouth lost $434.56 million, or $1.10 per share, on revenue of $3.96 billion and in 2002 the company lost $466.82 million, or $1.18 per share, on revenue of $3.96 billion. The company decreased its 2001 revenue by $827 million to $3.55 billion and HealthSouth lost $191.2 million, or 49 cents per share, instead of making previously stated $202.4 million, or 51 cents per share. For 2000, the company decreased revenue by $697 million to $3.5 billion and lost $364.2 million, or 94 cents per share, instead of gaining $278 million, or 71 cents per share. The Justice Department said the company faked its income by $576.03 million in 2001 and $348.95 million in 2000, in a superseding indictment against the company's founder and former chief executive officer, Richard Scrushy.
HealthSouth restates 2000, 2001 earnings; reports 2002, 2003 earnings Modern Healthcare June 28, 2005
HealthSouth Corp., Birmingham, Ala., at last issued a 2004 earnings report and said its losses had narrowed, but the company expects to report lower operating results this year and next because of Medicare's "75% rule," lower volume, payer pressure and competition. HealthSouth delayed the 2004 report to adjust financials to reflect massive accounting fraud. The company said it had an operating loss of $142 million and a net loss of $174.5 million on revenue of $3.75 billion in 2004.
HealthSouth issues '04 report, readies for meeting Modern Healthcare December 2, 2005
Frank Morgan, an analyst at Jefferies & Company, said HealthSouth would have opportunities to pay down debt, using about $300 million in income tax refunds from overpayments on inflated numbers during the fraud years. "While they faked their financial statements, they actually paid their taxes on those numbers," Mr. Morgan said.
A Trial Ends, but the Tribulations and Hard Feelings at Headquarters Don't Abate The New York Times June 29, 2005
First shareholders meeting held December 2005
Leaving behind what he calls the "cleanup" phase, HealthSouth Corp. president and CEO Jay Grinney told shareholders Thursday the company still faces a long and costly road to financial recovery, but progress toward that goal has been undeniable in the past 18 months.The health-care rehabilitation giant convened its first shareholders meeting in almost four years to elect or re-elect board members, and to discuss financial rebuilding strategies in the wake of a six-year, $2.7 billion fraud perpetrated by former management.
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Hanson and Grinney were among the 10 directors re-elected formally during Thursday's meeting. The complete slate also includes Steven Berrard, Edward Blechschmidt, Donald Correll, Yvonne Curl, Charles Elson, Leo Higdon, John Maupin Jr. and L. Edward Shaw Jr.
HealthSouth's Grinney says financial rebirth costing millions The Birmingham Business Journal December 29, 2005
Restructuring its debt in 2006
The Birmingham, Ala., clinic chain said its plan calls for $2.55 billion of senior secured credit facilities and a $1.3 billion senior unsecured interim loan. The company anticipates refinancing the $1.3 billion senior unsecured interim loan in the first or second quarter of 2006 through an issuance of predominantly debt securities, as well as equity securities.The Birmingham, Ala., clinic chain said its plan calls for $2.55 billion of senior secured credit facilities and a $1.3 billion senior unsecured interim loan. The company anticipates refinancing the $1.3 billion senior unsecured interim loan in the first or second quarter of 2006 through an issuance of predominantly debt securities, as well as equity securities.
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In connection with the recapitalization, HealthSouth will announce a cash tender offer to purchase all $2.03 billion of outstanding senior notes and $319 million senior subordinated notes. The company also announced it is requesting amendments to its $200 million senior unsecured term loan and $355 million senior subordinated term loan credit agreements to, among other things, allow for the prepayment of each of these term loans, which the company also intends to prepay along with its other indebtedness.
HealthSouth Plans Recapitalization The Street.com February 2, 2006
Completing what its CEO calls "another major step in HealthSouth's efforts to put our past behind us," the outpatient surgery and rehabilitation health-care company announced Friday it has completed an extensive restructuring of its debt.
HealthSouth replaces billions in prior debt with less restrictive bank financing Birmingham Business Journal - March 10, 2006
The Birmingham, Alabama-based company will sell bonds, including 10-year notes that pay coupons between 10.5 percent and 10.75 percent, said a person familiar with the sale. It paid 7.625 percent when it last sold 10-year notes in 2002.
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Proceeds will be used to repay a $1 billion loan taken out in March as part of a $3.8 billion debt refinancing arranged by Merrill Lynch, JPMorgan Chase & Co. and Citigroup Inc. HealthSouth pays a rate of 4.5 percentage points over the London interbank offered rate on the loan.
HealthSouth Pays Price in Bond Market for 2003 Accounting Fraud Bloomberg News June 8, 2006
Troubled rehabilitation chain HealthSouth Corp. on Wednesday reported a much bigger loss for 2005, largely on a previously disclosed $215 million noncash charge.
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The charge related to a global, preliminary agreement in principle to settle litigation and other restructuring costs, the company said.
HealthSouth annual loss widens on charge Reuters March 29, 2006
Selling off large sections of the company
As losses continued into 2005 and 2006 HealthSouth sought to sell or spin off some of its money losing operations. It did so in 2007 with the surgery centres going to private equity. This will allow it to pay down a third of its by now restructured US $3 billion debt.
HealthSouth has retained Deutsche Bank AG to consider options for the unit, which consists of 101 diagnostic centers in 26 states. Sources said it could fetch between $150 million and $200 million for HealthSouth, which is seeking to delever its balance sheet.
HealthSouth may sell diagnostics The Deal May 23, 2005
HealthSouth, which grew into a huge rehabilitation chain but is realigning its business to concentrate on post-acute care, is moving ahead with the planned divesture of its outpatient rehabilitation division, its diagnostic division and its surgical centers, Hanson said.
HealthSouth to rejoin New York Stock Exchange next week Miami Herald (Associated Press) Oct. 18, 2006
Rehabilitation chain HealthSouth Corp. said Monday it has agreed to sell its surgery division for about $920 million in cash plus a stake in the surgery business, its second major divestiture this year as it restructures after a major financial scandal.The sale to TPG, a private equity firm, includes an equity stake in a newly formed company that will operate the surgery business.
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In January, HealthSouth agreed to sell about 600 outpatient rehabilitation centers to Select Medical Corp. for $245 million.
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Some of HealthSouth's senior management team, including chief operating officer Mike Snow and the president of the surgery division, Joe Clark, will leave HealthSouth to join the newly formed company, which is expected to remain headquartered in Birmingham.
HealthSouth sells surgery business Tulsa World (Associated Press) March 27, 2007
Relisting on New York stock exchange
HealthSouth relists on the stock exchange in october 2006. Even though it is not making much money, market confidence pushes its share value to about $23 within months.
Also, the company said it will resubmit to be listed on the New York Stock Exchange, and announced a one-for-five reverse stock split. The company has about 398.2 million outstanding shares that would consolidate into 80 million shares.
HealthSouth Considering Sales, Spinoff Forbes (Associated Press) August 14, 2006
Medical services provider HealthSouth Corp. said Wednesday it would rejoin the New York Stock Exchange next week, 3 1/2 years after it was delisted amid revelations of a $2.7 billion accounting fraud.
HealthSouth to rejoin New York Stock Exchange next week Miami Herald (Associated Press) Oct. 18, 2006
HealthSouth shares fell 28 cents, or 1.2 percent, to close at $22.59 on the New York Stock Exchange.
HealthSouth sells surgery business Tulsa World (Associated Press) March 27, 2007
2006/7 Medicare rulings impact earnings
"The overall operating trends continue to deteriorate," said Frank Morgan, an analyst at Jefferies & Co. "Almost all business segments are negative."Recent new rules under Medicare, the federal health insurance program for 43 million elderly and disabled, have restricted the types of patients that quality for reimbursement at its rehabilitation facilities, and depressed HealthSouth revenues.
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The company was relisted on the New York Stock Exchange in mid-October. Its CEO has said he expected the company to be profitable in the first half of 2007, once it divests three of its units.
HealthSouth loss widens after charges Washington Post (Reuters) November 9, 2006
Medicare regulations requiring rehab hospitals to serve a larger number of acute hospitals make some businesses unviable
HealthSouth Hospital of Terre Haute is closing Oct. 4, which will affect about 80 full-time and 25 part-time employees, a hospital spokesman said Monday.
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"This was strictly a decision driven by the new … rule that only 25 percent of patients can come from one hospital," Warfuel (director of marketing) said.Most of HealthSouth's patients come from Union and Terre Haute Regional Hospital. He estimated about 50 percent come from Union, 30 percent from Regional and the remainder from other acute care hospitals.
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Had HealthSouth of Terre Haute stayed open next year, the new federal rule and changes in Medicare reimbursement would have meant "a negative impact to our bottom line of $1.8 million," Warfuel said.
Law forces HealthSouth to close The Tribune-Star August 7, 2007
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This page first created Oct 2007 by
Michael
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