Finance Essay

3961 Words 16 Pages
HealthSouth Corporation: Fraud, Greed and Corporate Governance

Manmohan D. Chaubey, Ph.D. The Pennsylvania State University One College Place Du Bois, PA 15801 (USA) Tel: 814-375-4846 Fax: 814-375-4784 Email:

Case for ICMC2006 International Conference on Management Cases 4-5 December 2006 IMT Ghaziabad, India

HealthSouth Corporation: Fraud, Greed and Corporate Governance
During the 1990s, Richard M. Scrushy, the former CEO of HealthSouth Corporation, engineered many acquisitions of rehabilitation clinics, outpatient surgical care operators, nursing homes and other health care companies. In 2003, the Securities and Exchange Commission (SEC) accused the company and Scrushy of inflating earnings to the tune of $1.4
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He studied at University of Alabama, Birmingham and graduated with a degree in respiration therapy in 1974. After graduation he became an instructor at UAB. In 1979, Scrushy left the academia and took up a position at a Texas health care management firm. The firm was sold in 1983 and Scrushy

decided to go on his own with a new business idea. In 1984, with help from some friends and an initial investment of $50,000, he founded HealthSouth in Little Rock, Arkansas. In 1985 he moved the company to Birmingham, Alabama (Heylar, 7/7/03). HealthSouth went public in 1986. Richard Scrushy spotted certain trends that he incorporated in his very successful business model for HealthSouth. These trends were: Lower reimbursement for medical care, new emphasis on rehabilitation as opposed to surgery, the need to get employees back to work faster, and the absence of brand names in health care. He also wanted his rehabilitation centers to look more like upscale clubs than a hospital. He used his super sales skills, boundless energy and entrepreneurial skills in setting up clinics, making acquisitions and expanding the company. He concentrated on acquiring contracts with managed care operations and self-insured companies for workers’ compensation rehabilitation. He focused individual facilities on specific ailments. To keep costs down, he standardized the physical layouts of his facilities and used same

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