News in brief - April 14, 2003

HealthSouth CEO ousted - Mass. Blues wants corporate change - Cholesterol drug clogs sales time

HealthSouth CEO ousted

HealthSouth on March 31 announced that it had fired Richard Scrushy, the company's founder and CEO, and had removed him as board chair.

This comes amid allegations of fraudulent accounting practices at the highest levels of the Birmingham, Ala.-based company.

The company, which has asked Scrushy to relinquish his place on the board completely, also has nullified Scrushy's employment contract.

HealthSouth, the country's leading provider of diagnostic imaging, outpatient surgery and rehabilitative care, has been under federal investigation in connection with accusations that top HealthSouth executives inflated the company's earnings by $1.4 billion since 1999.

William Owens, HealthSouth's chief financial officer, was fired March 27 after he pleaded guilty to wire fraud, securities fraud and filing false information with the Securities and Exchange Commission.

The company also is being investigated for alleged Medicare fraud.

Mass. Blues wants corporate change

Blue Cross and Blue Shield of Massachusetts wants to undergo a conversion, but unlike other Blues plans nationwide, it's not seeking for-profit status.

Instead, the state's largest insurer wants Massachusetts to license its HMO as a wholly owned, nonprofit unit so that it would not have to pay a 20% federal income tax that Blues plans have been required to pay since 1986.

Those savings would give the company "regulatory parity," including tax advantages comparable to other nonprofit HMOs in the state, such as Tufts Health Plan and Harvard Pilgrim Health Care, said Peter Meade, the Massachusetts Blues' executive vice president.

Those HMOs are not obligated to pay the federal tax because they aren't owned by Blues plans. In passing the Tax Reform Act of 1986, Congress took away Blues plans' exemption from federal taxation, recognizing that many Blues companies had started to operate very much like private corporations.

But the Internal Revenue Service generally has allowed nonprofit HMO subsidiaries of those plans to be tax- exempt as 501(c)(3) or 501(c)(4) corporations as long as they are distinct corporate units.

The structural change, if approved by the state, would have no effect on the benefits offered as part of the Blues plan's various HMO products and probably would not be noticeable to patients or physicians, Meade said, except that the tax savings would allow Blue Cross to lower premiums on its HMO products. The reduction will be an average of nearly 1%, though it will vary from employer to employer, he said.

Cholesterol drug clogs sales time

The new drug Zetia (ezetimibe) was the most marketed cholesterol-lowering pharmaceutical to physicians during its first three months on the market, according to a report by Health Products Research Inc., a Whitehouse, N.J.-based market research company.

Targeting mostly family physicians, pharmaceutical sales representatives from Zetia's manufacturer, Merck/Schering-Plough Pharmaceuticals, made more than 427,000 product presentations to doctors between November 2002 and January, according to the report. Zetia was the most promoted drug in 16 of 22 geographic areas covered in the report.

Cholesterol-lowering drugs were third overall in terms of products marketed to physicians, trailing COX-2 inhibitors and antidepressants, according to the report.