SEC investigates HealthSouth, former CEO Scrushy

The outpatient giant is reeling from allegations it overstated income, although physicians have not yet noticed any problems affecting delivery of care.

By Katherine Vogt, AMNews staff. April 21, 2003.

What was supposed to be HealthSouth's flagship high-tech hospital sits half-built in Birmingham, Ala., a 13-story monument to the outpatient services giant's apparent hubris and scandal.

At least eight HealthSouth executives have agreed to plead guilty to charges related to federal allegations that the company overstated earnings by $2.5 billion since 1997, which would put the company in the same corporate-scandal league as noted scofflaws Enron, WorldCom and Tyco.

The Securities and Exchange Commission on April 3 charged HealthSouth founder Richard Scrushy with insider trading, alleging he netted $175 million from selling stock whose shares were puffed up by the inflated earnings. The SEC says it would seek as much as $786 million in restitution and damages from Scrushy. Separately, the SEC also has sued Scrushy -- fired as HealthSouth's chair and CEO on March 31 -- claiming the fraud was done at his urging. Scrushy's lawyers have denied the charges.

HealthSouth says its troubles have not affected patient care, and physicians say they have noticed no changes. The company has cut 165 jobs, but all were nonclinical positions at its Birmingham headquarters. Still, HealthSouth's slide toward scandal has caught the attention of physicians.

"We can only guess what may or may not happen," said Lowry Jones, MD, an orthopedic surgeon in suburban Kansas City, Kan., and a former board member of the American Academy of Orthopedic Surgeons. "Quality still remains high, so we don't really have a concern for our patients.''