Groups protect themselves from HealthSouth woes

Affiliates of the troubled rehab giant are hiring attorneys, reviewing contracts and considering dropping the name because of alleged accounting misdeeds.

By Katherine Vogt, AMNews staff. May 12, 2003.

If HealthSouth sinks into bankruptcy, physicians who do business with the outpatient services giant don't want to be cast overboard without a lifeboat.

Concerned that a massive accounting scandal is threatening HealthSouth's financial solvency, some physician partners are taking steps to distance themselves from the company and protect their practices. They have talked to attorneys, reviewed partnership documents and even considered removing the HealthSouth name from their facilities.

While they remain confident in the care patients receive at HealthSouth facilities, several physicians say it makes good business sense to prepare for the worst.

"If the company goes bankrupt tomorrow, we've got to be ready to take action right away," said Dennis G. Pappas Jr., MD, a neurotologist and board member of the HealthSouth Outpatient Care Center in HealthSouth's hometown of Birmingham, Ala. He is part of a physician group that owns 49% of the center and has hired an attorney to review its contract with HealthSouth.

Federal investigators have accused HealthSouth and its former chair and chief executive, Richard M. Scrushy, of overstating earnings by $2.5 billion since 1994. At least 11 executives have agreed to plead guilty to criminal charges since allegations of fraud were first announced in March. Scrushy was fired, and the Securities and Exchange Commission is investigating him for alleged insider trading and other civil charges related to what it called a $1.4 billion inflation of earnings since 1999. No criminal charges have been filed.