Scrushy-Report.com

 

“We have a proactive business strategy. Hal, you may not have noticed, but I built this company on an idea and a business card. I promise I have a plan my friend.
        Thanks rs”

--From email sent by Richard M. Scrushy to his attorney, after the HealthSouth scandal broke, and while they were discussing damage-control strategy.  The company that “he built” was the same company that he would later claim he had no knowledge of what his top executives were doing. He was just the CEO.

The HealthSouth Story:  From Dream to Nightmare

A young, ambitious kid, after working his way from a respiratory therapist to an executive at the Houston based healthcare company, Lifemark, starts a company that is designed around exploiting changes in the way Medicare is billed.  A new market of healthcare is created because the billing for hospital procedures is now defined and capped by the diagnosis, and not by the individual procedures. These changes do not apply to rehabilitation, and so hospitals are looking for ways to get patients out faster. At the same time, the baby boomer generation is more active and is more prone to sports injuries, which coincidentally generally require various rehabilitation services, so HealthSouth enters this arena as well. The new company is also well positioned to offer services to one of Medicare’s cousins, occupational medicine, or medical services paid for by workman’s comp. It was a heady idea, and it came at a crossroads, a place where 80's-style entrepreneurship would meet a sagging health care system, and both would intersect an increasingly dominant insurance industry, along with the government programs of Medicare and workman's comp. As a young kid with dreams, his visions of grandeur and importance would one day mature, with his company, into full blown narcissism.

Richard Scrushy, the young businessman, hand picks four other founders from his colleagues at Lifemark, and begins to line up venture capital. Two of the early lenders are Sage Givens and Charles Newhall, who would be long-time board members at HealthSouth. The board, at HealthSouth, would always be stacked with ardent Scrushy associates and supporters, and would include members who were also on the boards of various HealthSouth subsidiaries. Although more ethically questionable than illegal, it is easy to see how this created an environment where the interests of the stockholders would be subordinate to the interests of Richard M. Scrushy.

The company grows rapidly, and they are looking to go public while expanding into all 50 states before conquering the rest of the world. The goal is to be the first branded health care system, and to do this, they attempt to consolidate and expand their offering via a series of increasingly large mergers. HealthSouth wants to offer one-stop shopping that will cover all medical needs, including diagnostics, surgery, pharmaceuticals and insurance; along with their initial scope of rehabilitation, sports and occupational medicine. At all stops along they way, their growth is trumpeted and laurels are heaped upon Richard Scrushy, as a visionary.

As a prelude to going public, in 1986, HealthSouth conducted an outside audit, but the auditors were not convinced that the books were reliable. These auditors were fired by Richard Scrushy, and it was becoming apparent that Mr. Scrushy had far-reaching and over-reaching demands, and he would not allow his vision to be diminished by detractors. He was quick to cast aside all criticism, and reports from inside the company, are that he ruled with autocratic authority. Years later, after the scandal broke, around the time when E&Y was also fired as the company's outside auditors, insiders were reporting an aura of fear from a CEO that micromanaged every facet of his company.

Efforts to brand the HealthSouth name were conducted on several fronts. HealthSouth created the Sports Medicine Council, which included a collection of about a dozen pro athletes, with football star Bo Jackson, as the President. The company also produced a traveling show, called “Go For It!” for kids that promoted a positive message of staying in school, staying away from drugs, and keeping physically fit. The stage show was an extravaganza that featured singing, dancing, light shows, pro athletes and speeches by motivational speakers. A version of the show was produced as a Saturday morning program on ABC’s family channel. Also featured on the show was the Orlando produced girl-band, 3^rd Faze. Richard Scrushy was listed as their manager, and it was soon clear that he hoped they would be big stars, and that he would see his protégés win a grammy in a year or two. To further this goal of becoming an entertainment mogul, Scrushy gave Sony’s Tommy Mattola 1.25 million in stock options to explore “entertainment options” for HealthSouth. Although on the surface, this foray into entertainment and music was supposed to help build the HealthSouth brand, it appears that Mr. Scrushy was pursuing his own interests with HealthSouth money. Scrushy brought in child actor, now twenty-nine, Jason Hervey, as a vice president of media communications, and he made overtures to other Hollywood insiders. Money is flowing now. There are over 1,500 HealthSouth facilities by the late 1990’s. Scrushy owns four or five mansions with his third wife (who he has given an underwear business to), and besides very large bonuses he has been receiving from HealthSouth, it begins to be unclear where the line between Scrushy’s personal hobbies and projects ends and the territory of the publicly owned HealthSouth business begins. Mr. Scrushy is not only using HealthSouth resources for the TV show and over one million on his girl group, but he is also using HealthSouth employees to manage his finances, to work on his house, and to help with other projects he has. It is hard to understand the justification for Jason Hervey’s $300,000 plus salary, a man who has no experience in the healthcare industry, or in corporate marketing. This relationship may become more clear when it appears that Hervey adopts the role of Scrushy’s young pal, and confidante, and gives Scrushy a peripheral Hollywood connection to indulge his emerging alter ego as some kind of entertainment mogul. After Scrushy is fired from HealthSouth, Hervey continues to work with him. At the same time, Scrushy is annoying his neighbors on a lake in Alabama, where he owns property, by racing around in his cigarette boat, and he has begun a process of having buildings, roads and stadiums named for him. He begins offering donations from the HealthSouth foundation, with the agreement that whatever is built with the money, will be named after him. HealthSouth also donates to various political campaigns, including $10,000 to Senator Orin Hatch.

There are clouds on the horizon for the health care industry, especially as it has been mapped out by HealthSouth and Scrushy. Health care reform is looming, and some of the reimbursement loopholes that HealthSouth was designed to exploit are being closed. Expansion is slowing, and for the first time, growth expectations are not being met. How does this play to the kid from Alabama who’s in love with himself and in love with what he built, who having spent almost two decades only hearing lavish praise heaped on himself and his accomplishments, while he reaped the rewards by lining his pockets and his world with beautiful homes, beautiful women and beautiful cars. The wall street expectations are not being met, so while telling the public that everything is fine and that business is booming, he is simultaneously telling his top executives to “fix” the problem. These high-level executives, in turn, directed lower level employees to change the books, file false documents, or make bogus wire-transfers. These soldiers-of-the-scandal appeared to have their silence and complicity bought by having artificially inflated titles and salaries. In retrospect, and long after the original charges come out, it will be hard to place exactly where the culture of ambition fused with, and was overrun by, the culture of greed. HealthSouth has always produced glowing reports about their progress and about the future. They have also heaped praise on Richard Scrushy’s leadership and guidance. And now he was being forced with having to answer to the gloomy outlook, and the negative response that a downturn might bring. So confronted with something he has never been able to face, Scrushy could try to extend the limelight, maintaining the mantle of glory and power by first glossing the problem and then changing reality to match his wishes and dreams. It is unlikely that Richard M. Scrushy could handle anything less than glowing reports and praise. Even now, even under a mountain of charges, he can only blame those around him, and he can only try to feebly distance himself from the company that he always took credit for being it’s sole architect and builder. It is easy to place a time when things began to change in the industry but it is hard to overlay HealthSouth’s response. So at the very top of the organization, was it always about maximizing wealth? Were the values of quality and affordable health care dropped a long time ago? Or was it always just about the money? Was it always just about exploiting the hopes and fears and wishes of the people’s dream for a better healthcare system, just to build one man an empire?

Within days of making public statements about the health of the company and the robustness of HealthSouth’s stock, Scrushy sells 75% of his holdings. And money begins to appear and disappear from the corporate books. An intentional mis-interpretation of Medicare’s guidelines for reimbursement causes $175 million dollars to be added to the ledger. Almost simultaneously, fraud is being committed against medicare, the corporate books are being altered to artificially inflate the company’s assets, to meet market expectations, and the company is officially saying that it’s stock is sound and that there are no problems. HealthSouth’s stock which was trading at $21 plummets to $4. Inside the corporate headquarters, meetings are held to discuss what to do about the bookkeeping problems and whatever was once a company that had anything to do with the development of affordable health care options has now become a company who’s sole purpose, from the high-level management perspective, is to maximize the cash flow being skimmed off by the highest executives, to keep the stockholders in the dark about the true financial well-being of the company, to cover their tracks by creating and filing false documents, and by “finding” 175 million as a result of intentionally mis-billing Medicaid patients.

As a result of the ensuing government investigation, seventeen HealthSouth executives were indicted. This includes all five of the company’s CFOs, since they went into business in 1984; the low level managers who “fixed” the books and the higher-up executives who directed them to do it. And Richard Scrushy was indicted on 85 counts of fraud. All of the executives below Mr. Scrushy pleaded guilty in exchange for cooperation in the investigation of Health South and in Scrushy’s trial.

In hearings held before a congressional sub-committee, investigating the scandal, Richard Scrushy invoked his 5th amendment constitutional rights, and refused to answer questions from committee members. This was particularly disturbing, because just days before the hearing, Mr. Scrushy answered many of the same questions on national TV, without a lawyer present, when they were posed to him by a reporter. This approach of simultaneously being evasive and uncooperative to investigators while using the media and other channels to appeal directly to the people and ultimately the jury pool would kick off his overall strategy of using deceptive behavior to get away with his own pattern of deception. He has since taken to the airwaves on a TV show, sponsored by an African-American church, that he has been attending, in a show that seeks the truth by blaming the media for his downfall, the same media that he zealously courted when HealthSouth was riding high, and back when all the mirrors that he held up, only reflected Richard M. Scrushy. Some of the jury tainting has been muffled if not pushed underground by a gag order placed on the proceedings, by the judge.

Now the ambitious kid from Selma, Alabama is all grown up, but even though he is often credited with being the driving force behind making the first brand name health care system in the country, it never seems that he came to know boundaries in the adult world, he did not seem to understand where his hobbies and his toys and the little things he needed ended, and where his company and the realm of his employees, customers and stock holders began. It’s a mixed up world. Give a kid millions of dollars so he can buy anything or anybody he wants, and surround him with people who are afraid to say “No” to him because of his bullying tactics and implicit threats of violence, and then put him in charge of a major corporation, where countless employees, suppliers, stock holders, and customers depend upon him, and you have a world where this dream has become a nightmare to so many, many people. You can change lives and fortunes with the stroke of a pen, but things can’t be “fixed” in the board room.

[I’m reminded of the movie, Fargo, where in the end the chief of police recounts all of the carnage left behind, and she says, “And for what? For a little bit of money. There's more to life than a little money, you know. Don't you know that? And here you are and it's a beautiful day. Well I just don't understand it." -- Don't you know that, Mr. Scrushy? A lot of people got hurt. It is a great day, but I just don't understand it.]