Anatomy of a Conspiracy - September, 2004

“I’m okay. I’m gonna talk to y’all for real, this conversation did not take place, okay?”  --Richard Scrushy, talking to his executives and co-conspirators about how to coordinate their stories before they were to testify to the SEC.

Sadly, in the end, and somewhere between my quest for healing and the writing of these documents, it became clear that the first medical outfit to have facilities in all fifty states knew as much about the anatomy of conspiracy then the long ago promise of a commitment to helping people get well. I can now only hope some day people will read these documents, and other information about what happened at HealthSouth, and they will use them as charts and guides to healing our society, in much the same way young doctors use Gray’s Anatomy.

 Besides the obvious and superficial culture of greed, it is not completely clear what drove Richard Scrushy to do what he did, and to become what he became. This includes both the early success of HealthSouth and the conspiracy that will be his true legacy. In fairness to Mr. Scrushy, it would be too easy to say that it was just about wealth and greed. If he hadn’t done any of the things he is accused of, he would still be rather rich, and he would still be CEO of a corporation, and he would still be making a salary of a few million dollars a year. And there would still be bonuses and perks although he might have to cut back a little. Like maybe just two or three classic cars, instead of seven. Or perhaps he would have to choose between the Rolls Royce or the Lambourgini  Perhaps he would have to get by with three mansions, instead of five. His wife might pout a bit when Richard has to cut back on her jewelry collection. By my rough count, I calculate a total of 98 carats worth of diamonds (close to half a pound). But he wouldn’t be poor. He wouldn’t even be close to middle class. So what does he want? What did he want? His early rhetoric talked about the business model of quality, affordable health care, but it didn’t take long for him to talk more about beating the competition, about being the first true national and international branded health care system, about  his position on the Fortune 500, and the litany that he rode to his doom, about beating and exceeding market expectations. I believe that Scrushy was addicted to those statements, to the glowing projections and the brighter future to come, and more specifically, he became addicted to being the hub at the center of all the spokes. How does a middle class kid from Selma, Alabama get respect? And how do you get any real respect as an upstart in the stratified deep south world of old money. Especially as a kid from Selma, a place his web site proudly proclaims to be the “birthplace of the civil rights movement,” but to the rest of us, what happened there is an embarrassment. And it is only from the mentality of someone who needs to make self-laudatory proclamations at every step of the way, to demand the respect that he never could get enough of. Of course, evidence of this self-referential behavior is everywhere, from all the buildings and facilities he had named for him, to the museum dedicated to his life, to the statue of himself, to the rocks that adorn his trophy wife.

 I believe this scenario is fairly accurate, and has been constructed from looking at accounts of Scrushy’s early career, to reports and statements from the evolving conspiracy, to his post-HealthSouth behavior. But when you make an analysis like this, there is always something missing. How did his idea of quality affordable health care get lost? When and how did his overreaching ambitions and a few character flaws turn his company into a criminal enterprise? What about the people who helped him, like the faux vice presidents? What does that say about corporate culture? And what about the patients who are buried under all of those SEC filings, and grand jury testimony. What is our way back? Somehow we must fuse modern corporate bureaucracy with the fundamental challenges of health and medicine. Because whereas it is too late for Monique, somewhere right now, someone is in an ICU, and they are really going to need that ambulator.

 This is the anatomy of a conspiracy. The following information is from the amended indictment, filed on September 29, 2004. Mr. Scrushy is facing a number of charges, including: mail fraud, wire fraud, securities fraud, making false statements to the SEC, falsely certifying documents to be filed to government agencies, money laundering, obstruction of justice and perjury.

  [The amended indictment consolidated some of the charges and added the obstruction of justice and perjury charges].

  According to the allegations and charges, the following list are the specific acts the principals used to carry out the conspiracy. I’m going to talk to “y’all for real” because although some conversations never happened, some things really DID happen.

1.  Scrushy and the co-conspirators inflated the financial condition of HealthSouth to the board of directors, employees, SEC, bond underwriters, market analysts, bankers, and the investing public.
2. The conspirators fraudulently added money to the books, adding a total of about 2.6 billion in fictitious income.
3. The conspirators caused HealthSouth to give themselves bonuses and other rewards based on the fraudulently repeated financial results.
4. Scrushy and the others inflated HealthSouth’s financial data to increase the stock price which increased the value of their stock and options.
5. The conspirators inflated patient statistical data to support inflated financial information.
6. The conspirators issued inflated financial reports to induce stock and bond investors, bank lenders and business to invest in HealthSouth securities.
7. Scrushy and the other conspirators met to inflate income in order to meet market projections.
8. The accounting staff was given specific instructions about how to falsify the corporate books.
9. The conspirators directed false entries to put into income statements.
10. They “balanced the books” by making corresponding false entries to the books in order to match the artificially inflated income.
11. Scrushy and the conspirators filed false reports with the SEC.
12. The conspirators took care not to make entries in the books of facilities that were in states with regulations that require separate audits, or in facilities owned in partnership with physicians.
13. Scrushy controlled the internal distribution of financial records, gave fraudulent information to auditors, used the acquisition of other companies to conceal fraudulent assets on HealthSouth’s books.
14. Scrushy sought to control his fellow conspirators by the following methods: a) Threats; b) Intimidation; c) Putting people under surveillance, including obtaining and reading their email; and d) recommending the forgiveness of corporate loans for co-conspirators.
15. Scrushy induced people to go along with the plan, by offering financial and other inducements, appealing to their loyalty to him and HealthSouth, by reminding them them that they had already committed illegal acts, by telling them that the company was making money and the future would be bright, by suggesting the falseness would be reduced in the future, by suggesting there was a plan to take care of the fraud, and by suggesting they would get away with it. He also reminded the others that there would be adverse consequences if they didn’t go along with the scheme, and he reminded them of the benefits they would receive, telling them the plan was the right thing to do.
16. Scrushy met with employees before and after testifying to the SEC, to confirm and coordinate their stories.

 After talking to the SEC investigators, Scrushy felt pretty good about the spin he had put on them, and thought he’d pulled another one over on the dumb government investigators, and after lying for so long about so many things, he apparently thought that that he could continue to build his empire by lying to just about anyone. No matter who was asking.

  He said: “They ain’t got shit. They ain’t go nothing.”

  Come January, we’ll see Mr. Scrushy, we’ll see.