The Scrushy Influence

Table of Contents

Table of Content…………………………………………………………………………………. 2
Abstract……………………………………………………………………………………………3
Introduction………………………………………………………………………………………..4
Richard Scrushy-Biography……………………………………………………………………….5
Health South History………………………………………………………………………………6
Health South Down Fall…………………………………………………………………………...7
Sentence…………………………………………………………………………………………...8
Sentence…………………………………………………………………………………………...9
Conclusion……………………………………………………………………………………….10
References……………………………………………………………………………………….11

Abstract

This paper looks at the rise and fall of the Health South Corporation along with its founder and CEO, Richard Scrushy. One of the biggest fraud cases in recent history, this one company over- stated its revenue by four billion dollars, causing many people to lose both their life savings and their jobs. Over fifteen people received jail sentences, and even the Governor of Alabama went to prison. Richard Scrushy was sentenced to seventy (70) months in prison.
Introduction
Mr. Scrushy started his company in 1986, and by 2003 he had lost everything. However, what happened in those seventeen years was spectacular. Scrushy started a small firm which grew into a nationwide company employing over sixty thousand employees. By all appearances he was the golden boy in the medical insurance industry - acquiring other, smaller companies in order to expand his own corporation and enhance his own income. During those seventeen years Mr. Scrushy’s income exploded; he purchased lucrative homes, expensive art, cars and yachts. His personal life soared upwards. His reputation in business was that of a shark; he was abrasive and rude with no consideration of others. Yet, his company continues to grow to this day. While at one time his company stock sold for over eighty dollars a share, going as low as six dollars a share before it leveled off, recent transactions show a healthy upwards trending. “Shares of HealthSouth rose $1.03, or 4.2 percent, to $25.56 in afternoon trading. Earlier in the session, the stock recorded a new 52-week high, climbing to $26.40. The stock traded as low as $18.44 last June.” ("Healthsouth shares rally," 2013) Yes, even with the arrests, convictions and scandal, the company created by Richard Scrushy is still in business today. There are obvious changes that took place and parts of the company had to be divested, dissolved or sold, but the basic company did survive and what is more interesting is the fact that Richard Scrushy is looking to open a new business tied into the new ‘Obamacare’ plan.

Richard Scrushy-Biography “By 2001, Richard Scrushy’s HealthSouth had more than $4.3 billion in revenue and treated more than 100,000 patients a day, not only in the United States, but around the world. In 2005, Scrushy was indicted on charges of bribery and mail fraud in connection with former Alabama governor Don Siegelman. Scrushy was convicted on multiple charges and received a sentence close to seven years in prison.” ("Richard Scrushy biography," 2013) Richard Scrushy was born in Alabama in 1952. His childhood was unremarkable; he went to the local church and attended the state community college. He eventually graduated and started work as a registered respiratory therapist. His rise in the corporate world is what many would call spectacular. He began working for Lifemark Corporation and became the regional director of respiratory therapy, eventually moving up the corporate ladder to Chief Operations Officer. Richard Scrushy created a company called Amcare in 1984 which would later become Health South, one of the most successful healthcare companies to emerge in that decade. In less than three years from its inception, Health South had expanded its services into sports medicine and worker’s compensation plans. The revenues had nearly doubled in this short time span and by 2001 (seventeen years after the inception of the company) Health South boasted revenues of over four billion dollars, with over 60,000 employees nationwide. To the outside world Richard Scrushy must have seemed like he had the Midas touch - any project with his name attached would not only succeed, but stakeholders appeared to be making massive amounts of money. However, by 2005 the golden tower had crumbled., Scrushy was acquitted on thirty six counts of fraud, but he was then charged with bribery and mail fraud and he was given seven years in prison. Later the civil suits began and Richard Scrushy has been ordered to pay almost 3 million dollars to the stakeholders in Health South. What a sad ending.

Health South a History

The Health South Corporation started as the Amcare Company in 1984 and later the name was changed to Health South Corporation in 1987. This corporation seemed to have a very impressive rise in the medical insurance world. In the 1990’s this company had over fifty facilities in the United States. Historically this company’s rise is as follows: “In 1993, it bought twenty-eight hospitals and forty-five outpatient rehabilitation facilities from National Medical Enterprise for $300 million. In 1994, it bought Re-Life for $180 million. In January, 1995, HealthSouth entered the surgery business by acquiring Surgical Health Corporation for $155 million. In February, 1995, it acquired Novacare’s rehabilitation hospital business. In 1996, it expanded into diagnostics by purchasing Health Images. These acquisitions made HealthSouth a major U.S. health care provider, with more than two hundred facilities. At its peak, it recorded $4.4 billion in revenues, employed more than sixty thousand people worldwide, and operated eighty outpatient rehabilitation services and twelve home health agencies.” ("Healthsouth scandal: The," 2012) This type of growth gave the Health South Corporation a reputation in the medical insurance community. Many companies wanted to be a part of the Health South “family”. Also, Scrushy’s reputation as a shark grew in this time; he was known for his rude treatment of his employees, lack of patience and total drive to make money.

The Health South Down Fall “A forensic audit conducted by PricewaterhouseCoopers concluded that HealthSouth Corporation's cumulative earnings were overstated by anywhere from $3.8 billion to $4.6 billion, according to a January 2004 report issued by the scandal-ridden health-care concern. HealthSouth acknowledged that the forensic audit discovered at least another $1.3 billion dollars in suspect financial reporting in addition to the previously estimated $2.5 billion. The scandal's postmortem report found additional fraud of $500 million, and identified at least $800 million of improper accounting for reserves, executive bonuses, and related-party transactions.” (Weld, Bergevin & Magrath, 2004) In 2003, the Security Exchange Commission, after completing an investigation, charged Health South and Richard Scrushy with fraud. The charges stated that Health South and its CEO (Scrushy) were exaggerating their profits for at least five years by approximately one billion dollars. It would later be discovered that the actual dollar amount was closer to four billion. By 2004, over fifteen Health South employees were charged with fraud and many pleaded guilty, leaving Richard Scrushy to face the remaining criminal charges. This would forever change Health South since it was built upon lies. The stock price grew and grew based upon false account numbers which caused the stock price to rise exponentially. Mr. Scrushy owned over two hundred and sixty million dollars in stock options.

Sentencing

“NEW YORK (CNN/Money) - Richard Scrushy, the founder and former CEO of HealthSouth Corp., was found not guilty Tuesday on all charges in the $2.7 billion accounting fraud at the hospital chain.” (Crawford, 2005)
Richard Scrushy was charged under the Sarbanes-Oxley Act of 2002 Sarbanes-Oxley Act- “ Provisions of the Sarbanes Oxley Act (aka SOX, SARBOX or S-O) detail criminal and civil penalties for noncompliance, certification of internal auditing, and increased financial disclosure. It affects public U.S. companies and non-U.S. companies with a U.S. presence. SOX is all about corporate governance and financial disclosure.” ("Sarbanes Oxley 101," 2013)
Originally, Scrushy was indicted on eighty-five charges of fraud to falsifying accounts, in 2003. These original charges included a three billion dollar fraud case; meaning they over sold their profits and made the company more attractive to investors. Scrushy was eventually charged with thirty-six counts of fraud, money laundering and conspiracy charges in 2005. The prosecutor based his case on showing Scrushy as the “mastermind” behind all the fraud, because he (Scrushy) needed the money to finance his life style. The defense, meanwhile, tried to portray Scrushy as ignorant of the facts, claiming he knew nothing of what was going on in his own company.
The acquittal, when it came in 2005, was not expected and it upset many. The defense of ignorance had been used in many previous cases and none of them ended with acquittals. There is no definitive answer as to why this defense seemed to work in Scrushy’s case; however this would not be the end of Mr. Scrushy’s issues. He would soon face more criminal charges and civil suits for his involvement in the fraud and bribery charges.

Sentencing
“Scrushy was indicted on political corruption charges for money laundering, obstruction, racketeering and bribery …. along with former Alabama Governor Don Siegelman.” (Pavlo, 2012)
In 2006, Richard Scrushy was again put on trial, however this time the outcome was not an acquittal. He was put on trial for corruption, money-laundering, obstruction and bribery in association with former Alabama Governor, Don Siegelman. In this case the prosecution proved that Richard Scrushy paid over five hundred thousand dollars to the governor of Alabama. This case resulted in a seven-year prison sentence for Scrushy. In addition, his former company (Health South) released a statement stating he would never work for the company again.

Conclusion
This was one of the largest cases of fraud and deliberate misrepresentation of a company by its officer(s) in recent history. The scandal and fallout affected so any people - from the stockholders and employees, to the patients in its facilities nationwide. By providing inaccurate information the company appeared very lucrative and worth an investor’s time and money. Health South under Scrushy’s leadership showed no ethical standards and caused a major ripple in the medical insurance community.
What I find is most interesting is the fact that the man who orchestrated most of this situation is now out of jail and is again trying to create a new medical insurance company, this time using the opportunities available under the new Affordable Care Act’s playing field. “With the passage and implementation of Obama care, I believe that there are many new business opportunities to build and provide high quality, cost effective health care delivery systems and facilities," Scrushy stated. (Faulkner, 2013)
This man has already proved to the medical community that he possesses no sense of ethics, nor ethical restraint or consideration. His actions have already destroyed many lives, and yet, unless our government steps in to stop him, he could soon be in the same business again in the next year.

References

Richard Scrushy. (2013). The Biography Channel website. Retrieved 11:40, Jun 01, 2013, from http://www.biography.com/people/richard-scrushy-235385.

Weld, L., Bergevin, P., & Magrath, L. (2004). Anatomy of a financial fraud: A forensic examination of healthsouth. CPA Journal, 74(10), 44-49.

Healthsouth scandal: The rise of healthsouth. (2012, August 13). Retrieved from http://american-business.org/3690-healthsouth-scandal-the-rise-of-healthsouth.html

Crawford, K. (2005, June 28). Ex-healthsouth ceo scrushy walks. Cnn money, Retrieved from http://money.cnn.com/2005/06/28/news/newsmakers/scrushy_outcome/index.htm

Sarbanes oxley 101. (2013). Retrieved from http://www.sarbanes-oxley-101.com/

Healthsouth scandal: More problems for scrushy. (2013, August 13). Retrieved from http://american-business.org/3692-healthsouth-scandal-more-problems-for-scrushy.html

Pavlo, W. (2012, January 26). Former healthsouth ceo, richard scrushy, gets prison sentenced reduced. Forbes magazine, Retrieved from http://www.forbes.com/sites/walterpavlo/2012/01/26/former-healthsouth-ceo-richard-scrushy-gets-prison-sentenced-reduced/

Faulkner, K. (2013, May 30). Healthsouth plans to weigh in on former ceo richard scrush'ys efforts to form new company. Anniston & Gadsden, Retrieved from http://blog.al.com/spotnews/2013/05/healthsouth_plans_to_weigh_in.html

Healthsouth shares rally on buyback price. (2013, March 20). Retrieved from http://news.yahoo.com/healthsouth-shares-rally-buyback-price-175832054.html

Faulkner, K. (2013, May 10). Former healthsouth ceo richard scrushy seeks to form new healthcare business with opportunities opened by obamacare (updated). . Retrieved from http://blog.al.com/spotnews/2013/05/former_healthsouth_ceo_richard_2.html