Health South fraudently inflated financial results conspiracy

HealthSouth Corporation is the leading provider of medical rehabilitation health care and
outpatient surgery services in the United States. With more than 1,900 locations in the United
States, the United Kingdom, and Australia, HealthSouth provides physical and other therapy in
its rehabilitation facilities, offers imaging services through its diagnostic centers, and provides
nonemergency surgical services at its outpatient surgery centers. The company also has
occupational medicine clinics that deal exclusively with patients suffering from work-related
health conditions. HealthSouth has contracts with managed care plans, insurance companies,
and major corporations, including Wal-Mart and Goodyear. HealthSouth also has alliances with
professional sports associations and schools to supply rehabilitative and sports medicine
services.

A New Twist on Rehabilitation Services: 1980s

HealthSouth was the brainchild of Richard Scrushy. Scrushy grew up in Selma,
Alabama, and earned a degree in respiratory therapy from the University of Alabama,
Birmingham. By the age of 30 he had advanced to vice-president at Lifemark Corp., a
Houston-based health care management firm. At Lifemark, Scrushy witnessed firsthand
the changes sweeping the health care industry. The dominant trend was toward a
reduction in reimbursement dollars available to traditional medical practitioners.
Corporations and insurance companies were trying to cut health care expenditures
while, at the same time, costs in the medical field were rising. 'I saw the squeezing of
reimbursement in the health care system and I wanted to take advantage of that
change,' Scrushy said in a June 1990 article inForbes.'My idea,' he added, 'was to
provide high-quality hospital-type rehabilitation services in a low-cost setting.'
Scrushy got his chance to start his rehabilitation company in 1984, when Lifemark Corp.
was purchased by Los Angeles-based American Medical International. Armed with a
plan, Scrushy lacked only the money to get started. His break came in a Houston
restaurant, when a Citicorp venture capitalist overheard Scrushy outlining his business
plan and eventually offered a $1 million grubstake, giving birth to what would become
HealthSouth. Scrushy convinced four of his Lifemark associates to break ranks with him
and move to Birmingham to build the company's first outpatient facility. Their company
was incorporated in January 1984 as Amcare Inc. before its name was changed to
HealthSouth Rehabilitation Corporation in May 1985.
Scrushy got into the rehabilitation industry at a good time. During the early 1980s
people began to view rehabilitation as a means of reducing medical expenses.
Specifically, rehabilitation could be used to minimize unnecessary, expensive surgeries.
It also helped injured workers get back to their jobs more quickly, thus eliminating
expensive worker's compensation and disability costs. As health and insurance
professionals began to recognize those benefits, the use of rehabilitation services
soared. Between 1982 and 1990, in fact, rehabilitation expenditures increased at an
average annual rate of about 20 percent and the number of outpatient rehabilitation
centers soared. That industry growth contributed to healthy gains for HealthSouth
throughout the decade.
Perhaps more important than general industry expansion for HealthSouth during the
1980s was Scrushy's and his fellow managers' unique operating strategy. When
HealthSouth got started in 1984, rehabilitation centers were stereotyped as drab,
institution-like facilities with, generally, mediocre staff. Scrushy wanted to change that
image. Borrowing from health clubs, he designed his rehab centers as bright, open-
spaced, mirrored rooms with trained physical therapists and sporty equipment. The
centers more closely resembled high-priced health clubs than traditional hospital-styled
rehab centers, and doctors became increasingly willing to send patients to a
HealthSouth facility for treatment. Scrushy added a few more HealthSouth outlets and
by 1985 was generating nearly $5 million in annual revenues.
Principal Subsidiaries:HealthSouth Medical Center, Inc.; HealthSouth Aviation, Inc.;
HealthSouth Community Re-Entry Center of Dallas, Inc.; HealthSouth Doctors' Hospital,
Inc.; HealthSouth IMC, Inc.; HealthSouth International, Inc.; HealthSouth Medical Clinic,
Inc.; HealthSouth Network Services, Inc.; HealthSouth Orthopedic Services, Inc.;
HealthSouth Specialty Hospital, Inc.; Advantage Health Corporation; ASC Network
Corporation; CMS Capital Ventures, Inc. (15%); Diagnostic Health Corporation;
Disability and Impairment Evaluation Centers of America, Inc.; Horizon/CMS Healthcare
Corporation; National Imaging Affiliates, Inc.; National Surgery Centers, Inc.; Physical
Therapeutix, Inc.; Physician Practice Management Corporation; Professional Sports
Care Management, Inc.; ReadiCare, Inc.; Rehabilitation Hospital Corporation of
America, Inc.; Surgery Center Holding Corporation; Surgical Care Affiliates, Inc.;
Surgical Health Corporation; The Company Doctor.
Principal Competitors:Columbia/HCA Healthcare Corporation; NovaCare, Inc.; Tenet
Healthcare Corporation.

Chronology
 Key Dates:
 1984:Richard Scrushy and four partners form Amcare Inc.
 1985:Company changes name to HealthSouth Rehabilitation Corporation.
 1986:Company goes public.
 1994:HealthSouth surpasses the $1 billion mark in revenues.
 1995:HealthSouth expands into outpatient surgery services with the acquisition
of Surgical Health Corporation.

Additional Details
 Public Company
 Incorporated:1984 as Amcare, Inc.
 Employees:51,901
  Sales:$4.07 billion (1999)
 Stock Exchanges:New York
 Ticker Symbol:HRC
 NAIC:621493 Freestanding Ambulatory Surgical and Emergency Centers;
621111 Offices of Physicians (Except Mental Health Specialists); 62134 Offices
of Physical, Occupational and Speech Therapists, and Audiologists; 621512
Diagnostic Imaging Centers; 621498 All Other Outpatient Care Centers; 621999
All Other Miscellaneous Ambulatory Health Care Services

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