Decision Making

OB-CASE

Decision Making

and Leading

through Crisis

Vignette 1

HealthSouth: A whole lot of pain

Introduction:

Protagonist: Richard M. Scrushy, founder CEO HeathSouth Corporation. He was a wealthy man and led a lavish lifestyle. He was accused of insider-trading violations.

About HealthSouth Corporation: Founded in Delaware and Maryland in 1984 by Richard M. Scrushy. In two years, it went public and in 10 years witnessed phenomenal growth (Fortune 500) with 40,000 full time and part time employees and revenues well over $4 Billion in 2001. The services offered were Outpatient Surgery, Diagnostic Imaging, Rehabilitative Healthcare services and employer Health Benefits.

The Issue: Financial and legal crises facing the company and its integrity and transparency being questioned.

Problem Analysis:

• Sept 17, 2002: U.S. Security and Exchange Commission conducted an investigation into the trading of HealthSouth’s securities. Some critical cases in focus were the trading done by CEO Scrushy on May 14, earning $52 million profit and paying a $25 million loan he owed the company on July 31, 2002.

• The financial status of the company started being questioned.

• Feb 5, 2003: A criminal investigation began on the company and its various directors, officers and employees. The United State District Court (N. Alabama Dist.) required the company to provide various documents.

• All the allegations were denied by the company.

• A search warrant was issued by FBI Agents to gain access to financial records

• March 19, 2003: A two-day halt on trading of HealthSouth Securities was ordered by SEC and its common stock was delisted from the NYSE.

• April 10, 2003: US Dept. of Health and Human Services launched an investigation into the medical billing of HealthSouth. There was an accusation of manipulation of Medicare reimbursements.

• Medical doctors...