The Financial Collapse Of Healthsouth

Business Ethics Module 3 SLP

HealthSouth is now known as Encompass Health and is based in Birmingham, AL. HealthSouth was known for the scandal that happened from 1996 through 2002 with the Chief Executive Officer (CEO), Richard Scrushy, and several Chief Financial Officers among several additional business executives.

The Fraud of HealthSouth

Richard Scrushy is the businessman who founded and managed HealthSouth before dishonesty placed him in the penitentiary. CEO Richard Scrushy was the original official to be attempted under the Sarbanes-Oxley Represent cooking the books and modifying monetary revenues, at the organization he established.

In 20and 01, Scrushy’s organization's income was more than $4 billion, and cared for more than 100,000 patients a day, in this Country, and globally. By 2005, Richard Marin Scrushy, CEO of HealthSouth was charged, indicted, and acquitted of fraud, false statements, criminal forfeiture, and money laundering (Taylor, 2005). Four months after his acquittal under the Sarbanes-Oxley Act indictment, Scrushy was sentenced to almost seven years in prison under a civil lawsuit for political corruption, obstruction, racketeering, and bribery; he was released from prison on July 25, 2012.

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Implications for Richard Scrushy

The accusations claim that Scrushy began falsifying financial records, to make the organization appear more prosperous than it was (Mokhiber, 2003). The HealthSouth case was one of the strongest cases ever against a corporate executive. The case seemed like a slam dunk for the prosecution. Sixteen HealthSouth employees had been charged with fraud, and fourteen of them had already pleaded guilty. Prosecutors brought in all five of HealthSouth's CFOs to testify against Scrushy, and each testified that Scrushy not only knew about the falsifying of financial statements but that he was the driving force behind it.

So, how did the jury reach a verdict of not guilty on thirty-six counts of violating the law? The answer may be found within Scrushy’s personality, the people that surrounded Scrushy, as well as their aptitude for theatrical productions, and the capability of influencing many in the Northern District of Alabama, where HealthSouth was started and where Scrushy lived. Scrushy was recognized in the community as an upstanding citizen and businessman and before being indicted, he joined a church in Birmingham that was mostly frequented by African-Americans (Taylor, 2005).

HealthSouth’s Reaction

Scrushy was fired from HealthSouth and charges were filed so that Scrushy could pay for what he performed. HealthSouth was $3.5 billion in debt and after the scandal, the company worked to decrease expenses and alleviate operations to escape filing for bankruptcy. HealthSouth worked with acute care hospitals to remain in good standing if bankruptcy did occur (HealthSouth Executives, 2003). HealthSouth moved on after Scrushy was fired and held a meeting with investors to present a plan for continued practice from the fraud that practically drove the company to ruins. HealthSouth changed the name of the organization and is now called Encompass. The company is now back on the New York Stock Exchange after being delisted when the fraud was uncovered.

Conclusion

Some found it surprising that Richard Scrushy was acquitted in his federal trial, given that the prosecution expressed such confidence in its case. Expert observers said key witnesses who had made deals with the prosecution and a shrewd defense strategy were the main factors that led to the not guilty verdict.

References

1. Taylor, J. (2005). Fluke or failure? Assessing the Sarbanes-Oxley Act after United States V. Scrushy. UMKC Law Review, 74(2), pp. 411-434.
2. Mokhiber, R. (2003). Ill Feeling at HealthSouth. Multinational Monitor, 24(11), 7-8. Retrieved from EBSCO – Academic Search Complete.
3. HealthSouth Executives Charged with Accounting Fraud. (2003). Healthcare Financial Management, 57(5), 25. Retrieved from EBSCO – Business Source Complete.