When U.S. News & World Report published its annual ranking of "America's Best Hospitals" in its Aug. 12 issue, conspicuously absent from the list of top rehabilitation centers were facilities owned by the industry's largest player, Birmingham, Ala.-based HealthSouth Corp.
To make the list, rehabilitation hospitals had to be recommended by at least 3% of the 450 board-certified specialists polled by the magazine.
But HealthSouth Chairman and Chief Executive Officer Richard Scrushy brushes off the snub, expressing confidence that a number of the company's facilities can rival the country's "old-line rehab hospitals."
He seems pleased for the moment that HealthSouth has made its name as a forerunner of the outpatient revolution, where the goal is to provide cost-effective, quality care.
The company provides rehabilitation, surgical, sports medicine and diagnostic services to some 20,000 patients each day at more than 900 locations in 48 states. Unabashedly for-profit, HealthSouth posted net income of $79 million on total revenues of $1.6 billion in fiscal 1995, according to the company's annual report.
Few of the magazine's top 20 facilities made the list based on their profit margins. More likely, they were singled out as a result of a certain high-brow cachet cultivated through affiliations with academic institutions and research efforts. According to U.S. News, rankings are based "solely on reputational scores."
The distinction has been a source of pride for Henry Betts, M.D., president and CEO of Rehabilitation Institute of Chicago. For the past six years, the institute has been the No. 1 facility on the U.S. News list.
Internationally renowned for its services and academic programs, the institute is not-for-profit and serves 11,000 patients a year through a 155-bed inpatient hospital and nine satellite centers scattered throughout the Chicago area.
In 1995, the institute reported a net loss of $10.8 million on total revenues of $66.1 million, compared with net income of $5.3 million on total revenues of $69.7 million in 1994, according to HCIA, a Baltimore-based healthcare information company.
The approach and image of HealthSouth and the institute are as different as night and day. The CEOs of these rehabilitation pioneers reflect the differences in their respective institutions. Yet, as managed care puts pressure on rehab providers to emphasize high quality and low costs, the two men and their companies are starting to act more alike.
Their plans show how the gap may be lessening between the blue bloods of rehab and the industry's aggressive, populist upstarts.
The 68-year-old Betts has left an indelible mark in his 33 years with the institute, where he has served as attending physician, medical director and executive vice president.
Under his leadership, the institute has raised $80 million in donations and grants, recruited a world-class staff and actively lobbied for new laws that benefit the disabled. Betts also has nurtured an academic program that trains more than 200 medical school students and 39 residents each year.
Betts exudes a refined manner that stops just short of snobbery and belies his unpretentious upbringing in rural Flemington, N.J., and Coconut Grove, Fla. His unaffected charm, coupled with a strong commitment to bettering the lives of the disabled, makes his success as a fund-raiser and promoter for the institute easy to gauge.
As he walks through the institute's research labs, patient sitting rooms and workshops, where wheelchairs and prostheses are being built, Betts chats with the patients and staff as comfortably as if he were showing off his own home. And while Betts may prefer his lab coat, he would look just as natural in a tuxedo at a black-tie charity ball.
Betts' skills as a fund-raiser have become even more important as managed-care organizations put the squeeze on providers. Recognizing this, Betts and the institute's board of directors agreed four years ago to set up a search committee to look inside and outside the institute for a new CEO. In February, the institute hired an outside search firm to seek contenders for the position. No deadline has been set for the replacement, but Betts' contract with the institute expires in May 1998.
Whenever the new CEO comes on board, Betts plans to focus on fund raising for the institute and community work on behalf of the disabled. Betts said he hopes to raise about $60 million for the hospital's endowment fund over the next five years to help ensure its future as a not-for-profit.
"You can't criticize profit in the abstract, but to achieve the best for the patients, you have to start from the vantage point of what is best for the patient," he said. "You're less likely to do this if your starting point is what is best for profit."
The institute has $65 million in a foundation and $35 million in a corporate fund, according to David Storto, the institute's executive vice president and chief operating officer. He said the institute plans to borrow $45 million in tax-exempt bonds to pay for a renovation of its main inpatient facility and an upgrading of computer systems. It will be the first time since 1977 the institute has had any long-term debt, he said.
As the institute moves forward, Betts is not ruling out a merger with another healthcare organization, but the institute would have to have a compelling reason to sell. "If there was a choice between ending the academic program or selling to a proprietary company, then we would sell," he said. "I'm not prepared for my successor to alter the course. The underpinning of any decision is whether we can maintain our mission."
Scrushy, meanwhile, is weaving his own legacy. Since he founded HealthSouth just 13 years ago, the company has become the largest provider of outpatient services in the country.
Scrushy is proud of his company's accomplishments. As excited as a kid who just got all A's, he rushes over to his desk to hold up the "tombstone" fashioned by NationsBank to commemorate HealthSouth's $1.3 billion revolving line of credit.
Along with his counterparts in the healthcare mecca of Nashville, Tenn., the 44-year-old Scrushy has helped to put a Southern face on the industry. But don't mistake him for a stereotypical good ol' boy: He sits too straight in his chair and lacks the drawl.
Scrushy isn't a stuffed-shirt Old South society type either, as he only recently retired from playing electric guitar in the country music band Dallas County Line. He's driven, urgent, involved and ambitious.
His goal is to make HealthSouth the most ubiquitous healthcare company in the country. He already has surpassed Nashville-based Columbia/HCA Healthcare Corp. in geographic coverage. HealthSouth operates in 48 states, while Columbia, the largest investor-owned hospital company in the country, does business in 38 states. HealthSouth plans to have entered 49 states by mid-October and 50 by year-end.
Scrushy doesn't see too many obstacles before him. He said the size and scope of HealthSouth have given the company "a seat at the table" in negotiations with national employers, providers and managed-care organizations. "Everybody is trying to bring volume to providers because then they give you a better price," he said, noting that 65% of HealthSouth's business is based on multistate and nationwide contracts.
Another priority for the company that blazed a trail in outpatient care is, ironically, to build new inpatient rehabilitation hospitals. "As the federal government moves Medicare to managed care, you will see rehabilitation units in acute-care hospitals close," Scrushy predicted. "Managed care won't reimburse at the acute-care level, and you'll see patients move to rehabilitation hospitals."
With a cash flow of $800 million and a market capitalization of more than $6 billion, Scrushy sees no limits for HealthSouth's growth. He wants to add 100 to 150 facilities a year for the next 10 years.
"We're a long shot from being too big," he said. "Our goal is to be the best managed healthcare company in America. We need to be in all 300 major cities with all of our product lines and offering all of our services."
On many levels, the overall goals of Betts and Scrushy represent a study in contrasts. Some of their differences may be attributed to how they entered the rehabilitation field. Though both come from modest backgrounds and held jobs throughout college, Betts' influences were more clinical and Scrushy's more practical.
Betts refers to the inspiration of one of his elementary school teachers, who was paraplegic. He also recalls the example of two later teachers who had been disabled by polio: a professor at Princeton University and the dean of the University of Virginia medical school. "The idea gradually evolved," he said, explaining that "three very compelling people rather than one particular incident" led him into the industry.
Scrushy talks in terms of finding a good niche and the desire to make the healthcare system more efficient. He grew up in Selma, Ala., and earned a degree in respiratory therapy from the University of Alabama at Birmingham. After teaching respiratory therapy for 21/2 years at UAB, he ran the ancillary services division of Lifemark Hospitals, a Houston-based chain later acquired by American Medical International.
These experiences, he explained, led him to look for delivery alternatives that could move patients through the system more efficiently. He began to view outpatient care as the answer. "It was a good idea then, and (it's) an even better idea now," he said.
But on the road to achieving their goals, Betts and Scrushy are beginning to veer in each other's direction.
For Betts to insulate the institute financially, he has found he must place even more emphasis on the bottom line and streamlining operations. Likewise, Scrushy has realized that to make HealthSouth a truly national presence, the company's name must be tied to academic and philanthropic endeavors.
Betts has begun a reorganization of the institute to make it more attractive to managed-care plans. The plan is moving forward, with Betts serving as the conscience of the institute and with much of the implementation falling under the purview of COO Storto and Elliot J. Roth, M.D., a no-nonsense type who became the institute's medical director in 1994.
It was about that time, Roth noted, that managed-care penetration in Chicago hit 20% and "everything changed." He said new competitors sprang out of the woodwork to snare managed-care contracts. "Old nursing homes took down their signs and put up rehab signs," he said. Even HealthSouth opened a physical therapy center within blocks of the institute.
The institute currently has 26 managed-care contracts and receives 20% to 30% of its referrals from managed-care plans, Roth said. He said the institute is "taking a fresh look at day-to-day processes" to meet the expectations of managed care.
The bed count of the inpatient hospital was reduced to 155 this year from 176 in 1995, and the number of staff members at the inpatient hospital has dropped by 70 as the result of a $12 million early retirement program designed to pay for itself by 1999.
Along organization lines, the institute is working to provide faster responses to questions regarding patients' progress and to reduce paperwork in the admissions process. The staff also is being realigned into interdisciplinary teams according to patient needs and levels of care.
In addition, a greater priority has been placed on forming relationships with other providers in the area and on offering a continuum of services from inpatient to subacute to outpatient care.
This summer, the institute formed a joint venture with Swedish Covenant Hospital on Chicago's northwest side to provide a full range of rehabilitative care on Swedish Covenant's campus. The institute formed a second joint venture with West Suburban Hospital in Oak Park, Ill., to provide rehabilitation and sports medicine services at the hospital's primary-care facility in River Forest, Ill.
Though Betts admits that the "HMOs are in charge," he doesn't want to see the streamlining go too far. "It could have a negative impact if it forces the length of stay to be too short and patients don't get enough care and hospitals have to cut staffs and eliminate certain necessary treatments," he warned.
As Betts and the institute become more savvy on the managed-care front, Scrushy is fostering philanthropic and academic ties.
Last year, the company formed the not-for-profit HealthSouth Sports Medicine Council, led by former football and baseball star Bo Jackson, himself a famous rehabilitation patient. The council travels the country and holds events for children and teens aimed at encouraging a healthy lifestyle through the example of big-name athletes.
When asked why HealthSouth didn't make the U.S. News list, Scrushy defended the well-regarded reputations of several of his facilities, including HealthSouth-Harmarville Rehabilitation Center in Pittsburgh and HealthSouth Lakeshore Rehabilitation Hospital in Birmingham. "We want to be an academic player," Scrushy said. "I think you'll see HealthSouth expanding in that area."
HealthSouth already has partnered with several academic medical centers to open new rehabilitation hospitals. Typically, HealthSouth will manage the facility and the medical center will direct its clinical operations.
In November 1993, HealthSouth opened Vanderbilt Stallworth Rehabilitation Hospital. The 80-bed facility on the main campus of Vanderbilt University in Nashville is the result of a 50-50 joint venture between HealthSouth and the school's medical center.
With characteristic enthusiasm, Scrushy bounded out of his chair to point out a framed drawing of HealthSouth's planned facility on the campus of the University of Missouri in Columbia. The $14.4 million, 60-bed facility will replace Rusk Rehabilitation Hospital, which is part of the university's health sciences center. The new hospital is scheduled to open in the first half of 1997.
Next year, HealthSouth also plans to open a new 60- to 70-bed rehabilitation hospital on the campus of the University of Virginia in Charlottesville. Construction of the facility is scheduled to begin this month, Scrushy said.
In addition, Scrushy said the company has affiliations with 150 other colleges and universities across the country. Under these arrangements, HealthSouth provides sports medicine services for the school's athletic teams or helps train the school's physical therapy students.
For example, HealthSouth has provided funding for the physical therapy program of Belmont University in Nashville. And an agreement with the University of North Carolina in Chapel Hill allows physical therapy and sports medicine students to make rotations at HealthSouth facilities across the country.
Scrushy said "it's a natural" for corporate companies like HealthSouth to strengthen their academic presence, noting that "even Columbia is merging with academic institutions."