Confidant and combative as ever, HealthSouth Chairman Richard Scrushy vowed last week that his embattled company would emerge bigger and stronger than ever in the wake of a series of business debacles in recent weeks.
Scrushy said he is still struggling to comprehend the full impact of federal billing regulations that prompted the rehabilitation giant last month to declare a potential earnings shortfall of $175 million in 2003, triggering a nose dive in its stock price and leading to allegations of insider trading against the high-profile executive.
In his first extensive interview since an announcement Aug. 27 that Medicare reimbursement rules could slash expected profits at a newly reorganized HealthSouth, Scrushy told Modern Healthcare he still cannot calculate the long-term financial affect of new billing rules by the Centers for Medicare and Medicaid Services.
"Unfortunately, there's still uncertainty as to what the CMS regulations are," Scrushy said during an interview in his office at HealthSouth's corporate headquarters in Birmingham, Ala. "Even today, there's uncertainty, OK? We did not understand, and still do not understand, the full impact of these regulations because that (clarification) has not been given to us."
An official with the CMS, which scheduled a national conference call last week to further clarify the issues, said the billing regulations were reinforced in a CMS notice issued May 17, or about three months before Scrushy said he discovered their impact (Sept. 9, p. 9).
It's been a difficult several weeks for Scrushy, the Alabama native who built his multibillion-dollar empire from the ground up-with "$50,000 and a business card." As part of the reorganization, Scrushy, whose name is almost synonymous with his company, gave up his post as HealthSouth chief executive officer while retaining the title of board chairman.
Scrushy said HealthSouth would recover from the plunge in its stock price, just as it did when values took a similar dip in the wake of the Balanced Budget Act of 1997, which cut into revenue at healthcare companies across the nation. In fact, Scrushy suggested that the price of HealthSouth stock -trading at about $5 per share late last week, down from a high of around $14 as recently as May-represented a bargain for investors.
"Hey, it's a `buy' opportunity," he said. "A company that's generating $1.25 billion in cash flow a year, trading at $5 per share? You tell me that's not a buy opportunity. Tell me a better investment."
A defiant Scrushy also blasted the media for what he said were "erroneous" reports about the company and vigorously defended his sale of 2.5 million shares of HealthSouth stock for $10.06 each on July 31, netting him about $25 million.
Just weeks later, when HealthSouth announced the potential earnings shortfall for the first time, the company's stock lost about half its value in two days of trading. Since then, Scrushy has faced a flurry of class-action lawsuits questioning whether the company withheld vital information from its shareholders.
Scrushy, who was paid about $10.5 million last year, said he did not know about the revised earnings forecast or the impact of the CMS regulations when he sold his stock.
"I hadn't traded stock in five years," he said. "Every now and then people are going to have some liquidity in their stock. When I traded the stock . . . I had no knowledge of anything, and didn't know anything and didn't have any idea of what we might be facing until a good bit of time after that."
In fact, Scrushy said, he wasn't aware of the full potential impact until Aug. 15, when several HealthSouth executives traveled to Washington to meet with CMS officials. At that time, they were told physical therapists must bill at a group rate, instead of at a higher individual rate, any time two or more Medicare patients are receiving treatment simultaneously from the same therapist.
Yet while HealthSouth has struggled with its interpretation, other companies providing outpatient therapy have long since accepted the new CMS rules. A CMS spokeswoman said "many providers" of physical therapy services were "billing properly" even before the May 17 clarification letter appeared on the CMS Web site.
What's more, HealthSouth officials have acknowledged that they received the first clue about the potential problem as early as June 6, when a company lawyer read the notice on the CMS Web site.
Scrushy said he expects a final clarification from the CMS in the next week or so. A restatement of $175 million in operating earnings for 2003 will not hobble a company that boasted $4.3 billion in revenue last year and ranks as the nation's biggest chain of rehabilitation hospitals, he said. In the first two quarters of 2002, HealthSouth's net income was about $165 million.
"When you think about it, $175 million in the scheme of an almost $5 billion company-that's a lot of money, but this company is still very profitable," Scrushy said. "It has a very good profit margin and is very viable, and very strong, and will continue to be a strong company."
Scrushy cast a strong positive light on the company's decision to spin off its lucrative outpatient surgery centers into a new, publicly traded company. Scrushy relinquished his title as CEO but remains chairman of HealthSouth and its new spinoff, Surgical Care Affiliates.
Scrushy said he expects investors to embrace the company's plan for the future.
"I think Wall Street has to see results," Scrushy said. "Wall Street is, you know, `Show me-we want to see it.' And I think Wall Street will be very pleased."