A healthcare information technology developer once part-owned by recently ousted HealthSouth Corp. CEO Richard Scrushy is denying a published report that it is a target in the federal investigation of alleged accounting fraud and insider trading at HealthSouth.
"We are not being investigated, to the best of our knowledge," says Mike Ragsdale, a spokesperson for Source Medical, a Birmingham, Ala., a developer of electronic medical records and other clinical software for ambulatory surgery centers and other outpatient environments.
HealthSouth, also based in Birmingham, operates nearly 1,700 ASCs and rehabilitation clinics.
A story in Wednesday's Wall Street Journal says that federal investigators looking into possible wrongdoing at HealthSouth "are also trying to unravel a complicated series of deals" HealthSouth and Scrushy made with Source Medical and with Atlanta-based medical equipment supplier MedCenterDirect.com. The Journal story relies on unnamed sources.
But Ragsdale says the probe, led by the Securities and Exchange Commission, does not involve the business operations of Source Medical.
"Source Medical was asked (by the SEC) to participate in February in an investigation of HealthSouth's billing practices," Ragsdale says. He says that Source Medical cooperated with investigators then and continues to cooperate today.
Source Medical was founded by two HealthSouth alumni and is 30% owned by HealthSouth, according to the Journal report. Ragsdale says that Scrushy at one point held a 9% stake in the software company, but "gave his shares to a charity last year."
HealthSouth was one of two lead investors in a $5 million round of venture capital funding for MedCenterDirect in April 2002, and Scrushy and HealthSouth continue to own equity in the privately held firm.
In 1999, HealthSouth signed a 10-year exclusive deal with MedCenterDirect to have the majority of its facilities purchase their medical supplies through the online merchant.
A MedCenterDirect official did not immediately respond to a request for comment.
HealthSouth fired Scrushy Monday, 12 days after the SEC charged him with orchestrating "massive fraud" by encouraging HealthSouth to overstate its earnings by at least $1.4 billion and its assets by $800 million since 1999.
The Journal story also says that "several HealthSouth finance executives" are expected to plead guilty later this week to criminal fraud charges, based on SEC and Justice Department findings.
"I think there is a hope/expectation of that," says Craig Dahle, spokesperson for the FBI field office in Birmingham. "I think the chances of that are pretty good."
Former HealthSouth CFO Weston Smith already has admitted to securities fraud.