With HealthSouth Corp. facing sweeping federal charges of accounting fraud, hospitals and other healthcare companies are closely monitoring their business partnerships with and investments in the rehabilitation chain now that its future and financial status are uncertain.
Providers involved in joint ventures or other contracts with Birmingham, Ala.-based HealthSouth contend that the company's problems are not likely to affect their image with patients at this time. However, they said they are unsure of the effect any possible restatement of HealthSouth's earnings or a Chapter 11 filing might have on their partnerships.
HealthSouth's $300 million digital hospital in Birmingham was the first of several projects to come to a halt last week after federal officials obtained court approval to freeze former Chief Executive Officer Richard Scrushy's assets. Construction on the 93,000-square-foot fa- cility, which was the subject of a heated legal battle over its certificate-of-need approval, began in November 2001 and was expected to be finished by June 2004 (Oct. 14, 2002, p. 4).
"We stand ready to complete the project and we're committed to it," said Bud Grebey, a spokesman for Siemens, which entered into a multiyear partnership with HealthSouth on the flagship project. "We're waiting for direction from HealthSouth on a timeline for moving forward or any change in the project schedule."
A spokesman for HealthSouth declined to comment on how much the chain has invested in the digital facility.
"As part of the evaluation of its capital expenditures, HealthSouth is examining its construction projects and available options," he said.
Construction also was halted last week on a 28-bed rehabilitation hospital in Phenix City, Ala., jointly owned by HealthSouth and Columbus (Ga.) Regional Healthcare System. The 38,000-square-foot facility is nearly 75% complete and was to be finished by June 5. Larry Sanders, chairman and CEO of the not-for-profit system, said he is in discussions with HealthSouth officials to take over the $16.6 million joint venture project and complete it independently.
Sanders, who also is chairman of the American College of Healthcare Executives, in a Modern Healthcare commentary recently urged healthcare organizations to assess their commitment to ethics (March 17, p. 46).
An official at M.J. Harris, a construction company contracted by HealthSouth to build the facility, said the firm counts on roughly 20 construction jobs a year from HealthSouth. Most recently, M.J. Harris completed a 40-bed, 40,000-square-foot rehabilitation hospital in Yuma, Ariz., in February and a 40-bed hospital in Anderson, S.C., a 50-50 joint venture with not-for-profit AnMed Health System, parent of 376-bed Anderson (S.C.) Area Medical Center.
Dan Corrigan, spokesman for AnMed, said the system has contributed $5 million to build the $10 million hospital, which opened in January and is being managed by HealthSouth. While the company's future is undecided, he said there's "a lot of confidence" in the facility itself. However, if the rehabilitation chain were to go under, Corrigan said AnMed is prepared to step in to take full ownership of the joint venture.
"The facility is meeting a need in the community, and we're glad to have a partner with the experience HealthSouth brings to the table," he said. "Worst-case scenario, we could keep this hospital fully staffed and operating." Corrigan said HealthSouth is paying its bills at the hospital, which is near capacity.
Columbus Regional's Sanders said he was uncertain whether any income from the system's joint project might end up in the hands of creditors if there's a bankruptcy filing. Columbus Regional and HealthSouth were expecting roughly $6.9 million in operating expenses and $700,000 of net income during the first year of operation of the rehabilitation hospital. Sanders said while HealthSouth officials have been "very forthcoming" with providing information as the company undergoes its federal audit, he is concerned about not knowing what the outcome will be. "We don't know if there will be a HealthSouth when all of this is done," he said.
Rick Stivers, chief financial officer and senior vice president at Deaconess Health System, Evansville, Ind., told Modern Healthcare the system's joint venture 80-bed HealthSouth Tri-State Rehabilitation Hospital, which works in partnership with 339-bed Deaconess Hospital, is running at full capacity without concern from patients.
"We have considerable control over accounting transactions, so we feel comfortable there will be no impact," he said. "But we are concerned that if they were manipulating the books in Birmingham, then did they do anything that would have affected the earnings for our joint venture?"
Stivers said Deaconess, although a minority owner in the partnership, is asking HealthSouth for three years' worth of audits, and additionally will request independent third-party audits for the facility from now on.