A new era starts this week at HealthSouth Corp. as veteran HCA executive Jay Grinney steps into the chief executive's office at the troubled rehabilitation company.
HealthSouth's board unanimously voted to appoint Grinney, who had been president of HCA's 91-hospital, 10-state Eastern Group hospital unit since 1996, as president and chief executive officer, effective May 10. The 53-year-old Grinney succeeds Robert May, who has been serving as interim CEO since the ouster of HealthSouth founder Richard Scrushy in March 2003. May will remain a board member.
"I'm very confident that we will be able to grow and expand market share, and I'm looking forward to leading the company," Grinney said, adding that he was "very flattered" to receive the initial call from HealthSouth earlier this year.
Grinney, who joined HCA in 1990 as CEO of Rosewood Medical Center in Houston, takes over HealthSouth as the company struggles to recover from a $2.7 billion accounting scandal resulting in an 85-count indictment against Scrushy and guilty pleas by 15 company executives. Scrushy's trial is set to begin Aug. 23 in Birmingham, Ala.
Grinney brings ample knowledge of crisis management to his new job at HealthSouth. HCA carried out its own corporate overhaul in the late 1990s amid a federal investigation into its Medicare billing practices. The company ultimately paid the U.S. government $1.7 billion to settle civil and criminal claims against it.
HealthSouth still has some hurdles to clear before returning to optimal financial health, namely the resolution of outstanding issues with a group of its bondholders that is demanding early repayment of the company's debt. Earlier this year, HealthSouth's acting chief financial officer, Guy Sansone, raised the specter of bankruptcy, contending that forced early repayment of some $2.7 billion could put the company on a path toward Chapter 11. Last month, the bondholders agreed to hold off on forcing repayment for at least another 30 days, so long as good-faith negotiations continue.
"It would be ridiculous if anyone went to that level," said HealthSouth spokesman Andy Brimmer of the possibility of bankruptcy.
Grinney said he is not worried about the bondholders either.
"The interim management team combined with strong board leadership has those issues well under control," he said. "There are risks, of course, but they are manageable risks, and I don't think anyone out there wants to hurt the company or see it damaged or the care being provided compromised. I'm comfortable that we will resolve outstanding issues."
Brad Scheler of Fried, Frank, Harris, Shriver & Jacobson, who is counsel to the bondholders, told Modern Healthcare that he was willing to work with Grinney to get the company's finances in order. He said he was "cautiously optimistic" that negotiations with HealthSouth would result in a mutual agreement.
Grinney said his first 100 days as chief executive would be spent determining where potential growth opportunities are and communicating those areas to operators and managers in the field.
"Initially, I will do a lot of listening," he said. "What excites me about this opportunity is that fundamentally, this is a great company with great employees and market position, and I want to learn as much as I can by visiting markets, facilities, managers and finding out what they need to be successful."
Grinney said several months of discussions with HealthSouth's leadership have convinced him that the company's product lines are "very well-positioned to be hugely successful," and he is eager to begin expanding the rehabilitation side of the business and outpatient services, which are experiencing explosive growth.
"For very understandable reasons, the company has played defense for the last year or so," said Grinney, who is also a former chairman of the Federation of American Hospitals. "I want to get us back in the field playing offense and looking for growth opportunities."
Grinney said another top priority would be to launch an aggressive search for a chief operating officer and CFO for the company. For more than a year, HealthSouth has been supported by an interim management team from New York turnaround firm Alvarez & Marsal, which is still steering the company through an ongoing federal investigation and corporate overhaul.
HCA has said that while no time frame has been established, the company would immediately begin the process of finding a replacement for Grinney, most likely from within its own ranks. Company spokesman Jeff Prescott said HCA viewed Grinney's opportunity as a great move and wouldn't want to stand in his way.
Grinney said he is leaving HCA with mixed emotions.
"A lot of people were considering writing off this company, which ironically, parallels HealthSouth," Grinney said. "But just as with HCA, the underlying units were strong."
HealthSouth still needs to take final steps for a board transition plan, including the resignation of the fifth of five company directors who agreed to step down under a settlement with the Teachers' Retirement System of Louisiana, a pension plan that holds stock in HealthSouth. Two directors resigned on Dec. 15, 2003, one on April 2, one on April 15 and the final director is expected to step down Aug. 30.
Stuart Grant, counsel for the pension plan, said he was pleased with the progress of the company's governance overhaul to transition to an independent board. "We're getting there," he said, adding that the company would benefit from an independent chairman. Grinney, unlike Scrushy, will not serve both positions of CEO and chairman of HealthSouth, a dual role that healthcare leaders have contended can lead to conflicts of interest.
"My experience in the healthcare industry has allowed me to form a very favorable impression of HealthSouth and the quality of care that is being provided by unbelievably dedicated employees," Grinney said. "Every market where HealthSouth has a presence, we have a great rep."