Innovation is appreciated in healthcare, but executives have been reminded again to dedicate their creativity to the money they can earn providing care to patientspatients who need it.
Being held accountable
Scrushy ordered to pay billions; L.A. exec pleads guilty
Richard Scrushy is now on the hook for $2.88 billion in a lawsuit brought by HealthSouth shareholders to hold the former CEO accountable for inflating the companys earnings between 1996 and 2003, often by hundreds of millions of dollars a year. In Los Angeles, meanwhile, federal prosecutors secured a fourth guilty plea in a case involving a hospital that filled its beds with homeless people whose symptoms were as fabricated as HealthSouths books.
Scrushy was acquitted of criminal charges related to the accounting fraud following a jury trial in 2005. In the 11-day civil trial in May in Birmingham, Ala., home base for HealthSouth, Scrushy took the stand for three days and vigorously argued that he neither played a role in nor was aware of the financial deception, which his lawyers conceded took place while Scrushy was CEO.
Jefferson County (Ala.) Circuit Court Judge Allwin Horn concluded otherwise. Scrushy was the CEO of the fraud, Horn wrote in boldface and italics in a 47-page opinion issued with his judgment June 18. He added later, This court finds it inherently incredible that a CEO could fail to know of or discover a fraud of this magnitude over almost seven years.
Jack McNamee, the lead attorney on Scrushys defense team, said he intends to appeal the result to the Alabama Supreme Court. We should have prevailed, but thats why they have courts of appeal, McNamee said.
The judgment amount reflects excess debt costs the company shouldered as a result of the fraud, excess salaries and bonuses, taxes paid on fictitious earnings and the cost (nearly $460 million) of reconstructing several years of books cooked to support the exaggerated earnings intended to drive up the companys stock value. We dont realistically expect to collect that much, but we do feel Mr. Scrushy is a man of substantial means and has substantial assets, said lawyer John Haley of the firm Hare, Wynn, Newell & Newton, which represented the shareholder plaintiffs.
When the Justice Department indicted him in 2003, prosecutors sought forfeiture of assets they calculated were worth nearly $280 million, including a 92-foot yacht called Chez Soiree, a plane, multiple homes and paintings by Pablo Picasso and Marc Chagall. Scrushy now resides in federal prison in Texas, serving time on a conviction for bribing then-Alabama Gov. Don Siegelman for a seat on the states certificate-of-need board.
Whats new is the fact that folks are getting more aggressive that people like Mr. Scrushy had fiduciary responsibility for companies that had serious legal problems and are responsible for what happened, said David Marshall, a partner in the law firm Davis Wright Tremaine whose work includes white-collar defense.
A settlement agreement HealthSouth entered in the litigation calls for the company to receive 40% of whatever money can be collected from Scrushy, while 25% goes to shareholders. The rest goes to the plaintiffs lawyers.
HealthSouth remains in arbitration with Ernst & Young over allegations that the accounting firm should have detected the fraud. We are pleased to see that justice has been served through this judgment and that another chapter of our past has been put behind us, HealthSouth said in a written statement.
Last week also brought news in a case of fraud from the streets of Los Angeles in the area known as Skid Row. Robert Bourseau, who was co-owner and chairman of for-profit City of Angels Medical Center, admitted that he paid kickbacks to recruiters who rounded up homeless beneficiaries of government health programs$500 for each Medicare patient, $250 to $300 for each Medicaid patientaccording to the plea agreement entered in U.S. District Court in Los Angeles.
Bourseau, who faces up to 10 years in prison, was the last to plead guilty of four men indicted in the case. He joins former CEO Rudra Sabaratnam, Dante Nicholson, who was senior vice president for physician services, and Estill Mitts, who recruited the patients and funneled them through a phony assessment center called the 7th Street Christian Day Center. Bourseaus sentencing is set for Sept. 14.
Mitts received the bulk of $486,000 the hospital paid under sham consulting contracts for the patients. The admissions yielded approximately $4.1 million in Medicare and Medicaid revenue for the 150-bed hospital, which in April was renamed Silver Lake Medical Center under new ownership.
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