Encompass Health Corporation, based in
Birmingham, Alabama
Birmingham ( ) is a city in the north central region of the U.S. state of Alabama. Birmingham is the seat of Jefferson County, Alabama's most populous county. As of the 2021 census estimates, Birmingham had a population of 197,575, down 1% fr ...
, is one of the United States' largest providers of post-acute healthcare services, offering both facility-based and home-based post-acute services in 36 states and
Puerto Rico
Puerto Rico (; abbreviated PR; tnq, Boriken, ''Borinquen''), officially the Commonwealth of Puerto Rico ( es, link=yes, Estado Libre Asociado de Puerto Rico, lit=Free Associated State of Puerto Rico), is a Caribbean island and Unincorporated ...
through its network of inpatient rehabilitation hospitals, home health agencies, and hospice agencies. Effective January 2, 2018, the organization changed its name to Encompass Health Corporation and its
New York Stock Exchange
The New York Stock Exchange (NYSE, nicknamed "The Big Board") is an American stock exchange in the Financial District of Lower Manhattan in New York City. It is by far the world's largest stock exchange by market capitalization of its listed c ...
(
NYSE
The New York Stock Exchange (NYSE, nicknamed "The Big Board") is an American stock exchange in the Financial District, Manhattan, Financial District of Lower Manhattan in New York City. It is by far the List of stock exchanges, world's largest s ...
) ticker symbol from HLS to EHC.
In 2003, the
U.S. Securities and Exchange Commission
The U.S. Securities and Exchange Commission (SEC) is an independent agency of the United States federal government, created in the aftermath of the Wall Street Crash of 1929. The primary purpose of the SEC is to enforce the law against market ...
took action against the company's CEO,
Richard M. Scrushy
Richard Marin Scrushy Matulich 2008: 337 (born August 1952) is an American businessman and convicted felon. He is the founder of HealthSouth Corporation, a global healthcare company based in Birmingham, Alabama. Matulich 2008: 338 In 2004, follow ...
, who was accused of directing company employees to falsely report company earnings to meet stockholder expectations.
The company currently operates three divisions:
inpatient rehabilitation,
home health, and
hospice
Hospice care is a type of health care that focuses on the palliation of a terminally ill patient's pain and symptoms and attending to their emotional and spiritual needs at the end of life. Hospice care prioritizes comfort and quality of life by ...
. The company formerly operated an outpatient rehabilitation, surgery center and diagnostics division. The company also previously owned and operated several
acute care hospitals that specialized in
orthopedics
Orthopedic surgery or orthopedics ( alternatively spelt orthopaedics), is the branch of surgery concerned with conditions involving the musculoskeletal system. Orthopedic surgeons use both surgical and nonsurgical means to treat musculoskeletal ...
, but sold all of those hospitals by 2006. The former outpatient division also operated an occupational medicine division until 2001, when it was sold. HealthSouth also sold its
Long-term acute care facilities in May 2011. The long-term hospitals contributed around $200 million in revenue.
Company beginnings
HealthSouth was incorporated in
Birmingham, Alabama
Birmingham ( ) is a city in the north central region of the U.S. state of Alabama. Birmingham is the seat of Jefferson County, Alabama's most populous county. As of the 2021 census estimates, Birmingham had a population of 197,575, down 1% fr ...
as a
Delaware
Delaware ( ) is a state in the Mid-Atlantic region of the United States, bordering Maryland to its south and west; Pennsylvania to its north; and New Jersey and the Atlantic Ocean to its east. The state takes its name from the adjacent Del ...
company on February 22, 1984, as Amcare, Inc. by its founder
Richard M. Scrushy
Richard Marin Scrushy Matulich 2008: 337 (born August 1952) is an American businessman and convicted felon. He is the founder of HealthSouth Corporation, a global healthcare company based in Birmingham, Alabama. Matulich 2008: 338 In 2004, follow ...
.
The company opened its first facility in
Little Rock, Arkansas
(The Little Rock, The "Little Rock")
, government_type = council-manager government, Council-manager
, leader_title = List of mayors of Little Rock, Arkansas, Mayor
, leader_name = Frank Scott Jr.
, leader_ ...
and one in Birmingham later that year. In 1985 the company changed its name to HealthSouth Rehabilitation Corporation.
In 1986, the company went
public
In public relations and communication science, publics are groups of individual people, and the public (a.k.a. the general public) is the totality of such groupings. This is a different concept to the sociological concept of the ''Öffentlichkei ...
with its
IPO
An initial public offering (IPO) or stock launch is a public offering in which shares of a company are sold to institutional investors and usually also to retail (individual) investors. An IPO is typically underwritten by one or more investment ...
on the
NASDAQ Stock Exchange
The Nasdaq Stock Market () (National Association of Securities Dealers Automated Quotations Stock Market) is an American stock exchange based in New York City. It is the most active stock trading venue in the US by volume, and ranked second ...
under the ticker symbol HSRC. At the end of the company's last investor roadshow presentation in
New York City
New York, often called New York City or NYC, is the List of United States cities by population, most populous city in the United States. With a 2020 population of 8,804,190 distributed over , New York City is also the L ...
before its IPO, Scrushy received a standing ovation from the
investment bankers
Investment banking pertains to certain activities of a financial services company or a corporate division that consist in advisory-based financial transactions on behalf of individuals, corporations, and governments. Traditionally associated with ...
in attendance, an extreme rarity. In September 1988, the company moved to the New York Stock Exchange and became listed under the symbol HRC. By 1990 the company had expanded to 50 facilities across the US. HealthSouth finished out 1992 with $400 million in annual revenue. In 1993, the company acquired 28 hospitals and 45 outpatient rehabilitation facilities from
National Medical Enterprise for around $300 million in cash. In 1994, HealthSouth further expanded when it announced it would buy fellow Birmingham-based ReLife for $180 million in stock.
In 1995, the company acquired Caremark Orthopedic Services.
Growth
Throughout the mid-1990s, HealthSouth expanded rapidly through mergers and acquisitions. In 1995, the company changed its name to HealthSouth Corporation to better reflect its diversified interests in healthcare. On August 31, 1995, HealthSouth CEO Richard Scrushy announced that HealthSouth was going to build a new headquarters on
US Highway 280 in Birmingham. The new corporate campus was to be built on of land that the company had bought from
Southern Company
Southern Company is an American gas and electric utility holding company based in the southern United States. It is headquartered in Atlanta, Georgia, with executive offices also located in Birmingham, Alabama. The company is the second largest ...
earlier that year. Southern Company had abandoned plans to build a corporate campus on the site, opting for an office complex further down Highway 280 in the Inverness area. The corporate campus plans included a five-story headquarters building with a connecting conference center, parking deck, print production building, and a campus land management building. HealthSouth was able save money on the site preparation by making use of the many improvements Southern Company had already made to the property, which included utilities and an access road. The company moved into the new headquarters building in December 1996.
In January 1995 the company entered the surgery center business with its $155 million acquisition of Surgical Health Corporation. One month later the company acquired
Novacare's entire rehabilitational hospital business for $215 million in cash. In 1996 the company expanded into diagnostics with its purchase of Health Images Inc. In the beginning of 1996 the company adopted the slogan "''The Healthcare Company of the 21st Century''". Less than a year later the company adopted the "H" logo as its corporate identity. HealthSouth made its largest acquisition yet when it purchased Horizon/CMS for $1.8 billion in 1997. A few months later after the acquisition, HealthSouth sold the long-term care assets of
Horizon/CMS it did not need to
Integrated Health Services for $1.15 billion in cash. HealthSouth along with many Healthcare publications called this the "deal of the century". Also in February 1997 the company finally moved into its new corporate headquarters. The headquarters building itself contained a company store and museum. HealthSouth continued on its acquisition spree through 1999 by purchasing the majority of
Columbia/HCA's surgical division.
In 2001 the company announced it would, along with
Oracle Corporation
Oracle Corporation is an American multinational computer technology corporation headquartered in Austin, Texas. In 2020, Oracle was the third-largest software company in the world by revenue and market capitalization. The company sells da ...
, build the world's first all-digital hospital on its corporate campus. The 13 story structure was meant as a replacement for its aging HealthSouth Medical Center in downtown Birmingham. Construction began soon after on the new HealthSouth Medical Center.
Accounting scandal
The first of HealthSouth's accounting problems surfaced in late 2002 after CEO
Richard M. Scrushy
Richard Marin Scrushy Matulich 2008: 337 (born August 1952) is an American businessman and convicted felon. He is the founder of HealthSouth Corporation, a global healthcare company based in Birmingham, Alabama. Matulich 2008: 338 In 2004, follow ...
sold $75 million in stock several days before the company posted a large loss. HealthSouth was accused by the
U.S. Securities and Exchange Commission
The U.S. Securities and Exchange Commission (SEC) is an independent agency of the United States federal government, created in the aftermath of the Wall Street Crash of 1929. The primary purpose of the SEC is to enforce the law against market ...
(SEC) of an
accounting scandal
Accounting, also known as accountancy, is the measurement, processing, and communication of financial and non financial information about economic entities such as businesses and corporations. Accounting, which has been called the "language ...
where the company's earnings were falsely inflated by $1.4 billion. In 1996, Scrushy allegedly instructed the company's senior officers and accountants to falsify company earnings reports in order to meet investor expectations and control the price of the company's stock. The fraud continued for seven years. In certain fiscal years, the company's income was overstated by as much as 4700%. The $1.4 billion represents more than 10% of the company's total assets. At one point, the company's corporate taxes—based on its fraudulent earnings—were higher than its actual earnings.
In 1998, HealthSouth was accused of violation of the
Securities Exchange Act
The Securities Exchange Act of 1934 (also called the Exchange Act, '34 Act, or 1934 Act) (, codified at et seq.) is a law governing the secondary trading of securities (stocks, bonds, and debentures) in the United States of America. A landma ...
by failing to disclose negative trends and misrepresenting company's financial information.
In 2003, the
U.S. Securities and Exchange Commission
The U.S. Securities and Exchange Commission (SEC) is an independent agency of the United States federal government, created in the aftermath of the Wall Street Crash of 1929. The primary purpose of the SEC is to enforce the law against market ...
took action against HealthSouth regarding a corporate
accounting scandal
Accounting, also known as accountancy, is the measurement, processing, and communication of financial and non financial information about economic entities such as businesses and corporations. Accounting, which has been called the "language ...
, in which its
founder
Founder or Founders may refer to:
Places
*Founders Park, a stadium in South Carolina, formerly known as Carolina Stadium
* Founders Park, a waterside park in Islamorada, Florida
Arts, entertainment, and media
* Founders (''Star Trek''), the ali ...
,
chairman
The chairperson, also chairman, chairwoman or chair, is the presiding officer of an organized group such as a board, committee, or deliberative assembly. The person holding the office, who is typically elected or appointed by members of the grou ...
, and
chief executive officer
A chief executive officer (CEO), also known as a central executive officer (CEO), chief administrator officer (CAO) or just chief executive (CE), is one of a number of corporate executives charged with the management of an organization especially ...
,
Richard M. Scrushy
Richard Marin Scrushy Matulich 2008: 337 (born August 1952) is an American businessman and convicted felon. He is the founder of HealthSouth Corporation, a global healthcare company based in Birmingham, Alabama. Matulich 2008: 338 In 2004, follow ...
, was accused of directing company employees to falsely report grossly exaggerated company earnings in order to meet stockholder expectations.
In March 2003, HealthSouth's CEO
Richard M. Scrushy
Richard Marin Scrushy Matulich 2008: 337 (born August 1952) is an American businessman and convicted felon. He is the founder of HealthSouth Corporation, a global healthcare company based in Birmingham, Alabama. Matulich 2008: 338 In 2004, follow ...
was charged with the
accounting fraud and the SEC announced it was investigating whether Scrushy's stock sell was related to HealthSouth posting a large loss.
HealthSouth hired an outside law firm to review Scrushy's stock sale, with the firm concluding that the sale and profit loss were not related, although this did not take the company off the SEC's radar. On the evening of March 18, 2003 FBI agents executed search warrants at the company's headquarters after the company's
chief financial officer
The chief financial officer (CFO) is an officer of a company or organization that is assigned the primary responsibility for managing the company's finances, including financial planning, management of financial risks, record-keeping, and financ ...
William Owens agreed to wear a wire in a failed attempt to get Scrushy to talk about the fraud.
The board of directors worked vigorously on rectifying the accounting issues, starting with the termination of CEO Scrushy in 2003 and paying $325 million in 2004 regarding allegations of the company having defrauded various federal healthcare programs.
In June 2005, Scrushy was acquitted on all 36 of the accounting fraud counts against him, most notably one count in violation of the
Sarbanes-Oxley Act. By mid-to-late 2006, HealthSouth, which avoided filing for Chapter 11 Bankruptcy Protection, completed its recovery and relisted its stock on the
New York Stock Exchange
The New York Stock Exchange (NYSE, nicknamed "The Big Board") is an American stock exchange in the Financial District of Lower Manhattan in New York City. It is by far the world's largest stock exchange by market capitalization of its listed c ...
under the symbol HLS. In 2009, Scrushy was sued for fraud by HealthSouth investors and ordered to repay his company $2.8 billion.
Recovery and the new HealthSouth/Encompass Health
Following the raid at the company's corporate headquarters, the board of directors held an emergency meeting to discuss changes moving forward. One of the first actions was the termination of Richard Scrushy as chairman and CEO, and William Owens as CFO. Robert P. May was elected as interim CEO and Joel C. Gordon as chairman. Another issue that was immediately addressed by the board was the means by which it would obtain the cash for interest payments of senior bonds and principal payments due on a $344 million
convertible bond
In finance, a convertible bond or convertible note or convertible debt (or a convertible debenture if it has a maturity of greater than 10 years) is a type of bond that the holder can convert into a specified number of shares of common stock in ...
. The board agreed that the company's cash flow problems were too great to tackle on its own. At the advice of its lender
JPMorgan Chase
JPMorgan Chase & Co. is an American multinational investment bank and financial services holding company headquartered in New York City and incorporated in Delaware. As of 2022, JPMorgan Chase is the largest bank in the United States, the ...
, the company hired restructuring firm
Alvarez and Marsal
Alvarez & Marsal (A&M) is a global professional services firm notable for its work in turnaround management and performance improvement of a number of large, high-profile businesses both in the US and abroad such as Lehman Brothers, HealthSouth, T ...
to bring its finances in order and immediately appointed Bryan Marsal Chief Restructuring Officer. By the end of 2003, the company had most of its finances reorganized and was able to avoid
Chapter 11 bankruptcy
Bankruptcy is a legal process through which people or other entities who cannot repay debts to creditors may seek relief from some or all of their debts. In most jurisdictions, bankruptcy is imposed by a court order, often initiated by the debtor ...
.
Efforts were made at the corporate headquarters to eradicate all signs of the prior existence of Scrushy within the company. The board removed Scrushy's name from the conference center, closed the company store and museum and opened the fifth floor executive offices to all employees, which, during Scrushy's tenure, had been kept away. The board also sold all but a few of the company's eleven corporate aircraft, which included a
Gulfstream V
The Gulfstream V (Model GV, pronounced "G-five") is a long-range, large business jet aircraft produced by Gulfstream Aerospace, derived from the previous Gulfstream IV. It flies up to , up to and has a range. It typically accommodates four cr ...
and a
Sikorsky S-76 C+ helicopter. In an effort to save money, the company halted construction of its Digital Hospital, for which building costs had doubled, to $400 million. On May 10, 2004,
Jay Grinney was chosen by the board as the company's permanent CEO. Soon after Grinney's appointment, the company moved forward with its goal of again becoming a current filer with the SEC. By doing so, the company restated earnings from 2000 to 2003. The company also sold or closed many underperforming facilities, including its medical center division, in its effort to return to profitability.
On May 15, 2006, the company completed its goal of once again becoming a current filer with the SEC when it filed its first quarter 2006 financial result. It was the first time the company had filed a 10-Q since its accounting scandal began. On August 14, 2006, the company unveiled its restructuring plan which included the sell, spin-off or other disposition of its surgery, outpatient, and diagnostic divisions, along with a 1-for-5 reverse stock split, to coincide with its relisting on the New York Stock Exchange under the symbol HLS. The reverse stock split was approved by stock holders at a special meeting at the company's corporate headquarters on October 18, 2006. The last step in HealthSouth's recovery from its accounting scandal occurred on October 26, 2006, when it was again relisted on the New York Stock Exchange.
On January 29, 2007, the company announced it would sell its more than 600 outpatient centers to
Select Medical Corporation
Select Medical is a healthcare company based in Pennsylvania. It owns long-term acute care and inpatient rehabilitation hospitals, as well as occupational health and physical therapy clinics. Select Medical is a subsidiary of Select Medical Hold ...
for $245 million in cash. The transaction was completed on May 1, 2007.
On March 26, 2007, HealthSouth announced it would sell its surgery center division to private investment partnership
TPG Capital
TPG Inc., previously known as Texas Pacific Group and TPG Capital, is an American investment company based in Fort Worth, Texas. The private equity firm is focused on leveraged buyouts and growth capital. TPG manages investment funds in growth c ...
for $920 million in cash and equity interest in the newly formed company worth between $25 to $30 million. The surgery center division comprised 139 outpatient surgery centers and three surgical hospitals. It was also announced that the new surgery center company would remain headquartered in Birmingham. The transaction was completed on June 30, 2007, with the creation of
Surgical Care Affiliates
SCA Health (SCA), is one of the largest providers of outpatient surgery in the United States. Based in Deerfield, Illinois, the company has a network of 220 ambulatory surgery centers (ASCs) in 35 states performing 1 million procedures a year. ...
.
On April 29, 2007, HealthSouth announced a definitive agreement to sell its diagnostic division to the Gores Group for $47.5 million. It was also announced that the newly formed company was to remain in Birmingham. The transaction was completed on July 31, 2007, with
Diagnostic Health Corporation
Diagnostic Health Corporation, based in Birmingham, Alabama, is one of the nation's largest independent diagnostic imaging companies. The company is the former diagnostic division of HealthSouth Corporation. The company has network of 53 free sta ...
being formed.
In July 2010, HealthSouth gave the American Cancer Society of Alabama the black V-12
2000 BMW 750iL, a bullet-proof sedan that HealthSouth purchased for security reasons under former CEO Richard Scrushy. Scrushy bought the car from HealthSouth in 2003 after an accounting scandal broke. Scrushy also owned a maroon 2000 bullet-proof V-12 BMW 750iL that was sold in 2009 by HealthSouth as part of a civil judgment against Scrushy. In 2009, HealthSouth had obtained ownership of Scrushy's black 2000 BMW 750iL.
In 2014, HealthSouth purchased Encompass Home Health and Hospice.
Affiliated companies
Offspring companies
*
MedPartners, Inc. — a pharmacy practice management company founded by the HealthSouth and Scrushy, today the company is known as
CVS Caremark
CVS Caremark (formerly Caremark Rx) (stylized as , previously CVS/caremark) is the prescription benefit management subsidiary of CVS Health, headquartered in Woonsocket, Rhode Island.
Company history
Caremark was founded as a physician and ph ...
, a unit of
CVS Health
CVS Health Corporation (previously CVS Corporation and CVS Caremark Corporation) is an American healthcare company that owns CVS Pharmacy, a retail pharmacy chain; CVS Caremark, a pharmacy benefits manager; and Aetna, a health insurance provi ...
.
*Capstone Capital Corporation — a real estate investment trust founded by HealthSouth
*
Diagnostic Health Corporation
Diagnostic Health Corporation, based in Birmingham, Alabama, is one of the nation's largest independent diagnostic imaging companies. The company is the former diagnostic division of HealthSouth Corporation. The company has network of 53 free sta ...
— former diagnostic imaging division
*
SourceMedical Solutions — healthcare technology systems founded by HealthSouth
*
Surgical Care Affiliates
SCA Health (SCA), is one of the largest providers of outpatient surgery in the United States. Based in Deerfield, Illinois, the company has a network of 220 ambulatory surgery centers (ASCs) in 35 states performing 1 million procedures a year. ...
— former surgery center division
Previously affiliated companies
*21st Century Health Ventures (
Birmingham, Alabama
Birmingham ( ) is a city in the north central region of the U.S. state of Alabama. Birmingham is the seat of Jefferson County, Alabama's most populous county. As of the 2021 census estimates, Birmingham had a population of 197,575, down 1% fr ...
) — founded by Scrushy and former HealthSouth CEO
Michael Martin.
*GG Enterprises (
Hoover, Alabama
Hoover is a city in Jefferson and Shelby counties in north central Alabama, United States. Hoover is the largest suburban city in Alabama and the 6th largest city in Alabama. The city had a population of 92,606 as of the 2020 US Census. Hoover ...
) — founded by Scrushy's mother and brother.
*
Go for It! Roadshow
Encompass Health Corporation, based in Birmingham, Alabama, is one of the United States' largest providers of post-acute healthcare services, offering both facility-based and home-based post-acute services in 36 states and Puerto Rico through its ...
— a children's health education tour and television series sponsored by HealthSouth
*MedCenterDirect.com (
Atlanta, Georgia
Atlanta ( ) is the capital and most populous city of the U.S. state of Georgia. It is the seat of Fulton County, the most populous county in Georgia, but its territory falls in both Fulton and DeKalb counties. With a population of 498,715 ...
) — HealthSouth bought 6.4 million shares of this hospital supplies company.
*HealthTronics Surgical Services Inc. (
Marietta, Georgia
Marietta is a city in and the county seat of Cobb County, Georgia, United States. At the 2020 census, the city had a population of 60,972. The 2019 estimate was 60,867, making it one of Atlanta's largest suburbs. Marietta is the fourth largest ...
) — Michael Martin was director while CFO at HealthSouth.
*
Total Nonstop Action Wrestling
Impact Wrestling (stylized as ''IMPACT! Wrestling''), is an American professional wrestling promotion based in Nashville, Tennessee. It is a subsidiary of Anthem Sports & Entertainment.
Founded by Jeff and Jerry Jarrett in 2002, the promot ...
LLC. (
Nashville, Tennessee
Nashville is the capital city of the U.S. state of Tennessee and the county seat, seat of Davidson County, Tennessee, Davidson County. With a population of 689,447 at the 2020 United States census, 2020 U.S. census, Nashville is the List of muni ...
)- Healthsouth was a major financial contributor but dropped support for the company in October 2002 amid the accounting scandal.
*Integrated Health Services Inc. (
Sparks, Maryland
Sparks is an unincorporated community that is located in Baltimore County, Maryland, United States. It is situated approximately north of Baltimore and is considered to be a suburb of the City of Baltimore. The Gunpowder River runs through Spark ...
) — a nursing homes and rehabilitation center company that Scrushy was a director of in the 1990s.
References
External links
*
SEC litigation release – SEC Charges HealthSouth Corp., CEO Richard Scrushy With $1.4 Billion Accounting FraudBirmingham News Special Report on the HealthSouth Scandal
{{authority control
American companies established in 1984
1984 establishments in Alabama
Companies based in Birmingham, Alabama
Companies listed on the New York Stock Exchange
Hospital networks in the United States
Rehabilitation medicine organizations based in the United States
Fraud in the United States
Medical and health organizations based in Alabama