HealthSouth scandal - Business in United States of America

HealthSouth scandal: The Rise of HealthSouth

HealthSouth scandal: Signs of Trouble

HealthSouth scandal: More Problems for Scrushy

The Event: The prosecution of the chief executive of an Alabama health care firm under the Sarbanes-Oxley Act for his company’s fraudulent practices

Date: 2002-2005

Place: Alabama

Significance: Richard Scrushy, the founder and chief executive officer of HealthSouth, was the first person to be indicted under the Sarbanes-Oxley Act of 2002, which held senior executives responsible for the accuracy and completeness of corporate financial reports. His acquittal, particularly in view of the fifteen guilty pleas by others involved in the scandal, surprised many people.

Richard Scrushy, trained as a respiratory therapist, was in management at Life mark, a Texas hospital administrative company, before he decided to start his own business. On February 22, 1984, Health- South was incorporated as Amcare, with Scrushy as its CEO and major stockholder. In 1985, the company changed its name to HealthSouth. It went public in 1986 on the NASDAQ stock exchange. Before going public, firms must have an independent auditor examine their books and certify their accuracy. HealthSouth’s auditor felt the books were not reliable, so Scrushy fired the firm and found a more compliant auditor, Ernst & Young. In September, 1988, the company was listed on the New York Stock Exchange, and on January 7, 1999, it became part of the Standard and Poor’s 500 stock index.

Steven Pressman

Further Reading

• Cast, William. Going South. Chicago: Dearborn, 2005. 
• Johnson, Gary, and Mary Johnson. “CEOs 1, SOX 0: The Case Against Richard Scrushy and HealthSouth.” Journal of Legal, Ethical and Regulatory Issues 8, no. 1 (2005): 35-41. 
• Markham, Jerry. A Financial History of Modern U.S. Corporate Scandals. Armonk, N.Y.: M. E. Sharpe, 2006. 

See also: Enron bankruptcy; Health care industry; stock markets; WorldCom bankruptcy.