HealthSouth scandal: The Rise of HealthSouth
By 1990, HealthSouth had fifty facilities throughout the United States. It then began a rapid expansion through mergers and acquisitions. In 1993, it bought twenty-eight hospitals and forty-five outpatient rehabilitation facilities from National Medical Enterprise for $300 million. In 1994, it bought Re- Life for $180 million. In January, 1995, HealthSouth entered the surgery business by acquiring Surgical Health Corporation for $155 million. In February, 1995, it acquired Novacare’s rehabilitation hospital business. In 1996, it expanded into diagnostics by purchasing Health Images. These acquisitions made HealthSouth a major U.S. health care provider, with more than two hundred facilities. At its peak, it recorded $4.4 billion in revenues, employed more than fifty thousand people worldwide, and operated eighty outpatient rehabilitation services and twelve home health agencies.
Scrushy was highly rewarded for expanding HealthSouth. Between 1996 and 2002, he was paid $260 million, mostly through stock options. This provided a great incentive for accounting fraud. HealthSouth added thousands of fictitious items to its assets. Most of these were valued under $5,000, since auditors rarely checked assets with such a low value. HealthSouth also removed expenses from its annual income statements to make its profits appear larger and boost the value of its stock.