Panel Cites Warnings on HealthSouth

From Reuters and Bloomberg News

A congressional committee said Wednesday that it has evidence that warnings were sounded about troubles at health-care services provider HealthSouth Corp. as early as five years ago.

The House Energy and Commerce Committee said it has obtained a memo indicating warnings “were given to HealthSouth’s corporate watchdogs -- their outside auditor, Ernst & Young, and perhaps even the [Securities and Exchange Commission] -- about the accounting shenanigans at the company. Yet no one appears to have listened,” the committee said in a statement.

It said that as part of its expanding probe of HealthSouth it will seek interviews with individuals who were officers and directors during late 1998 at HealthSouth, which also is under SEC investigation.

HealthSouth, an Alabama-based operator of physical therapy and surgical clinics, has been accused of inflating earnings reports by $2.5 billion over several years.


Committee Chairman W.J. “Billy” Tauzin (R-La.) and investigations subcommittee Chairman James Greenwood (R-Pa.)said they wanted to “gain a better understanding of whether the company internally investigated these allegations and whether it was fully disclosed to officers and directors.”

Separately, an attorney for fired HealthSouth Chief Executive Richard Scrushy said he is assembling a group of private investors to buy HealthSouth.

Scrushy, a HealthSouth founder, would be paid a “fair price” to serve as an advisor and have no financial stake in the company, attorney Donald V. Watkins said.

As many as 10 investors may put up as much as 20% of the cash needed to control the 396 million outstanding shares, repay loans and satisfy bondholders, Watkins said. Scrushy owned nearly 1% of the shares, or about 3.8 million, as of March 12, according to a company filing.

HealthSouth spokesman Andrew Brimmer said the company “cannot imagine any circumstance where Mr. Scrushy would be permitted to acquire control of this company.”

HealthSouth shares rose 1 cent to 27 cents in over-the-counter trading.