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Buckhead Medical Supply Firm's Ties To HealthSouth Investigated

Apr 3, 2003 | The Atlanta Journal-Constitution

The federal fraud probe of Birmingham-based HealthSouth Corp. has spread to Atlanta, where investigators are looking into a medical supply company that has close ties to HealthSouth's ousted chief executive, Richard Scrushy.

Although the main focus is Scrushy's alleged scheme to inflate HealthSouth's corporate earnings, investigators are broadening the probe to include other business dealings involving Scrushy.

Investigators say they're examining outside businesses to see if they benefited from ill-gotten gains that Scrushy obtained through the alleged accounting fraud at HealthSouth.

One of the business dealings is HealthSouth's near-exclusive relationship with, which is based in Buckhead. At the time of its 1999 start-up, entrepreneur Robert J. White Jr. claimed the company would revolutionize the medical supply business with its online trading post and inventory-tracking technology.

But the company apparently relied on HealthSouth for its livelihood.

In its short history, MedCenterDirect got a big financial boost from HealthSouth. According to filings with the Securities and Exchange Commission, HealthSouth in 1999 bought 6.4 million convertible preferred shares in the company at 35 cents a share. HealthSouth also signed a 10-year exclusive deal with MedCenterDirect. Under the contract, the majority of HealthSouth's nearly 2,000 rehabilitation hospitals and medical centers would do their buying through MedCenterDirect.

The deal directed tens of millions of dollars in business to MedCenterDirect.

Scrushy also made private investments in MedCenterDirect. At one point, HealthSouth and MedCenterDirect shared a box at Turner Field for Atlanta Braves games.

With Scrushy as one of its biggest cheerleaders, MedCenterDirect filed plans to go public in 2000. It called off those plans the following year.

White is no longer with the company and could not be reached for comment. Calls to MedCenterDirect were not returned Wednesday.

Another company in question is Birmingham-based Source Medical, a software firm for patient records and billing that started as an operation within HealthSouth before becoming independent in 2000.

Like MedCenterDirect, Source Medical claimed HealthSouth among its largest customers.

Investigators also are probing Scrushy's private companies, ranging from aircraft leasing firms to music production companies.

The fraud investigation has netted guilty pleas from three HealthSouth financial officers so far. The U.S. attorney's office in Birmingham said it expects several more pleas today.

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