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HealthSouth Becomes Issue On Capitol Hill

Apr 23, 2003 | Jacksonville Business Journal

The governmental probe into HealthSouth is widening again.

The U.S. House Energy and Commerce Committee has launched its own investigation into the alleged accounting scandal that has snared the health care provider, which operates 5 facilities in Jacksonville. Also on the committee's investigation list is accounting firm Ernst & Young LLP, which served as HealthSouth's auditor.

The committee has sent letters to both companies demanding extensive accounting records "related to financial irregularities" from May 1996 to the present to be delivered by May 6.

In the letter to the two firms, the committee likens HealthSouth to such publicly traded companies as Enron Corp., Global Crossing Ltd., Qwest Communications International Inc. and Worldcom Inc.

"The financial troubles at these, and other, publicly traded companies have resulted in the loss of billions of dollars by investors and hundreds of thousands of jobs.(It) appears that HealthSouth has now joined this list of companies and will undertake a massive restatement of reported revenues and earnings spanning several years due to fraudulent accounting practices," the letter says.

The Securities and Exchange Commission has charged HealthSouth and its founder and deposed CEO Richard Scrushy of inflating company earnings by some $2.5 billion since 1997 in order to meet or exceed Wall Street expectations. So far, 10 ex-HealthSouth employees, including four or five chief financial officers, have pleaded or plan to plead guilty to various civil charges.

Heading the committee is chairman Billy Tauzin, R-La., along with John Dingell, D-Mich., James Greenwood, R-Pa., and Peter Deutsch, D-Fla.

In a press statement, Ernst & Young says it "looks forward to working" with the committee in the examination of HealthSouth's financial records. The New York-based firm says it already is cooperating with the SEC and the U.S. Department of Justice and adds that HealthSouth deceived financial its auditors.

In a Dow Jones Business Wire report, a HealthSouth spokesman pledges his company's cooperation in the hearings.

In its letter, the committee also asks for a HealthSouth handbook entitled "Pulling the Wagon: Integrity in Action," and other documents related to ethics.

This week has been a busy one for HealthSouth, the nation's largest provider of outpatient surgery, diagnostic imaging and rehabilitative health care services.

Fired HealthSouth treasurer and former CFO Malcolm McVay, 41, has agreed to plead guilty to three counts of conspiracy and wire fraud. Later this week, another ex-CFO, Michael Martin, 42, could plead guilty in federal court to wire and securities fraud and falsifying financial information.

Also, new lawsuits have pelted the company, including a filing by Birmingham general contractor Brasfield & Gorrie LLC, which accuses the company of not paying $22 million for work completed on its $300 million digital hospital under construction in Birmingham, Ala.

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