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Healthsouth Confirms SEC Inquiry

Sep 19, 2002 | Already rocked by fallout from expectations for lower Medicare reimbursements, Healthsouth stock plunged Thursday after it said the Securities and Exchange Commission launched an investigation into the company.

Healthsouth said it's "cooperating fully" but disclosed no other details about the inquiry.

The Wall Street Journal reported that the SEC's investigation encompasses accounting issues and trading in the company's stock, both of which have been under scrutiny since late last month.

Shares of the provider of outpatient surgery services traded down 27 percent to a hit a 52-week low of $3.05.

On Aug. 27, Healthsouth shocked investors by saying changes in billing rules covering Medicare patients would drastically reduce its annual earnings a disclosure that cut its share price nearly in half in one day and spawned a raft of class-action lawsuits.

The company estimated that the change in reimbursements for outpatient therapy could subtract $175 million a year from earnings before interest, taxes, depreciation and amortization. See full story.

"Our board and management team are fully committed to addressing the issues that have been raised in recent days," Chief Executive Richard Scrushy said in Healthsouth's latest announcement.

One such issue may well involve stock sales reportedly made by Scrushy. He sold virtually all of his Healthsouth shares by the end of July, according to a New York Times report earlier this month.

Besides cooperating in the SEC inquiry, Healthsouth said its board formed a two-director committee to "review all matters" growing out of shareholder litigation.

At least 17 suits have been announced to date on behalf of Healthsouth's shareholders.

In a similar vein, the company hired the Fulbright & Jaworski law firm to review issues related to "litigation and other matters." As special counsel, Fulbright & Jaworski will pass on its findings to the Healthsouth board for referral to regulatory authorities.

Finally, the company said Jon Hanson, chairman of the New Jersey-based real-estate investment firm Hampshire Cos., has been named an independent member of Healthsouth's board.

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