New HealthSouth CEO seeks to move company past scandal

Jay Reeves

Wednesday, June 9, 2004 | 11:31 a.m.

HealthSouth operates 21 rehabilitation centers with about 740 employees in the Las Vegas Valley and another three rehabilitation centers in other parts of Nevada with about 300 employees.

BIRMINGHAM, Ala. -- Jay Grinney has already helped one scarred health care company, HCA Inc., make it through the aftermath of a scandal. Now his job is to lead HealthSouth Corp. as it recovers from charges of billion-dollar fraud.

Grinney, who became HealthSouth's CEO just last month, spent seven years as president of HCA Inc.'s eastern group, which includes about 100 hospitals with 65,000 employees and revenue of $10.5 billion.

In that job, Grinney helped rehabilitate HCA, the nation's largest for-profit hospital chain, after the company settled federal charges that it overbilled Medicare and Medicaid and paid kickbacks to doctors to refer patients to HCA hospitals. Nashville, Tenn.-based HCA ended up paying the government $1.7 billion.

Grinney, in an interview with the Associated Press, said the experience taught him it is best to disclose everything once trouble starts.

"Having lived through that and seen that that is the best way to handle a turnaround like this (has) given me a lot of confidence coming in that we will be able to handle this," he said.

Grinney must also steer HealthSouth through a continuing government probe, repair its relationship with bondholders and build revenues in an increasingly difficult health care industry. The company, which offers health care services including rehabilitation, outpatient surgery and diagnostic testing, is accused of reporting $2.7 billion in phony profits between 1996 and 2002; Grinney's predecessor as CEO, Richard Scrushy, is awaiting trial on fraud charges.

Paul D. Lapides, director of the Corporate Governance Center at Kennesaw State University near Atlanta, said Grinney appears to have a lot of experience in operating a health care company. But, he said, that's "very different from leading a company, developing his vision and strategy."

Grinney is moving quickly, but he says he can't be in a rush. He believes it will take HealthSouth another three to five years to fully recover from the scandal that erupted publicly in March 2003 and get itself into a growth mode.

One of his goals is to get HealthSouth more involved in offering services such as outpatient surgery that were once offered in big, general hospitals but are now increasingly being performed in ambulatory care centers. He also wants the company to focus more on post-acute care.

"The thing I just get so excited about HealthSouth is that we're well positioned in these two areas to take advantage of a lot of this migration," Grinney said.

HealthSouth currently has 1,700 facilities across the country. Grinney is hoping for more.

"As I look long term and look down the road, I'm definitely going to be positioning this company to be an acquirer and to be a consolidator," he said. "But that's downstream."

There's also the company's reputation to be repaired. Seventeen former HealthSouth executives, including all five of its past chief financial officers, have reached plea deals with federal prosecutor involving a scheme to inflate earnings to meet Wall Street forecasts.

Scrushy, who has pleaded not guilty, blames the fraud on underlings. He is free on $10 million bond while awaiting trial.

The company is trying to put Scrushy in its past. His name is long gone from a conference center it once adorned at HealthSouth's suburban campus, and Grinney isn't using Scrushy's old office. He might never.

Although the official company dress code is still the "corporate casual" look that was the rule under Scrushy, more and more executives are wearing the suits favored by Grinney, who even wears a tie when working Saturdays.

"It's a tiny, trivial, insignificant thing," Grinney said. "But sometimes the little gestures speak volumes. To me, it's just a way of showing respect to the organization."