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The Honolulu Advertiser
Posted on: Saturday, June 12, 2004

Picking up pieces a familiar task for new HealthSouth CEO

By Jay Reeves
Associated Press

BIRMINGHAM, Ala. — Jay Grinney has helped one scarred healthcare 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.

Jay Grinney, new chief executive of HealthSouth Inc., must steer the healthcare company through a continuing government probe, repair its relationship with bondholders and build revenues.

Associated Press

Grinney, who became HealthSouth's CEO just last month, spent seven years as president of HCA Inc.'s eastern group.

HealthSouth has 1,700 facilities nationwide. The company operates 11 rehabilitation or surgical centers in Hawai'i and has a presence on every major island in the state.

In his previous 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.

HCA, headquartered in Nashville, Tenn., ended up paying the government $1.7 billion.

Grinney 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.

The new CEO must also steer HealthSouth through a continuing government probe, repair its relationship with bondholders and build revenues in an increasingly difficult healthcare industry.

The company, which offers 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, 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 healthcare 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 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.

Grinney is also hoping to expand.

"As I look long term ... 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 prosecutors involving a scheme to inflate earnings to meet Wall Street forecasts.

Scrushy, who has pleaded innocent, 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.

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."

Some 250 people have been working to reconstruct HealthSouth's books from 2000 through last year. The company recently said an internal review had identified $2.75 billion in fraudulent entries and another $632 million in misstatements linked to improper accounting practices.

Bondholders last month declared the company in technical default over its failure to release new, audited financial statements, and Grinney said he is getting regular updates on talks with creditors. The company is working on delivering those statements.

Another of his goals is getting HealthSouth back on the New York Stock Exchange, which delisted it last year.

"I'm hoping we will be able to do that sometime in '05, maybe early '06. We don't have the firm dates yet," Grinney said.