LI has redounded a bit too much lately, about Iraq. Let's turn to the toast economy, shall we?



HealthSouth's collapse, last week, was masked by the war -- as, for that matter, were the tax shenanigans of the D.C. Bush-ites, the busy troops bringing us the Great Giveaway. HealthSouth is serious business. These great structures, with their CEO Humpty Dumpties sitting on them, redefining the language of profit and loss, cause a lot of collateral damage when they have their great falls. One of our best friends here, S., is a physical therapist working at a Health South Hospital. She is pregnant, she is a recent homeowner, and she is just the kind of person who is put at risk by the likes of the CEO of Health South, Richard Scrushy.



To rehash the story:



Last year, Health South made one of those surprising earnings announcement that almost invariably indicate the midnight scuttling of rats in the accounting department.  At the beginning of last year, as the death bell for Enron was ringing out  the dead in the energy and telecom sectors, scary news was being heard from the health sector. Forbes, in October, summed up the year's spiral for Health South like this:



"Healthsouth Chairman Richard Scrushy was complaining about Medicare reimbursements when we wrote about him earlier this year. He's still complaining, but he's got bigger problems. A raft of shareholder suits charge that Scrushy and another director sold $100 million worth of shares knowing that a clarification in Medicare billing rules on group therapy would reduce annual operating earnings at the rehab hospital chain by $175 million.



HealthSouth's stock has plunged 75% since the earnings reduction announcement Aug. 27.But maybe it's bondholders who have the real beef. The suits claim that HealthSouth knew about the Medicare billing clarification as early as May 17. Scrushy insists he had no knowledge of it until August. Interesting, that May 17 date. That's when HealthSouth sold $1 billion in debt to investors, extending notes that would have expired in 2003 for an additional ten years. The company got a 7 5/8% rate. Not bad, given that the bonds have since fallen to 69 cents on the dollar, which if negotiated today would mean a 14% coupon for HealthSouth. In short, HealthSouth got a good deal issuing that debt when it did."



Ah, innocence. One ponders another CEO's parental concern with his stock options outweighing his concern for his company. But wait! There was a twist with this announcement. Rather than confessing to a possible fraud, the confession itself was part of a larger fraud.

The HealthSouth saga was, as is so often the case, all about the CEO, Richard Scrushy. Scrushy swung a  member of elephantine proportions in his home town of Birmingham, Alabama. He'd gotten his name on various University of Alabama buildings. He was celebrated in the newspaper as an entrepeneurial sage. Like Stephen Hilbert, the CEO of CONSECO of Indianapolis, another grounded high flier with a taste for younger, prettier wives, located in an out of the way burg that was perfect for camoflaging on-going revenue stripping, Scrushy was famed for a variety of tasteless moments. There's one of those NYT portraits of the guy, by Simon Romero that drypoints with just that hint of acid the true bizarreness that can be overlooked in a Southern town if you are willing to throw around one hundred million dollars:





"For a city that had grown accustomed to Mr. Scrushy's public persona in recent years, the disclosure of the problems at HealthSouth came as a jolt. Mr. Scrushy (pronounced SCROO-shee) was known as much in Birmingham for his extravagant tastes, which included a Hummer oversize S.U.V., a luxurious Florida estate and a lead singing role in his own country music band, as he was for his philanthropy."





Romero's article -- and by the way, that it is Romero's and not Kurt Eichenwald makes us wonder if something is up there on the NYT business page --today frontloads a few pretty shocking grafs, bad news for Scrushy:





"At least one official is said to be planning to submit documents, including copies of invoices and receipts, that would show how Richard M. Scrushy, HealthSouth's former chairman, oversaw the creation of a sophisticated electronic surveillance system that may have intimidated senior officials into keeping quiet.Last week, the Justice Department filed a criminal complaint against Weston Smith, HealthSouth's former chief financial officer. Mr. Smith is cooperating with investigators in their effort to show how Mr. Scrushy pushed senior executives to inflate earnings to prevent a decline in HealthSouth's share price. The Securities and Exchange Commission is also investigating."



But worse is in the meat of the article, the twist in Scrushy's summer confession:



"The S.E.C., in the case it filed last week, said that the controversy over the Medicare rule was simply a ruse and that Mr. Scrushy, along with several other HealthSouth executives, had been inflating and distorting the company's financial results almost since its inception. The company is accused of inflating earnings by $1.4 billion and assets by $800 million from 1999 through mid-2002, although the fraud is said to have taken place for a much longer time. Like other health care companies, HealthSouth routinely adjusted its revenues to estimate how much it would be paid by insurers.



But Healthsouth used those adjustments to manipulate its earnings, according to the S.E.C. complaint, and falsified records to deceive the company's auditors.After years of falsifying earnings, Mr. Scrushy had been looking for a way to reduce Wall Street expectations so he would not have to inflate profits as much in the future, the regulators said."




Wow. You have to wonder about the brass, or the desperation, of a guy like this. Meanwhile, Alabama has to face up to the costs of erasing Srushy's name on various and sundry public buildings. Surely there's a market in this -- selling governments erasable tags, good for stadiums and college facilities. If your donator CEO goes belly up, just flick a switch and presto-chango! The name changes to Smith or something. Until you program in the next CEO's name.