The many extracts on these pages are from copyright material. They are owned by the reference given or its owner. They are reproduced here for educational purposes and to stimulate public debate about the provision of health and aged care. I consider this to be "fair use" in the common interest. They should not be reproduced for commercial purposes.

Every attempt is made to provide accurate and well written material. Your contributions, suggestions, additional information and advice sent to the web address at the foot of the page are welcome. Where possible they will be included in revised pages.

The intention is to show the general thrust of corporate practices as well as the nature and extent of any allegations made. Material contained here represents my views based on my study of the operation of the health care marketplace and the material available to me. It should not be assumed to represent the views of any other individual or organization.

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Context, Leadership, Culture and Community

Introductory page
This corporate web site addresses the issues of corporate health care within a broad framework. A web page describing this broad context should be considered as an introduction to each page on the web site. If you have not yet read it then
CLICK HERE to open it in another tab or web page.

Content of this page
This page looks at the workplace context in HealthSouth. It examines personality and social structures in an attempt to understand why the company misbehaved so badly.


Please note that in a controversial jury decision Richard Scrushy was found not guilty of the fraud for which others at HealthSouth claimed he was responsible.

Scrushy's personal stake is further evidenced by his control of the company's corporate environment and culture.
"I call it the edifice complex," says Hoehn of Salomon Brothers. "Any time we see someone build something with respect to an office complex, we worry about the mental position of the management and that they're starting to feel fat and happy."
"With HealthSouth, you've got one of the most driven management teams in the healthcare industry, and they seem to be aware of the pitfalls," he says.



It is easy to identify patterns of behaviour and thinking across almost all of the large and successful corporations as they rise to dizzy heights, tumble into disrepute and then resurrect themselves with a change of visible faces and a public relations exercise.

They conduct themselves as if nothing much has happened and as if they were fundamentally right all the time. The business community admires their skills in extricating themselves and the wider community accepts their claims as if they had no memory of what happened.

The facts are there but the difficulty is in explaining why and how this happens. I have examined most of these corporate events and have concluded that the central problem is the corporate for profit context within which corporate health care meaning systems are developed. Those involved use these in making decisions and in building their lives.

Factors which contribute and flow on from the market context include

This occurs within the wider business culture, and the whole community. They all influence one another.

<CLICK HERE> for more.

HealthSouth and Richard Scrushy provide a unique opportunity to study this phenomenon. This is because of the vast number of reports describing Scrushy himself and what happened in HealthSouth, the company where the largest fraud ever perpetrated in health care has occurred. It is almost a caricature of what happened in other health and aged care companies. The press reports bring it all out better than I can. I have allowed extracts from many sources to tell the story.

Disclaimer because of conflicting court decisions

In assessing my comments and the press reports you should remember that Scrushy was acquitted of any criminal activity by a jury of his peers in his home town in June 2005. But there are many, even among the judges involved in other aspects of the case who believe that that decision was wrong and that he was the prime offender. In a separate case outside his home town Scrushy was subsequently found guilty of bribing the governor of Alabama.

Most of this web page was written prior to these cases and you should examine what is said here and the press reports in the light of these facts.

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The Role of Context


The context within which HealthSouth developed does not differ from that of other market listed health care corporations. The primary focus is economic enrichment. The competitive healthcare marketplace is a growth market where money is made by increasing the value of shares. Survival depends on taking over other companies and not being taken over yourself. (see this article)

In a
2007 article (pdf file) eminent business guru John Bogle described the way the focus in the marketplace has moved, from an emphasis on long term goals and solid companies functional for the community, to short term profitability, management self interest and share value, none of which are functional. This move has coincided with the move of health and aged care from community care to market care and then very recently to care by private equity financiers. Each has changed the context within which health and aged care are provided. Each shifts the emphasis further from care towards profitability.

Large numbers of takeovers are done partially or wholly with script so the greater the value of the shares the more effective the company. The more successful the takeovers, the more share prices rise and the more takeovers can be accomplished. A vicious spiral is established. It eventually collapses when the profits to sustain the overpriced share value can no longer be squeezed from the system.

Takeovers are also funded by raising money in the marketplace and by borrowing. The success of both depends on a high income stream to give investors the return they demand, and to service loans. Large institutional investors, lenders and analysts are interested only in the potential financial gains. They exert a controlling influence and have little interest in, commitment to, or knowledge of caring for patients. They subscribe to the ideology that market success is consequent on high quality services. This is flawed and in health and care this truism is usually reversed.

The required income stream is attained by increasing the number of services provided and by providing services at maximum profit and minimal cost. These services are controlled by doctors who must be induced to come to the party. Increasing profit by increasing fees is constrained by funders including Medicare and Medicaid, responsible to the taxpayer, as well as HMO's and employers, whose profits come from keeping costs down. Only a small group of individual payers can be exploited by increased fees. Corporations have targeted them whenever there were enough of them to make a difference.

The pressures to over-service, to exploit the vulnerability of the community, to supply the cheapest care and to defraud the payer are very strong. The needs of patients and the community become secondary to the demands of Wall Street. They are squeezed.

The conflicts between financial success and ethical practice are extreme. This web site documents the way in which multiple corporations have thrived by responding to the pressures rather than their ethical responsibilities. I have not examined those who have gone under by being ethically responsible. The social mechanisms which allow this to happen are of particular interest and HealthSouth is one of the best examples.

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In HealthSouth's case the pressures were particularly strong because Mr Scrushy's business policy and his success was based more than others on meeting the profits which analysts predicted HealthSouth would attain. A particular problem was that HealthSouth was doing billions of dollars of business with bankers. These bankers employed analysts who gave glowing and unrealistic profit predictions which it is now suggested were in order to secure HealthSouth's business. The bankers did many billions of dollars of business with HealthSouth by managing the floats and the takeovers which these analysts promoted and which made HealthSouth successful.

<CLICK HERE> for more about the bankers.

HealthSouth's survival and the continued growth on which its success depended could only come from meeting these hyped up projected profits. These profits could not be generated from the services it provided. We can understand how and why the young Birmingham accountants Scrushy had employed in this 1984 startup were induced to fudge the accounts to meet profit expectations. The company's success and their jobs depended on this. Once the pattern was established the company's whole survival and meteoric growth depended on it, but as the company became more and more successful larger and larger amounts of extra profit had to be added to the accounts. They were trapped.

The stock reached what would be its high - almost $31 - in April 1998, and Mr. Scrushy boasted that HealthSouth had achieved its 47th consecutive quarter of matching or beating earnings estimates.
The Scrushy Mix: Strict and So Lenient The New York Times April 20, 2003

<CLICK HERE> for details of the fraud

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Charismatic Leaders


In all social contexts leaders emerge. I have suggested that these leaders will be people who interact with others to develop frames of understanding and create structures which will make it legitimate for individuals to build their lives and be successful in that context.

Where the measures of success and the social outcomes desired are congruent then the leaders are likely to be balanced or open minded and the meaning systems appropriate for the social objectives.

When the desired social outcomes and the measures of success are discordant as in market medicine then the likely leaders will be unbalanced (closed minded) and the meaning systems are likely to provide structures which allow for success without meeting the social objectives.

The psychopath theory:- The healthcare marketplace is relatively new and many of the founding leaders are still around. A number of psychologists and psychiatrists who have studied criminal psychopaths have commented on the incidence of people in the community who have some of these psychopathic characteristics - people who are unmoved by the plight of others. They are intelligent, have no doubts, are often charismatic, plausible and sometimes very successful - true con men. They have been called successful sociopaths. Because of the discordance in the health care marketplace they flourish there.

The problem for the psychopath theory is that it concentrates everything on individuals. People are social beings and psychopaths can only succeed in a culture which is receptive to their plausible rationalisations. Psychopaths also are untreatable and will behave similarly whatever the context. I am not persuaded that this is applicable to what we are seeing. Many displaying sociopathic type behaviour can function effectively in a different context.

Cultural theory:- I have approached this rather differently from a social rather than a psychological perspective. I see a spectrum of social behaviour of which we are all a part. This spectrum embraces the way we respond to conflicting and challenging circumstances in discordant contexts - from opened minded (reflective) to closed minded (one eyed). Intellectual effort is directed to exploring conflicts at the open minded end and to justifying entrenched positions at the closed minded end. Our position in the spectrum depends both on our psychological make up and on the pressures within the social context in which we live. Powerful pressures can force people to be more closed minded. Extreme closed minded behaviour closely approximates that described as sociopathic and I have also used the term successful sociopath to describe it. In a congruent context they all move along the spectrum towards more open minded behaviour.

It is no coincidence that the health care marketplace selects for leaders who I feel are closed minded or sociopathic. They are most likely to develop understandings which disregard the social objectives and allow success. They use their intelligence to develop explanations which make this legitimate.

It is not my intention to claim that Scrushy was closed minded or sociopathic but merely to state the theoretical framework and then to comment briefly on Scrushy's conduct. You should draw your own conclusions from the press extracts included in the light of whole story and the court decisions made subsequently.

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Richard Scrushy

(It)- - - - is testament to the magic that was Richard Scrushy: it seemed he could make anyone do anything for him.

"He was like a god here. Everyone wanted to be around him," says one person close to the family. "They were in awe of him because he had all this money but also this giant lifestyle that everyone wanted to be a part of." - - - -
"I know many people who put their life savings into HealthSouth and lost it," says Boris Datnow, a long-time resident. "Unfortunately, so many people put their trust in him and his company. He promised so much.
Diagnosis of fraud. Financial Times April 15, 2003

Mr. Scrushy's reputation as an aggressive, self-made entrepreneur who stood out as a leader has become legend in Birmingham. Aaron Beam Jr., a former HealthSouth executive, recalled meeting Mr. Scrushy, then 26, while he was an executive at the Lifemark Corporation, then a Texas hospital chain. "I went home and told my wife that I just interviewed with the biggest con artist I ever met, or the most brilliant young man I ever met," he told The Birmingham News in 1996. - - - - - - With three friends and $55,000, Mr. Scrushy and Mr. Beam started HealthSouth in 1984 and took it public in 1986.
The Scrushy Mix: Strict and So Lenient The New York Times April 20, 2003

"Their life was about as unhindered by reality as one could imagine, and with freedom like that, comes the temptation to do anything you want," Ms. Launies said in an interview.
The Rise and Fall of Richard Scrushy, Entrepreneur New York Times March 21, 2003

Interviews with associates of Mr. Scrushy, government officials and former employees, as well as a review of the litigation history of HealthSouth, paint a picture of an executive who ruled by top-down fear, threatened critics with reprisals and paid his loyal subordinates well.
Over the years, as HealthSouth prospered, the company was repeatedly accused of cheating taxpayers and cutting corners. When changes to Medicare unexpectedly hurt the company's profits in 1998, critics lambasted Mr. Scrushy, and he and other HealthSouth executives were sued by angry investors.

Each time, Mr. Scrushy (pronounced SCROO-shee) fought off the attacks, often by intimidation, emerging from each episode seemingly more emboldened. He heaped contempt on critics, who regarded his actions as almost a caricature of a megalomaniac chief executive.
- - - - - some former employees, who have admitted to participating in fraud at the company, say he orchestrated it as a way of ensuring himself huge profits from his sale of HealthSouth stock.
The Scrushy Mix: Strict and So Lenient The New York Times April 20, 2003

"This was a massive, massive crime that I participated in, and I take responsibility for it. It was beyond the scale of gray, but to confront Mr. Scrushy directly was a risk," Livesay said, indicating Scrushy did not welcome bad news and such messengers tended to find their employment future unstable.
"I believed early on in the company. I believed in the leadership. I believed in our vision. ... Nothing happened at that time that caused me any doubt that this information was going all the way to the top," he said.

Yet, even the fraud's could not derailed Livesay's one-time admiration for his former employer.

"I was there for 14 years. I observed, worked for and admired Mr. Scrushy. He was an incredibly talented and gifted man, a very intelligent man. It was like he could achieve anything he set his mind to," Livesay said, adding, "It is inconceivable to me that something this massive was going on without his knowledge."
Scrushy trial: Witness still admires the accused chief executive  The Birmingham Business Journal February 28, 2005

Scrushy was the founder of HealthSouth and he did so at a time when the market context was increasingly accepted as the future for health care. People like Bedrosian (Tenet/NME), Turner (Sun Healthcare) and Scott (Columbia) were arguing that the older professional context for health care was obsolete. Health was no longer an empathic service provided by the community to those in need. It was they argued a commodity like any other and should be traded as such. Professor Arnold Relman was a lone voice pointing out the discordance in the market model. Scrushy adopted this market thinking uncritically and like Columbia/HCA modeled HealthSouth on Walmart (a large US discount chain).

When challenged closed minded people will assertively advance illogical but plausible sounding justifications and use the force of their personalities and credibility to stare down the challenge.

Mr. Webster said when he raised concerns about what he thought were improperly booked receivables, Mr. Scrushy said, "we're under certain pressures to make certain numbers," according to Mr. Webster's testimony. "We have an obligation to stockholders and shareholders."
Fifth Chief Financial Officer at HealthSouth to Admit Fraud
The New York Times April 25, 2003

One of the main features of closed mindedness is compartmentalisation. Different activities or facts are kept quite separate mentally and the conflicts between them are not confronted. They simply choose not to look. When forcefully confronted there is an attempt to rationalise and be assertive. When this is challenged anger is directed at the messenger. They avoid situations where they will have to explain on other's terms. They isolate themselves from those who might challenge them.

"We want to turn the lights on and get the facts out," said Richard M. Scrushy, HealthSouth's chairman.
HealthSouth Tries To Allay Uneasiness Of Investors The New York Times - Sept 20, 2002

In a conference call Aug. 27, which allotted no time for analyst questions, Scrushy initially glossed past the Medicare hit by saying it would have "somewhat of a negative impact" on the company. He then spent most of his time elaborating on the "exciting" plan to spin off HealthSouth's most successful business to create a stand-alone surgery company.
In a conference call with analysts March 3, Scrushy predicted that top management would begin meeting with the SEC in two weeks and clear away the clouds for a turnaround year in 2003.
HealthSouth's Scuttled Spinoff Draws New Scrutiny - April 7, 2003

He had little time to digest the financial information HealthSouth was touting, what with the videos about Scrushy's life and vision and the visit to the "trophy room" with dozens of awards to Scrushy from cities, charities and music organizations.

"I had never seen anyone in the business world who had built such a shrine to himself," Dolliver said. "It wasn't a good sign."
Rocket-like Ascent Tumbles Back With Crushed Investors The Birmingham News April 13, 2003

"Until March 17, 2003, Mr. Scrushy did not know and did not have any reason to believe any accounting fraud was going on at HealthSouth," said Scott S. Balber, a lawyer at Chadbourne & Parke, a New York firm that represents him.
The Scrushy Mix: Strict and So Lenient The New York Times April 20, 2003

Now that he's gone, what strikes longtime HealthSouth employees as strange was the founder's inapproachability.
To business leaders and the general public, Scrushy was an outgoing promoter, electrifying audiences at work-related functions by performing with his band (ironically named ''Proxy'') or giving generously to favored institutions in and around Birmingham,
But to those who worked for him, Scrushy was not a man of the people. He acted like a rock star, sparing no effort or expense to avoid exposure to anyone outside his inner circle
Scrushy used a private drive to arrive at his offices every day. He used a special elevator pass that ensured he would be transported directly to his offices without being interrupted by regular employees getting on and off along the way. Moreover, access to the fifth floor was restricted: Like an exclusive penthouse, you needed a special badge to ascend there.
Employees still snicker about Scrushy's corporate helicopter, dubbed ''Bonus One,'' since HealthSouth bought it during a year in which the company stopped paying bonuses. As best as anyone could tell, the chopper served only two purposes: to transport Scrushy from headquarters to the nearby Birmingham airport or to take Scrushy and his family to his luxury family compound on the shore of Lake Martin, about 70 miles away. Although HealthSouth paid for the helicopter, Leslie Scrushy would use it for spur-of-the-moment shopping sprees in Atlanta, 150 miles away.
From emperor to outcast USA Today May 29, 2003

Describing an atmosphere of intimidation at HealthSouth, Smith said Scrushy would ``humiliate'' subordinates who challenged him during meetings.

``He was referred to as the king. He made every decision,'' said Smith.

U.S. District Judge Karon Bowdre upheld a defense objection to Smith's characterization of Scrushy. But the former executive continued with an unflattering portrayal of his one-time boss, depicting Scrushy as a tyrannical backstabber.

``He did not tolerate people who were not `yes' men. If you were not in the room you were a target, because he loved to talk about people behind their back,'' said Smith.
Fifth Former CFO Testifies Against Scrushy The New York Times March 22, 2005

Scrushy and his wife took several HealthSouth employees and Launius (employed as a personal helper by Scrushy's wife) with on the corporate jet to Hollywood to attend a 1999 fund-raiser for spinal cord injury research hosted by the late actor Christopher Reeve.

On that trip, Scrushy rented the presidential suite at the Regent Beverly Wilshire, and at dinner at "a very exclusive restaurant" Scrushy and former HealthSouth neurosurgeon Dr. Swaid Swaid "got into a wine ordering contest and that some of the bottles of wine they ordered cost approximately $2,000 per bottle," Launius told the FBI.

Launius said the Scrushys gave her a "tummy tuck" as a Christmas gift one year.

Upon learning of the affair (with Massey, the accounant of Scrushy's private company, Marin) and embezzlement (by Massey who then committeed suicide), Launius was fired and said Scrushy told her over the telephone "he was going to put her away for 20 years and that she would never see her children again."
Unsealed papers reveal slice of `Scrushy world' The Birmingham News September 08, 2005

I was particularly interested in Scrushy's emphatic denial that he had indulged in the fraud. Several of his senior accounting staff insist that he had examined the correct accounts which he had found unacceptable. He then handed them to his accountants and told them to "fix it". This raises the interesting question of whether Scrushy saw what he was doing as fraudulent or unacceptable. He was not doing it himself. He explains the accusations against him as a conspiracy by those who claim that he told them to pad the accounts. Is he being deliberately dishonest or does he really believe this?

Also ask yourself whether Scrushy's actions over the years were directed to the benefit of the shareholders to whom he had a fiduciary duty, to the patients to whom he had a duty of care, or to the well being of the recipients of all his philanthropy. Alternately were they directed to his personal wealth and his greatly inflated self image.

Apart from the gift to Guiding Light, Scrushy's foundation's biggest donations in 2003 were $250,000 to United Cerebral Palsy; $100,000 to Jefferson State Community College, which has the Richard M. Scrushy Campus in Shelby County; and $33,000 each to Heifer International and Holy Family Foundation.

Heifer International, which provides food-producing livestock to poor people around the world, has received a share of the profits made by Leslie Scrushy's loungewear company, uppseedaisees. The Holy Family Foundation supports the Birmingham school of that name.
The Richard M. Scrushy foundation became a tax-exempt organization in 1998 when it had $221,921 in assets. Scrushy personally gave the foundation nearly $7 million, according to records.
Scrushy foundation gave $1.05 million to Guiding Light The Birmingham News February 24, 2005

Some if not most of the CEO's and founders of other companies (eg Sun Healthare) started with the intention of providing care for citizens. They had no doubt that the market was the best way to do it. They seemed able to accommodate their business practices to the demands of the market without noticing the conflicts. They maintained the illusion of care and isolated themselves from conflicting information and from people who challenged them.

Scrushy came from a deprived background. He was very intelligent and became became supremely self confident. He saw himself as a great man and persuaded others of this. Several questions can be asked

He was on the one hand ruthless, driving and successful in business. On the other he was a gracious and successful socialite, a gregarious leader in the local community, and a generous philanthropist and benefactor.

For his life is an archetypical tale of the scrappy boy from the dirt-poor South - born in Selma, Alabama - who made good on his own, turning an idea to set up rehabilitation hospitals across the US into a $4bn corporate giant.

Mike Tomberlin, the business reporter who has followed Mr Scrushy for the Birmingham News, said: "He was the ultimate success story and a lot of people saw him that way." It is often recalled how Mr Scrushy stumbled into healthcare by accident. He was hired for manual labour at a small Alabama hospital after being rejected by a community college in Selma.

HealthSouth CEO still big hit in Alabama Financial Times 21 Mar 2003

Mr Scrushy began his career in healthcare by working as a janitor in an Alabama hospital after being rejected from community college. - - - -. But people who know Mr Scrushy also talk of his unfailing charisma.
Diagnosis of fraud. Financial Times April 15, 2003

From 1979 to 1984, Mr. Scrushy was with Lifemark Corporation, a publicly-owned healthcare corporation, serving in various operational and management positions.
HealthSouth SEC Reports March 31, 1998

In many respects, the pairing of Mr. Scrushy and Ms. Givens is an odd one. Mr. Scrushy, 49, is an ostentatious man with a fondness for diamond-studded watches, Palm Beach estates and honky-tonk music. Married three times, he is a native of Selma, Ala., and attended Jefferson State Community College in Birmingham before getting a degree in respiratory therapy at the University of Alabama.
Questions About Investor on Board of HealthSouth The New York Times April 17, 2003

Mr. Scrushy, 50, a former respiratory therapist who started HealthSouth with four friends after he lost his job in a hospital merger, was paid $3.96 million in salary and a $6.5 million bonus last year. That was about 10 times the average paid to chief executives of 13 other big health care chains in the Morgan Stanley health care provider index, - - . His wealth, and his charitable giving, have made him something of a celebrity in Birmingham.

In addition to the Richard M. Scrushy Library at the American Sports Medicine Institute, Alabama's largest city has a Richard M. Scrushy Conference Center, a Richard M. Scrushy Public Library, a Richard M. Scrushy Field at Troy State University and the Richard M. Scrushy campus and hall at Jefferson State Community College, where he started his education.
Growing Concerns on the Health of HealthSouth New York Times September 19, 2002

Of course, the names of top officials at distinguished hospitals were peppered throughout the list. - - - - - and Richard Scrushy (No. 64), chairman and CEO of HealthSouth Corp., Birmingham, Ala.
100 most powerful :: The epicenter of healthcare Modern Healthcare 2002

There was a time when it seemed HealthSouth Corp. Chairman Richard Scrushy could do no wrong whether at work, on the water or on stage.
Scrushy looked like a winner in his time off, too.

He once caught a 582-pound blue marlin in the Gulf of Mexico to win a prestigious fishing tournament, and in the mid-'90s he fronted a country band that earned airtime on Country Music Television.

Martha Stewart was on the guest list in 1997 for his third wedding ÷ a Jamaican affair that Scrushy turned into a weekend of revelry, flying about 150 friends and relatives to the island.
Scrushy had no comment, but the news was hard on his Alabama admirers. Jefferson State Community College, where Scrushy attended school, has an entire campus named for him.

"He bought land for us and through the years he has made several donations to help us," said David Bobo, a school spokesman. "He has given to the community in a number of ways."

Scrushy hasn't scrimped on himself, either. He owns two homes and land worth $4.8 million in Jefferson County, tax records show, and he has two houses and land valued at $5 million at Lake Martin, a popular weekend spot in eastern Alabama.

Scrushy's name is on buildings statewide including the football stadium at Troy State University, which he gave $1 million for an expansion.

In all, Scrushy and HealthSouth have raised more than $100 million for charities.

The company also has been involved in state politics, joining with a powerful farm group to form a political action committee in 1998. The state Senate confirmed Scrushy last year as a trustee of the three-campus University of Alabama System.

HealthSouth Founder Known for Golden Touch Associated Press 20 Mar 2003

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.
Others were not as sanguine about Mr. Scrushy's chances of emerging from the accounting scandal. "I'm shocked, but not surprised," said Hope Launies, a makeup artist who worked as a personal shopper for Leslie Scrushy, Mr. Scrushy's wife.
The Rise and Fall of Richard Scrushy, Entrepreneur New York Times March 21, 2003

He projects a colourful persona by golfing with sports celebrities, singing country music and even promoting an all-girl pop group
He has often been touted as a possible candidate for state office. Even after news that he inflated earnings by $1.4bn at HealthSouth, one of the biggest US healthcare companies, Mr Scrushy retains many supporters.

Everyone's been coming up to me and saying please express to Richard that we care for him and are concerned," says Judy Merritt, president of Jefferson State Community College, which unveiled a portrait of Mr Scrushy in Scrushy Hall at the Scrushy campus. "We've only known him for his wonderful generosity, motivation and care for the community."
The outpouring of support is largely a product of the very thing for which he faces scrutiny: money.

Mr Scrushy, who in 1998 was the third highest-paid US chief executive at $106m, has given generously to Birmingham non-profit organisations and schools. - - - That has earned him a place on many prestigious boards, including his alma mater, the University of Alabama.
Mr Scrushy was also given licence to explore his quirkier hobbies. That included funding and promoting a girl band, 3rd Faze, which toured on HealthSouth's "Go For It!" roadshow to promote a healthy lifestyle to children.
Mr Scrushy even had a moderate hit of his own with the mid-1990s song Honk If You Love to Honky Tonk performed with his band, the Dallas County Line.

But all of this now appears excessive and self-indulgent given the widening federal probe into HealthSouth?s accounting.
"Someone said to me: 'I'd hate to think of a community that doesn?t have Richard pushing through good things,'" recalls Ms Merritt. "He loves to help the community...That's the Richard that I know."
HealthSouth CEO still big hit in Alabama Financial Times 21 Mar 2003

Regulators describe periodic efforts by other executives at HealthSouth, whose stock symbol is HRC, to persuade Mr. Scrushy to stop the manipulations. "Scrushy insisted that the scheme continue because he did not want HRC's stock price to suffer," the S.E.C. complaint said.
HealthSouth Officials Seek to Cut Deals With the U.S. The New York Times March 24, 2003

HealthSouth has maintained as many as 11 planes, which Mr. Scrushy, an amateur pilot, frequently used to fly to one of several vacation homes, according to people at the Birmingham airport.
More Charges Expected in HealthSouth Inquiry New York Times March 25, 2003

In his spare time, Mr. Scrushy, a former respiratory therapist, led several bands himself. The musicians included old friends from his hometown, Selma, Ala., and company employees. There was a rock band and later a country music group called Dallas County Line, which is also the name of one of his companies.

HealthSouth also sponsored a sports events and the national Junior Miss America contest. The company also participated with Mr. Scrushy in donations to schools and libraries, and many of them were named for him.
HealthSouth Inquiry Looks for Accounts Held Offshore The New York Times March 31, 2003

The Birmingham News examined property owned by Scrushy individually and found real estate in Alabama and Florida with a market value of $22.7 million, not including cars, boats, airplanes, bank accounts and other investments.
Scrushy's estate on Lake Martin in Tallapoosa County also has drawn much attention from across the nation. With three boat docks, a swimming pool, an aircraft hangar and 14,000 square feet in the main house, the property is valued at more than $5 million, said Linda Harris, a Tallapoosa County appraiser. Scrushy also owns two other lots in the county worth about $1 million, she said.
Although records of Scrushy's car ownership are unavailable, he has at least 13 boats registered in his name.
Marin Air is the company that owns Scrushy's airplanes, according to court records. Scrushy, a pilot, owns two airplanes through that company, including a 1998 Aviat Aircraft Husky A1A and a 14-seat Cessna 208 prop plane. HealthSouth also has a fleet of 11 planes.
Ousted HealthSouth chief amassed $22.7 million in real estate The Associated Press April 6, 2003

Schabacker testified last week that Scrushy's privately held companies -- which control his airplanes and his 92-foot luxury yacht, Chez Soiree -- employ four housekeepers, two nannies, a ship captain, boat crew and security personnel, among others
Scrushy 'was set up,' says lawyer :: Former CEO's bookkeeper talks
USA TODAY 15 April 2003

One former colleague recalled an event at which Mr. Scrushy, sharing the stage, was outraged when the spotlight rested on someone else and told the operator to point the "spotlight back on me."

He surrounded himself with celebrities, hiring Bo Jackson, the baseball and football star, to represent the company at various events.
- - - - associates have said he had nearly three dozen cars, including two Rolls-Royces and a Lamborghini.
The Scrushy Mix: Strict and So Lenient The New York Times April 20, 2003

While Mr Scrushy was busy attracting investors to his company, he was also relentless in becoming part of Birmingham's elite and one of its highest-profile citizens.

- - - - But Mr Scrushy and his money offered more than mansions and yachts: he offered access.

"Being with Richard, you could go to the Grammys, go to Hollywood parties, fly off in an instant to go to the Atlanta Braves (baseball) game," says a person close to the Scrushy family. "He knew all the right people."

Mr Scrushy was known to play golf with Michael Jordan, dine with Warren Buffett and party with the likes of Martha Stewart, - - - - - . Such access trickled down to his employees, including Mr Hervey.

As another person familiar with the company recalls, Mr Hervey would "boast that he could get anyone in Hollywood to talk to him and one time, to prove it, he called up Courteney Cox (of Friends)... and right away, she came on the phone".

He would use his personal aircraft to the full - jetting celebrities to his wedding in Jamaica and arriving at parties in his own seaplane. Leslie Scrushy, his third wife, is a former Junior Miss pageant contestant - - .

Diagnosis of fraud. Financial Times April 15, 2003

Even last month, as investigators closed in, he was still being lavish with company money: 10 days before he was put on leave Mr Scrushy was buying four-year deals on corporate boxes at some of the southern US's top leisure venues. "There were just wasteful, shameful things going on here at a corporate expense level right up until the eve of his departure," Mr Marsal says.

Diagnosis of fraud. Financial Times April 15, 2003

The HealthSouth Corp. accounting scandal hasn't slowed down Richard Scrushy.

In the past few weeks, his private company bought a $3 million marina in Orange Beach. Scrushy also entered his speedboat - named Monopoly - in a Gulf Coast race and vacationed with his family in the Bahamas.

The expenditures come days after another of Scrushy's companies bought a jet.
"It's thumbing your nose at the shareholders and at the face of all who were harmed in this case," Jones said.
Scrushy continues to live the high life The Birmingham News August 22, 2003

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The Scrushy Trials

The two Scrushy trials open up a whole new insight into Scrushy and the sort of person he was. His behaviour during this period and his aggressive adoption of evangelistic religion is described in detail on those pages and they should be seen as an extension of the information given here.

One of the features of the "closed mindedness" I have suggested is a chameleon like quality. They are able to adapt and present a new public persona which will be successful in any situation in which they find themselves.They then identify with this. This enables them to present a convincing and charismatic persona. They seem to live externally rather than internally. There seems to be no core "self".

There is a sort of disconnection from reality and reason in one sense. The disconnection comes at an emotional or identity level and not at the level of seeing and understanding the real world. They use selective perception and the full resources of their often considerable intelligence to rationalise and justify their new persona and changed views.

This ability to adapt and function in new situations is one of humanity's greatest survival attributes. Scrushy like other entrepreneurs owes his success to this adaptability. The issue is at what point does it become unbalanced and pathological? I make no assertions here in regard to this. Make up your own minds. When does adaptability become self-deception? Where does insight come into it? When does it become deliberate carefully planned fully insightful criminality? - and why do some do this and not others? Are the social and cultural factors, as well as the personality structures which make them do this related in any way to what I am saying?

Scrushy's conduct as an evangelist contrasts with his old public behavior as a self-promoting CEO. That man created images of himself, such as a life-size statue of him erected at the HealthSouth Medical Center. Before his ouster from HealthSouth, Scrushy contributed company funds to various schools in the Birmingham area. According to a court filing by the U.S. Attorney, Scrushy made the donations on the condition that a building or library be named after him.
"It's a real problem. If you can put God in your life, and you have a church, you've got a pastor that is teaching and feeding you, you've filled yourself with the spirit and accepted Christ, you become somebody else. Once you are filled with the spirit, a lot of that stuff (advertising) doesn't sink in anymore." As a man who spent much of his business life accumulating the trappings of wealth, Scrushy knows whereof he speaks.
Former HealthSouth CEO Scrushy turns televangelist USA TODAY October 24, 2004

Click to go to The Scrushy Fraud Trial and the Scrushy Bribery Trial

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A culture of compliance


In a context where health is viewed as a Samaritan service provided empathically by the community for its members, people like Scrushy probably do not emerge as leaders. The primary measure of success is the nature of the service. This becomes the basis for status and recognition in the community. Participants develop their ideas and their lives within a very different set of understandings. A more balanced culture is likely to emerge.

In the health care marketplace a culture of compliance and complicity develops around the underlying market ideology. The
intense conflicts (pdf file) between successful survival in the system and the moral and ethical responsibilities which must be ignored result in a strong swing towards closed minded activity. This is augmented by competitive market pressures and by the strong pressures to meet profit objectives generated by company management.

Many identify enthusiastically with the market system and rise to positions of authority. Some simply coexist, often cynically. Others go elsewhere. A few feel so strongly about the social consequences that they try to blow the whistle. This dissent challenges the very basis for the existence of the system within which others have built their successful lives. They are ruthlessly attacked and destroyed.

- - - writer Peter Elkind described HealthSouth founder Scrushy as "a taskmaster and a micromanager, traits that are practically requirements for running a modern health-care company."
The only thing worse than fraud is ignoring it Birmingham Business Journal - April 21, 2003

There is no doubt that much of the culture and the practices originate with the corporate founders but these soon become accepted as standard practice. These leaders become role models. The ideas are perpetuated by their successors and in new companies, even those founded by less closed minded businessmen. Staff move from company to company and from other businesses into health care. There is consequently considerable cross fertilisation. Strategies which make money are quickly picked up by others. Everyone poached NME's highly trained money making administrators in the late 1980's, even though what they advocated was unconscionable.

These cultures have accepted ruthlessness at the top and acceded to driving personalities who have placed heavy demands on their staff. Onerous economic objectives have been set at the top. Senior executives and their managers have been ruthless in rewarding and punishing staff for their economic failures while ignoring ethical and moral transgressions.

SENIOR employees of the HealthSouth Corporation used to dread Monday mornings. Richard M. Scrushy, the company's founder, chairman and chief executive, would grill his assembled subordinates about the numbers, from the performance of the company's hospitals to the details of a cellular telephone bill. Employees called these Monday-morning beatings, as Mr. Scrushy turned his attention to some shortcoming and publicly humiliated the person deemed responsible.

The meetings were just one way Mr. Scrushy exerted control. He used to pride himself on calling any manager who was not performing. "Shine a light on someone - it's funny how numbers improve," he recalled in an interview last fall.
But government officials, former employees and others say Mr. Scrushy created an elaborate facade by manipulating those around him. - - - he surrounded himself with people who believed they owed him nearly everything. He played on their insecurities, greed and, at times, their fears, associates say.

Working at HealthSouth "was like being in a cult," said Kimberly Landry, a former employee sued for defamation by HealthSouth in 1998 after criticizing the company over the Internet. Others describe employees who worked in HealthSouth's corporate offices as a species of Stepford Wives - excessively obedient and eager to please.

At the hospitals, the message was clear, Ms. Landry said. Executives at the hospital where she worked in Baton Rouge, La., were instructed by HealthSouth to accept patients covered under Medicare even when the facility was not appropriate because they were too ill, she said in a telephone interview. Hospital administrators understood that "if they did not keep the numbers up, they would lose their jobs," she said.
The Scrushy Mix: Strict and So Lenient The New York Times April 20, 2003

Tenet Healthcare is the best example of this persistence and the ability of the culture to be highly infectious, inheritable and very resistant to attempts to eradicate it. Tenet was founded by Richard Eamer as a company called National Medical Enterprises (NME). It was probably the first to develop a market culture of the sort which now pervades the whole industry. It was involved in a massive scandal in the early 1990's which it was fortunate to survive. It changed its name in 1994/5 to Tenet Healthcare and for 5 years was restrained by injunctions, compliance processes, and integrity agreements. When these expired it rapidly reverted to character and within three years (2002) it was once more involved in another scandal with allegations of unconscionable behaviour by the company and its doctors.

The way in which others pick up the market culture and accept its self evident legitimacy is well illustrated by the aged care and post acute care chain Mariner Post-Acute care.

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HealthSouth's Culture

How many Knew? While it is difficult to prove that others knew of the accounting fraud it is extremely unlikely that they did not. Large numbers of accountants were involved and these people all had juniors who helped them in altering the accounts. They held frequent meetings to plan their strategies. It is claimed that this went on for 15 years. Can we seriously accept that the majority of people at headquarters, including the directors and members of the audit committee did not know that this was happening. There must have been a culture of deceit, of not wanting to know, and of not looking. The lengths to which the business allegedly went to monitor public statements and to closely monitor staff and their email is an indication of the paranoia about somebody breaking the code of complicity.

Avoiding the hard reality:- A common strategy employed in these situations is to use common but innocuous words, whose meaning is understood in the culture instead of emotive words like "fraud" and so hide the full impact in discourse. Criminal Police in Queensland and NSW used common terms like "the joke" to refer to their protection rackets. NME ("wave therapy" and "howdy rounds") and Mayne Nickless (the "arrangement") did the same. HealthSouth staff spoke of those conducting the fraud as "friends", and the fraud as filling the "hole" with "dirt". Staff can pretend they don't know.

The board:- Another aspect of the culture at the top was the willingness to ignore established norms of corporate governance, relationships between directors, relationships between corporations and dealings between directors and related corporations. Loyalty to Scrushy and his ideas seems to have been more important than fiduciary duty to shareholders, standards of governance and duty of care.

Did the board know:- The new chairman and remaining directors deny knowledge of the fraud. Is this credible? Perhaps they simply chose not to know at the time. They have fired Scrushy and claim that the company is now different. We should remember Columbia/HCA. Richard Scott its chairman got all the blame and Thomas Frist all the credit for not agreeing with him and then putting Columbia/HCA back on the straight and narrow. Most of the Qui Tam whistle blower actions which set off the US $1.7 billion fraud settlement were initiated against HCA while Thomas Frist was its chairman. This was before Richard Scott's Columbia merged with HCA. The response is likely to be similar in HealthSouth.

Creating a culture:- Scrushy was seen as a whizz kid. He recruited enthusiastic impressionable young and relatively inexperienced staff from the local community in Birmingham. They were malleable and more easily inducted into corporate practices and thinking. No one disputes Scrushy's charisma or his persuasiveness.

Bringing in culture:- HealthSouth also took over, or was associated with a host of companies which indulged in fraud and other unacceptable practices. The staff of these groups joined HealthSouth. Horizon/CMS, Caremark and Integrated Health Services were all tarnished. There was plenty of cross fertilisation. There are consequently good reasons for believing that the allegations made about Medicare fraud and patient care may have substance.

But people close to the company insist the fraud was maintained for so long because of his influence. As chief executive, they say, he held sway over a circle of young, ambitious locals glad to accept an opportunity that was rare in Birmingham: a chance to be a leader in a Fortune 500 company and amass wealth. The parties and glamorous lifestyle were even more of a draw.

Emery Harris, one of the senior executives who admits helping inflate earnings, was only 33 and already a group vice-president. Other mid-level executives, including those who admitted their guilt last week to conspiring to commit securities fraud, were hired with little accounting experience but given senior finance positions relatively quickly.

According to plea agreements, Rebecca Kay Morgan, 35, rose to group vice-president of finance though she had taken only a few accounting courses when she was first hired in 1987. Cathy Edwards, 39, was also employed by the accounting department with no experience and later became vice-president. Both women helped falsify ledgers and account statements, practices they said they were assured were to be temporary.
Diagnosis of fraud. Financial Times April 15, 2003

"They need someone from the outside to get involved here since such a significant portion of senior management (is) under investigation."
Resignation is a new blow to HealthSouth.
Financial Times March 25, 2003

The large number of employees with knowledge of an accounting scheme that reportedly went on for more than 15 years but accelerated in scope from 1999 to 2001 has prompted questions of how the practices were kept secret for so long.
One former officer of HealthSouth said in an interview that it was common knowledge at HealthSouth that the e-mail correspondence of employees suspected of being disloyal was routinely monitored. The company's surveillance methods were so thorough, he said, that he and other officers would go to restrooms at the corporate headquarters to have confidential conversations. "The paranoia level was very high," the former executive said.

HealthSouth Officials Seek to Cut Deals With the U.S. The New York Times March 24, 2003

The company has taken other steps to quiet employees, largely through its security force, some former HealthSouth executives say. Security officers appeared to closely monitor the activities of employees and others, they said. A HealthSouth spokesman said the company's security force is used only to protect employees and facilities.
The Scrushy Mix: Strict and So Lenient The New York Times April 20, 2003

A therapist in the parking lot of HealthSouth's Sea Pines Outpatient Services in Merritt Island, Fla. said yesterday that many employees were concerned about the company's troubles.

However, "we're not allowed to say anything," she said, declining to give her name.
HealthSouth's Chart: Guarded but Clearly Unstable New York Times March 22, 2003

Over the years, shareholders had complained that HealthSouth was run like a personal fief of Mr. Scrushy, with many investments in ventures that stood to be profitable for him and other executives and directors. Few directors appeared to question Mr. Scrushy or any of his decisions, shareholders complained.
HealthSouth Officials Seek to Cut Deals With the U.S. The New York Times March 24, 2003

Mr. Scrushy and other executives made more than $163 million from sales of stock in 1998, according to that lawsuit, which accused executives and company directors of illegal insider trading.
A far different picture of HealthSouth executive behavior comes from Ms. Landry, the former employee. She said the executives were laughing at shareholders in 1998 after the stock's drop. She knew this, she said, because she had a relationship with Patrick A. Foster, one of the executives.
- - - - an Internet message board, calling the executives "crooks." In an unusually aggressive move, HealthSouth, Mr. Foster and Mr. Scrushy jointly sued her for defamation.
The Scrushy Mix: Strict and So Lenient The New York Times April 20, 2003

Plus a cult-like fear of the CEO by employees who say they routinely jiggered the books on command from higher-ups. And who, in fear of a verbal beating from Scrushy, also pinched the company's pennies ÷ often at the expense of patient care ÷ while the CEO accumulated a trove of creature comforts.
Profits and hospitals don't mix Toronto Star Apr. 26, 2003

Finally, some of the participants in the fraud have apparently admitted to the U.S. Attorney handling the case that they feared physical or psychological retribution if they came forward with details of the fraudulent accounting practices.
Although Mr. Scrushy's attorney initially stated that his client had no knowledge of the alleged fraud and was as shocked as anyone, the possibility that this is true is, as we all know, rather remote. His grip on the company was so tight that one analyst stopped covering the company because he was not allowed to have one-on-one meetings with the various division heads or the CFO. During visits to Birmingham, they apparently all gathered in one room with, of course, Mr. Scrushy at the head of the table answering all of the questions. If that is not an eyebrow-raiser, we do not know what is.
Heading South: The Burglar of Birmingham Jenks Healthcare Business Report April 2003

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The wider Business culture


During the early 2000s the wider business community is in the throes of a crisis of confidence. Poor governance, insider trading, schemes to deceive shareholders, grossly excessive remuneration, corporate collapses, fraud, and massive fines have exposed a system which is not working not only in the USA but also in Australia. There is a culture of complicity and of protecting personal wealth. The health care marketplace is not isolated from this and the earlier problems in health care were perhaps revealing of what was happening in the wider marketplace. This has now been exposed.

There has certainly been a wider business culture of complicity in, or of deliberate blindness to fraud, particularly when this has had positive spin offs for the company or individuals involved.

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HealthSouth was also a part of this culture. For 15 years during the fraud staff have been moving backwards and forwards between HealthSouth and its many auditors and bankers. Can we seriously doubt that many in these companies knew what was happening?

These companies have perused HealthSouth's books on many occasions, analysed its prospects, made loans, audited its accounts and prepared its tax submissions. The auditors were even told about the fraud on a number of occasions. It was in all of their financial interests to turn a blind eye to what was happening. These groups have been shown to have connived on other occasions. Are there any reasons why we should doubt that they did so with HealthSouth?

But in the case of HealthSouth, what is truly unbelievable is 1) how long the alleged phony profits went on for, 2) how many people were involved, 3) how quickly people started pleading guilty to conspiracy to commit fraud (among other things) and 4) the apparent fact that the fraud was passed on from one CFO to another . . . and another.
Heading South: The Burglar of Birmingham Jenks Healthcare Business Report April 2003

"There were people outside the finance department who had knowledge of the fraud," Alice Martin, the U.S. Attorney for the Northern District of Alabama, was quoted by the newspaper as saying.

"There are people who allowed this fraud to occur year after year," Martin - - - added.
HealthSouth probe expands, KPMG role scrutinized-WSJ Reuters April 28, 2003

The relationship between HealthSouth and these business groups is described in depth on another web page <CLICK HERE>

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The wider community

In the USA health care is overwhelmingly accepted as a commodity to be bought and sold like any other. A patient is not a vulnerable person in need but a consumer shopping for value. The market model is therefore accepted. The response has been regulatory and punitive rather than analytic and constructive. There has consequently been little effort to challenge the corporate model of care.

In this the USA differs from Canada where the community
overwhelmingly oppose (pdf file) attempts to commercialise health care and market it.

In the USA and to a lesser extent Australia the public is bombarded with crises and images on vast numbers of TV channels, through the air waves, and in print. Corporate scandals have a short lived impact and are soon forgotten. Individuals are engrossed in their own busy lives and many reports are not seen at all. Drowning these reports is a barrage of positive advertising, funded by the wealthy corporate community -- and also the argumentative and conflicting rhetoric of politicians. Both are designed to penetrate and overwhelm. It is all a huge turn off.

The exposure of fraud or the misuse of patients has little impact on the use of corporate hospitals. All is soon forgotten. Simply changing a company's name successfully buries the past.

What this means is that society no longer sets the values, norms and ethos under which all of its members operate, nor do the social controls which once governed and controlled the way citizens behaved operate effectively. Independent sectors such as the health care marketplace now set their own norms of behaviour and their own values and these are not necessarily in the interest of the community as a whole.

As a consequence of this companies like Tenet/NME, Columbia/HCA, and HealthSouth may make headlines and be heavily criticised but this hardly wrinkles the consciousness of the average citizen. For the companies it is soon back to business as usual. They have no doubt of their importance and of their central role in modern society. Citizens blindly accept them at their face value - much as staff in HealthSouth accepted Scrushy as the business genius he claimed to be. HCA and Tenet/NME were both involved in the early 1990's psychiatric, chemical dependency and rehabilitation hospital fraud scandals. Both continued their fraudulent conduct in a different sector, being exposed again in 1997 and 2002 respectively. The most established nursing home chain Beverly has been a problem for many years and has not responded to censure. There are no reports to suggest that HealthSouth was involved in a previous rehabilitation scandal in the early 1990s. This centred on a company in New Mexico. HealthSouth would have known all about it though.

From Mr. Scrushy's vantage point, the 1998 events proved that HealthSouth could recover from the ire of Wall Street. "Literally, we were hung out to dry for two years," he recalled in the interview last fall. Likening those events to the hue and cry that surrounded HealthSouth after it surprised analysts last August, he emphasized in the interview that the company "came back, and it's come back ever since."

Mr. Scrushy also seemed successful in containing other concerns about HealthSouth, including accusations that it was cheating taxpayers.
The Scrushy Mix: Strict and So Lenient The New York Times April 20, 2003

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Web Page History
This page created July 2003 by
Michael Wynne
Revised and Updated October 2007