Hitting Home

Published 12:00 am Saturday, April 5, 2003

The high-profile meltdown of HealthSouth, the Birmingham-based provider of outpatient surgery and rehabilitation services, may be felt as strongly in Troy as in any other city in the nation.

The company and its chairman, Richard Scrushy, were inexorably linked to Troy State University and the company's legal troubles and subsequent stock collapse have affected many Troy residents financially.

"This is a blow to Alabama," said Doug Hawkins, President of the TSU Board of Trustees. "It's an Alabama company and a lot of people from Alabama had invested in it."

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That blow has hit especially close to home for those affiliated with Troy State.

"Troy State University has enjoyed a positive relationship with HealthSouth leaders and employees," said Dave Barron, a spokesperson for TSU. "The events at HealthSouth involving Richard Scrushy and [former Chief Financial Officer] Bill Owens are unfortunate. It would be inappropriate to speculate on future actions by Troy State University at this point."

Owens, a Troy native who graduated from Troy State and currently serves on the TSU Board of Trustees, is one of the central figures in the HealthSouth story. Last week Owens pleaded guilty to three counts of financial fraud and cut a deal with federal investigators looking into HealthSouth's books.

Prosecutors from the Securities and Exchange Commission allege that Scrushy and HealthSouth faked approximately $1.4 billion in profits since 1999.

Glory Days

Not long ago, HealthSouth was at the top of the Alabama corporate world. Like Enron before it, HealthSouth was touted as a textbook case of creating a powerful business from humble beginnings. Since its founding in 1984, the company exploded and, at its peak, employed 33,000 people in 1,600 facilities around the world.

Scrushy, who studied respiratory therapy at Jefferson State Community College, had the good fortune to meet up with one of the premier surgeons in the world. The merging of the medical skills of Dr. James Andrews and Scrushy's interest in rehabilitation proved to be a potent and revolutionary combination.

HealthSouth eventually grew to be the nation's largest provider of outpatient surgery, diagnostic imaging and rehabilitative health care services. The quality of health care delivered gained rave reviews and the company managed to stay on the cutting edge of technology, surgical techniques and the rapidly-developing field of sports medicine.

Before reporting a fourth-quarter loss of $405.8 million in early March, HealthSouth was the third-largest company in the state, boasting 11 planes at the Birmingham airport.

Ties to Troy

Scrushy was appointed to the TSU Board of Trustees on Jan. 13, 1998, by then-Gov. Fob James. His term ended when Scrushy resigned and took positions on the Boards of Trustees at Birmingham Southern College and the University of Alabama at Birmingham.

Owens followed Scrushy as a board member and is still a trustee. He will remain until he resigns, which Hawkins said had not yet occurred, or until his guilty plea results in a felony conviction, at which time his title will officially be revoked in accordance with state law. Gov. Bob Riley would be responsible for appointing a replacement.

However, ties to TSU go beyond Scrushy and Owens as trustees.

In August 1998, the faculty of the Sorrell College of Business launched a "HealthSouth Executive MBA program," tailoring classes to focus on issues in the health care industry.

"This is a tremendous opportunity," said Chancellor Jack Hawkins at the time. "Scrushy has a vision and a commitment to grow the next generation of leaders for HealthSouth. The prestigious name of HealthSouth, combined with the quality education provided by faculty in the Sorrell College of Business, provides a real model to prepare tomorrow's top executives."

Still, the most visible connection between TSU and HealthSouth remains the playing field named after Scrushy. On Jan. 3, 1998, Scrushy and HealthSouth gave $1 million to the TSU football program for stadium upgrades and to facilitate the leap to Division I-A.

Though Barron would not speculate on the future of Scrushy Field at Memorial Stadium, Hawkins said the issue of renaming the field would not be on the agenda at the next trustee meeting on May 8.

"We are not moving towards that at this time," he said. "From the board's perspective, we're going to continue to monitor it. It's not on any agenda so far."

The other major gift to TSU football, Hawkins said, was a financial contribution that allowed Troy State to meet minimum ticket sales requirements in order to make the leap to Division I-A.

"Scrushy did a great service for the university," Hawkins said, explaining how Scrushy bought approximately 5,000 tickets in order to meet the NCAA's baseline requirements. "He gave us that cushion."

Barron said HealthSouth's problems would not affect the construction currently under way at Memorial Stadium.

Scrushy also endowed a $600,000 Richard Scrushy Eminent Scholar in Sports Medicine at TSU. The chair is currently held by Dr. James Whiteside, who said Tuesday that he didn't see HealthSouth's financial problems as a danger to his position at TSU.

Positive Contributions

Scrushy, who has been publicly described as "the go-to guy for charities," gave $2.5 million towards the construction of UAB's School for Health Related Professions. He helped to renovate Birmingham Southern's baseball field which was renamed in his honor. In Vestavia Hills, a wealthy Birmingham suburb, the public library bearing his name opened in 1995.

In addition to his philanthropy, Scrushy worked to keep conservative politicians in office. According to a report in the Birmingham News, HealthSouth employees and affiliated PACs gave $198,906 to federal candidates and causes during the 2001-02 election cycle, with 86 percent of those funds going to Republicans.

TSU head trainer Chuck Ash was the last ever guest on Scrushy's radio show and worked with HealthSouth employees in a clinical capacity.

"Even though things have gone really, really bad, I look back and know they did some really good things," he said. "The media focuses on the bad things, but just look at the libraries he built and the sponsorship of high school athletics and no telling how many millions he gave to athletics in general."

"All the booty didn't go to buying yachts," Ash said.

The Future

Tremors began in January when a Delaware court blasted a panel appointed by HealthSouth to investigate whether or not Scrushy improperly unloaded $74 million in about-to-expire stock options and used stock to repay a $25 million loan from the company.

From there, the hinges came loose, culminating with the SEC's charges on March 19.

In addition to Owens' recent plea, Weston Smith, another former CFO for HealthSouth, pled guilty to conspiracy to commit wire fraud and securities fraud in connection with what the government says is a longstanding scheme to artificially inflate the company's financial results

The results of the case against HealthSouth are uncertain, as are effects on Troy State University. The prosecution against HealthSouth will be conducted under the new Sarbanes-Oxley Act, passed in July as a reaction to scandals at

WorldCom and other publicly held companies.

Just as shareholders will watch the civil case closely, so too will TSU officials looking at the future of their relationship with the beleaguered company.

Will HealthSouth be able to help complete the new press box as was once planned, including a state-of-the-art sports medicine facility on the second floor?

TSU Athletic Director Johnny Williams isn't sure.

"I really don't know. We haven't finalized what's going on those floors," he said. "There have been no agreements with HealthSouth."

However, Hawkins said TSU officials had been in negotiations with HealthSouth concerning the new press box as recently as the day before the news broke.

"That second floor, if we can get it done, will be a big advantage to the whole of South Alabama."

Doc Anderson, head of the TSU sports medicine program, is sure that HealthSouth, which posted $4.3 billion in revenue in 2002, will return to dominance.

"They aren't losing customers. The money is still coming in. They have an outstanding product and provide excellent health care," he said. "They should have more business than they can shake a stick at. If they reorganize, burn the barn and kill the rats, they have a good chance of being back up there as a leader."

HealthSouth is now under the control of Joel Gordon, who was appointed to be Interim Chairman of the Board on March 20. Hawkins agrees with Anderson that a turn-around is possible.

"Under the guide of the right people, if they can keep it stable, the company has a great future," he said. "They've been a friend to Troy State University. We want to maintain our relationship with HealthSouth. They helped us make some moves that we otherwise might not be able to. We have no regrets about our relationship."