Unhealthy Operations

Local lawmakers vote for more payments to HealthSouth, a move that hurts Pima's patients.

Oblivious to the rapid, fraud-driven crash of HealthSouth Corp. and ignoring one of its laws that purports to protect Pima County taxpayers, the Board of Supervisors has sweetened its deal with the rehab care giant by $1.5 million.

Supervisors voted--without dissent--March 18 to amend a contract with HealthSouth--its sixth amendment--a move that increased payments for rehabilitation therapy services for Pima Health System patients.

Supervisors have committed the county, using local, state and federal dollars, to $1.65 million in payments to HealthSouth.

The company's chief executive, Richard Scrushy, a former respiratory therapist who founded the once-innovative rehab hospital service with locations in every state, urged his company's executives--on that very same March 18--to somehow prop up figures that could not camouflage huge losses.

It was, as The New York Times reported, Scrushy's swan song.

The next day, the Securities and Exchange Commission accused Scrushy and HealthSouth of lying to investors and inflating profits by $1.4 billion since 1999.

That figure has since risen to $2.5 billion. Eleven HealthSouth executives, including five chief financial officers, have pleaded guilty to criminal fraud charges while they cooperate with federal prosecutors. Scrushy joins Enron's Ken Lay and WorldCom's Bernard Ebbers as poster boys for corporate excess based on false accounting, and is trying to block criminal charges from landing at his door.

The company's share price has fallen from $15.90 last year to next to nothing.

Locally, HealthSouth has stiffed vendors with excuses like "another office lost the invoice and paperwork." HealthSouth vendors were further put off when the SEC pressed, but failed, to get a federal judge to freeze the company's assets.

Pima County could drop HealthSouth under a 1991 law, pushed through by then-first term Democratic Supervisor Raul Grijalva, that strikes down any company or vendor under criminal indictment or under regulatory sanction.

Grijalva, now a freshman in the U.S. House of Representatives, sought the law to debar national garbage hauling and landfill companies.

It was not used then--and has been ignored since.

"It's never been used," County Administrator Chuck Huckelberry said. "It is typical of politically driven ordinances that hang around and gather dust. The origin of these is political rather than practical."

Huckelberry, the county's top boss since 1993 and a county executive for 30 years, said local offices of troubled national companies "typically don't know what's going on" at headquarters. Instead, the outposts are just told to crank out profits, he said.

Dubbed the "bad-boy" ordinance by Grijalva and his backers, the 1991 law barred companies and contractors from county business for "any conviction of any person or any subsidiary or affiliate of any person for commission of a criminal offense arising out of obtaining or (attempting) to obtains a public or private contract or subcontract ..."

HealthSouth is accused of wildly puffing up numbers on insurance receipts and reimbursement from federal Medicare.

There is irony in HealthSouth's scramble to somehow burnish its image. Out is accounting and consulting giant Ernst & Young, which doctored the books so well that the company is facing a six-month ban by the feds on taking on any new clients. In is PricewaterhouseCoopers, the amalgam of Price Waterhouse and Coopers & Lybrand.

Two years ago, Grijalva forgot his "bad-boy" ordinance while trying to deliver a $1 million contract to PricewaterhouseCoopers for one of many repetitive consulting contracts at Kino Community Hospital. Grijalva and supervisors ended up paying PricewaterhouseCoopers less, for smaller work, even though the firm had been slapped by the SEC for violating federal rules that prohibit partners, auditors and employees from having investments in the entities they audit. Not just a few times, or even 100, but, according to the SEC, on 8,064 occasions.

If that was too arcane, even those generally oblivious to politics and the trouble with the big accounting firms could easily recall that Coopers & Lybrand executives were central players in the state's Project SLIM bid-rigging scandal that helped bring down then-Republican Gov. J. Fife Symington III. John Yeoman, the Coopers & Lybrand partner who was Symington's personal accountant and campaign treasurer, was killed in a car accident the day after his arraignment on federal charges. The company paid $2.3 million in September 1996 to end a federal probe. It settled with the state Attorney General's Office a year earlier with a $725,000 fine and an agreement to not seek state contracts for two years.

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