HealthSouth CEO declares new era for company

By Bill Berkrot and Toni Clarke

NEW YORK (Reuters) - When word reached company headquarters that former HealthSouth Corp. (HLS.N: Quote, Profile, Research, Stock Buzz) Chief Executive Richard Scrushy had been convicted of bribery in June, employees celebrated by jumping into the fountain they were once forbidden to touch.

"It was their way of saying it's a new era," HealthSouth's current CEO Jay Grinney told the Reuters Health Summit in New York on Tuesday.

The fountain was symbolic of the many opulent artifacts amassed by Scrushy that Grinney found appalling.

"I have some bookcases that I've been told were made in Italy and cost several hundred thousand dollars. That is ridiculous," Grinney said.

Scrushy's lavish spending for the executive suites, including expensive artwork and imported carpets, was reminiscent of the $6,000 shower curtain and $15,000 umbrella stand that convicted former Tyco (TYC.N: Quote, Profile, Research, Stock Buzz) CEO Dennis Kozlowski bought with company funds.

"Health services companies ought to have a pretty austere corporate offices in my opinion," said Grinney, who is looking to sell HealthSouth's enormous campus while keeping its corporate headquarters in Birmingham, Alabama.

"My idea of an office is one where everybody has the same type of equipment," said Grinney, who favors steel bookcases and modular equipment.

Before Grinney could attend to more plebeian decorating for his office, he first had to bring the nation's leading operator of rehabilitation hospitals back from the brink of bankruptcy.

HealthSouth was nearly taken down by a multibillion-dollar accounting scandal that took place on Scrushy's watch and led five former chief financial officers and several other executives to plead guilty to criminal fraud charges.

A Birmingham jury acquitted Scrushy of all criminal charges related to the scheme to falsely inflate HealthSouth earnings despite testimony that he had directed the fraud. The unrelated bribery conviction involved contributions to a former Alabama governor's campaign for a statewide lottery in exchange for a seat on a hospital regulatory board.

Grinney, who helped turn around scandal-plagued hospital operator HCA Inc. HCA.N, was reluctant to take on the titanic task of fixing the debt-ridden mess that was HealthSouth.

"When I first got the call I said 'no way,'" Grinney said.

He said he was ultimately able to look past the scandal and has spent more than two years working to right the ship.

"Until June 2005 we didn't have any audited financial statements. So much groundwork had to be laid," he said of reconstructing years of financial statements.

Among the crises he faced was addressing concerns of bond holders threatening to put the company into default, resolving disputes with Medicare, which was threatening to withhold reimbursement, restating years of financial filings, replacing the board and management team, and getting the company relisted on the New York Stock Exchange.  Continued...