HealthSouth shrinks to 47 U.S. states
Tom Bassin Staff
Under Richard Scrushy's leadership, HealthSouth Corp., as its Web site then boasted, "became the first healthcare company to operate in all 50 states."
The site also noted the company's presence in Australia, Canada, Saudi Arabia and the United Kingdom.
Now, the company is down to 47 states and three foreign countries - and that's just fine with the current executive team.
"With the former management, it was important to be in all 50 states," says HealthSouth's chief restructuring officer Bryan Marsal, who was hired in March to assist the company in an effort to overcome its myriad financial and legal travails.
The company has exited three states in which "we were losing money," Marsal says: North Dakota, Vermont and Wyoming.
HealthSouth also has departed the United Kingdom, selling some properties and shuttering others.
Yet, HealthSouth, which was trimming payroll as recently as this past spring - when it fired 330 employees on the heels of a November 2002 layoff of some 1,000 employees - finds itself reversing that trend.
The company plans to spend about $20 million to open at least seven new facilities, including a rehabilitation hospital and seven long-term care hospitals, and hire nearly 600 employees to staff them.
"In the first few months we clearly were in a retreat mode," says Marsal, who is a partner in New York-based corporate turnaround firm Alvarez & Marsal Inc.
"In the last month and a half, we've been getting back into a growth initiative mode."
Facilities off the market
Having sold the 281-bed HealthSouth Doctors' Hospital in Coral Gables, Fla., in August, the company's interim management has reversed plans to sell several other medical centers.
"We've taken five long-term hospitals off the market," says acting chairman Joel Gordon. That decision was made late last month.
"When we were somewhat desperate for cash, we looked at what could be sold," Marsal says. "Our appetite for selling has diminished," largely because "our cash position is stronger than we thought."
HealthSouth also is adding to its corporate payroll.
"We're beefing up our internal audit staff," Marsal says. "We're beefing up our compliance staff. We're beefing up our legal staff."
All told, says acting chairman Joel Gordon, the company will be adding 20 to 30 people at its Birmingham headquarters. HealthSouth's companywide employment is expected to grow from the current 48,100 to about 49,500 by year-end 2004. The latter number would include a new chief executive. Marsal says HealthSouth hopes to have a new CEO in place near the middle of next year. Additionally, Gordon says, "we're actively recruiting key executive positions," including a compliance officer, chief counsel, controller and chief financial officer. He says he hopes to have those positions filled during the first quarter of next year.
Currently, board member Robert May is serving as the company's CEO.
While Marsal concedes "we have open issues with CMS (the Centers for Medicare and Medicaid Services), we have open issues with the SEC, we have open issues with our creditors," he says "we're definitely back to business as usual."
Units performing well
Roughly half of HealthSouth's revenue comes from its inpatient rehabilitation division, and another 25 percent derives from the company's outpatient surgical unit. Those "jewels of our business," Marsal says, are performing well.
The former "has good profit margins," he says, "and is in a lot of certificate-of-need states," which restrict companies from opening or expanding services deemed unnecessary, thereby limiting competition.
The latter, in which the company has physician partners, has "a high barrier to entry," he says. "It's a terrific business to be in."
The remainder of HealthSouth's revenue flows from its outpatient rehabilitation and diagnostics business, in which "the margins are just not as good," Marsal says. "There's a low capital investment. You lease a 3,000-square-foot office space, put in some machines and start treating people."
As a result, "there's a lot of competition," which restrains profit margins. Still, he says, HealthSouth's business is healthier than it has been since the scandal broke in March.
Contact BBJ reporter Tom Bassing at (205) 443-5628 or tbassing @ bizjournals. com.
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