Early years Encompass Health was incorporated as
Amcare, Inc. on February 22, 1984 in
Birmingham, Alabama by
Richard M. Scrushy and four co-founders as a provider of
outpatient rehabilitation services. Scrushy developed the idea for the company in 1983 while working at Lifemark Corporation, a publicly traded hospital company that was in the process of being acquired by a competitor. Scrushy, a Lifemark vice president, recognized the need for physical therapy services were increasing at the same time hospitals were looking to cut costs and that it would be more cost-effective to offer those services in an outpatient setting. Scrushy and the four co-founders invested $50,000 to start the company, with Scrushy contributing the largest amount at $25,000, and
Citicorp Venture Capital providing an additional $1 million in funding. Scrushy took on the role of
chairman and
CEO, which he would hold until 2003, while the four co-founders took on administrative roles. The company opened its first outpatient facility in
Little Rock, Arkansas in early 1984 followed by a second facility in Birmingham later that year. The company changed its name to
HealthSouth Rehabilitation Corporation in 1985 to distinguish itself from other healthcare companies in the market and purchased its first
inpatient rehabilitation hospital in early 1986. The purchase was significant for the company as it marked HealthSouth's entrance into
acute care hospitals that focused on
orthopedics and launched HealthSouth as a recognizable name in
sports medicine. South Highlands Hospital, which was renamed HealthSouth Medical Center, was affiliated with the Alabama Sports Medicine and Orthopaedic Center and its world-renowned orthopedic surgeons
Dr. James Andrews and
Dr. Larry Lemak, as well as the
American Sports Medicine Institute. The success of this venture led HealthSouth to later develop partnerships with many of the nation's other top orthopedic surgeons and clinics, including
Dr. Frank Jobe at Kerlan-Jobe Orthopaedic Clinic in
Los Angeles, California.
Growth The company grew steadily during its first few years by opening new facilities and making small acquisitions. It had 50 facilities across the United States by 1990 and $400 million in annual revenue by 1992. The company made its first large acquisition in late 1993 when it acquired 28 inpatient rehabilitation hospitals and 45 outpatient rehabilitation facilities from
National Medical Enterprise. The acquisition double the size of the company and made HealthSouth the nation's largest provider of inpatient and outpatient rehabilitation. HealthSouth grew its inpatient business further when it acquired ReLife the following year. HealthSouth expanded rapidly through acquisitions during the mid-to-late 1990s and changed its name again, dropping "Rehabilitation" in 1994, becoming
HealthSouth Corporation. That same year it entered the
diagnostic imaging business with the purchase of
Diagnostic Health Corporation. HealthSouth entered the
ambulatory surgery center business in early 1995 with the purchase of Surgical Health Corporation. One month later the company announced the purchase of
NovaCare's rehabilitation hospital business. After additional surgery center acquisitions during 1995, including the $1.2 billion acquisition of
Surgical Care Affiliates, HealthSouth became the nation's largest provider of outpatient surgery. HealthSouth rounded out the year by purchasing Caremark Orthopedic Services from
Caremark International and announcing the acquisition of Advantage Health Corp. ReadiCare and Health Images were acquired in 1996 to strengthen HealthSouth's
occupational health and diagnostic imaging businesses, respectively. The company's largest acquisition during the 1990s came in February 1997 when HealthSouth announced it would acquire Horizon/CMS Healthcare Corp for $1.8 billion. Horizon/CMS was a large publicly traded healthcare company that primarily focused on outpatient rehabilitation, inpatient rehabilitation hospitals, and
long-term care hospitals. A few months after the acquisition closed, HealthSouth sold Horizon/CMS's long-term care assets to Integrated Health Services for $1.15 billion in cash. HealthSouth continued to grow its surgery center division by acquiring ASC Network Corp. in late 1997 and National Surgery Centers along with 34 surgery centers from
Columbia/HCA during the summer of 1998. By 1999, the company, along with most healthcare providers, began experiencing a decline in earnings following the passage of the
Balanced Budget Act of 1997. That summer, HealthSouth announced it would split into two separate companies. HealthSouth Corporation would continue to own and operate the outpatient rehabilitation, surgery center, diagnostic imagining, and occupational health businesses while HealthSouth Hospital Corporation would own and operate the inpatient rehabilitation hospitals and the company's four acute care hospitals. The plan was shelved several months later when the company revised its earnings estimates. HealthSouth had over 2,000 facilities across all 50 states by the end of 1999 and was one of the nation's largest providers of healthcare services. It also had expanded into international markets through its many acquisitions, with facilities in the
United Kingdom,
Australia,
Puerto Rico,
Canada, and later
Saudi Arabia. The company's dominance as the largest provider in all its lines of business benefited HealthSouth when it came to negotiations with
health insurance providers. Growth through acquisitions slowed by the end of the 1990s as the company had acquired many of its competitors. The company announced the sale of its occupational health business to
U.S. HealthWorks in May 2001. Later that year, the company announced it was partnering with
Oracle Corporation to build the world's first all-digital acute care hospital. The 13-story structure, known informally as the "Digital Hospital", would be built in Birmingham on 19-acres of land adjacent to HealthSouth's corporate headquarters and serve as a replacement for its Southside medical center. Construction was halted two years later following an accounting scandal at the company.
Accounting scandal Following large sales of company stock by Scrushy in May and July 2002, and a surprise announcement of an annual $175 million shortfall in earnings during second quarter's earnings release in August, the
U.S. Securities and Exchange Commission launched an investigation into Scrushy and HealthSouth to determine what was known about the shortfall before the sales. On March 19, 2003, the SEC took action against the company regarding
fraudulent accounting. Scrushy and other high-ranking executives were accused of directing company employees to report false earnings in order to meet Wall Street's expectations. The fraud was revealed when two executive officers, fearful the fraud would soon be exposed and of new laws enacted by
Sarbanes-Oxley, went to the
FBI separately to admit their involvement. SEC investigators had not suspected fraud in their initial investigation. It was later revealed the $175 million earnings shortfall announcement was a cover to unwind a significant portion of the fraud. On November 4, 2003, Scrushy was indicted in the accounting fraud. HealthSouth cooperated with the government in its investigation and was not indicted. The board of directors acted quickly after the fraud was revealed. The entire executive management team, including Scrushy, was fired or replaced, with directors Joel Gordon and Robert P. May stepping in as interim chairman and interim CEO, respectively. HealthSouth was delisted from the New York Stock Exchange and removed from the
S&P 500. The restructuring firm
Alvarez & Marsal was brought in, at the advice of
JPMorgan Chase, to assist with financial restatements and to work with HealthSouth's lenders. Although there were concerns following the fraud announcement that the company could file for bankruptcy protection, this turned out to be unfounded, and several months later the company announced it had worked out financing agreements with lenders and that all lines of business were producing sufficient cash flow. It was later determined that $2.7 billion in fraud had occurred from 1996 to 2003.
Repositioning the company From 2003 until 2006, the company worked to address operational inefficiencies and correct actions that led to fraud.
Jay Grinney, president of HCA's Eastern division, was brought in as HealthSouth's new president and CEO in 2004. U.S. Can Corporation executive John Workman was brought in to serve as the company's CFO, and Mike Snow, president of HCA's Gulf Coast division, joined as
COO. The company sold or closed underperforming facilities and disposed of corporate waste accrued under Scrushy, including most of the company's fleet of corporate jets. The company sold its Southside medical center in Birmingham to
UAB in early 2006, marking the end of its venture into orthopedic-focused acute care hospitals. The company had previously sold HealthSouth Doctors' Hospital in
Coral Gables, Florida to
Baptist Health South Florida in late 2003 and closed HealthSouth Metro West Hospital in west Birmingham in late 2005. HealthSouth's medical center in
Dallas, Texas was converted to an inpatient rehabilitation hospital in 2005. On May 15, 2006, the company became current with SEC regulations when it filed its first
10-Q since third quarter 2002. The company unveiled a restructuring plan in August which involved selling, spinning-off or other disposition of its surgery, outpatient, and diagnostic divisions, along with a 1-for-5 reverse stock split to coincide with its relisting on the New York Stock Exchange. The sales would allow the company to focus on growing its inpatient rehabilitation hospital division. The last step in the company's recovery from the accounting scandal occurred in October when HealthSouth was relisted on the New York Stock Exchange. HealthSouth announced it was selling its outpatient business to
Select Medical Corporation in January 2007. Two months later it announced the sale of its surgery center division to private equity firm
TPG Capital, retaining a small equity interest in the newly formed company. In April, HealthSouth announced a definitive agreement to sell its diagnostic division to private equity firm
The Gores Group. The outpatient business transaction was completed in May. The surgery center and diagnostic imaging transactions closed in June and July with the re-creations of
Surgical Care Affiliates and
Diagnostic Health Corporation. In March 2008, HealthSouth closed on the sale of its corporate headquarters campus and "Digital Hospital" in Birmingham to Daniel Corporation, a commercial real estate firm. The deal included the 85-acre corporate headquarters property and the adjacent 19-acre parcel of land containing the incomplete 13-story "Digital Hospital". HealthSouth retained a 40% residual interest in the hospital property and leased back the headquarters' building. The incomplete hospital was eventually sold to
Community Health Systems and today is known as Grandview Medical Center. ==Recent years==