Ethical Issues In Healthsouth

One of the main defenses E&Y took during the early stages of the HealthSouth suit was the fact that the SEC had no well-defined rules with regards to audit-related practices. Another defense was the mere fact that E&Y never faced a criminal indictment for the HealthSouth fraud. This was mainly due to the statute of limitations placed on securities fraud. It sets it at the earlier of (a) 2 years after the discovery of the facts constituting the violation or (2) 5 years after such violation. Thus, the DOJ was unable to file criminal charges against the firm because the partner on the audit (G. Marcus Neas) was “unaware” of the fraud in 1993.

Organizational misconduct is the chief cause behind corporate accounting scandals. The trusted executives of the corporation participation in actions during a scandal are corrupt and illegal. In the United States, the Securities and Exchange Commission (SEC) is typically the government agency that investigates such scandals. One of the most notorious corporate accounting scandals in the United States is the HealthSouth Corporation scandal of 2003. HealthSouth Corporation is one of the United States largest health care providers with locations nationwide. A deeper inspection of the HealthSouth scandal is needed to understand how it transpired by assessing how it was executed, the accounting issues and root of the issue, how it was exposed, the results to the company and its officers, and warranted ramifications as an outcome of the scandal.

A philosophy of an organization helps differentiate themselves from their competitors and set a foundation for future success. It also helps shape an organization by presenting the goals they want to accomplish with specific activities. To improve this, many organizations understand the important of sharing values and goals and realize employee recognition. This helps staff from moving forward toward success of the organizations. Chapter 4 introduces “Codes of Ethics in Health Services.” Code of ethics is a guideline for healthcare professionals to accomplish and serve as a member of a society. Similar to other professions, managers have their own code of ethics in maintaining their duties and responsibilities. They also use the codes for ethical decision-making in dealing with ethical issues. Chapter 5 deals with “Organizational Responses to Ethical Issues.” It provides assistance for managers and organizations in their decision making. It is manager’s duty to figure out the problem and resolve it (Darr, 2011,

Richard M. Scrushy is one the founder of HealthSouth in 1984. And he also is the CEO of HealthSouth. At the beginning with his friend in Amcare Company, he use a million dollars investment by Citicorp Venture Capital to founded HealthSouth. Two years later, Richard made HealthSouth become a listed company. In 1987 HealthSouth has expanded to two new areas, which is worker’s compensation and sports medicine. Thus it makes HealthSouth earned a hundred million dollars. By 1988, HealthSouth has operated a network of 21 outpatient facilities, 11 inpatient facilities, and seven rehabilitation equipment centers in 15 states, it has became the leader of rehabilitation industry in the U.S(James Press, 2000).

HealthSouth grew rapidly during the 1980’s and 1990’s. This growth was largely due to acquisitions. HealthSouth owned more than 330 hospitals worldwide. It was also during this time that Scrushy became known as one of the highest paid CEOs in the United States.

The story of HealthSouth begins with two of the most well know founders. Richard Scrushy was a bold, charismatic man of middle-class beginnings. He would rise from a mason to one of the highest earning CEO’s in the country due mainly to his ability to drive, charm, and manipulate those around him. Driven by the desire to attain wealth and status Scrushy was hired in at LifeMark where he rose through the ranks as a result of his unbridled competitive nature and workaholic tendencies.

Health care leadership begins with creating an honest environment. The core principles of ethics are beneficence (do good), nonmaleficence (do not harm), autonomy (control by the individual), and justice (fairness) (Flite and Harman 2013). Health care professionals has the responsibility of dealing with complex patient and healthcare system issues. According to, Limentani (1998), a code of ethics can assists with facilitating

HealthSouth Corporation was one of the largest publicly traded owners of rehabilitative hospitals within the Untied States and paved the way for its industry. However, prior to 2003 the company had a very dark secret: fraud. In 2003 HealthSouth was accused of making $2.7 billion in false journal entries in the company’s system (Helios, 2013). These false entries allowed the corporation to inflate its earnings and revenue. While the corporation was dabbling in a fraudulent, aggressive account system, auditors were unable to detect the extent of the fraud occurring. If not for Michael Vines and Weston Smith, HealthSouth Corporation might have continued its false entries and continued deceiving shareholders and even Wall Street itself. HealthSouth serves as a historical example of how corporate culture can use fraud and deception schemes to not only rationalize what it is doing, which is an element of the fraud triangle, but also encourage fraudulent financial statements.

The accounting fraud made HealthSouth became a member of that disreputable group (Henselmann & Hormann 2010). In 2001, HealthSouth agreed to pay $7.9 million to settle Medicare-fraud allegation on overcharged assets. Trading in the securities of HealthSouth’s shares was suspended for two business days by SEC due to the materially misleading information in the marketplace (U.S. Securities and Exchange Commission 2003).

Aaron Beam tells all in his novel entitled, “HealthSouth: The Wagon to Disaster” surrounding the fraud case amounting to $2.8 billion. The novel brilliantly showcases the co-founders of HealthSouth, Richard Scrushy and his partner-in-crime Aaron Beam, CEO and CFO respectively. In addition to details of how circumstantial proceedings led to the atrocious illegal and unethical acts committed by these individuals. Beam first met Scrushy in the year 1980 while interviewing for a position at Lifemart, a hospital organization, corporation which dealt on the New York Stock Exchange.

In closing, financial ethics are one of the most important, if not the most important aspect of healthcare as a whole. Without healthcare executives showing high morals and strong ethics, when important financial decisions are being made the public could risk being cheated and unfairly charged for different medical reasons. Also, it is extremely important for financial ethics to be upheld high when coming up with health insurance policies. The downfall of the economy, lack of employment plus major layoffs, need to be taken into strong consideration when coming up with not just a healthcare policy, but an efficient, attainable, affordable healthcare policy.

HealthSouth Corporation is one of the U.S.?s largest healthcare companies and is the biggest owner and operator of inpatient rehabilitative hospitals. The present CEO, Richard Scrushy, founded this Fortune 500 company in 1984. It expanded tremendously in the 1990s and received most of its revenue through Medicare. By 1993, it became the largest rehabilitation services company. However by the late 1990s, the company suffered from changes in Medicare policy, dramatically decreasing their revenues. By 2002, it was starting to face financial issues, stock prices dropped precipitously, and Scrushy temporarily resigned as CEO (Soltani 263). Then in 2003, HealthSouth was charged with Medicare fraud and falsification of its earnings, internal control defilements, fraud, and ?cooking the books? (Soltani 263). Specifically, the SEC stated in 2003, that since 1999, HealthSouth misstated its earnings upward by at a minimum $1.4 billion. The corporation was the first one charged under the Sarbanes-Oxley Act of 2002. Overall, this paper will discuss the mechanisms of the fraud and the accounting methods used to commit the fraud. Also, this paper will examine the audit failure of the external auditor, Ernst & Young (EY), HealthSouth Corporation?s audit committee, and HealthSouth Corporation?s internal auditor function.

Back in the 1990’s, HealthSouth became one of the largest healthcare service providers nationwide, with the earnings over the billions through several years. Due to the large investments made, it brought on the temptation of “cooking” the books to move money around to places it should not be. Management then began to put a plan together, to move small amounts at a time, so as not to be detected. “It was reported that HealthSouth was overstated investments by almost 5 billion, which made the average journal entry around $2,500.” (HealthSouth: A Case Study in Corporate Fraud – Arxis Financial, Inc.) Now I will explain further how the corruption occurred and the consequences of that end result.

While reading this particular case study, I noticed several ethical issues. Clinically the main issue that struck me was the fact that the clinic was not able to accommodate its patients. The example in the case study showed that a poor old woman would rather risk getting cancer, than go to the clinic for periodic mammograms. If this wasn’t enough of an issue, what makes it worse is the fact that the closest place where there is better equipment is 30 miles away and not easily accessible to these patients. Culturally/socially the main issue I saw was the embarrassment and humiliation these patients feel doing something that should be a routine and simple check up. A big legal dilemma that could be detrimental to the clinic is legally they

After HealthSouth closed on March 18, 2003, the FBI and SEC began conducting investigations. Between 1999 and 2003, HealthSouth had overstated its earnings by $1.4 billion and its assets by $800