A Diagnostics & Imaging Week

On the eve of a trial vs. Richard Scrushy, its former CEO, HealthSouth (Birmingham, Alabama) said Tuesday that it had signed a definitive settlement agreement with various government agencies, for a total cash payment of $325 million, plus interest, with an initial payment of $75 million and the balance to be paid over three years in quarterly installments.

The settlement being made with the U.S. Department of Justice-Civil Division (DOJ), the Office of Inspector General (OIG) of the Department of Health and Human Services (both Washington), and the Centers for Medicare & Medicaid Services (CMS; Baltimore, Maryland) resolves issues related to various Medicare billing practices. The improper billing claims date from a whistle-blower civil lawsuit first filed in 1998, with the DOJ joining the suit in the spring of 2002.

HealthSouth said that provisions for the settlement amounts have been incorporated into its long-term financial projections.

Jay Grinney, president and CEO of HealthSouth, called the settlement "an important step toward moving forward and resolving the issues inherited by our new management team. We have been in negotiations on this settlement for some time and have taken these payments into account as we plan for the future."

The agreement resolves litigation regarding certain out- patient physical therapy practices, including issues concerning "group therapy" or "concurrent therapy" billing. In addition, the settlement will close an investigation begun in April 2003 after the company's financial accounting was called into question into prior Medicare cost reporting practices. As part of the settlement, the company also signed an amended corporate integrity agreement with the OIG.

In its December presentation to investors, HealthSouth said it had $639.7 million in consolidated cash, which included $233.7 million in restricted cash that includes deposits made in risk management or partnership accounts.

HealthSouth and several executives have been charged in a variety of alleged activities intended to inflate the company's profits in order to prop up its share price, with several executives including five former financial officers already pleading guilty on various charges.

Scrushy has pled not guilty. Jury selection in the trial of Scrushy indicted on 58 counts of fraud, conspiracy, perjury and other charges was to open Wednesday. The trial was originally set for last August, but was postponed until Jan. 5 by U.S. District Court Judge Karon Bowdre. At the time, Bowdre gave no reason for the delay.

In a headline-producing development in the case, Scrushy's attorneys have filed papers seeking to add Mike Wallace, well-known lead correspondent of the 60 Minutes TV news show, to its list of witnesses. The request also seeks to add to the list the show's producer, Robert Anderson.

Wallace interviewed Scrushy concerning the charges against HealthSouth in 2003, a segment that ran then and again last August. Wallace and Anderson are seeking to have the request denied, citing First Amendment rights.

Scrushy's conviction on all charges could lead to a sentence of 450 years in prison and fines of up to $30 million.

HealthSouth is a major provider of outpatient surgery, diagnostic imaging and rehabilitative healthcare services.

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