As HealthSouth continued to struggle to avoid bankruptcy, federal officials on Tuesday charged another former senior executive of the company with participating in a multibillion-dollar accounting fraud.
But a federal district judge in Birmingham, Alabama, refused, at least temporarily, to accept a guilty plea from the former executive, Michael D. Martin, who had been Healthsouth's chief financial officer.
PHOTO: NY TIMES
Chief Judge UW Clemon complained that the US attorney handling Martin's case had infringed on the court's scheduling prerogatives when she announced that Martin, a longtime colleague of Richard M. Scrushy, Healthsouth's ousted founder and chief executive, would become the ninth company official in the case to plead guilty.
"I will not give the impression that this court is part of the prosecutorial team," Clemon said, adding that he would set the time for taking Martin's plea.
Alice Martin, the federal prosecutor, said Tuesday night that there had been an apparent misunderstanding. She said a clerk had scheduled the hearing Tuesday, apparently without informing Clemon.
Regulators are accusing Scrushy and HealthSouth, the nation's largest chain of rehabilitation clinics and hospitals, of inflating profits by US$2.5 billion since 1997.
They are accusing Scrushy of orchestrating the fraud, and although there are no criminal charges filed against him, he has been fired from HealthSouth. In an interview on Tuesday, Joel Gordon and Robert May, the HealthSouth directors who are acting as chairman and chief executive respectively, tried to distance the company from Scrushy.
"The imperial master is gone now," Gordon said. "We want people to feel that we are running the company for the benefit of the patients and the employees, not for one individual who lived a very broad-based, costly lifestyle."
Scrushy's lawyer, Donald V. Watkins, did not respond to a request for comment.
The two directors and Bryan Marsal of Alvarez & Marsal, the restructuring firm charged with turning HealthSouth around, said the company had more than US$190 million in cash available as of last Friday. They said they would save US$18 million in annual costs by dismissing about 250 people at headquarters while maintaining payments to the hospitals, surgery centers and clinics serving patients. They are also planning to accelerate partnership payments to 3,500 doctors in the next two weeks to ease the doctors' concerns about HealthSouth.
USStill, the two directors and Marsal said HealthSouth faced interest payments of US$250 million a year on debt and about US$250 million more in annual capital spending.
Gordon said he and May were paring expenses at HealthSouth by, among other things, grounding the 12 corporate airplanes and one helicopter in what he called Scrushy's "air force." They have fired political lobbyists, publicists, and sports and entertainment figures who Gordon said were employed by the company as consultants. They also shut down various "sports suites in various stadiums across the country," Gordon said.
HealthSouth had been spending US$500,000 a day building what it called a digital hospital and had already invested US$130 million, Marsal said. The company halted construction on the project, next door to its headquarters in Birmingham, late last month, and may sell it.
The directors also said HealthSouth was having difficulty recruiting a new chief executive and new board members, although they emphasized that they were actively interviewing potential candidates.
One recent recruit, Betsy Atkins, resigned March 25, after less than three weeks on the board.
Michael Martin, who is not related to Alice Martin, the prosecutor, is the third former chief financial officer of HealthSouth to admit to a scheme to inflate earnings that prosecutors say goes back for years.
He worked in HealthSouth's accounting department from 1989 until October 1997, when he was promoted to chief financial officer. He served in that position until early 2000, when he left the company.
Federal prosecutors say Martin worked with other financial executives at HealthSouth to inflate earnings so that they met or exceeded the expectations of Wall Street analysts. William T. Owens, another former chief financial officer who has admitted to the accounting fraud, served as controller while Martin was chief financial officer.
Martin is cooperating with regulators. His lawyer did not return a phone call seeking comment.
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