Birmingham Economic Summit presentation on HealthSouth turnaround
1. Birmingham Economic
Summit
“Economic Development: Lessons
Learned from the HealthSouth
Turnaround”
Presentation by:
Jay Grinney
President and Chief Executive Officer
HealthSouth Corporation
November 19, 2009
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2. HealthSouth: The “Real” Numbers
Total Reported Income: $1.3B
$400M Total Actual Income: -$1.8B
$300M
$200M
$100M
$0M
-$100M
-$200M
-$300M
-$400M
-$500M
-$600M
1996 1997 1998 1999 2000 2001 2002
Reported Income Actual Income 2
3. May 2004: “Rocks in the Road”
Dept. of Justice
and Medicare
Investigations Bondholders
SEC Investigation Threatening
Bankruptcy
Corrupt and Inept No internal
Management controls
Excessive Many related
Debt party
transactions
No financial
transparency
Eroded confidence
Class-Action
Employees Patients
Securities Litigation
Physicians Vendors
De-listed from
NYSE
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4. “The Plan”: First 100 Days
1. Redefine the corporate culture.
Integrity Discipline
Quality Cost-Effectiveness
Compliance Honest/Open Communication
2. Replace “legacy” executives with top national talent.
“Don’t depend on the people who got you into the ditch to get you out”
Recruit experts in their respective fields
Go outside of healthcare to get fresh ideas
3. Prioritize and begin attacking the “Rocks in the Road.”
4. Get immersed in the business.
Extensive site visits
Meetings with employees, managers and physicians
Assess portfolio (“core” vs. “non-core”)
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5. “The Plan”: Next 100+ Days
1. Launch a formal strategic planning process.
Use independent experts
No: “Fire! Ready! Aim!”
2. Completely resolve the “Rocks in the Road.”
3. Restore confidence in HealthSouth with all constituents.
Government regulators Employees
Financial Community Physicians
Legislators Patients
Business Leaders
4. Recapitalize the Balance Sheet.
Establish deleveraging plan
5. Reposition the company for growth.
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6. The Turn-Around “Rocks in = Litigation
= Financial
the Road”
= Strategic
Corporate
Reached Campus Sale
DOJ/CMS Completed
Settlement ($46M)
Finalized
Reached Securities
SEC Completed $1B All Settlements
Cured Litigation
Settlement Senior Notes Paid in Full
Bond Settlement
Offering
Defaults $440M Tax
Secured New Announced Recovery
Filed
Bank Credit Divestitures Received
2000 – 2003
Form 10K $2.55B Completed
Relisted on
NYSE Divestitures
December June December June December June December
2004 2005 2005 2006 2006 2007 2007
1+ million man-hours spent to reconstruct/restate financials
1.4 million accounts analyzed → 92% required adjustment
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7. HealthSouth Today: New Direction
Focus = Inpatient Rehabilitative Services
Additional Post-Acute Services on Limited Basis
Portfolio
94 Rehabilitation Hospitals
44 Outpatient Rehabilitation Satellites
6 Long-Term Acute Care Hospitals
25 Home Health Agencies
Major Services
Rehabilitation Nursing
IRH LTCH
Development Sites Physical Therapy
Occupational Therapy
Speech-Language Therapy
Employees: ~ 22,000 Specialized Rehabilitation
Technology
2008 Net Operating Revenues: $1.842 billion
2008 Adjusted Net Income: $71.9 million
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8. HealthSouth Today: New Board of Directors
1. Jon Hanson – Chairman (non-executive); Lead Director of Prudential
2. Ed Blechschmidt – Former CEO of Gentiva
3. John Chidsey – CEO of Burger King
4. Don Correll – President and CEO of American Water
5. Yvonne Curl – Former Chief Marketing Officer of Avaya
6. Charles Elson – Director of John L. Weinberg Center for Corporate
Governance, University of Delaware
7. Jay Grinney – President and CEO of HealthSouth Corporation
8. Lee Higdon – President of Connecticut College
9. Dr. John Maupin – President and CEO of Morehouse School of Medicine
10. Ed Shaw – Senior Managing Director of Richard C. Breeden & Co.
• All Directors are independent (except HealthSouth CEO)
• No related party transactions
• No “inter-locking” Directors
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9. HealthSouth Today: New Senior Management
Organization Chart
March 2003 Chairman & CEO
EVP & Chief Financial EVP Mergers and I/P Division President
Officer Acquisitions
Treasurer EVP Corporate Surgery Division
Counsel President
Chief Info Officer
EVP Administration CEO: Jay Grinney
Ambulatory Division
President
SVP Reimbursement
CFO: {Recruiting}
VP Internal Audit
SVP Physical Resources
General Counsel: John Whittington
SVP Tax
SVP Marketing EVP of Operations: Mark Tarr
VP Accounting All New Regional Presidents
Director Security
VP Investments All New Corporate SVPs
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10. HealthSouth Today: New Results
($ Billions) Adjusted Income (Loss) from Continuing
Operations per Diluted Share
+129.4%
↓ 50% + 219.0%
$1.17
$1.00
$0.75
$0.51
$0.50
$0.00
-$0.50
$(0.63)
-$1.00
Debt to 2007 2008 9M08 9M09
EBITDA 6.3x 6.3x 5.3x 4.5x(2)
Year-End 2011 Goal: 3.5x to 4.0x Discharge growth: YE07 – YE08 = 7.0%
Q308 – Q309 = 5.5%
(1) Credit Agreement limits debt pay down on non–term loan balances. We have the right to buy back non-term loan debt with the discretionary cash
available to the Company.
(2) Based on four quarter trailing Adjusted Consolidated EBITDA of $359.6 million. 10
11. Lessons Learned
1. “Checks and balances” are required.
Strong, independent Board of Directors
Separate CEO and Chairman roles
No “inter-locking” Directors
2. A strategic plan is essential.
Fact-based
Prioritized
Communicated
3. Management is a team sport!
Diversity in composition → consistency in values
Look outside of industry for innovation
4. Culture is important.
Integrity matters
CEO’s role → set the “tone at the top”
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12. Lessons Learned (cont’d)
5. Everything can’t be accomplished at once.
Focus on “mission critical” tasks
Establish priorities – learn to say “No!”
Financial discipline is essential
6. Expectations have to be established and communicated.
Quantify targets/objectives
Measure results
7. Success won’t be easy – or quick.
Don’t be distracted → Stay focused!
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13. November 2009
On-going Threat of
investigations? bankruptcy
Corrupt
Inadequate
government
internal controls
officials
Birmingham Metropolitan Area
Unresolved Inadequate financial
sewer debt transparency
Eroded confidence
Bondholder Litigation
Residents State Legislators
Appoint Receiver to
Financial New businesses
run sewer system
institutions
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14. Economic Development – Lessons Learned from
HealthSouth
Lessons Implications
1. “Checks and balances Install a County Manager to manage.
are required.” • Recruit an experienced professional
Have County Commissioners govern.
• County Commission = “Board of Directors”
• Establish vision, direction, over-sight
• County-wide representation
Ensure transparency and accountability.
• Financial statements audited by independent
auditor annually; reviewed quarterly
2. “A strategic plan is Birmingham Business Alliance (“BBA”) has
essential.” engaged Market Street to help draft a five-
year economic development plan with
measurable performance metrics.
• BBA plan will solicit extensive community input
• Anticipated completion: Mid – 2010
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15. Economic Development – Lessons Learned from
HealthSouth (cont’d)
Lessons Implications
3. “Management is a team Combine City/County governments.
sport.” • “Strength in unity”
• Examples
− Nashville, TN − Jacksonville, FL
− Louisville, KY − Charlotte, NC
4. “Culture is important.” All elected officials should demonstrate
personal and professional leadership.
• Honesty • Civility
• Integrity • Transparency
• Pursuit of the common good (vs. self interests)
A strong Conflict of Interest policy is a must.
• All elected officials should sign
• All government employees should sign
Establish a Compliance Department to
ensure adherence to all policies/procedures.
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16. Economic Development – Lessons Learned from
HealthSouth (cont’d)
Lessons Implications
5. “Everything can’t be Establish priorities.
accomplished at once.” • “Mission critical”: resolve the sewer debt crisis!!
Financial discipline is essential.
6. “Expectations have to Once the Economic Development plan has
be established and been established, ensure consistent and
communicated.” frequent status reports.
Communicate, communicate, communicate.
7. “Success won’t be Most important lesson!
easy – or quick.” Set-backs will lead to second-guessing and
doubt – don’t let them!
Learn from mistakes, but stay focused.
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