HealthSouth Lessons Learned


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HealthSouth Lessons Learned

  1. 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 1
  2. 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. 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 3
  4. 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”) 4
  5. 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. 5
  6. 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 6
  7. 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: $71.9 million 7
  8. 8. HealthSouth Today: New Board of Directors 1. Jon Hanson – Chairman (non-executive); Lead Director of Prudential 2. Ed Blechschmidt – Former CEO of Gentiva 3. John Chidsey – CEO of Burger King 4. Don Correll – President and CEO of American Water 5. Yvonne Curl – Former Chief Marketing Officer of Avaya 6. Charles Elson – Director of John L. Weinberg Center for Corporate Governance, University of Delaware 7. Jay Grinney – President and CEO of HealthSouth Corporation 8. Lee Higdon – President of Connecticut College 9. Dr. John Maupin – President and CEO of Morehouse School of Medicine 10. Ed Shaw – Senior Managing Director of Richard C. Breeden & Co. • All Directors are independent (except HealthSouth CEO) • No related party transactions • No “inter-locking” Directors 8
  9. 9. HealthSouth Today: New Senior Management Organization Chart March 2003 Chairman & CEO EVP & Chief Financial EVP Mergers and I/P Division President Officer Acquisitions Treasurer EVP Corporate Surgery Division Counsel President Chief Info Officer EVP Administration CEO: Jay Grinney Ambulatory Division President SVP Reimbursement CFO: {Recruiting} VP Internal Audit SVP Physical Resources General Counsel: John Whittington SVP Tax SVP Marketing EVP of Operations: Mark Tarr VP Accounting All New Regional Presidents Director Security VP Investments All New Corporate SVPs 9
  10. 10. HealthSouth Today: New Results ($ 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. 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” 11
  12. 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! 12
  13. 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 13
  14. 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 14
  15. 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. 15
  16. 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. 16
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