HealthSouth Lessons Learned

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Birmingham Economic Summit “Economic Development: Lessons Learned from the HealthSouth Turnaround” 1 Turnaround” Presentation by: Jay Grinney President and Chief Executive Officer HealthSouth Corporation November 19, 2009

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More on this deck on my site: http://wadeonbirmingham.com/2009/11/20/can-jefferson-county-learn-from-healthsouth-comeback-jay-grinney/

Transcript of HealthSouth Lessons Learned

Page 1: HealthSouth Lessons Learned

Birmingham Economic Summit

“Economic Development: Lessons Learned from the HealthSouth

Turnaround”

1

Turnaround”

Presentation by: Jay Grinney

President and Chief Executive Officer HealthSouth Corporation

November 19, 2009

Page 2: HealthSouth Lessons Learned

HealthSouth: The “Real” Numbers

Total Reported Income: $1.3BTotal Actual Income: -$1.8B$400M

$300M

$200M

$100M

$0M

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1996 1997 1998 1999 2000 2001 2002

Reported Income Actual Income

-$100M

-$200M

-$300M

-$400M

-$500M

-$600M

Page 3: HealthSouth Lessons Learned

May 2004: “Rocks in the Road”

SEC Investigation

Dept. of Justice and MedicareInvestigations Bondholders

Threatening Bankruptcy

Excessive

Corrupt and Inept Management

Many related

No internal controls

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Class-Action Securities Litigation

De-listed from NYSE

Eroded confidence� Employees� Physicians

Excessive Debt

Many related party

transactions

No financial transparency

� Patients� Vendors

Page 4: HealthSouth Lessons Learned

“The Plan”: First 100 Days

1. Redefine the corporate culture.� Integrity

� Quality

� Compliance

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

� Discipline

� Cost-Effectiveness

� Honest/Open Communication

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� 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”)

Page 5: HealthSouth Lessons Learned

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

� Financial Community

“The Plan”: Next 100+ Days

� Employees

� Physicians

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� Financial Community

� Legislators

� Business Leaders

4. Recapitalize the Balance Sheet.

� Establish deleveraging plan

5. Reposition the company for growth.

� Physicians

� Patients

Page 6: HealthSouth Lessons Learned

Reached SEC

Settlement

Filed 2000 – 2003

Form 10K

Secured New Bank Credit

$2.55B

Completed $1B Senior Notes

Offering

Announced Divestitures

$440M Tax Recovery Received

Relisted on Completed

All Settlements Paid in Full

Finalized Securities Litigation

Settlement

Corporate Campus Sale

Completed ($46M)

The Turn-Around

Reached DOJ/CMS Settlement

Cured Bond

Defaults

= Litigation

= Financial

= Strategic

“Rocks in the Road”

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June2007

December2007

December2005

June2006

December2006

� 1+ million man-hours spent to reconstruct/restate financials

� 1.4 million accounts analyzed → 92% required adjustment

December 2004

Form 10K $2.55BRelisted on

NYSE

Completed Divestitures

June2005

Page 7: HealthSouth Lessons Learned

HealthSouth Today: New Direction

94 Rehabilitation Hospitals

44 Outpatient Rehabilitation Satellites

6 Long-Term Acute Care Hospitals

25 Home Health Agencies

Portfolio

Focus = Inpatient Rehabilitative Services

Additional Post-Acute Services on Limited Basis

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IRH LTCH� Rehabilitation Nursing

� Physical Therapy

� Occupational Therapy

� Speech-Language Therapy

� Specialized Rehabilitation Technology

Major Services

Development Sites

Employees: ~ 22,000

2008 Net Operating Revenues: $1.842 billion

2008 Adjusted Net Income: $71.9 million

Page 8: HealthSouth Lessons Learned

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

HealthSouth Today: New Board of Directors

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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

Page 9: HealthSouth Lessons Learned

Chairman & CEO

Treasurer

Chief Info Officer

EVP & Chief Financial Officer

EVP Mergers and Acquisitions

EVP Corporate Counsel

I/P Division President

Surgery Division President

Organization ChartMarch 2003

HealthSouth Today: New Senior Management

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Chief Info Officer

SVP Reimbursement

SVP Physical Resources

SVP Tax

VP Accounting

VP Investments

EVP Administration

VP Internal Audit

SVP Marketing

Director Security

Ambulatory Division President

� CEO: Jay Grinney

� CFO: {Recruiting}

� General Counsel: John Whittington

� EVP of Operations: Mark Tarr

� All New Regional Presidents

� All New Corporate SVPs

Page 10: HealthSouth Lessons Learned

HealthSouth Today: New Results

$0.00

$0.50

$1.00$0.75

$0.51

$1.17 + 219.0%

+129.4%

Adjusted Income (Loss) from Continuing Operations per Diluted Share

($ Billions)

↓ 50%

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-$1.00

-$0.50

$0.00

2007 2008 9M08 9M09

$(0.63)

Debt to EBITDA 6.3x 6.3x 5.3x 4.5x(2)

Year-End 2011 Goal: 3.5x to 4.0x

(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.

Discharge growth: YE07 – YE08 = 7.0%

Q308 – Q309 = 5.5%

Page 11: HealthSouth 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

Lessons Learned

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� 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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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

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7. Success won’t be easy – or quick.

� Don’t be distracted → Stay focused!

Page 13: HealthSouth Lessons Learned

November 2009

On-going investigations?

Threat of bankruptcy

Corrupt government

officials

Inadequate internal controls

Birmingham Metropolitan Area

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Bondholder Litigation� Appoint Receiver to

run sewer system

Eroded confidence� Residents� Financial

institutions

� State Legislators� New businesses

Unresolved sewer debt

Inadequate financial transparency

Birmingham Metropolitan Area

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1. “Checks and balances are required.”

� Install a County Manager to manage.

• 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.

Economic Development – Lessons Learned from HealthSouth

ImplicationsLessons

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• Financial statements audited by independent auditor annually; reviewed quarterly

2. “A strategic plan is essential.”

� Birmingham Business Alliance (“BBA”) has 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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3. “Management is a team sport.”

� Combine City/County governments.

• “Strength in unity”

• Examples

− Nashville, TN

− Louisville, KY

Economic Development – Lessons Learned from HealthSouth (cont’d)

4. “Culture is important.” � All elected officials should demonstrate

− Jacksonville, FL

− Charlotte, NC

ImplicationsLessons

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personal and professional leadership.

• Honesty

• Integrity

• 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.

• Civility

• Transparency

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6. “Expectations have to be established and communicated.”

� Once the Economic Development plan has been established, ensure consistent and frequent status reports.

Economic Development – Lessons Learned from HealthSouth (cont’d)

5. “Everything can’t be accomplished at once.”

� Establish priorities.

• “Mission critical”: resolve the sewer debt crisis!!

� Financial discipline is essential.

ImplicationsLessons

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communicated.” frequent status reports.

� Communicate, communicate, communicate.

7. “Success won’t be easy – or quick.”

� Most important lesson!

� Set-backs will lead to second-guessing and doubt – don’t let them!

� Learn from mistakes, but stay focused.

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