Emergency Surgery For Medpartners

Can HealthSouth CEO Scrushy run his company and save MedPartners at the same time?

For Richard M. Scrushy, running one multibillion-dollar health-care company just isn't enough, it seems. The 45-year-old founder and CEO of fast-growing HealthSouth Corp. is also taking charge of MedPartners Inc., a troubled physician-management company that he helped launch. Now, since becoming CEO at MedPartners in January, he has been working overtime in a mad scramble to keep up with his two demanding jobs.

Two CEO titles at once? In this case, it may make sense. A MedPartners board member since its founding in 1993, Scrushy (rhymes with sushi) has close ties to the company. Earlier this year, he backed a $6.3 billion merger with rival PhyCor Inc. But PhyCor pulled out of the deal the same day MedPartners announced that a $145 million restructuring charge would drag 1998 earnings down 30% below estimates. That sent MedPartners stock price plunging by half.

On Feb. 24, though, MedPartners shares soared 14% amid rumors that it would merge with HealthSouth. Scrushy calls the rumors "absolutely not true." Speculation also swirled that Scrushy would sell MedPartners $1.8 billion pharmacy benefits company or soon name a new CEO.

Scrushy insists he will remain CEO for at least another 90 days. And whatever happens, Scrushy will clearly be at the center. Both HealthSouth and Scrushy are MedPartners shareholders and have money riding on a turnaround. The aborted PhyCor deal would have netted HealthSouth $38 million and another $29 million for Scrushy personally. Instead, he finds himself in the difficult position of fixing MedPartners following the departure of its CEO and Scrushy's longtime friend Larry R. House.

For both MedPartners and HealthSouth--which have shared several directors--Scrushy is the obvious choice to take the reins. The company was formed when House left a top job at HealthSouth to jump into the fast-growing business of physician-practice management. And Scrushy backed the venture by putting up a good chunk of the startup money.

MedPartners' directors are counting on Scrushy's record: By bundling hundreds of small facilities, he has built HealthSouth into a hugely successful outpatient-rehabilitation chain. Turning around MedPartners, which has stumbled in its own acquisition-led growth spurt, will require many of the same skills. "[It] is an enormous integration job," says Charles W. Newhall, a member of both boards. "But Richard has proven he can do that at HealthSouth."

Indeed, Scrushy is a deft entrepreneur. But building a company from scratch is a far cry from saving one in trouble. And he is attempting his turnaround even as other adventurers in health care are falling by the wayside, victims of their oversized ambitions. Last year, Richard L. Scott was ousted from Columbia/HCA Healthcare Corp. after the giant hospital chain became embroiled in a sweeping criminal investigation of its billing practices. And just last week, Stephen F. Wiggins stepped down as chairman of Oxford Health Plans Inc. as the HMO veered into financial straits following years of torrid growth.

The problems at MedPartners have some investors wondering whether the overlapping boards have done their job. "The board has not done its duty to make sure it was adequately informed," says Jack McGowan, a portfolio manager at Clover Capital Management.

Scrushy insists he had no clue about the extent of MedPartners' problems before the PhyCor deal collapsed. "All I knew is what was presented to the board," he says. And he asserts he can quickly fix the problems before turning MedPartners over to a new CEO. Many investors agree. Portfolio manager Pedro Verdu of AmSouth Bancorporation in Birmingham, Ala., doubled his stake to 300,000 shares on news of Scrushy's appointment. "This is the best thing that can happen to MedPartners," says Verdu.

Those who work with Scrushy say he drives his troops hard and is obsessed with the smallest details. He once insisted that an executive leave a meeting because his necktie wasn't on straight, according to one HealthSouth director. Scrushy denies that but concedes he's demanding because he has set such high goals. "Fear is good," he says. "It motivates people."

Scrushy wants HealthSouth to become nothing less than the Wal-Mart or the Coca-Cola of health care by providing a wide range of services in any of HealthSouth's 1,800 facilities. A back patient, say, can get an X-ray and undergo surgery at one outpatient facility, then receive massage therapy at one of HealthSouth's rehabilitation centers. "Patients should be able to get consistent treatment no matter what part of the country they're in," he says.

Impeccably dressed and manicured, with a diamond-studded watch and diamond ring, Scrushy is as zealous about details at home as he is at work, says his wife, Leslie, his former assistant. And Scrushy immerses himself in the routine of raising his six children from two previous marriages--four of whom live with them. "Having worked for him, I would've never believed how important his family is to him," she says. To save time, Scrushy even pilots his own jet.

That jet will come in handy as he flies around the country to clean up the mess that his buddy Larry House left behind at MedPartners. The huge write-off came as a complete surprise, angering Wall Street and speeding House's departure. But he hasn't gone far. House now works for Scrushy's venture-capital firm just down the hall in HealthSouth headquarters. Stepping down, House says, "was the right thing to do."

"I WANT YOUR JOB." The pair remain close, though House's departure from MedPartners marks a difficult fork in the road for a highly productive team. Their friendship dates back 25 years, when the two were respiratory therapists in a local Selma (Ala.) hospital. Scrushy got the job through his mother, a nurse, who also introduced House to his wife. Scrushy went on to enroll in the University of Alabama at Birmingham, earning a degree in respiratory therapy. After graduation, he went to work for Houston-based hospital-management company LifeMark Corp.

With the for-profit health-care industry in its infancy, Scrushy thrived in the rough-and-tumble race for business. Six months after joining LifeMark, he vaulted to vice-president in charge of a $100 million division. When he was still in his twenties, Scrushy marched into the office of LifeMark Chief Operating Officer Paul Frison and declared, "`I at least want your job and someday intend to become chairman,"' Frison recalls.

Scrushy did better than that: He built a healthcare empire. After LifeMark was acquired, Scrushy and four others in 1984 started HealthSouth, each chipping in for a total of $50,000. The team, later joined by Larry House as chief operating officer, created a behemoth out of the bits and pieces of a fragmented industry, gobbling up diagnostic, surgery, and rehab centers in 50 states.

To drum up PR, Scrushy sang and played piano in a country and western band that performed at health-care conventions. The band was good enough that people attending the conventions even asked for Scrushy's autograph, he recalls. He later pursued contracts with professional sports teams and staged glitzy shows with such superstars as Bo Jackson and Michael Jordan to talk to kids about health issues. He took the company public in 1986 and has since built it into a $3 billion powerhouse. With net earnings up 34%, to $342 million in 1997, the company is thriving.

Can Scrushy fix MedPartners? "We'll have to wait and see," says McGowan, who controls 5 million shares. Others have more faith. "He's one of the few people in health care who have successfully made the transition from entrepreneur to running a multibillion-dollar company," says James Hoover, a partner at New York venture-capital firm Welsh, Carson, Anderson & Stowe. Of course, that's what they used to say about Rick Scott and Steve Wiggins.

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