healthsouth lessons learned
DESCRIPTION
More on this deck on my site: http://wadeonbirmingham.com/2009/11/20/can-jefferson-county-learn-from-healthsouth-comeback-jay-grinney/TRANSCRIPT
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
HealthSouth: The “Real” Numbers
Total Reported Income: $1.3BTotal Actual Income: -$1.8B$400M
$300M
$200M
$100M
$0M
2
1996 1997 1998 1999 2000 2001 2002
Reported Income Actual Income
-$100M
-$200M
-$300M
-$400M
-$500M
-$600M
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
3
Class-Action Securities Litigation
De-listed from NYSE
Eroded confidence� Employees� Physicians
Excessive Debt
Many related party
transactions
No financial transparency
� Patients� Vendors
“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
4
� 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”)
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
5
� Financial Community
� Legislators
� Business Leaders
4. Recapitalize the Balance Sheet.
� Establish deleveraging plan
5. Reposition the company for growth.
� Physicians
� Patients
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
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
7
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
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
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
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%
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”
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!
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
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
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
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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