HealthSouth’s woes rattle Select MedicalvBut Select Medical says it has rebounded

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Last week, Birmingham, Ala.-based HealthSouth Corp. acknowledged that the U.S. Securities and Exchange Commission is investigating it. The investigation follows a steep drop in the health care company’s stock price amid accusations of accounting problems and insider trading.
So far, though, HealthSouth’s locations throughout Central Pennsylvania haven’t
been affected by those problems, a company official said. “We’re open for business and still treating patients,” said Susan Hartman, regional director of business development, whose office is in York. “There’s been no change in service at all.”
HealthSouth is one of Select Medical Corp.’s biggest competitors in the physical rehabilitation services market. Select Medical’s stock initially slid as HealthSouth’s problems became public knowledge, said Robert Ortenzio, president and chief executive officer of Select Medical. The company is based in Lower Allen Township, Cumberland County. Select Medical’s stock has since rebounded, and Ortenzio said HealthSouth’s turmoil would not affect his company in the long term.
Ortenzio also said his competitor’s misfortune would not help his business.
“I don’t expect this to become a competitive advantage,” Ortenzio said.
On Aug. 27, HealthSouth said it had discovered that a change in Medicare billing rules for group physical therapy would reduce its earnings before interest, taxes, depreciation and amortization by about $175 million annually.
HealthSouth officials have said they did not know until August that the change would affect the company.
However, some shareholders have questioned the timing of HealthSouth Chairman Richard Scrushy’s sale of company stock in May and July. Several class-action lawsuits have been filed on behalf of HealthSouth shareholders.
HealthSouth stock has lost about 75 percent of its value during the past month. The stock traded at about $12 per share in the days before the Aug. 27 announcement. At the close of business Sept. 23, the company’s stock was trading at $3.23 per share.
Select Medical stock slipped briefly from about $16 a share to about $12 per share after HealthSouth’s Aug. 27 announcement. Investors feared that Select Medical might have to cut earnings estimates like HealthSouth. However, Select Medical’s stock is now trading at about $15 per share. The rebound came after the company reaffirmed in an Aug. 27 statement that the Medicare billing changes would not have any unexpected effect on its revenue or earnings.
Ortenzio said he believes the public has been able to differentiate between HealthSouth’s problems and the operations of the rehabilitation market as a whole. Select Medical reported revenue of
$959 million and net income of
$29.7 million in 2001.
It is still on track to open eight to 10 long-term, acute-care hospitals and add between 30 and 40 outpatient rehabilitation centers this year, he said.