Picture this, if you will. The year is 1986.
We're in New York City, the absolute epicenter
of the financial universe. The go -go 80s. Exactly.
And we're inside one of those boardrooms you
always see in the movies. You know, the kind
dark wood paneled walls, high ceilings, probably
a view of the skyline that costs more than most
people make in a lifetime. Right. It smells like
old money and serious decisions. And it's an
investor roadshow. So the room is just jam packed
with investment bankers. Masters of the universe.
That's the crowd. And if you know anything about
investment bankers, especially in the mid 80s,
you know they are not. an emotional bunch. They
are stoic. They are skeptical. You've seen it
all. Or they think they have. Right. They're
there to look at the numbers, to find the holes
in your logic, to basically tear your business
model apart and then move on to the next deal.
They don't do feelings. No. Applause is definitely
not part of the protocol. It's usually a very
dry, grilling kind of affair. You present, you
get interrogated, and you leave sweating. But
not on this day. At the front of the room is
a man named Richard Scrushy. He's young, he's
full of energy, and he's pitching a health care
company. He talks for about an hour. He's weaving
this narrative, not just about a company, but
about the future of medicine in America. So he's
a showman. A complete showman. And when he finishes
his speech, he steps back from the podium and
something just unprecedented happens. These stoic...
Stone faced bankers. They stand up where they
stood up. They stand up and they give him a standing
ovation at a roadshow. That is I mean, that is
almost unheard of. I've been to my share of these.
And the best you can hope for is a polite nod
and maybe maybe a follow up meeting. I mean.
Bankers don't clap, let alone give a standing
ovation. It just doesn't happen. No. The company's
CFO at the time, a guy named Aaron Beam, said
that one of the bankers came up to him afterward
and told him he had literally never seen a reaction
like that in his entire career. He said Scratchy
had this remarkable magnetic ability to sell
a concept. He wasn't just selling stock. He was
selling a belief system. And that image. That
standing ovation, it really tells you everything
you need to know about the roller coaster we
are about to go on. It really does. It's a story
about charisma. Absolutely. But it's also a story
about how that charisma built an empire and then
how it was used to hide one of the largest, most
audacious corporate frauds in American history.
But here's the kicker. Usually when we do these
deep dives on massive frauds, think Enron, think
WorldCom. The company just disappears. It goes
to zero. It becomes a footnote in a business
textbook. A cautionary tale. Exactly. But the
company Richard Scrushy was pitching that day,
it's still here. And in fact, it's huge. That's
right. Today, we know it as Encompass Health.
So today on The Deep Dive, we are unpacking the
wild, tumultuous, and frankly, the surprisingly
resilient history of Encompass Health, formerly
known, of course, as HealthSouth. And just to
give you a sense of the scale here before we
get into all the drama, Encompass Health, which
is based in Birmingham, Alabama, is currently
the nation's largest provider of inpatient rehabilitative
services. The largest in the entire country.
We're talking about a massive network. They have
166 inpatient rehabilitation hospitals. They're
operating in 38 states and Puerto Rico. Wow.
They employ roughly 40 ,000 people. And as of
this year, 2024, they're pulling in over $5 .3
billion in revenue. So this is no small operation.
This is a titan of the healthcare industry. Absolutely.
And our mission for this deep dive is to really
trace the life cycle of this corporate giant.
We want to understand how a really smart business
idea in the early 80s turned into this massive
empire and how that empire rotted from the inside
out because of a $2 .7 billion accounting scandal.
And then, and this is the part that I think often
gets overlooked, how they pulled off surprisingly
successful turnaround that actually saved the
business. It's a story that has everything. I
mean, we've got a fleet of corporate jets. We
have a futuristic digital hospital that never
actually opened. The old white elephant. We've
got world famous sports surgeons. And then we
have executives literally running to the FBI
because they were terrified of going to jail.
It really is the Wild West of corporate health
care. But to understand how we got to the fraud
and how we got to that standing ovation, we have
to go back to the very beginning. We have to
look at the origin story. Because before the
crimes, there was a legitimate idea. There was
actually a very legitimate, very smart business
idea. OK, so let's rewind the clock. It's 1983.
Our main character, Richard Scrushy, is working
as a vice president at a company called LifeMark
Corporation. LifeMark was a publicly traded hospital
company. Pretty standard stuff for the time.
But Scrushy is looking around and he has one
of those classic aha moments. He sees a huge
gap in the market. And to really appreciate this
gap. You have to understand what was happening
in health care in the early 1980s. The whole
landscape was shifting dramatically under everyone's
feet. What was driving that shift? In a nutshell,
the federal government. They had just introduced
this new payment system called diagnosis -related
groups, or DRGs. DRGs. Okay, what does that mean
in plain English? Well, before DRGs, hospitals
got paid for, you know, every service they provided.
The longer you stayed, the more tests they ran,
the more money they made. So there was an incentive
to keep you there. A huge incentive. But DRGs
changed all that. Suddenly, the government said,
look, for a heart attack, we will pay you a single
flat fee. That's it. All of a sudden, hospitals
were under immense pressure to cut costs. The
old model of keeping patients in expensive acute
care beds for weeks was just becoming unsustainable.
So the days of checking into a hospital for a
minor issue and staying for two weeks were officially
over. They were over. Because every single day
a patient sat in that hospital bed, it was costing
the hospital money from that flat fee. And Scrushy
noticed something really specific about physical
therapy and rehabilitation in this new environment.
What did he see? He saw that the demand for physical
therapy was absolutely booming. Medical technology
was getting better. It was saving more lives.
People were surviving strokes, car accidents,
heart attacks. But they needed rehab to recover
their function. So more survivors meant more
demand for rehab. Exactly. But, and here's the
key insight, doing that rehab inside a traditional
hospital in that acute care setting was incredibly
expensive. You're paying for the overhead of
an emergency room, an ICU, specialized surgeons,
even if the patient just needs to learn to walk
again on a treadmill. So Scrushy's idea was simple
but kind of revolutionary for the time. Take
it out of the hospital. Precisely. Move that
service to an outpatient setting. If you can
offer those same physical therapy services in
a standalone facility. It's just far more cost
effective. You strip away all the hospital overhead.
You strip it all away. You focus entirely on
the therapy. And it creates this win -win situation.
The patients get the care they need in a more
convenient setting. The insurance system saves
a ton of money. And the provider, in this case,
Scrushy's Future Company, can run a very, very
profitable business. with high margins. It's
a classic business arbitrage. Provide the same
service, but with a much lower cost basis. So
he takes this idea and in 1984, he incorporates
a company called Amcare Inc. Amcare. It sounds
a bit generic, doesn't it? Like a brand of bandages
or something. It doesn't quite scream future
Fortune 500 company, but he didn't do it alone.
He had four co -founders. They scraped together
$50 ,000 in seed money. And get this. Scrushy
himself put in the most, and his contribution
was $25 ,000. A $25 ,000 investment. Just keep
that number in your head for a minute, because
we're talking about a company that would eventually
be worth billions of dollars. That is a staggering
initial return on investment. I'll say. And they
also got about a million dollars from Citicorp
Venture Capital, so they have some real cash
to get started. They opened their first facility
in Little Rock, Arkansas in early 84, then a
second one back home in Birmingham. And Scrushy
is the chairman and... CEO right from the get
go. He's the engine. He's the one pushing the
pace. Now, pretty quickly, they realize Amcare
is a bit bland. So in 1985, they changed the
name to Health South Rehabilitation Corporation,
which is a much smarter move. Health South sounds
established. It sounds institutional. It gives
it a sense of place and permanence. Yeah, it
sounds like it's been around for 50 years already.
And that new name set them up for that IPO we
mentioned at the start. The 1986 IPO on the Nasdaq.
Right. That's where we got the standing ovation.
But then right after that. Scrushy does something
that really, really puts them on the map. He
pivots or maybe expands is the better word. He
expands the scope. Absolutely. They started in
outpatient. These are the clinics where you go
for an hour of therapy and then you go home.
But in 1986, they purchased their first inpatient
rehabilitation hospital. OK, so now they actually
have beds. They're keeping patients overnight.
Correct. And this moves them way up the health
care food chain. Inpatient rehab is for more
serious cases. Yeah. People who need 24 -hour
nursing care along with their intensive therapy.
But the real game changer comes a few years later
in 1989. What happens then? They move their stock
listing from the NASDAQ to the New York Stock
Exchange, the big leagues. And they buy a very
specific hospital in Birmingham called South
Highlands Hospital. And they rename it Health
South Medical Center. And this wasn't just any
old community hospital. This purchase marked
their big entrance into acute care, but with
a very, very specific focus. Orthopedics. And
this is where that cool factor comes into play.
Because when you talk about orthopedics in Birmingham,
Alabama, or really anywhere in the sports world
in the 90s, you are talking about one name. Dr.
James Andrews. The surgeon to the stars. I mean,
Michael Jordan, Bo Jackson, Jack Nicklaus, Troy
Aikman. You name a super athlete from that era,
if they blew out a knee or tore an elbow, they
were probably getting on a plane to Birmingham
to see Dr. Andrews. He was the guy. By buying
this hospital, HealthSouth immediately affiliated
itself with the Alabama Sports Medicine and Orthopedic
Center. So suddenly, HealthSouth wasn't just
a place where your grandma went to recover from
a hip replacement. No, it was now associated
with the American Sports Medicine Institute.
It was associated with elite performance. It
was an absolute branding coup. It was brilliant.
It linked the HealthSouth brand to success, vitality,
and high -performance professional sports. They
even developed partnerships with other top surgeons,
like Dr. Frank Jobe in Los Angeles. invented
Tommy John surgery for baseball pitchers. So
all of a sudden, going to a HealthSouth facility
didn't feel like going to a regular hospital.
It felt like going to a high -end training camp.
Exactly. And Scrushy understood this intuitively.
He understood that health care is also a consumer
product. Brand matters. Perception matters immensely.
So by the end of the 80s, they are on a roll.
They have 50 facilities by 1990. They're making
$400 million in revenue by 1992. But then comes
the 90s. And if the 80s were about the launch,
the 90s were about, well, world domination. This
is the empire building phase. And the strategy
was unbelievably aggressive. In business, we
call this a roll -up strategy. A roll -up. Can
you explain what that means for us? A roll -up
is when a company sets out to acquire as many
smaller independent companies in the same industry
as possible. The idea is to consolidate a very
fragmented market. So if there are thousands
of little mom -and -pop rehab clinics out there...
You buy them all, or as many as you can. You
become the giant. The strategy was basically
eat or be eaten, and HealthSouth was doing all
the eating. They just started buying everything
in sight. The real milestone year was 1993. In
late 93, they made a massive move. They acquired
28 inpatient rehab hospitals and 45 outpatient
facilities from a company called National Medical
Enterprise. That sounds like a big deal. It was
huge. That single acquisition more than doubled
the size of the company overnight. In one transaction,
HealthSouth became the nation's largest provider
of both inpatient and outpatient rehabilitation.
They became the category killer. Like the Home
Depot or Walmart of rehab. A perfect analogy.
And they did not stop there. In 1994, they bought
another company called Relife. Then they dropped
the word rehabilitation from their corporate
name and just became HealthSouth Corporation.
Which is a signal, right? It says we are doing
more than just rehab now. Precisely. They started
diversifying aggressively. In 94, they bought
Diagnostic Health Corporation. So now they're
in the diagnostic imaging business, MRIs, CT
scans, x -rays. In 1995, they bought Surgical
Health Corporation. So surgery centers. Outpatient
surgery centers. Then, just one month later,
they bought Novacare's Rehab Hospital business.
And then... We're still in 1995. They dropped
$1 .2 billion to acquire surgical care affiliates.
$1 .2 billion. That's real money, even today.
Yes. And that deal instantly made them the largest
provider of outpatient surgery in the entire
country. This pace is just relentless. They're
buying occupational health businesses like Redicare.
They're buying competitors. They're buying everything.
By 1999, the numbers are just staggering. HealthSouth
had over 2 ,000 facilities. They were in all
50 states, plus the UK, Australia, Puerto Rico,
Canada, even Saudi Arabia. They were truly a
global health care empire. I want to pause on
this strategy for a second. Why buy all these
different things? Why surgery and diagnostics
and rehab? What was the logic? A logic was all
about leverage and what we call vertical integration.
Think about it from the patient's perspective,
from their journey through the system. Let's
say you get injured playing softball on a weekend.
You might need an MRI to diagnose the injury.
Well, HealthSouth owns the diagnostic center.
The doctor says you need minor surgery to fix
it. HealthSouth owns the outpatient surgery center.
And then you need physical therapy to recover.
And HealthSouth owns the rehab clinic. They capture
the revenue at every single step of your care.
They keep the patient inside the HealthSouth
ecosystem. That's powerful. It's incredibly powerful.
And because they were the largest provider in
every single one of those lines of business,
they had immense negotiating power with the insurance
companies. If you're a big insurer like Blue
Cross, you basically had to have HealthSouth
in your network. They were just too big to ignore.
It sounded like the perfect business model. They
seemed unstoppable. On the surface, yes. It looked
perfect. But when you grow that fast, when you
are that ambitious, sometimes the ambition starts
to outpace the reality. What do you mean? Well,
when you acquire that many companies that quickly,
the integration is a complete nightmare. You're
trying to merge dozens of different computer
systems, different corporate cultures, different
accounting practices. It gets incredibly messy.
Very fast. And it's amidst all this chaotic growth
that we see this physical manifestation of that
hubris. In 2001. The digital hospital. The digital
hospital. This was Scrushy's ultimate vision
of the future. HealthSouth announced they were
partnering with Oracle Corporation to build the
world's first all -digital acute care hospital.
And they actually started building it. A massive
13 -story structure on 19 acres of prime real
estate right next to their corporate headquarters
in Birmingham. It was meant to be the jewel in
the crown of the empire. What did all digital
even mean? It meant bedside touchscreens for
patients, automated drug dispensing, maybe even
robots delivering meals. It was supposed to be
the hospital of the 21st century. A paperless,
seamless, high -tech marvel. A monument to HealthSouth's
dominance and innovation. But as we often see
in history, monument building often comes right
before the fall of the empire. Construction on
that hospital was halted just two years later.
It sat there. an empty steel skeleton for years,
a perfect symbol of ambition hitting a brick
wall. And that brick wall was the year 2002.
This is where the first cracks start to appear.
And it's fascinating because it didn't start
with a huge explosion. It started with a suspicion.
So set the scene for us. It's 2002. The stock
is still flying high. Scrushy is a corporate
celebrity. But then in May and again in July
of 2002, Richard Scrushy sells a very large amount
of his company stock. Which, in isolation, isn't
necessarily illegal. Executives sell stock all
the time to diversify their portfolios or buy
a new boat. But the timing here was, let's just
say, was suspicious. Because right after he sells
all that stock, in August 2002, the company makes
a surprise announcement. They announce a huge
shortfall in earnings to the tune of $175 million.
And markets absolutely hate surprises, especially
bad ones. The stock gets hammered. And naturally,
the SEC, the Securities and Exchange Commission,
starts asking some pointed questions. Their question
being... Did Scrushy know about this $175 million
shortfall when he sold all his stock back in
May and July? Exactly. So it starts as a classic
insider trading investigation. The SEC is looking
to see if Scrushy dumped his shares because he
knew bad news was on the way. That's a serious
crime for sure, but it's a specific kind of crime.
But they had no idea what was really going on.
They were pulling on a single loose thread, not
realizing it was attached to a bomb. They really
didn't. This is the big twist in the story. The
SEC was investigating a $175 million earnings
miss. They had no idea that the entire financial
foundation of the company was a complete and
utter lie. So how did the truth finally come
out? Because usually these things drag on for
years. The lawyers get involved. Everyone denies
everything. It came out because of raw fear.
and specifically fear of a brand new law called
the Sarbanes -Oxley Act. Okay, let's unpack that.
Sarbanes -Oxley. We hear that term thrown around
in business news, and it's usually followed by
a groan from an accountant. But what did it actually
mean for the guys at HealthSouth? Well, the Sarbanes
-Oxley Act, or SOX as it's known, was passed
in 2002. It was a direct response to those massive
frauds we mentioned earlier, like Enron and WorldCom.
Right. Those scandals had wiped out billions
of dollars of retirement savings. People were
furious. Congress was furious. Yeah. The public
was furious. So they passed this law to completely
change the rules of the game for corporate executives.
And what was the key change? Before SOX, a CEO
or a CFO could often claim ignorance. They could
say, oh, I had no idea the accountants were cooking
the books. I just sign off on the big picture.
But SOX made it so that top executives had to
personally certify the accuracy of their company's
financial statements. Personally certify? Yes.
And if they certified statements that turned
out to be false, they could go to prison for
up to 20 years. Wow. Okay, so suddenly it's not
just a corporate fine or getting fired. It's
real hard jail time. It made them personally
liable. Exactly. The plausible deniability was
gone. And that change absolutely terrified the
executives at HealthSouth. In early 2003, two
executive officers who knew about the fraud,
who had been participating in it for years, realized
they just couldn't keep signing these false papers.
The risk was suddenly too high. The new law had
raised the stakes to a life or death level, professionally
speaking. So terrified that the whole scheme
would be exposed and they would be the ones left
holding the bag. They did something drastic.
They went to the FBI. They turned themselves
in. And apparently they did it separately without
knowing the other was doing it. They walked into
the FBI offices to confess their involvement
and try to cut a deal to save themselves. That
is just incredible. The SEC is over here looking
for insider trading. And meanwhile, the company's
own executives are walking into the FBI saying,
hi, we've been cooking the books for seven years.
And once those two started talking, the floodgates
just opened. It was revealed that the $175 million
shortfall they had announced back in August wasn't
a real shortfall at all. It was actually a cover
story. A cover story for what? They were trying
to unwind fraud. They were trying to intentionally
lower Wall Street's expectations so they wouldn't
have to keep lying by such a large amount every
quarter. They knew they couldn't keep inflating
the numbers forever, so they were trying to orchestrate
a soft landing. But the hole they had dug was
just too deep. Way too deep. The full investigation
revealed that from 1996 all the way to 2003,
the company had committed accounting fraud totaling
$2 .7 billion. $2 .7 billion. That is just a
staggering number. I mean, how do you even fake
that much money? How does that work mechanically?
Well. The accusation was that Scrushy and his
inner circle of executives, a group the insiders
sometimes called the family, would direct employees
to report false earnings. And the method was
surprisingly crude. How so? They would meet every
quarter to review the preliminary earnings reports.
They would look at what the company actually
earned, and then they'd look at what Wall Street
analysts expected them to earn. Let's say Wall
Street expects them to make a dollar a share
in profit. Right. And if the real internal numbers
showed they only made, say, 70 cents a share.
There was a 30 cent gap. And Scrushy would reportedly
look at his CFO and accountants and say one simple
thing. Fix it. Just fix it. Fix it. And so the
accountants, the family, would go back to their
desks and literally invent revenue to fill that
gap. They had nicknames for it. They called the
fake entries dirt or pixie dust. Pixie dust.
Yes. And they would find obscure line items on
the balance sheet. things like contractual adjustments
or patient refunds, accounts that auditors might
not scrutinize as heavily. And they would just
type in new numbers. They would add a few million
here, a few million there, until the bottom line
number magically matched the Wall Street expectation.
Because they were literally just making up numbers
every quarter to keep the stock price from falling.
Yes. It was a massive, systematic effort to deceive
investors. And one of the smarter things they
did, if you can call it that, was they made thousands
of tiny, fraudulent entries instead of one big
one. That made it much harder for the auditors
at Ernst & Young to catch. The fallout from this
revelation must have been immediate and catastrophic.
It was incredibly swift. On November 4th, 2003,
a federal grand jury indicted Richard Scrushy
on 85 counts, including fraud and money laundering.
What happened to the company itself? The company
was in absolute chaos. It was immediately delisted
from the New York Stock Exchange. It was kicked
out of the S &P 500 index. The stock price, which
had once been over $30 a share, plummeted to
just pennies. The board of directors fired the
entire executive management team. Scrushy was
out. And that digital hospital construction?
Stopped cold. The crane stopped moving that very
day. Now, here's an important distinction you
pointed out earlier. Scrushy and other executives
were indicted, but the company itself, HealthSouth
as a corporate entity, was not indicted. Why
was that? Because the new board of directors
made a very smart decision. Once they realized
the extent of the fraud, they decided to cooperate
fully with the investigators. They opened the
doors. They said, come in. We will help you find
everything. We will not hide a single document.
They turned on their old bosses. Completely.
And because they cooperated, the government decided
to pursue the individuals who were responsible,
not the corporate entity itself. That single
decision probably saved the company from total
destruction and liquidation. but even so a 2
.7 billion dollar fraud most companies would
just declare bankruptcy they would fold they'd
be gone forever why didn't health south die this
is for me the most fascinating part of the entire
business case why didn't they go bankrupt because
ironically the underlying business model was
actually sound the actual business of rehabbing
patients exactly the fraud was about inflating
the earnings to make the company look better
than it really was but the core business helping
stroke victims learn to walk again helping athletes
recover from surgery that business was real and
it was generating actual positive cash flow so
they were making money just not nearly as much
as they were lying about correct this wasn't
a ponzi scheme where there was no underlying
business at all there was a real profitable and
necessary business underneath all the lies. A
top tier restructuring firm, Alvarez and Marsal,
came in. They looked at the real books and they
realized, wait a minute, this company has cash
flow. If we manage this correctly, we don't need
to file for Chapter 11. So they survived the
initial crash, but now they had to rebuild everything.
They had to clean up this colossal mess. And
this begins the turnaround phase of the story.
It starts with completely new leadership. In
2004, the board brings in a man named Jay Grinney
as the new president and CEO. And where did he
come from? He came from HCA Hospital Corporation
of America, one of the biggest and most respected
hospital operators in the country. He was a seasoned,
no -nonsense operator. He was the complete opposite
of a showman like Scrushy. He was a grinder.
And he brought in a new CFO, John Workman. Their
job was just to stabilize the ship. And a big
part of stabilizing the ship had to be changing
the corporate culture. Because under Scrushy,
the culture was, let's just say, extravagant.
To put it mildly, Scrushy lived an incredibly
flashy lifestyle. And that permeated the whole
company. So one of the very first things the
new management team did was symbolic but very
meaningful. They sold the fleet of corporate
jets. They had a whole fleet, not just one jet.
They had multiple jets. It was a huge symbol
of the excess of the Scrushy era. Getting rid
of them sent a powerful message to employees
and Wall Street. The party is over. We are here
to work and fix this. And they also started selling
off major assets, right? They had to. They needed
to simplify the business and raise cash. They
sold that Southside Medical Center to UAB, the
University of Alabama at Birmingham. That officially
ended their big venture into acute care orthopedics.
They also closed another hospital called Metro
West. And then between 2006 and 2007, they did
something really drastic. They basically dismantled
the entire empire that Scorsese had spent the
90s building. We can call this period the Great
Divestiture. The strategy was essentially shrink
to grow. They looked at that massive, vertically
integrated empire, the surgery centers, the diagnostic
clinics, the outpatient rehab, the inpatient
hospitals, and they asked themselves a simple
question. What are we actually best at? Where's
the real sustainable value in this company? And
the answer that came to was inpatient rehabilitation.
Exactly. That was the core. So they decided to
sell everything else. In 2007, they sold the
entire outpatient business to a competitor, Select
Medical. They sold the massive surgery center
division to a private equity firm, PPG Capital.
Which, interestingly, was spun back out as surgical
care affiliates again. Yes. The names often cycle
back in the world of private equity. And they
sold the diagnostic imaging division to another
firm called the Gores Group. They even sold the
real estate, right? The headquarters in that
empty digital hospital. They sold it all in 2008
to a real estate firm. They then leased back
the headquarters building they needed. But they
finally got that empty hospital off their books.
So by 2007, 2008, what is actually left of HealthSouth?
What's left is a lean, mean, focused machine.
They were back to their roots. They were almost
purely an inpatient rehabilitation company. They
had stripped away all the distractions, all the
flash and sizzle, and focused entirely on their
core competency. And this strategy worked. They
managed to get relisted on the New York Stock
Exchange in 2006. That must have felt like a
huge victory. It was a massive validation. It
meant that the markets, the investors, they trusted
them again. It was a signal that they had survived
the fraud, paid their penance, and had emerged
as a viable public company once more. So that
brings us into the modern era of the company.
They've survived, they've stabilized, they've
shrunk. Now it was time to start growing again.
But this time, the growth was going to be disciplined.
It was focused. So from 2014 onwards, they started
acquiring again, but they stayed squarely in
their lane. In 2014, they made a big purchase.
encompass home health and hospice. Which made
perfect strategic sense. Home health is a natural
extension of inpatient rehab. A patient leaves
your rehab hospital, they go home, but they still
need care. It fits the continuum of care perfectly.
And then in 2015, they bought Reliant Hospital
Partners for $730 million, which added another
11 rehab hospitals to their network. Right. Expanding
their footprint, but sticking to what they know
best. Then in 2018 came what was probably the
final symbolic break from the past. The name
change. HealthSouth officially became Encompass
Health Corporation. Why the change? I mean. Everyone
in health care knew the name HealthSouth. It
was a powerful brand, for better or worse. It
was, but it carried so much baggage. It was forever
linked to Richard Scrushy and the scandal. By
rebranding to Encompass Health, they accomplished
two things. First, they integrated the Encompass
name from their big home health acquisition,
showing a unified company. Right. And second,
and maybe more importantly, they signaled to
the world that this was a new day. It was a clean
slate. The past was the past. Encompassed from
the new home health side and health from the
legacy name. Exactly. It was a bridge from the
past to the future. And they haven't stopped
evolving. Just in 2022, they made another big
strategic move. They did. They spun off that
home health and hospice business they had bought
as a brand new separate publicly traded company
called Inhabit. So now today. What is Encompass
Health? Today, they are a pure play inpatient
rehabilitation provider. That is their sole focus.
They do one thing and they aim to do it better
than anyone else in the country. Let's talk about
the patients for a second. Who are they actually
helping day to day? When we say inpatient rehab,
what does that really look like? We're talking
about patients recovering from very serious,
often life altering medical events. The biggest
category is stroke. but also other neurological
disorders, major cardiac and pulmonary conditions,
traumatic brain injuries, spinal cord injuries,
complex orthopedic injuries, amputations. So
these are not people coming in for a sprained
ankle. These are people who need intensive round
-the -clock therapy just to regain their independence.
That's exactly right. It's critical, life -changing
work. And it seems the market recognizes that
they're doing it well. The turnaround is so complete
that they're winning awards now? They are. Fortune
has ranked them on their world's most admired
companies list. Modern Healthcare magazine has
called them one of the best places to work. To
go from a $2 .7 billion fraud to a most admired
company, that is quite the arc. It really is
one of the most remarkable turnaround stories
in modern corporate history. So let's try to
wrap this incredible story up. We started with
a $50 ,000 startup built on a really smart idea.
It grew into a dominant globe spanning empire
that owned everything from surgery to diagnostics.
It collapsed spectacularly under the weight of
one of the biggest frauds we'd ever seen. It
almost died. And then through discipline management
and a painful restructuring, it stripped itself
down, survived and rebuilt itself into the focused
industry leader it is today. It's the ultimate
corporate survival story. Before we go, I want
to go back for a moment to that digital hospital,
that empty skeleton. It's such a haunting image,
isn't it? It stood empty for years on a major
highway in Birmingham, Highway 280, just a steel
frame against the sky, a monument to failure.
But eventually it was sold. It was finished by
another company, Community Health Systems, and
it's now the Grandview Medical Center. So it
is a working hospital today. It is, but it's
not the one Richard Scrushy envisioned. It has
a different legacy now. And I think that brings
us to the biggest takeaway here for me. The story
of Encompass Health is really a powerful lesson
in distinguishing between a business and its
management. That is the absolute key point. The
management's scrushy and his inner circle was
corrupt. They were driven by greed, by ego, by
the pressure to keep the stock price soaring.
But the business, the actual act of providing
rehabilitation services to people in need, was
solid. It was necessary. It created real value.
And because that underlying business had real
value, it was able to outlive the corruption
of its creators. Exactly. The need for rehab
didn't go away just because the CEO was a crook.
It really makes you wonder, doesn't it? In our
current age of tech unicorns and nonstop hype,
how often do we confuse a charismatic CEO with
a solid, sustainable business model? We do it
all the time. We fall in love with the pitch,
the vision, the standing ovation. But at the
end of the day... Boring, reliable cash flow
usually wins out over flashy promises. So here's
the final thought for you to chew on. Does the
boring work of rehabilitation actually hold more
intrinsic value than the flashy work of empire
building? I think the story of Encompass Health
proves that. In the long run, it absolutely does.
Couldn't agree more. Something to think about
the next time you see a CEO getting a standing
ovation. That's it for this deep dive into Encompass
Health. Thanks for listening.