HealthSouth Rises Following Scrushy Settlement

NEW YORK (AP) — Shares of HealthSouth Corp. rose Friday, a day after an Alabama judge ordered the hospital operator's former CEO to pay shareholders $2.88 billion in a fraud lawsuit — almost half of which would go directly to HealthSouth.

The shareholders were successful in their suit against former CEO Richard Scrushy, who they said faked HealthSouth financial reports between 1996 and 2002. HealthSouth will get 40 percent of the proceeds from the suit, but it's not clear how much Scrushy, who is imprisoned due to an unrelated bribery conviction, will be able to pay.

Shares of the Birmingham, Ala., company added 23 cents to $13.25 in afternoon trading. They rose 4.1 percent Thursday.

Raymond James analyst John Ransom said any proceeds from the settlement would help HealthSouth reduce its debt. He added that HealthSouth may also be able to pay down some debt with proceeds from a lawsuit against the accounting firm Ernst & Young, which was accused of overstating HealthSouth's financial condition.

Ransom estimated combined proceeds of $140 million for HealthSouth. The analyst, who kept an "Outperform" rating on the stock, said HealthSouth also faces comparatively little risk from health care reform. He said HealthSouth gets less of its money from government reimbursement, which means it does not have as much to lose if reimbursement rates decrease. HealthSouth improves patient outcomes at a faster pace than its competitors, and pays lower expenses, Ransom said.