Troubled

HealthSouth

(HLSH)

has agreed to pay $325 million to settle federal charges that it overbilled Medicare.

The rehabilitation-center chain said it will make an initial payment of $75 million and will repay the balance, including interest, in quarterly installments over the next three years. The charges involved improper billing for outpatient physical therapy services and inpatient rehabilitation.

"Health care fraud impacts every American citizen. When a company defrauds our nation's health care programs, it steals from the American taxpayers," said Assistant Attorney General Peter Keisler, head of the Justice Department's Civil Division. "HealthSouth's fraud on Medicare was driven both by longstanding business practices in its outpatient physical therapy business and improprieties in its inpatient rehabilitation business."

HealthSouth said provisions for the settlement have been incorporated into the company's long-term financial projections. "We have been in negotiations on this settlement for some time and have taken these payments into account as we plan for the future. As I have mentioned in the past, I believe we will be able to make these payments without compromising the resources necessary to manage our facilities in a quality manner," CEO Jay Grinney said.

HealthSouth admitted in 2003 that its past financial statements were unreliable. The disclosure followed news of a multibillion-dollar accounting fraud allegedly ordered by disgraced founder Richard Scrushy, and dating back to HealthSouth's earliest days as a public company.

Scrushy is expected to go to trial in early January. The settlement is with the civil division of the Department of Justice and does not directly affect the case against the ex-CEO or other former HealthSouth executives.

Shares of HealthSouth were off 12 cents, or 1.9%, at the close of trading on Thursday.