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HealthSouth's Quarter Even Worse Than Expected

Changes in Medicare reimbursement take a steep toll.
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third-quarter results were worse than expected as a change in Medicare rules took a greater-than-expected toll on its bottom line.

The Birmingham, Ala., outpatient surgery provider, which stunned investors in August with a warning that annual cash flow would be $175 million less than predicted because of Medicare changes, earned $53.6 million, or 13 cents a share, in the latest quarter, down from $79.1 million, or 20 cents a share, last year.

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Excluding a gain from debt prepayment, earnings were $38.3 million, or 10 cents a share. On that basis, the company was expected to earn 21 cents a share. Revenue rose to $1.09 billion from $1.08 billion a year ago.

The warning led to an


investigation of both the announcement and certain stock sales by the company's chairman, Richard Scrushy. "The demands on management resources in the quarter, combined with confusion among our therapists on scheduling and staffing requirements under the new Medicare policy, negatively affected our ability to restore lost (patient) volumes during the quarter," the company said in a release.

A change in the way Medicare reimburses for group therapy and some facilities closures caused revenue in its outpatient rehabilitation segment to fall 17%, HealthSouth said. Inpatient rehabilitation revenue rose 12% in the third quarter from a year ago.