It was crunch time for HealthSouth ( HRC) Wednesday as the surgical rehabilitation provider watched its share price sink beneath its two-year lows.

Shares of the Birmingham, Ala.-based company plunged 24% to $5.09 Wednesday after shedding nearly half their value in Tuesday's session. Its bonds were also reportedly under pressure, trading at about 70 cents on the dollar. The company began taking on water shortly after announcing Tuesday that its earnings before interest, taxes, depreciation and amortization would be about $175 million light due to changes in the way the government reimburses some of its procedures.

Things worsened for the stock Wednesday when it received a series of investment downgrades, including one from Salomon that cited, among other things, investor scorn that isn't likely to clear up in the near term. A number of analysts and investors expressed unhappiness Tuesday that HealthSouth hadn't mentioned the possibility of the reimbursement changes earlier.

Salomon also voiced concern about its suspension of earnings guidance, saying, "What seem to be reasonable numbers now may not prove to be so as this saga unfolds."

The stock was also cut by Lehman and UBS.

HealthSouth has been under government scrutiny for several months after the Justice Department joined a civil suit alleging it defrauded Medicare for billing the agency for care provided by aides or trainees. HealthSouth, which denies its practices are inconsistent with Medicare rules, sometimes uses aides with different patients who receive therapy at the same time under supervision of a licensed therapist.

In announcing its EBITDA shortfall, the company noted that the new government rules provided for "group therapy" reimbursement when patients were treated at the same time, instead of individual reimbursement for each patient.

The company said it had been seeking clarification on the change in discussions with regulators, but decided to implement "policies and procedures designed to reflect a conservative interpretation of current Medicare coding requirements in light of the recent directive."

HealthSouth plans to spin off its surgery care unit to shield it from further reimbursement uncertainty. The move would establish the company as the largest independent operator of freestanding outpatient surgery centers in the country. The company's controversial founder, Richard Scrushy, was named chairman of the surgery centers, giving up the CEO role at HealthSouth to President and Chief Operating Officer William Owens.

Both Moody's and Standard & Poor's placed their ratings on HealthSouth's more than $3 billion of debt on review for possible downgrade Tuesday on concerns about the potential cash flow impact of both the spinoff of the surgery care unit and the Medicare reimbursement changes. And a one-notch downgrade by S&P would result in the corporate credit and senior unsecured ratings falling below investment grade.

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