HealthSouth begins layoffs as more execs plead guilty to fraud

BIRMINGHAM, Ala. -- HealthSouth Corp. cut 20 percent of its headquarters staff Thursday as five more executives agreed to plead guilty in a huge accounting fraud that has the health care giant teetering on bankruptcy.

The layoffs of 165 people was HealthSouth's first mass personnel cut since the government accused it of overstating earnings by at least $1.4 billion since 1999 to make it appear the company was meeting Wall Street forecasts.

The company said the workers were being laid off from marketing and other departments that do not deal with patients. HealthSouth eliminated about 1,000 of its 50,000 jobs last year.

The company calls itself the largest U.S. provider of diagnostic imaging, outpatient surgery and rehabilitation services. The company has nearly 1,700 locations.

HealthSouth employs about 3,500 people in Birmingham, including 830 at headquarters, where the latest jobs will be cut. It has publicly discussed bankruptcy as a possibility.

In court, five more HealthSouth executives admitted taking part in a scheme that already had resulted in guilty pleas from three top executives and a criminal probe of founder Richard Scrushy, ousted this week as chairman and chief executive office.

Among the five is chief information officer Kenneth Livesay, 42, who agreed to plead guilty to charges of conspiracy to commit wire fraud and falsifying corporate records. Livesay was involved in the scheme since 1996, the charges claimed.

The others who agreed to plea deals on fraud charges are: Angela C. Ayers, 33; Cathy C. Edwards, 39; and Rebecca Kay Morgan, 35, all corporate vice presidents; and assistant vice president Virginia B. Valentine, 33.

Upper managers approached the four women as early as 1994, when they held lower-level jobs, and asked them to enter false numbers in accounts on a temporary basis, U.S. Attorney Alice Martin said.

"In the summer of '02 many of these employees said, 'We no longer want to participate in this. This temporary situation y'all were talking about for several years isn't temporary,"' she said.

None of the workers reported the fraud to authorities, Martin said, and some have expressed fear of physical or psychological retribution if they came forward.

The company has said it would fire any employee involved in fraud.

HealthSouth was unable to make $367 million in bond and interest payments this week, and it has stopped construction on two hospitals in Alabama. An aircraft leasing company sued HealthSouth for $48 million this week for overdue payments on a corporate jet.