Healthcare Financial Statements and Ethical Standards Case Study Analysis
According to the Securities and Exchange Commission (SEC), HealthSouth Corp., a Birmingham, Alabama, health-services company, overstated its profits by at least $1.4 billion between the years 1999 and 2003 to meet or exceed Wall Street estimates. The allegations came just seven months after an earnings restatement and insider-trading charges triggered the investigation. Although this case happened years ago, the fallout from the scandal was still in the news in 2012, demonstrating the long-term damage a healthcare organization can suffer as a result of fraud.
There is a tremendous amount of publicly available information about the fraud committed by HealthSouth Corp. The fraud included many of the typical earnings-manipulation tricks such as capitalizing expenses, understating reserves for receivables, and extending the usefulness of equipment. There was none of the highly technical fraud such as that seen in Enron.
Access the following link to learn more about this case:
- U.S. Securities and Exchange Commission. (2003). Complaint for injunctive and other relief. Retrieved from https://www.sec.gov/
Analyze each element of this case. Consider the following aspects in your analysis:
- Identify the specific methods used by management to manage earnings.
- Establish a scenario in which you are a midlevel manager in a healthcare organization and you suspect that management is manipulating earnings. You benefit from the manipulation because your bonus is based on earnings. In addition, you have determined that becoming a whistleblower will be detrimental to your career. What will you do? If you decide to be a whistleblower, what protection is available to you?
Give reasons to support your statements.
Write your initial response in approximately 300–500 words. Apply APA standards to citation of sources.
Bouchard, S. (2012, January 12). Former HealthSouth CFO warns of the dangers of an ethics meltdown. Healthcare Finance News. Retrieved from http://www.
United States Securities and Exchange Commission. (2013). HealthSouth Corporation: Form 10-Q Quarterly report pursuant to Section 13 OR 15(d) of the Securities Exchange Act of 1934[Civil Action No. CV-03-J-0615-S]. Retrieved from http://investor.
Healthcare organizations are one of the most important organizations in the world if not the most important. This is why most of them need to maintain a clean slate and operate on legal means alone. However, some healthcare organizations have strayed from this such as the health south corporation. The fraud occurred at a time that investors were less focused on profitability and more on revenue earnings. As a result, HealthSouth Corp needed to efficiently manage their accounts to profit. They based their growth on the fact that their accounting procedures did not directly violate the generally accepted accounting principles (Nowicki, 2011).However, driven by thirst, the management started to improperly capitalize expenses, overestimating reinsurance reimbursements and overvaluing fixed assets.