PERU18

Healthcare Financial Statements and Ethical Standards Case Study Analysis

Review the following case:

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/litigation/complaints/comphealths.htm

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.