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Prepared Witness Testimony The House Committee on Energy and Commerce
The Financial Collapse of HealthSouth
Subcommittee on Oversight and Investigations
Miss. Sage Givens
Mr. Chairman, Ranking Member, and members of the Subcommittee, good morning. My name is Sage Givens. I am a member of the Board of Directors of HealthSouth. I am the Founding Managing Partner of Acacia Venture Partners, which was the first venture capital firm to specialize in healthcare services. Prior to that, I was a principal at First Century Partners, where I managed the firm's healthcare practice. The venture funds with which I have been associated have helped build many leading healthcare service companies from the ground up by providing badly needed capital to help them get started and to grow. Like HealthSouth, these companies have been successful because they provide millions of Americans with high quality healthcare at affordable prices. I joined HealthSouth's Board of Directors in 1985, when First Century Partners invested in the Company. As a condition of its investment, First Century required a seat on the Board, and my partners selected me to fill that seat. At that time, HealthSouth was a private company with only 2 facilities and less than $2.0 million in revenues. After the Company went public in 1987, I was annually re-elected to the HealthSouth Board by shareholders. I have remained on the Board because I believe so strongly in what HealthSouth stands for - high quality, affordable healthcare. The HealthSouth Board over the years has included many distinguished and accomplished individuals. This Board has also surrounded itself with experts in the fields of finance, compensation, financial reporting, compliance and ethics. The Board was regularly briefed by nationally recognized firms such as Ernst & Young, Deloitte & Touche, Mercer Human Resource Consulting, Strategic Management Systems, and many others. Although we do not have all of the details of how this fraud occurred, what we have learned so far is that it was a very carefully orchestrated, highly sophisticated accounting fraud, designed to evade detection. Indeed, at HealthSouth we had numerous controls and systems in place that should have helped to detect this fraud. Unfortunately, when high-level management conspires to commit a criminal act, I do not know of any corporate governance policy that would prevent such criminal behavior. How to prevent this type of fraud in the future is certainly a challenge for boards all across this country. As long as I have served on this Board, I have strongly believed that this was a company which simultaneously rewarded its shareholders while providing outstanding service to hundreds of thousands of patients per year. From the beginning, I have been a vigilant, active and well-prepared Board member. I have asked the tough questions and have been unafraid to express my thoughts forcefully. Any implication to the contrary is just plain wrong and goes against my reputation for being a tough but fair-minded director of numerous companies, both public and private. It is difficult to convey how shocked and saddened I have been since learning of the fraud committed against the Company. After all, HealthSouth was touted by many as being a premier healthcare company. It was the first and best national rehabilitation company and the first healthcare company to establish itself in all 50 states. It was associated with numerous world-class physicians and established a preeminent reputation in the treatment of sports injuries, as well as of cardiac and stroke patients, and was endorsed by prominent figures in many walks of life. I would like to take the opportunity to address the subject of the Audit Committee which was discussed during the first day of your Hearings, Mr. Chairman. I have been a member of the Audit Committee since 1989. Early on, the Company selected Ernst & Young, one of the most highly experienced and nationally recognized accounting firms in the United States. The Audit Committee met regularly and was often accompanied by representatives of Ernst & Young. Detailed questions were asked of Ernst & Young at these meetings about the Company's finances and we were regularly assured that the Company's accounting practices and internal control systems were among the best in the country. Audit Committee members, as well as other Board members, queried Ernst &Young about any and all accounting deficiencies to be addressed and corrected. None, not one, was ever raised by the auditors in the 13+ years I served on the Audit Committee. Indeed, in Ernst &Young's Management Reports for the last 3 years, the Auditors declared that they found "no material errors, fraud, or possible material illegal acts." Finally, I would like to respond to questions about business relationships with HealthSouth that are described as "Related Party Transactions." As you know, federal securities law contemplates and permits such transactions. I am a venture capitalist and I specialize in the healthcare industry. My job is to find new and innovative companies which can deliver superior healthcare services at affordable prices to all Americans. That is why my company invested in HealthSouth to begin with. When I have found examples of companies which provide good medical care at affordable prices, I not only invested my company's capital in those companies, but I thought it made good sense to share those opportunities with HealthSouth. Sometimes HealthSouth thought it was in the Company's and its shareholders' best interests to invest and did so. And more times than not, HealthSouth declined to make an investment. There is not one example of a time when I or my firm pressured HealthSouth to make an investment. In virtually all of those transactions, HealthSouth and its shareholders have benefited. HealthSouth, despite the enormity of the malfeasance committed by a few individuals, has clearly contributed a great deal to the healthcare industry. The fact that the Company is still standing strong and has staved off bankruptcy is a testament to its employees and the quality of medical care it has provided to millions of patients. Indeed, I believe that with the dedication and leadership of the Board and the new management team, HealthSouth will continue to make an enormous contribution to medical care in this country. My focus as a Board member has always been, and continues to be, to ensure HealthSouth's future as a viable, strong and ethical business. I support this Committee's efforts to identify the facts and to seek ways of preventing this type of fraud in the future. Thank you.
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