Posted By Sunrise Health Communications on 03/04/2019

Just one drop

Just one drop

I am a recent, very belated convert to podcasts. I really enjoy the Pro Rata podcast from Axios and have loved the two seasons of Slate’s Slow Burn (the first season on Watergate was especially good). Just last week, I discovered Business Wars.

So I was excited recently when I saw that Rebecca Jarvis of ABC News was spearheading a new series on the Theranos scandal called “The Dropout.” After listening to the first episode a few weeks ago, it prompted me to finally read John Carreyrou’s “Bad Blood.” 

I can’t say enough about the book. Carreyrou obviously deserves major credit for unearthing the issues with Theranos from his dogged, brave reporting (and the last third of the book tells the gripping tale of his quest). On top of that, it’s a wonderfully written book that finds a way to be fair to Theranos and its erstwhile tech industry and media darling CEO, Elizabeth Holmes.

I enjoy “The Dropout” as well, although just as I would rather read the book before seeing a movie, I am glad that I read “Bad Blood” before listening to most of “The Dropout.” (And to the credit of ABC and Jarvis, they have not shied away from crediting Carreyrou and interviewed him for the fourth episode, “The Whistleblower.”) “The Dropout” brings some of Carreyrou’s storytelling to life with clips from deposition tapes that Jarvis obtained, as well as her interviews. Listening in “The Whistleblower” to two of the Theranos employees who were essential to Carreyrou’s reporting was especially illuminating.

After reading “Bad Blood” and as I listen to “The Dropout” each week, my memories of covering another major corporate scandal — the HealthSouth Corp. saga in the early Aughts — are starting to trickle back. There are three major parallels I see:

Secrecy and paranoia: The paranoia at the heart of the Theranos culture reminds me of a story I heard from a former HealthSouth employee. He had a short tenure at HealthSouth headquarters years before the U.S. Securities and Exchange Commission would bring a fraud case against company founder Richard Scrushy. Shortly after the SEC filed its case against HealthSouth and Scrushy, this person told me how even on his first days at the company he could see how controlling the company’s practices and rules were — he couldn’t bring work home with him, he felt monitored while at work and he was restricted from access to information he felt he needed to do his job. He left for another job after several months.

Both CEOs needed to keep as many people in their silos as possible, so no one could piece it all together.

Leadership cult: Many people outside of Theranos found it odd that Holmes traveled with several armed bodyguards and several other support staff. Her use of private jets was noted, too. 

In 2002, just months before the SEC filed its civil case against HealthSouth and Scrushy, I attended a healthcare investors’ conference where HealthSouth and many other publicly traded healthcare companies were making presentations. Most of the CEOs or CFOs presenting at the conference came with a colleague or two — their company’s head of investor relations, usually, and maybe an analyst from their staff who could answer more detailed questions or a leader who was overseeing a major project, such as the launch of a new division. 

Not Scrushy. While I don’t remember the exact number of people he had with him, I do recall describing Scrushy and his entourage to my reporting colleagues as a “phalanx” as they walked through the halls of the hotel conference area.  Included among his entourage was none other than Jason Hervey — the former child actor who had played Kevin Arnold’s antagonistic older brother on “The Wonder Years.” I was dumbfounded at seeing the former Wayne Arnold barking into a cell phone as he stomped down the hallway.

Selling the right story: Both Holmes and Scrushy have an innate sense of how to tell a story that their audience will eat up. Holmes knew the Hoover Institution-linked luminaries that former Secretary of State George Schultz brought to her board believed deeply in market-driven solutions to drive down the cost of healthcare.  As John Carreyrou detailed in “Bad Blood,” Holmes also did a masterful job of playing on the desire in Silicon Valley for a woman entrepreneur to emerge who could provide a parallel success story to the men who founded Apple, Google and a host of other tech companies.

I interviewed Scrushy by phone a few times while at Modern Healthcare. One interview was for a special publication on company founders. Scrushy told the story of how his mother delivered him in her physician’s office in Florala, Ala. He had a finely honed way of telling this story (“I was born in the town of Florala — you’ve never heard of it, but you can probably guess where that is.”) and ended it with a clever line: “You could say I was born into the outpatient business, literally.”

I also see two critical differences.

With a company that went public in 1986, Scrushy and HealthSouth were under much more scrutiny than the privately held Theranos and Holmes ever were until the very end. As a public company, HealthSouth was subject to much more transparency than Theranos ever was. Even before the SEC brought its case against Scrushy, there was long a sense that there might be something not quite right at HealthSouth or at least with Scrushy. Theranos had a few doubters, too, but it was much more difficult for them to really see the problems because it was easier to hide as a private company. The tendency in the current business environment of companies to remain privately held even as they grow to enormous scale presents a huge transparency challenge to journalists and public policy makers alike. 

The other major difference is that while both HealthSouth and Theranos have taken their respective places in any list of the most unbelievable company frauds in business history,  at least HealthSouth actually built a company that treated patients. Certainly, there were credible allegations that, at the margin, HealthSouth admitted patients to inpatient rehabilitation who were too sick for that setting. But after a painful restructuring, the company was put in the hands of a proper operator in Jay Grinney in 2004. Since then, HealthSouth has rebuilt and re-established itself, during the 12-year tenure of Grinney, who retired at the end of 2016, and beyond. After acquiring Encompass Home Health & Hospice in 2015, HealthSouth changed its name in 2018 to Encompass Health, which has 130 hospitals, treats patients in 36 states and Puerto Rico, and employs more than 40,000 people. 

Theranos, on the other hand, was never much more than an idea. It was an incredibly compelling idea, no doubt. I found it compelling when I first read about Theranos in a FORTUNE magazine cover story (a milestone that Carreyrou explores in “Bad Blood”). But despite being a company for better than a decade, Theranos didn’t come close to turning that compelling idea into a workable product.

If there’s a lesson here for corporate communicators, it’s to keep asking questions if something doesn’t seem right. Whether you are in-house or at an agency, in the moment, it can feel like the prudent thing is to go along when the story doesn’t seem quite right. Finding a polite way to persist in asking questions can help uncover a problem. 

In one situation, I was working for a health system that was going to publicly announce that it was severing ties with a business partner. Ultimately, questions my team asked led our client contact to persist in getting to the bottom of one aspect of the announcement we were planning to make. It turned out that the health system did not have all its ducks in a row, and our questions highlighted that — before we made public claims that were incorrect that would have damaged the organization’s credibility.

For me, Theranos and Richard Scrushy’s HealthSouth will always be linked — two very different CEOs in two very different settings used remarkably similar means to deceive their employees, investors, regulators and patients.

Listen to “The Dropout” on Stitcher. Next month, HBO releases a Theranos documentary, “The Inventor: Out for Blood in Silicon Valley,” by Alex Gibney, who chronicled another infamous corporate scandal in “Enron: The Smartest Guys in the Room.”

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