Health South's Digital Dream: CEO Richard Scrushy promises to build the world's most high-tech hospital—with Lawrence J. Ellison's and Oracle's help he just may succeed - Technology and the CEO

Chief Executive, The, Dec, 2001 by Jennifer Pellet

Richard M. Scrushy had a vision. Never one to think small, the CEO of HealthSouth Corp., a $4.2 billion company that owns and operates more than 2,000 hospitals and outpatient surgery centers, wanted to do something special to update one of his largest facilities. After all, this particular facility was right in his own backyard, just eight miles from Health-South's headquarters in Birmingham, AL. It should be the company's crown jewel, Scrushy reasoned, a showplace of the latest innovations in medical technology, the stuff, really, of science fiction come to life.

And it could happen. A wireless communications network and a centralized medical record database would enable physicians equipped with lightweight computer pads to pull up patients' vital signs or medical records from anywhere at any time. Replacing traditional X-ray film with digital diagnostic imaging and radiology would speed both testing and access to test results, and outfitting patient beds with interactive screens that allow caretakers to enter treatments and update records electronically would eliminate paperwork and reduce the risk of medical errors.

But Scrushy's sci-fi dreams have a price. Such an overhaul would mean scrapping the existing $86 million building, systems, and equipment and beginning anew. The cost? A whopping $150 million, nearly three times the estimated cost of a mere upgrade. While the operating efficiencies gained would eventually recover the initial investment, it would take time, making the move a hard sell for a public company. "I don't know anybody in the financial community who can think three years out," Scrushy says. "They work on 90 days."

Unwilling to let his dream perish for want of $100 million or so, Scrushy shopped for a partner. His first stop was the office of Lawrence J. Ellison at Oracle Corp., the world's second-largest software manufacturer, with headquarters in Redwood Shores, CA. Scrushy's pitch? "Oracle spends a billion a year on R&D. Why not spend $100 million on the largest industry in the world?" he asked.

Oracle had the expertise to build the integrated administrative and clinical system that would become the hospital's backbone. But built-to-order Oracle systems like the one Scrushy had in mind don't come cheap. Success meant getting Oracle founder and CEO Ellison, a man who has cultivated a public image as a swashbuckler--flying a fighter jet and racing yachts--to buy into the concept.

Luckily, Scrushy and Ellison proved kindred spirits. Their first meeting, slated for half an hour, turned into a two-hour bonding session. "Larry and I started talking about how incompatible technology systems and communication gaps have been thwarting efforts to hold down health care costs," Scrushy says, "and at one point I was listening to him and thinking, 'Someone's given him a copy of my speech.' We were just on the same page from day one."

Relentlessly Ambitious CEOs with a Shared Goal

"When we met for the first time, we knew right away it was an ideal collaboration," adds Ellison, who believes that the health care industry is sorely in need of an information technology overhaul. "Automation exists within the health care industry. The problem is the different pieces, the administrative, clinical, and lab systems, aren't connected. But without HealthSouth undertaking something like this, a technology company like Oracle has nothing to work with."

Dovetailing goals alone might have carried the Oracle/HealthSouth union forward, but the fact that the two CEOs share more than digital drive probably helped. Ellison, partly because of his miniwar with Bill Gates, is by far the more high profile of the two. But both CEOs are charismatic and relentlessly ambitious. And both have a reputation for being supreme egotists--evidenced by the tongue-in-cheek title of Ellison's biography, The Difference Between God and Larry Ellison, and the nickname, "King Richard," bestowed upon Scrushy by Birmingham locals.

Both are also undeniably accomplished businessmen. Ellison, 57, is a billionaire playboy, a world-class yacht racer who pilots his own jet and once tried to buy a Russian MIG fighter plane (U.S. Customs banned the purchase). A college dropout, he co-founded Oracle in 1977 and built it into the world's second-largest independent software company, boasting revenue of more than $9.7 billion. Scrushy, 49, also flies his own jet, plays guitar in a honky-tonk band, and is famously self-absorbed, maintaining a trophy room of memorabilia in glass cases outside his office.

But he, too, is a self-made success story, a former respiratory therapist who was able to mass-market the higher-margin rehabilitation services area of medical care. He founded HealthSouth and built it into a network of outpatient clinics, day surgery offices, imaging centers, and hospitals that now command nearly 70 percent of the rehab market.

"He's one of the most visible and flamboyant leaders in health care," says Peter Emch, a health care analyst with Credit Suisse First Boston. "And he's one of the only CEOs who was able to grow his company from a small business to one of the most recognizable brand names in health care."