HealthSouth is the largest provider of rehabilitative, outpatient and diagnostic services with approximately 1,700 facilities in the United States and around the world.

The FBI raided HealthSouth’s headquarters on March 19 as part of an investigation that included the U.S. Justice Department and the Securities and Exchange Commission (SEC).

The SEC alleges that earnings were inflated to meet or exceed Wall Street and investors’ expectations. While HealthSouth reported income before taxes of $1.6 billion from 1999 through June 30, 2002, the SEC alleges that the correct figure was $169 million.

HealthSouth immediately placed Chairman and CEO Richard Scrushy and CFO William Owens on administrative leave in the wake of the allegations. On March 26, Owens pleaded guilty to charges he falsified company accounts, conspired to commit wire fraud and securities fraud, and falsely certified financial information with the SEC.

A week earlier, HealthSouth’s former CFO Weston Smith pleaded guilty to certifying the company’s financial statements though he knew they were false and misleading. Smith cooperated with the government probe.

On March 31, HealthSouth fired Scrushy. As of press time, no federal charges had been filed against Scrushy.

According to the SEC, HealthSouth claimed to have spent $800 million more on medical equipment and other assets than was actually expended. The SEC also alleged that the company created phony invoices to convince its outside auditor that the purchases were made.

The SEC also noted that Scrushy has sold 7.7 million shares of stock since 1999 and collected more than $15 million in pay and bonuses from 1999 to 2001.

On May 14, 2002, Scrushy exercised options for 5.3 million shares at $3.78 per share and sold all of those shares the same day for $14.05 per share, or $74.1 million, according to a document HealthSouth filed with the SEC.

In November 1997, Scrushy exercised options for 4 million shares of HealthSouth stock for $3.78 per share, selling them the same day at $27 per share, according to an SEC filing. The 4 million shares were worth $108 million.

On April 3, the company announced it would eliminate approximately 165 non-clinical positions at its corporate headquarters as part of its effort to focus — in the company’s words — “a maximum number of resources on patient care.”

In its statement, HealthSouth said it is “committed to ensuring that patient care services continue uninterrupted at its traditional high levels of quality. As the company gets back to the basic business of healthcare, it continues to assess resources and expenditures that do not directly impact patient care.”

HealthSouth employs approximately 3,500 people in Birmingham, including 830 people at its corporate campus.

Civco Holding is controlled by the private equity investment firm of KRG Capital Partners LLC (Denver). Under the proposed transaction, Civco Holding subsidiary Civco Medical Instruments (Kalona, Iowa) would merge into Colorado Medtech, with Colorado Medtech becoming a private corporation.

Colorado Medtech shareholders would receive cash for each share of Colorado Medtech common stock with a total value of $62.5 million, or $4.50 to $5 per share, plus a distribution of any Colorado Medtech cash remaining at the time of closing. The companies expect the transaction to close by June 30.

Civco Medical Instruments develops and manufactures ultrasound accessories and minimally invasive surgical products. In FY02, ending June 30, 2002, the subsidiary posted revenues of $24.4 million (or 35 percent of Colorado Medtech’s total revenues in FY02) and generated income from operations of $6.4 million.

In a prepared statement, Colorado Medtech Chairman and CEO Stephen K. Onody said the company had “engaged in a careful and extensive process of seeking buyers for the company” over the past several months. He added that KRG’s “significant experience in the medical device industry and clear understanding of the business model of our Civco subsidiary prompted them to offer significant value to our shareholders.”

In late January, Colorado Medtech sold its Colorado operations to HEI Inc. (Eden Prairie, Minn.) for 1 million shares of HEI common stock, plus other considerations. The Colorado operation specialized in medical technology outsourcing services and components for medical imaging equipment.

The transaction included approximately $7 million in assets, such as intellectual property, equipment, inventory and the facilities of Colorado Medtech’s advanced medical technology development and manufacturing business.

The EU’s probe, which could take as long as four months to complete, will focus on the market impact the combined company would have in breast screening equipment, mobile C-arms and anesthesia monitors.

Regulators are concerned about the market implications of combining Instrumentarium’s anesthesia technology with GEMS’ patient monitoring systems.

In its decision, the commission said GE’s acquisition of Instrumentarium “could have the effect of foreclosing the market to other makers of patient monitors.”

GEMS or Instrumentarium could be mandated to sell some assets in the critical-care medical devices segment or make other concessions for the EU to clear the acquisition.

GE filed its acquisition proposal with the commission on Feb. 20 to acquire the medical device company.

The EU commission can approve the transaction, require concessions — such as the sale of assets to minimize the competitive impact on a particular market — or reject the proposal completely.

This probe is the second EU review GE has encountered. Two years ago, the commission rejected GE’s proposed acquisition of Honeywell International Inc. (Morristown, N.J.) because of its ramifications in the European markets.

In March, the U.S. Justice Department requested additional information on the planned transaction.

The EU commission said it is “cooperating closely” with U.S. regulators.

As of press time, GE had yet to offer or propose the divestiture of any businesses or technologies of its GE Medical Systems (GEMS of Waukesha, Wis.) subsidiary. Instrumentarium would become part of GEMS. Helsinki would become the European headquarters for GE Medical Systems Information Technologies (GEMSIT of Milwaukee).

With the U.S. and European investigations underway, GE is not expected to complete its acquisition of Instrumentarium until the third or fourth quarter. The EU probe could extend to early August before a decision is rendered.

As a result, GE extended the expiration date on its tender offer for Instrumentarium stock from April 11 to Aug. 29.

In a related note, EU officials continue their four-month probe into a proposed joint venture between Siemens AG (Erlangen, Germany) and Draegerwerk AG (Lubeck, Germany). Under that plan, Siemens would hold a 35 percent stake in Draeger Medical AG & Co. KgaA in return for Siemens’ Electromedical Systems division (Danvers, Mass.).

The EU is concerned that the proposal would give Siemens too large of a market share in ventilators and anesthetic delivery systems.

The EU’s investigation is scheduled to end in early June.

Shipments to Agfa could begin as soon as the fourth fiscal quarter of Hologic’s FY03, ending Sept. 30. The system — which Agfa will private-label as the Agfa Embrace — will utilize Hologic’s direct-to-digital, amorphous selenium technology and will be combined with Agfa’s image and information management systems.

“We are working on the necessary changes to the Agfa product; there will be some minor changes to the product we will supply [Agfa],” said Glenn P. Muir, Hologic executive vice president and CFO. Muir describes the configuration alterations as “minor features and cosmetics.”

Hologic received FDA premarket approval (PMA) for its DirectRay amorphous selenium, direct-to-digital image receptor for the Lorad Selenia full-field digital mammography (FFDM) system in October 2002.

Because FDA clearance came quicker than expected, it took the company some time to ramp up production.

Hologic orders its TFT (thin-film transistor) panels from an unnamed foreign supplier. The flat panels go to Hologic’s manufacturing facility in Wilmington, Del., before they are sent to Anrad Corp. (St. Laurent, Quebec, Canada), a subsidiary of Analogic Corp. (Peabody, Mass.), for the selenium coating. The panels then return to Delaware for final assembly and shipping.

Hologic’s production of amorphous selenium flat-panel detectors was slowed in its first fiscal quarter of FY03, ending Dec. 28, 2002, due to Anrad delays in delivering what Hologic called “acceptable quantities” of panels. That delay, in turn, temporarily postponed shipments to Hologic’s customers.

“It did slow things down for us at the end of last year,” Muir said. “As of now, the batches look great and we look to be back on track. At the moment, we seem to have many more orders than we can supply.”

Muir said Hologic production on Agfa Embrace units and orders for its own customers are expected to hit stride in the first quarter of Hologic’s FY04, ending Dec. 31, 2003.

At the same time, Hologic will have to fulfill its five-year agreement to supply Siemens AG (Erlangen, Germany) with DirectRay digital mammography flat-panel detector technology exclusively for Siemens’ full-field digital mammography system.

“We don’t see any problem with meeting the requirements for Agfa and Siemens as we get to this summer and continue our ramp-up,” Muir said.

Hologic sees the Agfa and Siemens agreements as important stepping stones for the company to expand its market reach internationally. The pacts will help bring the Hologic technology initially to Europe, as the company also sets its sights on other regions of the world.

Hologic was scheduled to begin its road show in April to promote the Lorad Selenia in several major markets in the United States.

The Consumer Assurance of Radiologic Excellence (CARE) bill (H.R. 1214) again is up for consideration on Capitol Hill, reintroduced on March 11 by U.S. Rep. Heather Wilson (R-N.M.).

The proposed legislation would direct the U.S. Department of Health and Human Services (HHS) to establish educational and credentialing standards for personnel who plan and deliver radiation therapy and perform medical imaging procedures, excluding ultrasound. Under the proposed legislation, states would be required to meet the federal minimum standards or risk losing federal reimbursement for radiologic procedures.

Wilson introduced the proposal two years ago as H.R. 1011 and had the bipartisan support of 54 sponsors before the close of the 107th Congress. However, national security issues in the aftermath of the terrorist attacks on the United States on Sept. 11, 2001, took precedence over the CARE bill and other healthcare issues.

In reintroducing the bill, the congresswoman noted that with more than 300 million medical imaging examinations and radiation therapy treatments in the United States each year, many procedures are performed by personnel who are not adequately trained or credentialed.

Currently, 34 U.S. states and Puerto Rico have licensure and certification laws in effect. Twelve states and the District of Columbia either have no licensure laws or are considering legislative proposals.

Michigan and Nevada have certification statutes for mammography only. Colorado has laws for mammography and limited licensure. Pennsylvania mandates that technologists pass a state examination, if they have not passed an exam from the American Registry of Radiologic Technologists (ARRT of St. Paul, Minn.) or another approved certification board. Minnesota requires that an x-ray equipment operator be a registered technologist through the ARRT, licensed by another state, or has passed a Minnesota state-approved exam.

The CARE bill also is backed by the Alliance for Quality Medical Imaging and Radiation Therapy, a coalition of radiologic organizations that represents more than 250,000 healthcare professionals.

The maker of miniature x-ray systems for medical and industrial applications warned that a buyer may not be found “on acceptable terms, if at all.” PeC added that it is “unlikely that the proceeds of any sale will be sufficient to pay the company’s creditors and that, as a result, minimal value, if any, will be available to the company’s stockholders.”

If PeC does find a buyer, the company said that it would proceed with the sale as part of a Chapter 11 bankruptcy filing.

PeC, which was founded in 1989, also announced that its chairman and CEO, Peter M. Nomikos, has resigned from the company.

In its November 2002 quarterly filing with the Securities and Exchange Commission (SEC), PeC reported that it “has experienced significant operating losses in each year since its inception, due primarily to substantial research and development expenditures.” As of Sept. 28, 2002, PeC had an accumulated deficit of $61 million.

In PeC’s financial report for the first nine months of 2002, the company tallied revenues of $1.3 million and posted a nine-month net loss of $5.6 million.

In 2001, revenues totaled $995,939, compared with $1.4 million in 2000 and $534,634 in 1999. PeC’s net loss in 2001 increased to $9.1 million, compared with $7.8 million in 2000 and $7.5 million in 1999.

In January, PeC was able to complete bridge financing arrangements with PYC Corp., the company’s largest shareholder, and orders for Carl-Zeiss-Ziftung (Oberkochen, Germany). PYC agreed to provide up to $500,000 under a line of credit secured by the company’s assets, while Carl Zeiss purchased five miniature x-ray systems for a total of $500,000.

PeC’s miniature x-ray systems are designed for intra-operative radiation therapy, radiosurgery, intravascular radiation therapy and brachytherapy.

The company has signed an agreement to acquire magneto-encephalography (MEG) brain monitoring company Neuromag Oy (Helsinki) for approximately $4.1 million. Neuromag specializes in non-invasive MEG brain monitoring systems for real-time functional brain mapping and imaging.

Neuromag estimates that 32 of its systems are installed worldwide. Elekta has been the exclusive distributor of Neuromag’s MEG systems in Japan and other parts of Asia.

MEG is designed to locate and quantitatively correlate neuronal activity in different areas of the brain. MEG technology is used for pre-surgical mapping of the brain, such as for localization of epileptic foci.

While functional MRI, PET and SPECT are designed to measure neuronal function by metabolic activity, MEG measures neuronal activity as it happens.

With the hardware displays were research presentations on how cardiac care has advanced over the last year with an eye toward improving patient treatment as soon as possible.

One study presented at ACC 2003 examined the cost of using drug-eluting stents in cardiovascular treatment to prevent arteries from restenosis — a repeated closing of the artery — after an angioplasty.

The research found that the stent procedure costs only fractionally more than conventional treatment when longer-term health costs are considered. The initial cost difference of approximately $2,800 per patient decreased to approximately $300 after 12 months.

The reason for the decline was the reduced need for repeat procedures, hospitalization and other expenses, noted study leader David Cohen, M.D., of Beth Israel-Deaconess Medical Center (Boston).

The study found that patients with drug-eluting stents were at significantly less risk of death, heart attack or a repeated stenting or bypass surgery for the same artery.

On the ACC exhibit floor, Philips Medical Systems International (Andover, Mass.) unveiled several new technologies across its medical imaging line.

New cardiovascular CT scanning and analysis tools are designed for enhanced evaluation of heart anatomy and function with improved image quality, even for patients with heart rates of 115 beats per minute. New capabilities include stenosis analysis, left ventricle/right ventricle analysis and function, stent planning and virtual angioscopy.

In MR, Philips displayed the latest version of its Intera CV 1.5 tesla system designed for advanced cardiovascular imaging. The Intera CV now features ViewForum multi-modality workstation software with off-line viewing, quantification and reporting tools.

Philips also exhibited its BV Pulsera high-end mobile C-arm system for cardiovascular exams and surgical applications. Images can be reviewed and analyzed at a dedicated BV workstation

Physicist Carl Hellmuth Hertz (left) and physician Inge Edler pose with their original Siemens’ reflectoscope in 1977.

Siemens Medical Solutions USA Inc. (Malvern, Pa.) unveiled its new Axiom Artis dTC ceiling-mounted C-arm at ACC 2003. The digital cardiac imaging system features flat-panel detector technology designed to enhance image quality, while the ceiling-mounted configuration is intended to improve physician access to the patient for cardiac procedures. Virtually all anatomical regions are within reach and system functions can be performed through a tableside touch-screen display.

Siemens also showcased its new all-digital Acuson CV70 cardiovascular ultrasound system for adult, pediatric, vascular and operating room applications. The CV70 system is designed to support transthoracic, stress echocardiography, transesophageal echocardiography (TEE), intraoperative and vascular imaging.

Siemens expects the Acuson CV70 to be available commercially in August.

Toshiba America Medical Systems Inc. (TAMS of Tustin, Calif.) demonstrated its Infinix Dual Plane (DP) i-Series imaging system technology for interventional procedures and vascular studies at ACC 2003. Infinix DP offers a compact, single-room designed to meet ACC guidelines for peripheral and coronary examinations.

TAMS also is developing direct conversion DynaDirect flat-panel detector (FPD) technology (currently a works-in-progress), which features a 150-micron pixel size designed to produce higher image resolution than other dynamic FPD systems. It also is the largest cardiac FPD with a 9-inch by 9-inch square detector. For the angio C-arm, the FPD is a 14-inch by 14-inch detector for peripheral procedures. The DynaDirect FPD technology will be available for all Infinix systems as a field upgrade.

TAMS also showed its Ultimax multipurpose x-ray system with DynaDirect FPD technology. The all-digital x-ray system performs diagnostic R/F, non-vascular interventional and general angiographic procedures.

GE Medical Systems Information Technologies (GEMSIT of Milwaukee) displayed a technology that allows physicians to identify microvolt T-Wave Alternans (T-WA), which indicates an electrical instability in the heart. Patients with microvolt T-WA are at high risk to warrant therapy, such as the implantation of a heart defibrillator.

GEMSIT’s technology uses what the company calls a “time domain test” that allows for the detection of T-WA at relatively low heart rates in short exercise intervals. Patients with low ejection fraction have difficulty elevating their heart rates for long periods of time.

The very first cardiac ultrasound reflectoscope made its U.S. debut at the ACC’s meeting in 1977. (See photo above.)

The reflectoscope comes to ACC courtesy of the Medical History Museum of the University of Lund (Sweden).

The reflectoscope was developed by Siemens in October 1953 and was first applied to the heart by Inge Edler, head of the department of cardiology at the University Hospital (Lund), and by Carl Helmuth Hertz, a graduate student at the time. Siemens, Edler and Hertz pioneered the clinical application of ultrasound in the medical diagnosis of abnormalities in the heart.

Konica Corp. is the parent company of Konica Medical Imaging (Wayne, N.J.), which offers NetStar image management systems, computed radiography (CR) systems, DryPro dry laser imagers, film processors, and medical imaging and laser films. Konica’s product lines also feature cameras, consumer imaging products, optical technologies and photosensitive materials.

Minolta specializes in office-based image information products, such as printers and other color output devices.

Wayne Thompson, president and COO of Konica Medical Imaging, in a prepared statement, said the added resources of Minolta will help Konica Medical Imaging “offer our customers rapid advancements in digital, imaging and networking products.”

The merger would be accomplished through a stock swap. One Minolta share will be exchanged for a 0.621 share of Konica stock.

The transaction between the two multinational imaging companies began to take shape in January with a proposed timetable to complete the merger and the proposed stock swap.

By August, the companies expect to form the new integrated entity Konica Minolta Holdings Inc., headquartered in Tokyo, with Konica as the major shareholder. In October, the operations of both companies will be integrated through business restructuring, forming a new corporate group. All businesses and subsidiaries would carry the name Konica Minolta. The new group will consist of the integrated holding company, six business companies and two common companies.

Financial goals include worldwide sales of approximately $10 billion and an operating profit of approximately $1.2 billion in FY05. The new company’s fiscal year would end on or about March 31.

The Center for Advanced Medicine is designed as a 525,000 square-foot, 361-bed, eight-story inpatient facility, which would open in the third quarter of 2005.

Siemens Corp. will provide healthcare information technology (IT) applications and infrastructure, medical equipment, telecommunications, power and other advanced building technologies from the company’s various businesses.

Over the next 10 years, Scott & White plans to incorporate Siemens’ technologies, such as its patient monitoring products and software for medical imaging applications and systems.

The companies expect to close the transaction in the second quarter.

Total eMed provides outsourced electronic medical transcription and a web-based system to connect physicians with medical transcriptionists on a secure virtual private network.

EDiX provides outsourced medical transcription services. The company estimates that it serves more than 100,000 physicians at more than 250 healthcare systems throughout the United States and Canada.

Total eMed President and CEO Steven E. Simpson called the acquisition “an ideal strategic opportunity” for the company to strengthen its medical transcription offerings.

In its April 1 announcement, Fischer added that based on preliminary findings, it will be necessary to restate financial results for the first three quarters of 2002, as well as full-year results for 2001 and 2000. Ernst & Young also will handle the re-audits of Fischer’s financial statements for 2001 and 2000.

In a prepared statement, the company said that the outcome of the review “will in no way impact the company’s cash balances, its ability to deliver products, or ongoing operations. We believe that the principal effects of the restatements related to revenues will be to defer revenues and related direct costs into later periods than originally recorded.”

Del Global Technologies Corp. (Valhalla, N.Y.) in March announced that it reached a settlement in its lawsuit against former CEO Leonard A. Trugman.

According to Del, Trugman has paid the company $400,000 cash and has agreed to transfer to the company Del stock worth approximately $45,000. Del expects to recognize the settlement in its third quarter of FY03, ending May 30, offset by any associated legal cost. Del filed the lawsuit against Trugman in February 2002, alleging that Trugman engaged in — in Del’s words — “numerous acts of securities law violations, fraud, breaches of fiduciary responsibility and corporate mismanagement.”

Trugman resigned as Del Global chairman, president and CEO in March 2001 as the company confirmed a probe by the Securities and Exchange Commission (SEC) into Del Global’s financial statements.

Compiled and analyzed by Health Care Markets Inc. (Hilton Head, S.C.), the stock indices above plot the performance of two market segments: Imaging Devices and Imaging Services. The indices are part of WDI’s healthcare database of more than 1,000 companies. For comparison we also plot the progress of the S&P 500. The indices began in January 1991 with a base of 100.

Domestic sales gains in its Medical Systems group offset lower international shipments to boost net sales in Del Global Technologies Corp.’s (Valhalla, N.Y.) second fiscal quarter, ending Feb. 1. Net sales increased 7 percent to $26 million, compared with $24.4 million in the second quarter of FY02. Del’s Medical Systems Group sales notched similar 7 percent growth, rising to $15.2 million in the quarter. The net loss increased to $6.3 million, compared with a net loss of $171,000 in the year-ago quarter. The quarterly net loss includes a tax expense of $4.7 million to establish a partial valuation reserve against the value of Del’s deferred tax assets. For the six-month period, net sales climbed to $51.6 million, up from $43.9 million in the first half of FY02. The company’s net loss increased to $6.9 million, compared with a net loss of $1.7 million in the year-ago period. Del also revised downward its sales estimate for FY03 to $103 million to $106 million.

A 14 percent gain in sales outside of the United States helped power Eastman Kodak Co.’s (Rochester, N.Y.) Health Imaging division to greater numbers in the first quarter. Sales within Health Imaging increased 5 percent to $549 million, compared with $521 million in the first quarter of 2002. Earnings from continuing operations gained 43 percent to $109 million, compared with $76 million in the year-ago quarter. Health Imaging can credit sales outside of the United States for its first-quarter growth. Sales rose 14 percent to $311 million, compared with $273 million in the first quarter of 2002. U.S. sales slumped 4 percent to $238 million, compared with $248 million in the year-ago quarter. On the product side, Health Imaging noted that sales of its recently introduced Kodak DirectView computed radiography (CR) long-length imaging system were greater than expected.

The rollout of its ITL WarpSpeed PACS/RIS system in the third quarter of 2002 propelled Image Technology Laboratories Inc. (ITL of Kingston, N.Y.) to greater revenues in 2002. The company achieved revenues of $430,000 last year, compared with $21,000 in 2001. ITL also posted a net loss of $633,000, compared with a net loss of $969,000 in 2001. ITL President and CEO Dave Ryon said the company expects its growth rate to continue in 2003, due in part to its partnership with health information management firm Medrex Ltd. (Port Ewen, N.Y.).

International Isotopes Inc.’s (I3 of Idaho Falls, Idaho) transition to nuclear medicine-related products began to pay off in 2002 with the company’s first year-end profit. Sales reached $2.18 million last year, compared with $2.17 million in 2001. I3 also posted its first profit of $149,547, compared with a net loss of $2.8 million in 2001. I3’s sales of nuclear medicine calibration and reference standards, processed gemstone, and cobalt increased by $988,477 over 2001, while sales of reactor-produced iridium radioisotope and hot cell services fell from $896,000 in 2001 to $0 in 2002, as I3 terminated those businesses.

Full commercial introduction of its 3.0 Tesla magnet for medical imaging systems helped to power Intermagnetics General Corp. (Latham, N.Y.) in its third fiscal quarter, ending Feb. 23. Revenues — excluding divested businesses — rose to $37.8 million, compared with $35.8 million in the third quarter of FY02. Total revenues in the year-ago quarter were $37.2 million. Net income increased to $4.2 million, compared with $3.9 million, excluding one-time charges, in the year-ago quarter. In the third quarter, MRI segment sales climbed to $32.1 million, a gain of $1.1 million from the year-ago quarter. For the nine-month period, revenues —excluding divested businesses — advanced to $109.7 million, up from $107.8 million in the same period of FY02. Total sales in the year-ago period were $116.3 million. Net income grew to $11.6 million, compared with $11 million, excluding one-time charges, in the year-ago period. MRI segment sales increased to $93.6 million, up 6 percent from the year-ago period.