Novacare Inc. Case

What Business are we in?

NovaCare is a $159 million health care company in the rehabilitation business.

NovaCare was one of the largest leading national providers of contract rehabilitation services to health care institutions. Throughout 1988 and 1991, they had grown 37.5% each year and generated $151 million in revenues. NovaCare provided speech-language, occupational, and physical therapy to their patients with physical disabilities caused by strokes, degenerative neurological disorders, or orthopedic issues. In 1991, it had over 3,000 contracts to give rehabilitation services in about 1,800 facilities in over 32 states (Quinn, pg. 423).

Mission

NovaCare's mission had been to continue growth by consolidating practices of rehabilitation services through a program of disciplined internal growth and acquisitions. Their strategy was established to exploit upon several external structural factors: (1) an unserved and growing demand for rehabilitation services, (2) an increasing concern with health care costs and the needs of the elderly, and (3) a highly fragmented competition made up of smaller regional firms and care centers (Quinn, pg. 429).

Trends

Economic

By 1991, the U.S. health care industry was in a state of crisis. They had spent over $2,500 per person on health care and the overall collective amount was over $700 billion. Medicare alone cost approximately twice what Britain's entire National Health Service cost. The administration within the United States was estimated to increase around 20% throughout all health care spending. The Rehab Systems Company offered a greater diversity of rehabilitation patients to NovaCare, which resulted in reduction of its concentration in Medicare-based revenues to below 70%. Therefore, NovaCare became the largest provider in contract rehabilitation therapy services to the health care industry and the only provider offering these services on a national basis.

NovaCare constantly sought areas for minor improvements leading to perfection within quality control of the basic responsibilities held by the therapists. The district managers were measured on the revenue side of the business. They were rewarded for (1) productivity, (2) gross unit production measured against budget, (3) retention of people, and (4) supplemental goals contained in the management objectives. The industry report expected the medical rehabilitation market, which had annual revenues of about $11 billion in 1990, to grow at an annual rate of 15-20% through the 1990's (Quinn, pg. 429). After fulfilling the minor improvements, the 1995 Annual Report stated that NovaCare was "the leading post-acute rehabilitation company in the United States and the nation's largest employer of rehabilitation professionals."

Political, Legal

According to the case study, the government agencies were increasing their demands for information from all health care providers. The Health Care Finance Administration (HCFA), which managed the Medicare program, was trying to define standards for basic data formats and electronic data submissions. The government and insurers had an essential interest in how effective their expenditures were in delivering better health care to patients. The HCFA required that all hospital and care units above a certain size have rehabilitation care capabilities that met federal standards (Quinn, pg.433).

The Omnibus Budget Reconciliation Act of 1987 mandated that as of October 1, 1990, all nursing homes must be able to provide all three rehabilitation therapies. However, the cost and other factors made this difficult to do internally (Quinn, pg. 430).

Social

There is expected growth within the market due to the number of people who experience activity limitations are increasing, as is the age and size of the population. The availability of rehabilitation is growing, as are consumer's and third-party payers who are becoming aware of its benefits. Therefore, the current focus on physical fitness, independence, and quality of life is expected to continue (Quinn, pg. 429).

NovaCare refers to its organization as "inverted"