Novacare Inc. Case

Published: 2021-06-29 06:30:01
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Category: Business

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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).
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).
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."

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