NovaCare Inc'

1
NovaCare Inc.

• Living the Vision

2
NovaCare History

• 1985 - InSpeech launched by Foster Management
  Company (John Foster)
• Provide SLP OT/PT via contracts to nursing
  homes
• Based in Valley Forge, PA
• 1989 NovaCare is born out of InSpeech

3
The Industry in the Late 80s-90s

• Severe shortage of clinical staff
• Medicare reimbursement for SLP, OT, and PT
• Staff mostly female, 10-15 part time
• InSpeech actively acquiring many industry
  competitors

4
InSpeech Challenges

• Recruitment and Retention of therapists
• Turnover at 57
• Why is turnover so high?
• What can be done about it?
• Do you/have you worked for firms with high
  turnover?
• Customer retention

5
NovaCare Invests in Human Resources

• Employees are NovaCare assets
• Invest in clinicians
• How?
• Build a culture that speaks to clinicians and
  focuses on caregiving
• Values-based management
• What do values have to do with business?

6
Organizational Culture

• Set of assumptions about the organization and its
  goals and practices that company members share
• Shared values about what is important
• Shared beliefs about how the world works
• Strong cultures characterized by agreement
• Three levels of culture
• Artifacts
• Values (espoused, enacted)
• Assumptions

7
Artifacts

• The NovaCare name
• Helping make life a little better
• The NovaCare Dove
• Why these artifacts? What do they convey?

8
Espoused Values The Beliefs

• Respect for the Individual
• Service to the Customer
• Pursuit of Excellence
• Commitment to Personal Integrity
• Are espoused values enacted?

9
Assumptions

• We exist to provide care to patients
• The direct care provider (DCP) is the focal point
  of our organization
• The organization serves the DCP so the DCP can
  serve patients
• How are these assumptions different than those of
  old InSpeech?

10
The New Culture

• Is it authentic?
• How do employees judge the authenticity of the
  culture?
• Are there any down sides to the vision, values,
  and beliefs?

11
Culture Antecedents New Leadership

• Appointment of two senior executives with
  clinical backgrounds
• Patricia Larkins, VP of Clinical Services
• Clinical Oversight for firm
• Arnold Renschler
• President/COO
• How does leadership drive culture?

12
What is Leadership?

• An influential increment over and above
  mechanical compliance with routine directives of
  the organization
• Leadership not to management, but power is
  important to both

13
Leaders vs. Managers

• Managers
• Past experiences help solve problems
• Organization drives manager goals
• Conflict resolved with compromise
• Gets things done
• Maintains status quo

• Leaders
• Innovative problem solving
• Leader drives organization goals
• Conflict resolved with innovation
• Understands meaning
• Changes the status quo

14
Power is Fundamental

• Power - ability to influence others
• Sources of power
• legitimate power use of authority
• reward power use of valued rewards
• coercive power use of punishments
• referent power - personal characteristics that
  appeal to and inspire others
• expert power use of knowledge

15
Styles of Leadership

• Transactional leadership
• management through business transactions use
  legitimate, reward, and coercive powers to give
  commands and exchange rewards for services
• Transformational leadership
• moves beyond transactional leadership
• leader transforms a vision into reality and
  motivates people to transcend personal interests

16
InSpeech vs. NovaCare

• Leadership or management?
• Sources of power used?
• Transactional or transformational?
• Investment in human capital approach?

17
Post-Vision NovaCare

• 1992 Major expansion 3 divisions
• Contract Services (60)
• Rehab Hospitals (22)
• Orthotics Prosthetics (17)
• Contract services
• DCP turnover down to 27
• Shareholder value is way up!

18
Ongoing Issues at NovaCare

• Variability in vision implementation
• More accountability for hiring and sales then for
  retention
• Still less supervision than in other settings
• Difficulty dealing with elderly population
• Conflict between nursing home administrator and
  clinical judgment

19
Key Questions

• Is there an inherent conflict between high
  quality patient care and profit-focus?
• Is it a good idea to provide DCPs a bonus based
  on units of care they administer?

20
After the Case

• 1993 John Foster tells Forbes that he plans 40
  annual growth for 5 years through acquisitions
• 1993-1994 - Dr. Casper at NovaCare Contract
  Services as a recruiter, then HR Manager
• NovaCare highly profitable in OT and SLP but
  loses on PT
• Recruiting of DCPs is still challenging
• Fear of how Medicare reform will impact the
  business? Reegineering in 1994

21
1994 NovaCare Reengineers

• Decentralization to field attempts to provide
  supervision with fewer staff
• Eliminate DMs Recruiters, increase billable
  time
• Cross-functional management team handles 5-6
  districts
• VP Area (promotion of former DMs)
• Clinical Coordinators for OT, SLP, PT (mostly
  demotions of former DMs)
• HR Manager (promotion of former recruiters)
• Sales Manager

22
1994 NovaCare Reengineers

• Lots of cross-functional training
• Business and finance
• Clinical outcome measures
• Leadership and management skills
• Each area developed own vision
• Both individual and team incentives
• Team incentives based on retention, sales,
  profits, overall area statistics

23
NovaCare crashes

• Reengineering a HUGE failure
• Late 1994-1995 Plunging stock prices
• NovaCare market value from 1 billion-600
  million in 7 months
• Loss of Largest Customer - Beverly Enterprises
  brings rehab in-house

24
What went wrong?

• Massive turnover
• New bosses for everyone
• Less supervision, further away
• Forced travel
• Forced relocations
• NovaCare stock junk bond status

25
The End.

• 1995 HealthSouth buys NovaCare Hospital
  Division
• 1998 New Medicare rates in skilled nursing,
  little demand for contract services
• 1999 NovaCare gives away contract services
• 1999- OP business sold to Hanger Orthopedic
  Group
• 1999 NovaCare sells remaining clinics to Select
  Medical Corporation
• Clinics run them under the NovaCare name
• NovaCare pays off debts and folds