TechSeeker Profile

NovaCare Inc
Profile last edited on: 3/18/2022

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TS Type
Small Corp
Year Founded
Last Involved Year

Key People / Management

Location Information

4714 Gettysburg Road
Mechanicsburg, PA 17055
   (800) 331-8840

Public Profile

NovaCare, Inc. is America's leading provider of contract rehabilitation services as well as orthotic supports and prosthetics. The company's largest business group, Contract Services (constituting over two-thirds of revenues), coordinates speech, occupational, and physical therapists with over 1,900 health care institutions&mdash′imarily nursing homes--in 39 states. NovaCare is the largest non-government employer of rehabilitation therapists, and has a nine percent share of the orthotics and prosthetics field. Having grown dramatically through acquisition and internal growth, the company reported average annual sales and earnings increases from 1987 to 1992 of 70.2 percent and 74.6 percent, respectively. In 1993, John H. Foster, chairperson and CEO, predicted that the firm would reach annual sales of $3 billion by 1998. NovaCare was founded in 1976 as InSpeech, Inc. by speech pathologist Leslie Isenberg. However, the company's phenomenal growth was largely attributable to the direction of John H. Foster. In 1980, Foster, a medical services entrepreneur, founded Foster Medical Corp., a home health care services and equipment company, which he took public two years later. In 1983, Foster sold his namesake venture to Avon Products Inc. for $240 million in Avon stock. He then used the profits from that sale to acquire InSpeech, Inc. through his Foster Management Co. venture capital firm in 1985. Foster then began to make good on his goal of consolidating and integrating rehabilitation services in America, using InSpeech as his base. At the time, the highly fragmented industry was dominated by thousands of local practices that Foster disparagingly called "mom and pop franchises" in an October 1991 Business Week article. Foster foresaw the expansion of the rehabilitation industry, as Americans (especially the "baby boomer" generation) continued to age and advances in the treatment of serious injuries resulted in physical impairment rather than death. InSpeech also lobbied for legislation that required nursing homes to provide therapy to residents, which further boosted its potential market. The rehabilitation industry offered inherently low overhead--the therapists themselves represented the overhead and the assets--that would be further enhanced through consolidation. Whereas nursing homes and hospitals often did not have enough patients to justify employment of a full-time therapist and suffered high turnover, InSpeech could staff more cost-effectively than health care institutions, pay its employees higher salaries on average than they made independently, and still earn a high return on equity through economies of scale. Foster also wanted to establish a strong market presence and become a service sector "category killer." With the backing of partners, Foster began immediately to augment InSpeech through acquisitions of occupational and physical therapy businesses. The May 1986 purchase of Irwin Lehrhoff Associates gave InSpeech a national presence, and acquisitions in Arizona, California, Colorado, Florida, Georgia, Illinois, Minnesota, North Carolina, Virginia, and Wisconsin followed within the year. Foster took InSpeech public in November and spent the next year integrating his purchases. During this time, the significance of InSpeech's human assets--its therapists--came to the fore, as InSpeech suffered a backlash from clinicians who perceived the company's integration and economization methods as infringements on their ability to provide quality care. Turnover at InSpeech soared to 56 percent by the end of 1987, as therapists who could not make the transition from their relatively autonomous working environment to a tightly controlled corporate culture left. Foster tackled the crisis by making a survey of staff members throughout the country. The employees who remained convinced the CEO to renew and clarify InSpeech's emphasis on professionalism. After six months and 250 drafts, the firm ratified a 16-page statement of its "Purpose and Beliefs," which included the oft-cited credo: "Helping Make Life a Little Better." Foster also hired C. Arnold Renschler, M.D., a prominent nursing-home executive, as president. Therapist turnover declined to 20 percent, below the industry's average, and, by fall 1991, the company was hiring about 100 new clinicians each month. In 1989, Foster changed the company's name to NovaCare, Inc. to reflect its diversification into occupational and physical therapy and reorganized the firm into four geographical divisions.

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