Financial backers of IPC The Hospitalist Co. are banking that one of the hottest trends in health care staffing is something investors might want to get a piece of.

The North Hollywood-based management company for hospital-based physicians hospitalists in industry lingo has filed a preliminary prospectus with the U.S. Securities and Exchange Commission to make an initial public offering on the Nasdaq that could raise up to $105 million.

The public offering would be the first of its type for the industry and comes after years of relentless growth by IPC, which has acquired smaller hospitalist practices nationwide. Founded in 1995, the company saw its net income grow 33 percent last year to $148 million on net income of $2.5 million, according to the filing.

The company has not set an IPO date, or issued a final prospectus, and executives declined comment due to SEC "quiet period" restrictions.

Hospitalists generally have an internal medicine or family practice background and don't have an outside practice. They coordinate care for patients admitted to the hospital by a personal physician or through the emergency room.

As it has become logistically harder and less profitable for private practice doctors to make hospital visits, hospitalists have been used to fill the gap. Most attracted to the specialty are younger doctors looking for a more regular work schedule or the opportunity to work with very ill patients outside of the emergency room.

According to a recent study in the Journal of the American Medical Association, hospitalist programs have resulted in an average 13.4 percent reduction in hospital costs and an average 16.6 percent reduction in the average length of a patient's hospital stay.

Even so, turf battles often erupt when a hospital attempts to introduce a program, often triggered by primary care physicians who fear a strange doctor will make potentially hazardous changes to their patient's treatment plan.

"Despite resistance from many primary care physicians, this is the wave of the future because of the cost pressures on hospitals to be more efficient," said Jim Lott, executive vice president for healthcare policy and communications for the Hospital Association of Southern California.

IPC has attempted to counter that resistance by investing in technology, including a proprietary electronic management system that enables its doctors to improve communication with a patient's regular doctor. A national call center even follows up with discharged patients about medication and other issues.

Fast-growing

Larry Wellikson, the Orange County-based chief executive of the Society of Hospital Medicine, notes that hospitalists are considered the fastest growing medical specialty in the nation. The society counts more than 20,000 physicians who work as hospitalists, compared to less than 1,000 in the mid-1990s. It is estimated the number will grow to 30,000 by 2010.

But while there are around 30 national or regional hospitalist management firms in the U.S., the number is shrinking through consolidation. IPC alone has acquired five competing practices in four states so far this year. With more than 470 affiliated hospitalists working at more than 300 facilities in 16 states, IPC is among the top three firms of its type.

Dr. Robert Wachter, a San Francisco physician credited with popularizing the term "hospitalist" in a 1976 medical journal article, said he believes hospitalist companies will present growth opportunities for investors, though he would not specifically comment on IPC.

"If you were able to put a pure play down on hospitalists, that would be the best play you could ever make," said Wachter, chief of medical services at University of California-San Francisco Medical Center.

Hospitalist groups first sprang up when hospitals organized group of physicians. Alternatively, a group of local physicians would agree among themselves to refer patients to a colleague who would make hospital rounds for them.

But some physicians saw a business opportunity in providing a third-party service to hospitals, long-term care facilities and skilled nursing facilities. Among them was Dr. Adam Singer, IPC co-founder and chief executive, who Wachter recalls was a frequent attendee at lectures he would give on the topic.

Wachter also recalls several venture capitalists in the audience. "I would tell them that I was not certain that the majority of hospitals were going to want to buy a solution it is so core to what a hospital does for a living," he said.

Even so, venture investors have poured more than $47 million into IPC since 1998, according to Dow Jones & Co.'s VentureOne market tracker. Bank of America Ventures has a 31 percent stake in the company, and Morgenthaler Venture Partners owns 25 percent.

The IPO also could result in a big payoff for management, which owns more than 9 percent of the company, and long-time hospitalists who are eligible to receive shares after four years with the company.

Singer, a pulmonary physician, owns 6.49 percent of the company, according to the SEC filing. Chief Operating Officer R. Jeffrey Taylor has a 1.56 percent stake, and Chief Financial Officer Devra Shapiro owns 1.27 percent of the company.

Market restraints

Ironically, IPC's growth has been stronger outside its home state. The company has contracts in Northern California but its only contract in the greater Los Angeles area is with Los Robles Medical Center in Thousand Oaks, which was signed in May.

Wellikson said other national firms have had challenges in the state, in part because of the state's large managed care industry. Kaiser Permanente instituted an internal hospitalist system at its own hospitals in both northern and southern California several years ago, setting an early example for home grown programs.

In addition, the prevalence of large physician practices in Southern California provides added competition. Torrance-based Healthcare Partners, the region's largest medical group, said that it has 85 hospitalists working at 13 hospitals in Los Angeles and northern Orange counties.

Still, Dr. John Ford, an assistant medical school professor at UCLA and part of the hospitalist program at the county's Harbor-UCLA Medical Center, believes there is strong growth ahead for companies specializing in providing the service, given the large number of patients who don't have a regular physician and the decreasing number of physicians willing to make the traditional "rounds" at a local hospital.

"The whole concept of hospital medicine is only going to get bigger," said Ford, who authors the California Medicine Man blog at blogspot.com. "I'm always in favor of the free market, and a company ultimately will be successful if they provide good service."

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