North Hollywood physician group IPC the Hospitalist Co. has been getting some healthy respect from the market.
It seems investors like IPC’s strategy for growing its practice of managing hospital-based doctors, or “hospitalists.” During the last 52 weeks, investors have driven up the stock price 40 percent, closing Oct. 19 at $41.70 a share. It was one of the biggest gainers on the LABJ Stock Index, rising 8.3 percent for the week. The overall index was up 0.4 percent. (See page 44.) The stock fell 3 percent the next day as investors reacted to news that IPC’s longtime chief financial officer was transitioning toward retirement.
The company is riding the rapidly growing trend of doctor groups providing exclusive service to hospitals. Hospitalists help coordinate treatment, reduce patient stay times and keep a lid on costs.
Founded in 1995, IPC was one of the first companies to recognize the trend and come up with a model for managing hospital-based physicians. In the last few years, the company expanded aggressively. Just last week, it announced five acquisitions.
IPC has more than 1,800 doctors in more than 700 hospital facilities in 23 states, making it by far the largest hospitalist group in the nation.
Yet IPC has only about 5 percent of all 33,000 hospitalist doctors under management, so there’s much more room to grow, said Matt Weight, senior research analyst with Minneapolis-based Feltl and Co.
“This growth potential is what has made this stock so attractive to investors,” Weight said.
But there are risks. One of those is keeping the hospitalist groups fully staffed. This past spring and summer, an unusually high number of hospitalist doctors left groups managed by IPC, forcing the company to hire temporary physicians at much higher costs.
When that news broke in IPC’s second quarter earnings report in July, investors sent shares down 14 percent.
“We’ve learned our lesson from this experience and have restructured our agreements to lessen our exposure to unexpected turnover,” said R. Jeffrey Taylor, IPC’s president and chief operating officer.
Looking ahead, analysts are keeping an eye on physician reimbursement rates under Medicare, about 40 percent of IPC’s business.
“If even a small cut occurs next year, it could put some pressure on IPC’s earnings,” said Arthur Henderson, senior equity research analyst in Nashville, Tenn., with Jefferies & Co. Inc.
Taylor said that IPC expects the reimbursement rate to remain flat for the next several years. But if it does drop, the company has structured its management agreements with physician groups so that the cuts are shared.
