Economic Evolution
Medical staffing firm IPOs, such as IPC’s, are relatively rare. Most venture capital chases the next hot thing in medical information technology, biotechnology, and medical testing. The quirks of the medical staffing industry, such as hospitalist hiring—where salary increases can consume sizable chunks of a firm’s revenues—may deter potential investors.
Why are publicly traded medical staffing companies like IPC and PDX the exception rather than the rule? Because they rely so heavily on human capital—primarily physicians—for bottom-line results, they must contend with recruiting and retaining from a highly sought after talent pool that have their choice of job opportunities.
Also, many physicians fear the corporatization of medicine, an anxiety that working for a publicly traded company tends to arouse. Physician idealism—wanting to make the world a better place—may clash with a public corporation’s raison d’etre: making money. In a young field like hospital medicine, where performance metrics are evolving, balancing shareholder demands for ROI versus quality patient care requires a delicate touch.
Larry Wellikson, MD, SHM’s chief executive officer, says IPC’s entry into the public markets has been received well, indicating the maturation and strong growth of hospital medicine.
IPC’s public offering took place Jan. 30. Lead underwriters Credit Suisse Securities and Jeffries & Co. offered 5.9 million shares of IPC stock under the ticker symbol IPCM, a four-letter symbol conforming with NASDAQ’s listing requirements. The stock traded mostly at $19 per share, above the original per share estimate of between $15 to $17, raising approximately $38.3 million in net proceeds.
Since then, IPCM shares have ranged from $16.25 to $23.09 per share, trading at a thin average daily volume of 162,000. As of March 31, IPC’s market capitalization was $296 million. Six months from the IPO, average daily volume should increase, as regulations on shareholder sales are eased according to stock exchange rules.
IPC’s latest financial results were upbeat. The firm reported record operating results for the fourth quarter and full year 2007. Total patient encounters rose 29%, compared with 460,000 over the same period in 2006. Fourth-quarter net revenues were $52.6 million, a 31% increase from $40.2 million in fourth-quarter 2006. Physician practice salaries and other expenses for the period were $36.9 million vs. $29.5 million for fourth-quarter 2006. As a percentage of net revenue, physician salaries declined to 70% from 73% in the fourth quarter of 2007 vs. 2006. Dr. Singer attributed the change to higher physician productivity and increased revenue per encounter.
With the stock market retrenching since its all-time high in October, IPC’s timing on going public might seem a bit off. Yet, venture capitalists are bullish on healthcare. They sank a record $9.97 billion into the sector in 2007, topping the previous high of $9.47 billion in 2000, during the dot.com craze. Three large venture capital firms specializing in healthcare have $1.25 billion looking for good homes. The worry on Wall Street is that there won’t be enough healthcare IPOs to satisfy demand; there were only 31 in 2007 vs. 60 in 2000.
Alternatives
Going public is not the only way hospital medicine companies and other physician-intensive enterprises can raise needed capital. Venture capital plays a critical role. Brentwood, Tenn.-based Cogent Healthcare received its first round of such funding in 1997, a second infusion in 2000, and $15 million in 2002. IPC is no stranger to venture capital either: It raised $47 million in venture capital since 1998. Such capital infusions helped IPC and Cogent in their early days by providing the money needed to start hospital medicine groups, recruit top managers, expand into new markets, and improve IT and communication infrastructures.