For years, IPC Healthcare Inc. has loomed as the country’s biggest acquirer of small doctor groups that practice in hospitals. But like a midsize fish in an oceanic food chain, the company will soon be swallowed by an even bigger rival. The North Hollywood public company announced earlier this month a deal in which Team Health Holdings Inc. of Knoxville, Tenn., will buy its outstanding shares for about $1.6 billion. The sale will give Team Health a substantial share of the market for hospitalists, or doctors who practice inside hospitals on a contract basis, a market IPC pioneered. The role of hospitalists has grown in importance as the federal Affordable Care Act has turned up pressure on health care providers to lower costs by paying doctors based on the quality of care they give to Medicare patients rather than on how many tests and procedures they perform. Hospitalists are in a key position to do that because they keep track of patients’ care where it’s most expensive: in hospitals and recuperation centers. The health reform law financially penalizes hospital readmittances and hospitalists are in a position to avoid them. “The merger, from a business standpoint, allows Team Health to capture a growing share of the health care delivery market because IPC has been at this for more than a decade and has sophisticated systems on how to operate successful hospitalist services,” said Laura Jacobs, executive vice president of El Segundo health care consultancy Camden Group. “That’s going to be very attractive to hospitals and medical groups who are at risk for effectively managing inpatient care.” Value-based medicine IPC’s strategy over the years has been to buy small groups of hospitalists and give them technology and an organization to make them more efficient. Chief Executive Adam Singer, a lung doctor, co-founded it in 1995. Now, the company employs about 1,900 hospitalists in more than 400 hospitals and 1,700 postacute care facilities, such as skilled nursing facilities, nursing homes and psychiatric rehab centers. In total, the company has more than 3,000 employees with about 350 at its NoHo headquarters, Singer said. Team Health is bigger than IPC, with more than 14,000 physicians in about 1,000 hospitals in 47 states, according to the company. But Singer said Team Health’s physicians practice primarily emergency medicine and anesthesiology, while IPC’s doctors practice many specialties. A driver behind Team Health’s interest in IPC is the federal government’s push to have 90 percent of doctors charge for their services on the quality of care they provide, or what’s referred to as a value-based system, Singer said. “Medicare is in the process of changing the way it’s paying doctors and Team Health bought us to compete in that new world,” he said. “Without us, Team Health didn’t have a chance to compete in that value world.” To implement a value-based system, the government is experimenting with bundled payments – paying for health care in a lump sum instead of paying for each step of a treatment process. For example, if a patient has an operation, the government prefers to pay one price, rather than different payments to the hospital, surgeon, anesthesiologist, lab and pharmacy. Hospitalists are in a key position to control that process because they manage a patient’s care as they move out of a hospital and into recuperation facilities. IPC has expertise managing those “transitions of care,” Singer said. Those transitions, also called continuum of care, are a new focus for the health care industry under the Affordable Care Act’s push to lower costs and deliver better value, said Jennifer Bayer, vice president of external affairs for the Hospital Association of Southern California, a downtown L.A. trade association. Hospitalists can provide big savings for hospitals and physicians, which can be penalized under certain conditions if a Medicare patient is readmitted to a hospital within 30 days of being discharged, Bayer said. “Not managing that (transition) can lead to a variety of health complications,” Bayer said. “That’s where you see a lot of hospitals putting a lot of focus on hospitalists.” Mike Snow, Team Health’s chief executive, said during a recent conference call with investors that the company sees the value and future of value-based payments. Such payments are not a significant part of his company’s revenue, but they are for IPC, which has a bigger presence in postacute settings where value-based payments are more common. “We believe that evolution will occur in the future and IPC will allow us a better opportunity to participate in that revenue stream,” Snow said on the call. “It was the right asset at right time.” Buying IPC will enable Team Health to increase its number of hospitalists – the combined company will have 15,000 doctors and nurses, Snow said – and its presence in postacute care. In turn, Team Health will reduce its interests in emergency medicine. Premium price Terms of the acquisition, set to close by the end of the year, call for IPC shareholders to get $80.25 a share, a 37 percent premium over the stock’s closing price Aug. 4, the day before the deal was announced. The boards of both companies have approved the transaction and now the deal awaits regulatory approval. Brian Tanquilut, an equity analyst for Jefferies Group in New York, believes the price indicates the value for hospitalist companies if they can thrive under the bundled-care system. “We are admittedly ecstatic that IPC is getting sold … for $80.25 (all cash) as it validates our thesis on the opportunity the company has with its participation in the Medicare Bundled Payment for Care Initiative,” Tanquilut wrote in an Aug. 6 report. The IPC deal is the latest in a series of announcements involving health companies trying to lower costs and increase market share through combinations. Providence Health & Services, a Renton, Wash., nonprofit that owns three hospitals in the Valley, announced earlier this month it is in talks to merge with St. Joseph, a nonprofit hospital chain based in Orange County. Last month, insurer Centene Corp. in St. Louis agreed to buy Woodland Hills firm Health Net Inc. for $6.3 billion. Nationally, 95 hospital mergers were announced last year and 98 in 2013, up from 66 in 2010, according to Skokie, Ill., consulting firm Kaufman Hall. The IPC-Team Health deal is unlikely to run into antitrust problems. IPC said there are 40,000 hospitalists across the country, and it employs fewer than 2,000 of them. “The hospitalist industry is still fairly fragmented; it’s not really going to limit choices that much,” said Jacobs, the health consultant. The hospital association’s Bayer said it’s too early to tell whether the consolidation would be negative or positive for hospitals. “If there’s opportunity to leverage best practices and to have more information sharing to deliver better care, I’d say we’re all for it,” she said. But in addition to buying IPC’s strengths, Team Health will inherit a Justice Department lawsuit filed against the company last year. The suit accuses IPC of fraudulently overbilling Medicare, Medicaid and other government health programs. Court documents allege that when IPC purchases a doctors group, it trains the doctors to “upcode,” or bill the government at higher rates for care, thus systematically overcharging. Also, because IPC gives doctors a percentage of their billings above a certain threshold, the company gives doctors a financial motive to charge excessively. The litigation, filed in U.S. District Court in Chicago, stems from a lawsuit filed in 2009 by a Texas doctor who had previously worked for IPC. Singer said the lawsuit won’t have any impact on the pending sale to Team Health. “The allegations are unfounded and we’re in the process of proving that,” he said.
