For 16 years, Adam Singer was a pulmonologist, or lung doctor, with an office in Burbank. Then in 1996, he read an article in the New England Journal of Medicine that mentioned a new word – “hospitalist,” meaning a doctor who only cares for patients at institutions such as hospitals or nursing homes. Singer had been working as a hospitalist, but the article made him realize he wasn’t alone. He co-founded IPC The Hospitalist Co. Inc. to organize hospitalists the next year, while continuing to work as a doctor. Eventually he left a successful medical practice to become a full-time health care executive. Today, IPC has more than 1,500 doctors and nurses working at 350 hospitals and 800 other facilities. It is the largest hospitalist company in the country. Rivals include Cogent Healthcare in Brentwood, Tenn. and TeamHealth Hospital Medicine in Knoxville, Tenn. IPC’s strategy is to acquire, or roll up, small doctors groups to achieve scale and efficiency. In 2009, one doctor in San Antonio who formerly worked at IPC filed a whistleblower lawsuit alleging the company inflates its bills to Medicare and Medicaid. In December, the Justice Department said it intends to join the suit, and the judge granted 120 days for prosecutors to file. Singer met with the business journal at his office North Hollywood to discuss his journey from doctor to executive, the changes in health care that created his industry and why he believes his company will beat the allegations against it. Question: Why don’t doctors visit their own patients in the hospital anymore? Answer: That ended in the late 1980s. There were several forces at work. First, primary care doctors became gatekeepers for medical care. That was the managed care model. At the same time, primary care saw a reduction in reimbursements, so those doctors had to see more patients. It was not economic for them to do in-patient and out-patient. So they left the hospital. How did the industry adapt? We needed someone to fill that void created when the primary care doctor left. Initially specialists like myself would admit patients for the primary care doctor. How did you become a hospitalist? In the early 90s, I got several contracts with managed care organizations to do this kind of care. Then the word “hospitalist” got coined. We found through that article several hundred doctors around the country had fallen into this type of practice. Did you find this work satisfying? I loved working as a hospitalist. There is tremendous professional satisfaction that comes from having very high-impact relationships with each and every patient. What about the patient? You would think the patients wouldn’t like this, but they did. First, they had a provider who was there in the hospital, rather than at some office. Also, these doctors became very facile at treating whatever brings people to a hospital. For example, a primary care doctor might treat a broken hip once or twice a year. A hospitalist might take care of one or two every day. Did you always want to be a doctor? My father was a surgeon. He owned a hospital in L.A. As far back as I have memories, I was in that hospital. At 6 or 7, I was with him making rounds. I was comfortable in a hospital from a very young age. I never considered becoming anything else but a doctor. So how did you go from being a doctor to an executive? It wasn’t like I woke up and decided to become an executive. After I founded IPC, I continued to practice medicine almost 10 years. The decision to leave practice wasn’t easy for me. It just became necessary. I couldn’t manage the company any more. So I didn’t leave clinical medicine willingly. Are you glad you did? The way I look at it, as a doctor I could see 15 or 20 patients a day. Running this company, I manage almost 20,000 patients a day. The impact for good that I can do now is much more. I still get that same satisfaction, it’s just not as hands-on. Does it weigh on you to run a public company? It can be frustrating – the quarterly calls and all the analysts looking at the minutiae and the regulatory side of the business. But I’m not sure it weighs any heavier than problems I would have if we weren’t public. It’s easier to manage public investors than VCs (venture capitalists). At a public company, if someone doesn’t like what you’re doing, they can sell their shares. What are the toughest decisions you have to make? The hardest decisions are always terminations, letting executives go. It’s rare that people are just bad. These people are giving 100 percent, but they just don’t have enough. In a growing business, the jobs get more and more. The executives see themselves going forward, but they don’t have the horsepower. I’ve had to let quite a few people go over the years – friends, family, whatever, they can’t handle the job at the stage the company is in. They might be great when you hired them, but it’s very tough to grow. So, let’s go back. How did you turn the hospitalist trend into a business? I developed software technology for my hospitalist practice – software to wire the physicians together, to handle clinical data and transition patients out of the hospital better. I was developing this software as well as the system of care, and these venture capitalists started coming around. That was 1996. So what did the venture capitalists say? A physician-venture capitalist got to me. We spent several days talking to him. I decided not to take his money. Instead, we took a small amount of money from four health care executives to form a think tank. We all went in there, including the venture capitalist, to think through what a new specialty in medicine would look like, how it would work, who would be the customer – the basic questions. Then what? After we finished, I planned to go back to practicing medicine. But they said “No, we want you to build this.” I said, “There’s not enough money on the planet to do that.” And they said, “Oh yes, there is.” Did you take the money? From four different firms. And we were off and running. How much? Close to $40 million, over several tranches. In getting started, what was the biggest obstacle? I don’t look at them as obstacles; they are part of the disease. As an entrepreneur, obstacles are everywhere. If you had to write down all the problems, you would never start a business. Part of the disease of being an entrepreneur is you’re blind to these challenges. In a good way, I was blindly moving forward independent of any challenges. There were thousands of challenges. Too many to tell you. How did you develop the roll-up strategy? A healthy business should look to grow both organically and by acquisition. In the early days of the company, there was nothing to buy. We were inventing the profession. As time has gone on, and the concept of hospitalist medicine has taken off, there are now hospitalists in every facility in the country. So the idea of starting a hospitalist operation from scratch is pretty much off the radar. Same-store growth is by adding doctors. Why is that? In this business, there are three metrics. Productivity – encounters per day. Revenue – how many dollars you can collect for each encounter. And I’ll tell you, those two are largely fixed. Doctors see 15 to 18 patients a day. The reimbursements are tied to Medicare. So the only moving metric of the three is the number of doctors. It’s a very simple business model. How do these acquisitions happen? We have a development team. We do cold-calling, as well as receive calls. Everyone in this industry knows us, and at this point, we are the only acquirer. What assets are you buying? In a lot of ways, these deals are group hires. The doctors will work for us. You’re also buying their referral network. Even if a doctor leaves, other doctors will continue to refer to that group. And frequently, these groups will have contracts to run the ER or a department. Those contracts have value as well. What is the price range? All transactions to date – more than 90 of them – are for cash, mostly with some kind of earn-out. We take whatever they’re doing and pay a multiple of that, typically four to six times. That generally translates to between $100,000 and a few hundred-thousand dollars per doctor. What do you think your hospitalists like about their jobs? Patient interaction. The relationships you have as a hospitalist are short-term but high impact. That brings a degree of professional satisfaction, as opposed to a primary care doctor that has long-term relationships and very little impact. What do they dislike? Everything around the patient interaction. The paperwork. Legal limitations. The compliance risk. The oversight that is constantly second-guessing everything they do. They want to be free of that. These doctors give up the outpatient office and staff lifestyle to become a hospitalist where you can literally work out of your car. All that stuff is managed for you. Let’s talk about the lawsuit, which obviously revolves around paperwork and billing. Did it surprise you? It surprised me when we got it in 2009, but since then we’ve been involved with the investigation. It didn’t surprise me that there’s an outcome now. Has the lawsuit affected the business? No. We take very seriously our ethical and legal standing. We have a robust compliance department. If we find discrepancies, we alert the government and pay back any revenues. We have been audited thousands of times. Obviously, we’re not happy about these allegations against us. But we are prepared to defend what we do. What about the billing process? We bill more than 2.5 million patient encounters to the government every year. There are errors in both directions. We are in the constant process of evaluating and adjudicating claims. I’m sure we will do the same with the government going forward here. Doesn’t it make you anxious to have this lawsuit hanging over your head? I do not get anxious over potential litigation. It is part of being in business. How will heform affect your company? It unclear what reform will be, ultimately. But the principles are sound. They want to lower cost and improve quality. That has been our mission since 1991. So whatever solution reform brings, hospitalists will be at the center of it. Even if it tries to keep people from getting sick and going to the hospital, there’s going to be failures. We’re going to break our hips or get cancer. At that point, people want the best care at the lowest price. We are aligned with that mission. How has it affected you so far? All positive. They’ve taken Medicaid and brought it up to Medicare rates. That’s a 50 percent increase in our Medicaid rates. They want to insure more people. Right now between 5 and 6 percent of our business is uninsured. Whatever percentage get insured, we’ll have better revenue on the same work. If the system is becoming more efficient, why is there a shortage of primary care doctors? You have a funnel problem here. You only have so many medical school spots, and you still have 10 applicants for each spot. There are efforts to get more doctors in school, but it will be years before we see anything coming out of the other end. (But) if you look at the physician shortage from another angle, we’ve created some of that here at IPC, in the development of the hospitalist specialty. How so? There are only about 150,000 internists in the country. About 40,000 have become hospitalists. So you have lost nearly a third of your primary care base. That puts a tremendous burden on the people left. It’s a very difficult career. Even though you are paid well, everything isn’t about money. Career satisfaction is really at an all-time low. What was your strangest case as a doctor? Back when I was in training, in the middle of the night I was called to see a female patient the psych team had brought in. She was hysterical, in a straight-jacket, tied in four-point leathers to a bed, screaming out of control. She didn’t speak any English, but she screamed “It’s not me, it’s not me, it’s my son.” Right as I’m evaluating her, I hear someone behind me say, “I float like a butterfly, I sting like a bee, I am Muhammad Ali.” I turn around to see a fist slamming into my right eye and knocking me out cold. Who was it? Her son, who was psychotic. The woman was normal, but the psych team brought her in (by mistake). He followed in his own car. And I ended up getting decked. What’s the lesson? It taught me to always listen to the patient. She was telling the truth when I thought she was psychotic. That translates to business, too. I learned that lesson painfully.