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August 04, 2015 01:00 AM

Why TeamHealth plans to pay $1.6 billion for IPC Healthcare

Steven Ross Johnson
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    (Story updated at 2:44 p.m. Eastern Time)

    Healthcare staffing firm TeamHealth Holdings on Tuesday squashed rumors that it is buying IPC Healthcare to stave off its own acquisition. The company says it's purchasing the hospitalist services provider to broaden a footprint in both acute and post-acute physician services.

    The deal to buy the North Hollywood, Calif.-based firm would increase the number of TeamHealth healthcare professionals to 15,000, and expand post-acute care offerings to as many as 2,000 facilities across 28 states.

    According to TeamHealth Senior Vice President Patricia Ball, the more diverse network of services will put the company in a better position to work under a value-based payment model.

    TeamHealth recently began participating in phase II of Medicare's Bundled Payment for Care Improvement Initiative, which rewards providers for outcomes rather than volume.

    “(This acquisition) creates a really wonderful physician-focused organization now,” Ball said during a phone interview with Modern Healthcare on Tuesday. “We already had a hospital medicine service line, and this lets us grow that."

    Some analysts feel there might be more to TeamHealth's acquisition of IPC than mere growth strategy.

    “Our gut says something else is going on, and we truly wonder if TMH (TeamHealth) didn't receive a bid and respond with this deal,” said Baird Equity Research Senior Research Analyst Whit Mayo in an investment note sent Tuesday.

    When asked about that possibility, Ball vehemently denied the suggestion. "We were not in play,” Ball said.

    The company has been making bids of its own. In 2014, TeamHealth acquired physician scribe services provider PhysAssist, of Fort Worth, Texas, for an undisclosed amount.

    The financial success of that acquisitions, among others, was cited as the main driver for a reported 30% increase in total net revenue for the second quarter, TeamHealth announced Tuesday morning.

    Net revenue reached $878 million compared to $675 million for the same period in 2014, with acquisitions accounting for more than 20% of that growth.

    Despite its revenue bump, the company saw net earnings for the quarter fall to $28.9 million compared to $30.2 million in the second quarter of 2014.

    According to Greg Charleston, senior managing director for the management consulting firm Conway MacKenzie, acquisitions like that of IPC follow a trend of health staffing firms looking to gain leverage with hospitals.

    “The merger between TeamHealth and IPC may represent a huge change in the relationship between doctors and hospitals,” Charleston said in a statement.

    A flood of mergers and acquisitions have been led by dealmakers who say they want to improve quality and reduce costs through greater standardization of care, more negotiating leverage with suppliers, and bigger investments to bolster providers' ability to communicate and coordinate care.

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        • - Hospital of the Future (Fall)
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