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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549





FORM 10-Q





(Mark one)

|x | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|- | ---------------------------------------------------------------------------------------

For the quarterly period ended March 31, 2009.

OR



| ̈ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|- | ----------------------------------------------------------------------------------------

For the transition period from  to

Commission file number: 001-33930





IPC THE HOSPITALIST COMPANY,
INC.

(Exact name of registrant as specified in its charter)



|                                                                 |  |                                     
|---------------------------------------------------------------- |  | ------------------------------------
|Delaware                                                         |  | 95-4562058                          
|(State or other jurisdiction of incorporation or organization)   |  | (I.R.S. Employer Identification No.)
|                                                                 | 
|4605 Lankershim Boulevard, Suite 617 North Hollywood, California |  | 91602                               
|(Address of principal executive offices)                         |  | (Zip code)                          

Registrants telephone number, including area code: (888) 447-2362





Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90
days.    Yes  x    No   ̈

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of
Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes   ̈    No   ̈

Indicate by check mark whether
the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of large accelerated filer, accelerated filer and smaller reporting
company in Rule 12b-2 of the Exchange Act.



|                           |  |                      |  |                                                                        |  |                             
|-------------------------- |  | -------------------- |  | ---------------------------------------------------------------------- |  | ----------------------------
|Large accelerated filer   ̈ |  | Accelerated filer   ̈ |  | Non-accelerated filer  x (Do not check if a smaller reporting company) |  | Smaller reporting company   ̈

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the
Act).    Yes   ̈    No  x

As of April 30, 2009, there were 16,091,853 shares of the registrants common stock, $0.001 par value, outstanding.









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##### Table of Contents

IPC The Hospitalist Company, Inc.

FORM 10-Q

QUARTERLY REPORT

TABLE OF CONTENTS



|              |  |                                                                                       |  |     
|------------- |  | ------------------------------------------------------------------------------------- |  | ----
|              |  |                                                                                       |  | Page
|              |  |                                                                                      
|              |  | PART I                                                                                |  |     
|              |  |                                                                                      
|Item 1        |  | Condensed Consolidated Financial Statements (unaudited)                               |  |     
|              |  | Consolidated Balance Sheets  March 31, 2009 and December 31, 2008                    |  | 3   
|              |  | Consolidated Statements of Income  Three months ended March 31, 2009 and 2008        |  | 4   
|              |  | Consolidated Statements of Cash Flows  Three months ended March 31, 2009 and 2008    |  | 5   
|              |  | Notes to Condensed Consolidated Financial Statements                                  |  | 6   
|Item 2        |  | Managements Discussion and Analysis of Financial Condition and Results of Operations |  | 13  
|Item 3        |  | Quantitative and Qualitative Disclosures about Market Risk                            |  | 17  
|Item 4        |  | Controls and Procedures                                                               |  | 17  
|              |  |                                                                                      
|              |  | PART II                                                                               |  |     
|              |  |                                                                                      
|Item 1        |  | Legal Proceedings                                                                     |  | 18  
|Item 6        |  | Exhibits                                                                              |  | 18  
|              | 
|Signatures    |  | 19                                                                                   
|Exhibit Index |  | 20                                                                                   

Note: Items 1A, 2, 3, 4 and 5 of Part II are omitted because they are not applicable.



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PART I  FINANCIAL INFORMATION



|ITEM 1. | FINANCIAL STATEMENTS
|------- | --------------------

IPC The Hospitalist Company, Inc.

Consolidated Balance Sheets

(in thousands, except for share data)



|                                                                                                                                                                            |  |                          |         |                  |   |        
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ------------------------ | ------- | ---------------- | - | -------
|                                                                                                                                                                            |  | March 31,2009(unaudited) |         | December 31,2008
|Assets                                                                                                                                                                      |  |                          |         |                  |   |        
|Current assets:                                                                                                                                                             |  |                          |         |                  |   |        
|Cash and cash equivalents                                                                                                                                                   |  | $                        | 42,379  |                  | $ | 37,394 
|Accounts receivable, net                                                                                                                                                    |  |                          | 46,035  |                  |   | 44,474 
|Prepaid expenses and other current assets                                                                                                                                   |  |                          | 5,117   |                  |   | 8,081  
|                                                                                                                                                                            |  |                          |         |                  |   |        
|Total current assets                                                                                                                                                        |  |                          | 93,531  |                  |   | 89,949 
|Furniture and equipment, net                                                                                                                                                |  |                          | 2,412   |                  |   | 2,452  
|Goodwill                                                                                                                                                                    |  |                          | 70,752  |                  |   | 63,893 
|Other intangible assets, net                                                                                                                                                |  |                          | 2,758   |                  |   | 2,905  
|Deferred tax assets, net                                                                                                                                                    |  |                          | 3,492   |                  |   | 3,492  
|                                                                                                                                                                            |  |                          |         |                  |   |        
|Total assets                                                                                                                                                                |  | $                        | 172,945 |                  | $ | 162,691
|                                                                                                                                                                            |  |                          |         |                  |   |        
|Liabilities and Stockholders Equity                                                                                                                                        |  |                          |         |                  |   |        
|Current liabilities:                                                                                                                                                        |  |                          |         |                  |   |        
|Accounts payable and accrued liabilities                                                                                                                                    |  | $                        | 5,179   |                  | $ | 4,664  
|Accrued compensation                                                                                                                                                        |  |                          | 14,317  |                  |   | 11,232 
|Payables for practice acquisitions                                                                                                                                          |  |                          | 4,616   |                  |   | 2,476  
|Medical malpractice and self-insurance reserves, current portion                                                                                                            |  |                          | 351     |                  |   | 539    
|Deferred tax liabilities                                                                                                                                                    |  |                          | 481     |                  |   | 481    
|Short-term debt and current portion of capital leases                                                                                                                       |  |                          | 3,360   |                  |   | 3,471  
|                                                                                                                                                                            |  |                          |         |                  |   |        
|Total current liabilities                                                                                                                                                   |  |                          | 28,304  |                  |   | 22,863 
|Long-term debt and capital leases, less current portion                                                                                                                     |  |                          | 4,570   |                  |   | 5,368  
|Medical malpractice and self-insurance reserves, less current portion                                                                                                       |  |                          | 11,580  |                  |   | 11,220 
|Other long-term liabilities                                                                                                                                                 |  |                          | 293     |                  |   | 293    
|                                                                                                                                                                            |  |                          |         |                  |   |        
|Total liabilities                                                                                                                                                           |  |                          | 44,747  |                  |   | 39,744 
|Stockholders equity:                                                                                                                                                       |  |                          |         |                  |   |        
|Preferred stock, $0.001 par value, 15,000,000 shares authorized, none issued                                                                                                |  |                          |        |                  |   |       
|Common stock, $0.001 par value, 50,000,000 shares authorized, 16,091,345 and 16,068,835 shares issued and outstanding at March 31, 2009
and December 31, 2008, respectively |  |                          | 16      |                  |   | 16     
|Additional paid-in capital                                                                                                                                                  |  |                          | 122,759 |                  |   | 122,024
|Retained earnings                                                                                                                                                           |  |                          | 5,423   |                  |   | 907    
|                                                                                                                                                                            |  |                          |         |                  |   |        
|Total stockholders equity                                                                                                                                                  |  |                          | 128,198 |                  |   | 122,947
|                                                                                                                                                                            |  |                          |         |                  |   |        
|Total liabilities and stockholders equity                                                                                                                                  |  | $                        | 172,945 |                  | $ | 162,691
|                                                                                                                                                                            |  |                          |         |                  |   |        

The accompanying notes are an integral part of these condensed consolidated financial statements.



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IPC The Hospitalist Company, Inc.

Consolidated Statements of Income

(dollars in thousands, except for per share data)

(unaudited)



|                                                                     |  |                              |        |   |      |   |        |  
|-------------------------------------------------------------------- |  | ---------------------------- | ------ | - | ---- | - | ------ | -
|                                                                     |  | Three Months Ended March 31, |       
|                                                                     |  | 2009                         |        |   | 2008 |  
|Net revenue                                                          |  | $                            | 76,057 |   |      | $ | 60,559 |  
|Operating expenses:                                                  |  |                              |        |   |      |   |        |  
|Cost of servicesphysician practice salaries, benefits and other     |  |                              | 55,461 |   |      |   | 43,943 |  
|General and administrative                                           |  |                              | 12,441 |   |      |   | 10,732 |  
|Depreciation and amortization                                        |  |                              | 588    |   |      |   | 457    |  
|                                                                     |  |                              |        |   |      |   |        |  
|Total operating expenses                                             |  |                              | 68,490 |   |      |   | 55,132 |  
|                                                                     |  |                              |        |   |      |   |        |  
|Income from operations                                               |  |                              | 7,567  |   |      |   | 5,427  |  
|Investment income                                                    |  |                              | 41     |   |      |   | 164    |  
|Interest expense                                                     |  |                              | (79    | ) |      |   | (385   | )
|                                                                     |  |                              |        |   |      |   |        |  
|Income before income taxes                                           |  |                              | 7,529  |   |      |   | 5,206  |  
|Income tax provision                                                 |  |                              | 3,012  |   |      |   | 2,186  |  
|                                                                     |  |                              |        |   |      |   |        |  
|Net income                                                           |  |                              | 4,517  |   |      |   | 3,020  |  
|Income allocable to preferred stockholders                           |  |                              |       |   |      |   | (696   | )
|                                                                     |  |                              |        |   |      |   |        |  
|Net income attributable to common stockholders                       |  | $                            | 4,517  |   |      | $ | 2,324  |  
|                                                                     |  |                              |        |   |      |   |        |  
|Per share data:                                                      |  |                              |        |   |      |   |        |  
|Net income per share attributable to common stockholdershistorical: |  |                              |        |   |      |   |        |  
|Basic                                                                |  | $                            | 0.28   |   |      | $ | 0.20   |  
|                                                                     |  |                              |        |   |      |   |        |  
|Diluted                                                              |  | $                            | 0.28   |   |      | $ | 0.20   |  
|                                                                     |  |                              |        |   |      |   |        |  
|Net income per share attributable to common stockholderspro forma:  |  |                              |        |   |      |   |        |  
|Basic                                                                |  |                              | N/A    |   |      | $ | 0.22   |  
|                                                                     |  |                              |        |   |      |   |        |  
|Diluted                                                              |  |                              | N/A    |   |      | $ | 0.21   |  
|                                                                     |  |                              |        |   |      |   |        |  

The accompanying notes are an integral part of these condensed consolidated financial statements.



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IPC The Hospitalist Company, Inc.

Consolidated Statements of Cash Flows

(dollars in thousands)

(unaudited)



|                                                                                  |  |                              |        |   |      |   |         |  
|--------------------------------------------------------------------------------- |  | ---------------------------- | ------ | - | ---- | - | ------- | -
|                                                                                  |  | Three Months Ended March 31, |       
|                                                                                  |  | 2009                         |        |   | 2008 |  
|Operating activities                                                              |  |                              |        |   |      |   |         |  
|Net income                                                                        |  | $                            | 4,517  |   |      | $ | 3,020   |  
|Adjustments to reconcile net income to net cash provided by operating activities: |  |                              |        |   |      |   |         |  
|Depreciation and amortization                                                     |  |                              | 588    |   |      |   | 457     |  
|Stock-based compensation expense                                                  |  |                              | 448    |   |      |   | 107     |  
|Changes in assets and liabilities:                                                |  |                              |        |   |      |   |         |  
|Accounts receivable                                                               |  |                              | (1,561 | ) |      |   | (3,327  | )
|Prepaid expenses and other current assets                                         |  |                              | 2,964  |   |      |   | 4,744   |  
|Accounts payable                                                                  |  |                              | 513    |   |      |   | (1,097  | )
|Accrued compensation                                                              |  |                              | 3,085  |   |      |   | (1,984  | )
|Medical malpractice and self-insurance reserves                                   |  |                              | 172    |   |      |   | 729     |  
|                                                                                  |  |                              |        |   |      |   |         |  
|Net cash provided by operating activities                                         |  |                              | 10,726 |   |      |   | 2,649   |  
|                                                                                  |  |                              |        |   |      |   |         |  
|Investing activities                                                              |  |                              |        |   |      |   |         |  
|Acquisitions of physician practices                                               |  |                              | (4,792 | ) |      |   | (3,452  | )
|Purchase of furniture and equipment                                               |  |                              | (327   | ) |      |   | (495    | )
|                                                                                  |  |                              |        |   |      |   |         |  
|Net cash used in investing activities                                             |  |                              | (5,119 | ) |      |   | (3,947  | )
|                                                                                  |  |                              |        |   |      |   |         |  
|Financing activities                                                              |  |                              |        |   |      |   |         |  
|Repayments of long-term debt and capital leases, net                              |  |                              | (909   | ) |      |   | (12,382 | )
|Net proceeds from issuance of common and preferred stock                          |  |                              | 270    |   |      |   | 46,131  |  
|Excess tax benefits from stock-based compensation                                 |  |                              | 17     |   |      |   | 74      |  
|                                                                                  |  |                              |        |   |      |   |         |  
|Net cash (used in) provided by financing activities                               |  |                              | (622   | ) |      |   | 33,823  |  
|                                                                                  |  |                              |        |   |      |   |         |  
|                                                                                  |  |                             
|Net increase in cash and cash equivalents                                         |  |                              | 4,985  |   |      |   | 32,525  |  
|Cash and cash equivalents, beginning of period                                    |  |                              | 37,394 |   |      |   | 6,976   |  
|                                                                                  |  |                              |        |   |      |   |         |  
|Cash and cash equivalents, end of period                                          |  | $                            | 42,379 |   |      | $ | 39,501  |  
|                                                                                  |  |                              |        |   |      |   |         |  
|Supplemental disclosure of cash flow information                                  |  |                              |        |   |      |   |         |  
|Cash paid for:                                                                    |  |                              |        |   |      |   |         |  
|Interest                                                                          |  | $                            | 76     |   |      | $ | 386     |  
|                                                                                  |  |                              |        |   |      |   |         |  
|Income taxes                                                                      |  | $                            | 195    |   |      | $ | 97      |  
|                                                                                  |  |                              |        |   |      |   |         |  
|Acquisitions of physician practices consisted of the following:                   |  |                              |        |   |      |   |         |  
|Acquired assets                                                                   |  | $                            | 6,932  |   |      | $ | 3,661   |  
|Accrued consideration                                                             |  | $                            | (2,140 | ) |      | $ | (209    | )
|                                                                                  |  |                              |        |   |      |   |         |  
|Net cash paid for acquisitions                                                    |  | $                            | 4,792  |   |      | $ | 3,452   |  
|                                                                                  |  |                              |        |   |      |   |         |  

The accompanying notes are an integral part of these condensed consolidated financial statements.



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IPC The Hospitalist Company, Inc.

Notes to the Condensed Consolidated Financial Statements

(Unaudited)

March 31, 2009

Note 1. Operations and Significant Accounting Policies

Business

IPC The Hospitalist Company, Inc. and its subsidiaries (the Company, IPC, we, us, and our) is
a national physician group practice company that operates and manages full-time hospitalist practices. Hospitalists are acute-care physician specialists, who focus on a patients hospital care from time of admission to discharge and have no
outpatient responsibilities. Hospitalists practice exclusively in hospitals or other inpatient facilities, including acute, sub-acute and long-term care settings. The physicians are primarily full-time employees of our subsidiaries or consolidated
professional medical corporations, although part-time and temporary physicians are also employed or contracted on an as-needed basis.

We
prepared the accompanying unaudited condensed consolidated financial statements pursuant to the rules and regulations of the Securities and Exchange Commission (SEC) on the same basis as our audited annual financial statements. In our opinion,
these financial statements reflect all adjustments (consisting only of normal recurring adjustments) necessary to present fairly the financial information set forth therein. Certain information and footnote disclosures normally included in financial
statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted pursuant to such rules and regulations, although we believe that the following disclosures, when read
in conjunction with the audited consolidated financial statements and notes thereto as of December 31, 2008, are adequate to make the information presented not misleading. For further information, refer to the consolidated financial statements
and footnotes thereto included in our Annual Report on Form 10-K for the year ended December 31, 2008 filed with the SEC on March 2, 2009.

Principles of Consolidation

Our consolidated financial statements include the accounts of IPC The Hospitalist
Company, Inc. and its wholly owned subsidiaries and consolidated professional medical corporations managed under long-term management agreements (the Professional Medical Corporations). Some states have laws that prohibit business entities, such as
IPC, from practicing medicine, employing physicians to practice medicine, exercising control over medical decisions by physicians (collectively known as the corporate practice of medicine), or engaging in certain arrangements with physicians, such
as fee-splitting. In states that have these restrictions, we operate by maintaining long-term management contracts with affiliated professional organizations, which are each owned and operated by physicians, and which employ or contract with
additional physicians to provide hospitalist services. Under the management agreements, we provide and perform all non-medical management and administrative services, including financial management, information systems, marketing, risk management
and administrative support. The management agreements have an initial term of 20 years and are automatically renewable for successive 10-year periods unless terminated by either party for cause. The management agreements are not terminable by the
Professional Medical Corporations, except in the case of gross negligence, fraud, or other illegal acts by us, or bankruptcy of IPC. Through the management agreements and our relationship with the stockholders of the Professional Medical
Corporations, we have exclusive authority over all non-medical decision making related to the ongoing business operations of the Professional Medical Corporations. Further, our rights under the management agreements are unilaterally salable or
transferable. Based on the provisions of the agreements, we have determined that the professional medical corporations are variable interest entities, and that we are the primary beneficiary as defined in Financial Accounting Standards Board (FASB)
Interpretation No. 46 (revised December 2003), Consolidation of Variable Interest Entities, an Interpretation of ARB No. 51 (FIN 46(R)), and consequently, we consolidate the revenue and expenses of the Professional Medical
Corporations from the date of execution of the agreements. All intercompany balances and transactions have been eliminated in consolidation.

Use of
Estimates

The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires us to
make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses at the date and for the periods that the financial statements are prepared. Significant estimates include the estimated net realizable
value of accounts receivable, estimated liabilities for claims incurred but not reported (IBNR) related to our medical malpractice coverage, and the acquisition-date fair value of contingent consideration related to business combinations.

The process of estimating the ultimate amount of revenue to be collected, the estimate of IBNR and the acquisition-date fair value of
contingent consideration involves judgment decisions, which are subject to an inherent degree of uncertainty. Actual results could differ from those estimates. The condensed results of operations for the current interim period are not necessarily
indicative of the results for the entire year ending December 31, 2009.



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Cash and Cash Equivalents

Pursuant to Statement of Financial Accounting Standards (SFAS) No. 157, Fair Value Measures (SFAS 157) we are required to measure the fair value of our financial assets using a three-tier fair value
hierarchy. Based on this hierarchy, we determined the fair value of our cash equivalents using quoted market prices using Level 1 inputs, under SFAS 157 as unadjusted, quoted prices for identical assets or liabilities in active markets at the
measurement date. As of March 31, 2009, our cash and cash equivalents consisted of bank deposits, money market accounts and short-term securities with maturities of three months or less.

Accounts Receivable and Concentration of Credit Risk

Accounts receivable are stated at the amounts expected to be collected, net of reserves for amounts estimated by us to be uncollectible of $3,862,000 and $3,323,000 at March 31, 2009 and December 31, 2008, respectively. Except
with respect to the Medicare and Medical programs, concentration of credit risk, which consists primarily of accounts receivable, is limited due to the large number of payors comprising our diverse payor mix and patient base. During the three months
ended March 31, 2009 and 2008, approximately 50.1% and 54.0%, respectively, of our patient volume was from Medicare and Medicaid programs. Receivables from these programs made up approximately 31.4% and 35.2% of the net accounts receivable at
March 31, 2009 and December 31, 2008, respectively.

Note 2. Recently Adopted and New Accounting Pronouncements

Recently Adopted Accounting Pronouncements

In
December 2007, the FASB issued SFAS No. 141(R), Business Combinations(SFAS 141(R)), which replaces SFAS No. 141. SFAS 141(R) introduces significant changes in the accounting for and reporting of business acquisitions. SFAS 141(R)
changes how business acquisitions are accounted for and will impact financial statements at the acquisition date and in subsequent periods. Pursuant to SFAS 141(R), an acquiring entity is required to recognize all of the assets acquired and
liabilities assumed in a transaction at the acquisition-date fair value, with limited exceptions, and all transaction related costs are expensed. Subsequent changes, if any, to the acquisition-date fair value that are the result of facts and
circumstances that did not exist as of the acquisition date will be recognized as part of on-going operations. In addition, SFAS 141(R) will have an impact on the goodwill impairment test associated with acquisitions. The provisions of SFAS 141(R)
are effective for business combinations for which the acquisition date is on or after January 1, 2009. The impact that the adoption of SFAS 141(R) will have on our consolidated financial statements will depend on the nature, terms and size of
our business combinations that occur after the effective date.

We adopted SFAS 157, for financial assets and liabilities on
January 1, 2008. In February 2008, the FASB deferred the effective date of SFAS 157 for certain nonfinancial assets and nonfinancial liabilities to our fiscal 2009. SFAS 157 requires the fair value of an asset or liability to be based on a
market based measure which will reflect the credit risk of the company. SFAS 157 also requires expanded disclosure requirements which will include the methods and assumptions used to measure fair value and the effect of fair value measures on
earnings. The adoption of SFAS 157 on January 1, 2009 for both financial and nonfinancial assets and liabilities did not have a material impact on our financial position, results of operations or cash flows.

New Accounting Pronouncements

In April 2009,
the FASB issued FASB Staff Position (FSP) No. 107-1 and APB 28-1, Interim Disclosures about Fair Value of Financial Instruments.This FSP amends FASB Statement No. 107, Disclosures about Fair Value of Financial Instruments
and Accounting Principles Board Opinion No. 28, Interim Financial Reporting, to require disclosures about the fair value of financial instruments for interim reporting periods. This FSP will be effective for interim reporting periods
ending after June 15, 2009. The adoption of this FSP will not have a material impact on our financial position, results of operations or cash flows.

In April 2009, the FASB issued FSP No. 157-4, Determining Fair Value When the Volume and Level of Activity for the Asset or Liability have significantly Decreased and Identifying Transactions That Are
Not Orderly.This FSP provides additional guidance for estimating fair value in accordance with SFAS 157 when the volume and level of activity for an asset or liability have significantly decreased. It also amends SFAS 157 to require additional
disclosure. This FSP will be effective for interim and annual reporting periods after June 15, 2009. The adoption of this FSP will not have a material impact on our financial position, results of operations or cash flows.

Note 3. Acquisitions

Effective January 1, 2009
we adopted SFAS 141(R) and recognized all of the assets acquired and liabilities assumed in transactions closed subsequent to such adoption date at the acquisition-date fair value and expensed all transaction related costs.



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During the three months ended March 31, 2009, in connection with the acquisition of assets of two
hospitalist physician practices, we recorded goodwill and other identifiable intangible assets consisting of physician and hospital agreements. The results of operations of these acquisitions are included in the consolidated financial statements
from the respective dates of acquisition. In addition to the initial consideration paid at the close of each transaction, the asset purchase agreement for one of the completed acquisitions provides for future consideration to be paid, which is
generally based upon the achievement of certain operating results of the acquired practices as of certain measurement dates. This additional payment is not contingent upon the future employment of the sellers. Pursuant to SFAS 141(R), the estimated
fair value of additional future consideration related to transactions that occurred in 2009 is recognized at the acquisition-date, while additional consideration amounts related to transactions that occurred prior to 2009 will be recorded on their
respective measurement dates as additional goodwill. Subsequent changes, if any, to the acquisition-date fair value of transactions that occur on or after January 1, 2009 will be recognized as part of on-going operations.

The following table summarizes the total amounts recorded during the three months ended March 31, 2009, related to the acquisition of hospitalist
practices (dollars in thousands):



|                                                                          |  |          |        |   |                  |   |       |  |   |        |  
|------------------------------------------------------------------------- |  | -------- | ------ | - | ---------------- | - | ----- |  | - | ------ | -
|                                                                          |  | Goodwill |        |   | IntangibleAssets |   | Total | 
|Initial consideration paid                                                |  | $        | 2,087  |   |                  | $ | 73    |  | $ | 2,160  |  
|Additional accrued consideration  2009 transactions                      |  |          | 3,950  |   |                  |   |      |  |   | 3,950  |  
|                                                                          |  |          |        |   |                  |   |       |  |   |        |  
|Sub-total  2009 transactions                                             |  |          | 6,037  |   |                  |   | 73    |  |   | 6,110  |  
|Additional accrued and/or paid consideration  2007 and 2008 transactions |  |          | 822    |   |                  |   |      |  |   | 822    |  
|                                                                          |  |          |        |   |                  |   |       |  |   |        |  
|Total acquired assets                                                     |  |          | 6,859  |   |                  |   | 73    |  |   | 6,932  |  
|Less net change in payables for practice acquisitions                     |  |          | (2,140 | ) |                  |   |      |  |   | (2,140 | )
|                                                                          |  |          |        |   |                  |   |       |  |   |        |  
|Net cash paid for acquisitions                                            |  | $        | 4,719  |   |                  | $ | 73    |  | $ | 4,792  |  
|                                                                          |  |          |        |   |                  |   |       |  |   |        |  

Note 4. Medical Malpractice Liability Insurance

We maintain medical malpractice insurance coverage that indemnifies us and our employed health care professionals on a claims-made basis. Claims-made
coverage covers only those claims reported during the policy period. The current policy period is effective through December 31, 2009. Unlike our claims-made policy in effect in 2008 that contained a self-insurance retention, the 2009
claims-made policy provides first dollar coverage on new claims reported in 2009. We expect to be able to continue to obtain coverage in future years; however, there can be no assurance that we will obtain substantially similar coverage as is
provided under the 2009 policy at acceptable costs and on favorable terms upon expiration.

We record reserves for self-insurance retention
related to the policy plan year of 2008 and prior years and an estimate of our liabilities, on an undiscounted basis, for claims incurred but not reported based upon actuarial loss projections using our historical loss experience. At March 31,
2009 and December 31, 2008, the balances of our reserves for future claims and liabilities were $11,931,000 and $11,759,000, respectively.

Note 5.
Debt

Our amended and restated loan agreement (Credit Facility), as further amended through October 2007, provides a revolving line of
credit of $30,000,000, with a sublimit of $5,000,000 for the issuance of letters of credit, and a term loan in an original amount of $10,000,000. The Credit Facility has a maturity date of September 15, 2011. The Credit Facility is used for
working capital, practice acquisitions and capital expenditures.

The revolving line is limited by a formula based on a certain multiple
times the trailing twelve months of earnings before interest, depreciation, taxes, amortization and certain non-cash items. Borrowings under the Credit Facility bear interest at a rate, based on either LIBOR plus 1.5% to 2.0%, or the lenders
prime rate, as selected by us for each advance. We pay an unused commitment fee equal to 0.25% per annum on the difference between the revolving line capacity and the average balance outstanding during the year. We make equal monthly
installment payments, which increase annually, against our term loan through the maturity date. Outstanding amounts advanced to us under the revolving line of credit are repayable on or before the maturity date.

The Credit Facility is secured by all of our current and future personal and intellectual property assets, except those held subject to purchase money
loans and capital leases. The Credit Facility includes various customary financial covenants and restrictions, as well as customary remedies for our lenders following an event of default. As of March 31, 2009, we were in compliance with such
financial covenants and restrictions.

As of March 31, 2009, our principal balance under the term loan portion of the Credit Facility
was $7,100,000 and we had a letter of credit of $100,000 outstanding under the $30,000,000 revolving line of credit.



8



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Note 6. Income Taxes

We recorded a provision for income taxes of $3,012,000 and $2,186,000 for the three months ended March 31, 2009 and 2008, respectively. Our effective tax rate for the three months ended March 31, 2009 was
40.0% compared to 42.0% for the three months ended March 31, 2008. The decrease in the effective tax rate reflects a new enterprise zone tax credit recorded for the first time in the fourth quarter of 2008. The effective tax rates differ from
the statutory U.S. federal income tax rate of 35.0% due primarily to state income taxes.

We regularly review our deferred tax assets for
recoverability and the need for a valuation allowance. We analyze both negative and positive evidence, and the strength of such evidence. This analysis includes assessment of forecasted and historic financial performance and taxable income. As of
March 31, 2009, we recorded a valuation allowance of $329,000 against certain deferred tax assets of entities not consolidated for income tax purposes. The valuation allowance will continue to be evaluated over future quarters.

Our accounting policy is to include interest and penalties related to income tax liabilities in income tax expense. As of March 31, 2009, we
had accrued a total of $84,000 for estimated interest and penalties related to uncertain tax positions.

The tax years 2004 to 2007 remain
open to examination by the major taxing jurisdictions to which we are subject. The statute for tax years 19972002 is closed other than being subject to adjustment of net operating losses by the Internal Revenue Service. We are subject to
taxation in the United States and various state jurisdictions. We are not aware of any notices of examination by any taxing authorities.

In accordance with FASB Interpretation No. 18, Accounting for Income Taxes in Interim Periods, we make our best estimate of the tax rate expected to be applicable for the full fiscal year. The rate so determined is used to
provide for income taxes for an interim period.

Note 7. Stock-Based Compensation

At March 31, 2009, we had three stock-based employee compensation plans: the 1997 Equity Participation Plan (1997 Plan), the 2002 Equity
Participation Plan (2002 Plan) and the 2007 Equity Participation Plan (2007 Plan). We reserved 1,054,688 common shares for issuance pursuant to the 1997 Plan, 531,250 common shares for issuance pursuant to the 2002 Plan, and 1,007,673 common shares
for issuance pursuant to the 2007 Plan. For each calendar year until 2013, the number of shares authorized for issuance under the 2007 plan will increase in an amount equal to 2.5% of the total number of shares of our common stock outstanding. The
number of shares available for issuance under the 2007 Plan will also be increased by any shares granted pursuant to the 2002 or 1997 equity participation plans that are subsequently forfeited by the participants. As of March 31, 2009, 144,300
shares of our common stock were available for issuance under the 2007 Plan.

The options under the three plans generally vest over a
four-year period from the date of the grant, and unrestricted options terminate on the 10th anniversary of the agreement date. We account for stock-based compensation in accordance with SFAS No. 123(R), Share-Based Payment(SFAS 123(R)).

All options granted during the three months ended March 31, 2009 were issued with exercise prices equal to the closing price of our
common stock on the NASDAQ Global Market on the dates of the grant.

Stock-based compensation expense was $448,000 and $107,000,
respectively, for the three months ended March 31, 2009 and 2008, respectively. Stock-based compensation expense is included in general and administrative expenses. As of March 31, 2009, there was $4,801,000 of total unrecognized
compensation cost related to non-vested share-based compensation arrangements granted under the plans, which is expected to be recognized over a weighted-average period of 3.25 years.

The fair value of each option grant is estimated on the date of the grant using the Black-Scholes option-pricing model based on the following
weighted-average assumptions:



|                                |  |                             |   |  |       |  
|------------------------------- |  | --------------------------- | - |  | ----- | -
|                                |  | Three months endedMarch 31, |  
|                                |  | 2009                        |   |  | 2008  |  
|Risk-free interest rate         |  | 2.07                        | % |  | 2.11  | %
|Expected volatility             |  | 40.00                       | % |  | 37.00 | %
|Expected option life (in years) |  | 5.83                        |   |  | 6.25  |  
|Expected dividend yield         |  | 0.00                        | % |  | 0.00  | %

The risk-free interest rate is based on the implied yield currently available on
U.S. Treasury zero coupon issues. The expected volatility is primarily based on historical volatility levels of our public company peer group. The expected option life of each award granted was calculated using the simplified method
in accordance with SEC Staff Accounting Bulletin (SAB) No. 107, as amended by SAB No. 110.



9



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The following table summarizes the combined activity in the 1997 Plan, the 2002 Plan and the 2007 Plan,
during the three months ended March 31, 2009 (dollars in thousands, except for per share data).



|                                            |  |           |   |  |                               |       |                                                     |      |                         |   |                          |  |   |     
|------------------------------------------- |  | --------- | - |  | ----------------------------- | ----- | --------------------------------------------------- | ---- | ----------------------- | - | ------------------------ |  | - | ----
|                                            |  | Shares    |   |  | Weighted-AverageExercisePrice |       | Weighted-AverageRemainingContractual Term(in years) |      | AggregateIntrinsicValue |   | WeightedAverageFairValue
|Options outstanding as of December 31, 2008 |  | 678,432   |   |  | $                             | 10.71 |                                                     |      |                         |   |                          |  | $ | 4.64
|Changes during period:                      |  |           |   |  |                               |       |                                                     |      |                         |   |                          |  |   |     
|Granted                                     |  | 449,960   |   |  |                               | 15.78 |                                                     |      |                         |   |                          |  |   | 6.89
|Exercised                                   |  | (4,328    | ) |  |                               | 2.11  |                                                     |      |                         |   |                          |  |   | 1.13
|Forfeited                                   |  | (3,410    | ) |  |                               | 2.84  |                                                     |      |                         |   |                          |  |   | 4.28
|                                            |  |           |   |  |                               |       |                                                     |      |                         |   |                          |  |   |     
|Options outstanding as of March 31, 2009    |  | 1,120,654 |   |  | $                             | 12.80 |                                                     | 8.80 |                         | $ | 7,224                    |  | $ | 5.56
|                                            |  |           |   |  |                               |       |                                                     |      |                         |   |                          |  |   |     
|Options exercisable as of March 31, 2009    |  | 315,975   |   |  | $                             | 8.07  |                                                     | 7.50 |                         | $ | 3,528                    |  | $ | 3.36
|                                            |  |           |   |  |                               |       |                                                     |      |                         |   |                          |  |   |     

Note 8. Preferred Stock

Upon consummation of our initial public offering (IPO) in January 2008, all preferred stock shares converted to 9,025,195 shares of common stock and warrants held by our preferred stockholders automatically converted
into 609,197 shares of our common stock in a cashless exercise using the treasury stock method. Warrants held by a certain lender also converted at the completion of our IPO into 32,143 shares of common stock in a cashless exchange using the
treasury method. All remaining warrants were exercised as of October 2008.

Note 9. Earnings Per Share

We follow Emerging Issues Task Force (EITF) Issue No. 03-6, Participating Securities and the Two-Class Method under FASB Statement 128 (EITF
03-6), which established standards regarding the computation of earnings per share by companies that have issued securities other than common stock that contractually entitle the holder to participate in dividends and earnings of the company. EITF
03-6 requires earnings attributable to common stockholders for the period, after deduction of preferred stock dividends, to be allocated between the common and preferred shareholders based on their respective rights to receive dividends. Basic net
income per share is then calculated by dividing income attributable to common stockholders (including the reduction for any undeclared, preferred stock dividends assuming current income for the period had been distributed) by the weighted-average
number of common shares outstanding, net of shares subject to repurchase by us, during the period. EITF 03-6 does not require the presentation of basic and diluted net income per share for securities other than common stock; therefore, the following
net income per share amounts only pertain to our common stock. We calculate diluted net income per share under the if-converted method unless the conversion of the preferred stock is anti-dilutive to basic net income per share. To the extent
preferred stock is anti-dilutive, we calculate diluted net income per share under the two-class method.



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The calculations of basic and diluted net income per share for the three months ended March 31, 2009
and 2008 are as follows (dollars in thousands, except for per share data):



|                                                                                                                          |  |                             |            |      |   |           
|------------------------------------------------------------------------------------------------------------------------- |  | --------------------------- | ---------- | ---- | - | ----------
|                                                                                                                          |  | Three months endedMarch 31,
|                                                                                                                          |  | 2009                        |            | 2008
|Basic:                                                                                                                    |  |                             |            |      |   |           
|Net income attributable to common stockholders                                                                            |  | $                           | 4,517      |      | $ | 2,324     
|                                                                                                                          |  |                             |            |      |   |           
|Weighted average number of common shares outstanding                                                                      |  |                             | 16,089,357 |      |   | 11,434,588
|                                                                                                                          |  |                             |            |      |   |           
|Basic net income per share attributable to common stockholders                                                            |  | $                           | 0.28       |      | $ | 0.20      
|                                                                                                                          |  |                             |            |      |   |           
|Diluted:                                                                                                                  |  |                             |            |      |   |           
|Net income attributable to common stockholders                                                                            |  | $                           | 4,517      |      | $ | 2,324     
|                                                                                                                          |  |                             |            |      |   |           
|Weighted average number of common shares outstanding                                                                      |  |                             | 16,089,357 |      |   | 11,434,588
|Weighted average number of dilutive common equivalents from options to purchase common stock and preferred stock warrants |  |                             | 169,594    |      |   | 397,348   
|                                                                                                                          |  |                             |            |      |   |           
|Weighted average number of common and common equivalents                                                                  |  |                             | 16,258,950 |      |   | 11,831,936
|                                                                                                                          |  |                             |            |      |   |           
|Diluted net income per share attributable to common stockholders                                                          |  | $                           | 0.28       |      | $ | 0.20      
|                                                                                                                          |  |                             |            |      |   |           

Outstanding stock options with an exercise price above market are excluded from our diluted
computation as their effect would be anti-dilutive. At March 31, 2009 there were approximately 313,484 outstanding stock options with an exercise price above the average market price for the three months ended March 31, 2009.

The following pro forma of basic and diluted earnings per share assumes the conversion of preferred shares to common stock as well as a cashless
exchange of warrants at the beginning of the period using the treasury stock method for the three months ended March 31, 2008 (dollars in thousands, except per share data):



|                                                                               |  |                                  |           
|------------------------------------------------------------------------------ |  | -------------------------------- | ----------
|                                                                               |  | Three months endedMarch 31, 2008
|Basic:                                                                         |  |                                  |           
|Net income attributable to common stockholdershistorical                      |  | $                                | 2,324     
|Income allocable to preferred stockholders                                     |  |                                  | 696       
|                                                                               |  |                                  |           
|Net income attributable to common stockholderspro forma                       |  | $                                | 3,020     
|                                                                               |  |                                  |           
|Weighted average number of common shares outstandinghistorical                |  |                                  | 11,434,588
|Add number of preferred shares converted to common shares and related warrants |  |                                  | 2,540,938 
|                                                                               |  |                                  |           
|Common shares outstandingpro forma                                            |  |                                  | 13,975,526
|                                                                               |  |                                  |           
|Basic net income per share attributable to common stockholderspro forma       |  | $                                | 0.22      
|                                                                               |  |                                  |           
|Diluted:                                                                       |  |                                  |           
|Net income attributable to common stockholdershistorical                      |  | $                                | 2,324     
|Income allocable to preferred stockholders                                     |  |                                  | 696       
|                                                                               |  |                                  |           
|Net income attributable to common stockholderspro forma                       |  |                                  | 3,020     
|                                                                               |  |                                  |           
|Weighted average number of common shares outstandinghistorical                |  |                                  | 11,434,588
|Add number of preferred shares converted to common shares and related warrants |  |                                  | 2,540,938 
|Add weighted average number of dilutive common equivalent shares               |  |                                  | 236,681   
|                                                                               |  |                                  |           
|Common shares outstandingpro forma                                            |  |                                  | 14,212,207
|                                                                               |  |                                  |           
|Diluted net income per share attributable to common stockholderspro forma     |  | $                                | 0.21      
|                                                                               |  |                                  |           



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Note 10. Commitments and Contingencies

Legal

In the ordinary course of our business, we become involved in pending and threatened
legal actions and proceedings, most of which involve claims of medical malpractice related to medical services provided by our affiliated physicians. We may also become subject to other lawsuits which could involve significant claims and/or
significant defense costs.

We believe, based upon our review of pending actions and proceedings, that the outcome of such legal actions
and proceedings will not have a material adverse effect on our business, financial condition, results of operations or cash flows. The outcome of such actions and proceedings, however, cannot be predicted with certainty and an unfavorable resolution
of one or more of them could have a material adverse effect on our business, financial condition, results of operations, or cash flows in a future period.



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|ITEM 2. | MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
|------- | -------------------------------------------------------------------------------------

The following managements discussion and analysis should be read in conjunction with the unaudited condensed consolidated financial statements
and the notes thereto included in this Quarterly Report. In addition, reference is made to our audited consolidated financial statements and notes thereto and related Managements Discussion and Analysis of Financial Condition and Results of
Operations included in our most recent Annual Report on Form 10-K for the year ended December 31, 2008 filed with the Securities and Exchange Commission ( SEC) on March 2, 2009.

In this Quarterly Report, unless otherwise expressly stated or the context otherwise requires, IPC, we, us and
our refer to IPC The Hospitalist Company, Inc., a Delaware corporation, and its wholly-owned subsidiaries, together with IPCs consolidated affiliated professional corporations and limited liability companies (affiliated
professional organizations). Our affiliated professional organizations are separate legal entities that provide physician services in certain states and with which we have management agreements. For financial reporting purposes we consolidate
the revenues and expenses of all our practice groups that we own or manage because we have a controlling financial interest in these practices based on applicable accounting rules and as described in our accompanying financial statements. Also,
unless otherwise expressly stated or the context otherwise requires, our affiliated hospitalists refer to physicians, nurse practitioners and physician assistants employed or contracted by either our wholly-owned subsidiaries or our
affiliated professional organizations. References to practices or practice groups refer to our affiliated professional organizations and the wholly-owned subsidiaries of IPC that provide medical services, unless otherwise
expressly stated or the context otherwise requires.

The following discussion contains forward-looking statements within the meaning
of the Private Securities Litigation Reform Act of 1995 regarding future events and the future results of IPC that are based on managements current expectations, estimates, projections, and assumptions about our business. Words such as
may, will, could, should, target, potential, project, expects, anticipates, intends, plans, believes,
sees, estimates and variations of such words and similar expressions are intended to identify such forward-looking statements. These statements are not guarantees of future performance and involve risks, uncertainties and
assumptions that are difficult to predict. Therefore, actual outcomes and results may differ materially from what is expressed or forecasted in such forward-looking statements due to numerous factors, including, but not limited to, those discussed
in our most recent Annual Report on Form 10-K, including the section entitled Risk Factors, as well as those discussed from time to time in the Companys other SEC filings and reports. In addition, such statements could be affected
by general industry and market conditions. Such forward-looking statements speak only as of the date of this Quarterly Report or, in the case of any document incorporated by reference, the date of that document, and we do not undertake any
obligation to update any forward-looking statement to reflect events or circumstances after the date of this Report, or for changes made to this document by wire services or Internet service providers. If we update or correct one or more
forward-looking statements, investors and others should not conclude that we will make additional updates or corrections with respect to other forward-looking statements.

Overview and Recent Developments

We are a leading provider of hospitalist services in the United
States. Hospitalist medicine is organized around inpatient care, primarily delivered in hospitals, and is focused on providing, managing and coordinating the care of hospitalized patients. We believe we are the largest dedicated hospitalist company
in the United States based on revenues, patient encounters and number of affiliated hospitalists. Our early entry into the emerging hospitalist industry has permitted us to establish a reputation and leadership position that we believe is closely
identified with hospitalist medicine.

Acquisitions

During the three months ended March 31, 2009, we acquired the assets of two hospitalist physician practices for a total estimated purchase price of $6,110,000. In connection with these acquisitions, we recorded
goodwill of $6,037,000 and other identifiable intangible assets of $73,000 consisting of physician, payor and hospital agreements. We also recorded $822,000 of additional goodwill related to contingent consideration pertaining to acquisitions that
occurred prior to 2009.

Rate Changes by Government Sponsored Programs

The Medicare program reimburses for our services based upon the rates in its Physician Fee Schedule, and each year the Medicare program updates the Physician Fee Schedule reimbursement rates based on a formula
approved by Congress in the Balanced Budget Act of 1997. Many private payors use the Medicare fee schedule to determine their own reimbursement rates. In November 2008, the Centers for Medicare and Medicaid Services released the Medicare Physician
Fee Schedule, which Medicare projected would increase the overall physician reimbursement rates by 1.1% effective January 1, 2009. However, the rate change resulted in an estimated overall 4.6% weighted average increase in the rates for the
Medicare codes we use and an estimated overall 2.6% increase in our net patient revenue per encounter.



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Seasonality and Quarterly Fluctuations

We have historically experienced and expect to continue to experience quarterly fluctuations in net revenue and income from operations. Absent the impact
and timing of acquisitions, our net revenue has historically been higher in the first and fourth quarters of the year primarily due to the following factors:



| |  |  | the number of physicians we have on staff during the quarter, which may fluctuate based upon the timing of hires due to the end of the academic year for graduating
resident physicians, the schedule of the Internal Medicine Board exams and terminations in our existing practices; and
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | fluctuations in patient encounters, which are impacted by hospital census, which can be volatile, and physician productivity and often reflect seasonality due to
the higher occurrence of illnesses such as flu and pneumonia in patient populations in the first quarter.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

We have
significant fixed operating costs, including physician practice salaries and benefits and, as a result, are highly dependent on patient encounters and the productivity of our hospitalists to sustain profitability. Additionally, quarterly results may
be affected by the timing of acquisitions and the hiring and termination of our affiliated hospitalists.

Results of Operations and Operating Data

The following table sets forth operating data and selected consolidated statements of operations information stated as a percentage of net
revenue:



|                                                                 |  |                             |    |  |         |   
|---------------------------------------------------------------- |  | --------------------------- | -- |  | ------- | --
|                                                                 |  | Three months endedMarch 31, |   
|                                                                 |  | 2009                        |    |  | 2008    |   
|Operating data  patient encounters                              |  | 810,000                     |    |  | 684,000 |   
|                                                                 |  |                             |    |  |         |   
|                                                                 |  |                            
|Net revenue                                                      |  | 100.0                       | %  |  | 100.0   | % 
|Operating expenses:                                              |  |                             |    |  |         |   
|Cost of servicesphysician practice salaries, benefits and other |  | 72.9                        | %  |  | 72.6    | % 
|General and administrative                                       |  | 16.4                        | %  |  | 17.7    | % 
|Depreciation and amortization                                    |  | 0.8                         | %  |  | 0.7     | % 
|                                                                 |  |                             |    |  |         |   
|Total operating expenses                                         |  | 90.1                        | %  |  | 91.0    | % 
|                                                                 |  |                             |    |  |         |   
|Income from operations                                           |  | 9.9                         | %  |  | 9.0     | % 
|Investment income                                                |  | 0.1                         | %  |  | 0.3     | % 
|Interest expense                                                 |  | (0.1                        | )% |  | (0.7    | )%
|                                                                 |  |                             |    |  |         |   
|Income before income taxes                                       |  | 9.9                         | %  |  | 8.6     | % 
|Income tax provision                                             |  | 4.0                         | %  |  | 3.6     | % 
|                                                                 |  |                             |    |  |         |   
|Net income                                                       |  | 5.9                         | %  |  | 5.0     | % 
|                                                                 |  |                             |    |  |         |   

Three months ended March 31, 2009 compared to three months ended March 31, 2008.

Our patient encounters for the three months ended March 31, 2009 increased 18% to 810,000, compared to 684,000 for the same
period last year. Net revenue for the three months ended March 31, 2009 was $76.1 million, an increase of $15.5 million, or 25.6%, from $60.6 million for the three months ended March 31, 2008. Of this $15.5 million increase, $11.8
million or 76.1% was attributable to same-market area growth and $3.7 million was attributable to revenue generated from a new market acquisition that we completed in the third quarter of 2008. Same-market areas are those geographic areas in which
we have had operations for the entire current period and the entire comparable prior period. Because in-market area acquisitions are often small practice groups which become subsumed within our existing practice groups and are managed by our
existing regional management staff, we consider these as part of our same-market area growth. The change in same-market area net revenue was the result of an 11.9% increase in patient encounters, a 5.9% increase in patient revenue per encounter and
an increase in hospital contract revenue. The increase in patient revenue per encounter was partially due to a 2.6% net increase in Medicare reimbursement rates for the codes applicable to the services performed by our hospitalists and the remainder
is a result of improvements in our billing processes and collections.

Physician practice salaries, benefits and other expenses for the
three months ended March 31, 2009 were $55.5 million or 72.9% of net revenue compared to $43.9 million or 72.6% of net revenue for the three months ended March 31, 2008. These costs increased by $11.6 million or 26.2%. Same-market
area physician costs increased a total of $8.9 million, of which $7.2 million was from costs of net new hires or acquired physicians in the same-market area practices. Of the remaining increase of $1.7 million, approximately $1.1 million was for
costs associated with one hospital contract being operated at breakeven, as it is being staffed with locum tenens



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and other part-time providers at the hospitals request while we recruit employed staff. Excluding these additional staffing costs, costs related to
existing physicians increased by an insignificant amount. In addition, $2.7 million of the $11.6 million overall cost increase is attributable to physician costs associated with new market openings and new market acquisitions. Physician costs as a
percentage of net revenue increased slightly as a result of the costs associated with the hospital contract noted above. Excluding this contract, physician costs as a percentage of net revenue for the three months ended March 31, 2009 were at
the same level as the prior year quarter.

General and administrative expenses include all salaries, benefits, supplies and operating
expenses not specifically related to the day-to-day operations of our physician group practices, including billing and collections functions, our regional and market-area administrative offices and our corporate management and overhead. General and
administrative expenses increased $1.7 million, or 15.9%, to $12.4 million, or 16.4% of net revenue, for the three months ended March 31, 2009, as compared to $10.7 million, or 17.7% of net revenue for the three months ended March 31,
2008. The increase in expense is the result of increased stock based compensation and increased costs to support the continuing growth of our operations, including a new regional office to support our new market acquisition. General and
administrative expenses decreased as a percentage of net revenue as we continue to leverage these costs over a larger revenue base.

Depreciation and amortization expense increased by $0.1 million to $0.6 million for the three months ended March 31, 2009, as compared to $0.5 million for the three months ended March 31, 2008. This increase is attributable to
depreciation related to added computer hardware and software and to amortization of identifiable intangible assets related to our acquisitions.

Income from operations increased $2.2 million, or 39.4%, to $7.6 million, as compared to $5.4 million for the same period in the prior year. Our operating margin increased to 9.9% for the three months ended March 31, 2009 from 9.0% for
the three months ended March 31, 2008. The increase in operating margin percentage is directly attributable to the reduction in general and administrative expenses as a percentage of net revenue.

We recorded interest expense of $0.1 million for the three months ended March 31, 2009, as compared to interest expense of $0.4 million for the
three months ended March 31, 2008. The decrease in interest expense is primarily attributable to the pay-off of balances outstanding on our revolving credit agreement in early 2008 from the proceeds of our initial public offering in January
2008.

Our effective tax rate for the three months ended March 31, 2009 was 40.0% compared to 42.0% for the three months ended
March 31, 2008. The decrease in the effective tax rate reflects a new enterprise zone tax credit recorded for the first time in the fourth quarter of 2008. The effective tax rate differs from the statutory U.S. federal rate of 35.0% due
primarily to state income taxes. Without regard to tax legislation that may be passed in 2009, we expect our 2009 effective income tax rate to be approximately 40.0%.

Net income increased to $4.5 million for the three months ended March 31, 2009, as compared to $3.0 million for the three months ended March 31, 2008, and our net income margin increased to 5.9% from
5.0% for the same period in the prior year. The net income margin increase to 5.9% is primarily the result of leveraging our general and administrative expenses over a larger revenue base as we grow our practices and acquire new practices.

Liquidity and Capital Resources

Net
cash provided by operating activities for the three months ended March 31, 2009 was $10.7 million compared to $2.6 million for the same period of 2008. Operating cash flow from changes in working capital for the three months ended
March 31, 2009 increased by $6.1 million. Accounts receivable increased by $1.6 million during the three months. However, on a days sales outstanding (DSO) basis, which we use to measure the effectiveness of our collections, DSO has decreased
to 55 DSO as of March 31, 2009 compared to 64 DSO as of March 31, 2008. We calculate our DSO using a three-month rolling average of net revenues. Prepaid expenses decreased by $3.0 million for the 2009 period compared to a decrease of $4.7
million for the 2008 period. The decrease was primarily the result of expensing prepaid malpractice premiums and application of $1.9 million of income taxes overpaid in 2008 against our $3.0 million current period tax liability.

Net cash used in investing activities was $5.1 million for the three months ended March 31, 2009, compared to $3.8 million for the same period in
2008. Cash of $4.8 million was used in 2009 for physician practice acquisitions and earn-out payments on prior acquisitions compared to $3.5 million in the same period of the prior year. The remainder of cash used in investing activities was for
purchases of computer hardware and software and office furnishings.

For the three months ended March 31, 2009, net cash used in
financing activities was $0.6 million, compared to $33.9 million provided by financing activities for the same period in 2008. In January 2008, we completed our initial public offering which resulted in aggregate net proceeds of $46.2 million to us
after payment of underwriting discounts and commissions and offering expenses. We used part of the proceeds of our initial public offering to pay off the outstanding balance of $14.1 million under the revolving portion of our amended and restated
loan agreement (Credit Facility).



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Credit Facility and Liquidity

Our Credit Facility provides a revolving line of credit of $30.0 million, with a sublimit of $5.0 million for the issuance of letters of credit, plus a
term loan in an original amount of $10.0 million. The Credit Facility has a maturity date of September 15, 2011. We use the Credit Facility for working capital, practice acquisitions and capital expenditures. Our outstanding principal balance
under the term loan portion of the Credit Facility as of March 31, 2009 was $7.1 million and as of March 31, 2008 was $9.3 million. As of March 31, 2009 and 2008, we had $29.9 million and $30.0 million, respectively, available under
the revolving line of credit.

The revolving line of credit is limited by a formula based on a certain multiple times the trailing twelve
months of earnings before interest, depreciation, amortization, taxes and certain non-cash items. Borrowings under the Credit Facility bear interest at a rate based on either LIBOR plus 1.5% to 2.0%, or the lenders prime rate, as selected by
us for each advance. We pay an unused commitment fee equal to 0.25% per annum on the difference between the revolving line capacity and the average balance outstanding during the three months. We make equal monthly installment payments, which
increase annually, against our term loan through the maturity date. Outstanding amounts advanced to us under the revolving line of credit are repayable on or before the maturity date. The Credit Facility is secured by all of our current and future
personal and intellectual property assets, except those held subject to purchase money loans and capital leases. The Credit Facility includes various customary financial covenants and restrictions, as well as customary remedies for our lenders
following an event of default. As of March 31, 2009, we were in compliance with such financial covenants and restrictions.

We
anticipate that funds generated from operations, together with our current cash on hand and funds available under our revolving credit agreement will be sufficient to finance our working capital requirements and fund anticipated acquisitions,
contingent acquisition consideration and capital expenditures.

Off Balance Sheet Arrangements

As of March 31, 2009, we had no off-balance sheet arrangements.

Recently Adopted and New Accounting Pronouncements

See Note 2 to the Condensed Consolidated Financial Statements for information regarding
recently adopted and new accounting pronouncements.



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|ITEM 3. | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
|------- | ----------------------------------------------------------

We are exposed to changes in interest rates as a result of our Credit Facility agreement. At our option, the interest rate on outstanding borrowings under our Credit Facility is either LIBOR plus 1.5% to 2.0% or the base rate plus the
applicable margin as defined in the agreements. The base rate is a daily floating rate based on most recently announced by our lender, as its prime rate, whether or not such announced rate is the lowest rate available from our lender.
LIBOR is either the 30, 60, 90 or 180 day LIBOR. Historically, we have chosen not to use interest rate derivatives to manage our exposure to changes in interest rates.

We had outstanding borrowings under the term loan portion of our Credit Facility of $7.1 million at March 31, 2009. The impact of a 1.0% increase on short-term interest rates would result in an increase in
interest expense of approximately $0.07 million annually and a decrease in net income of approximately $0.04 million.

Investments in both
fixed rate and floating rate interest earning instruments carry a degree of interest rate risk. Fixed rate securities may have their fair market value adversely impacted due to a rise in interest rates, while floating rate securities with shorter
maturities may produce less income if interest rates fall. As of March 31, 2009, all of our short-term investments were invested in money market funds with less than 90-day maturities and are classified as cash equivalents.



|ITEM 4. | CONTROLS AND PROCEDURES
|------- | -----------------------

Evaluation of Disclosure Controls and
Procedures

We maintain controls and procedures designed to ensure that we are able to collect the information we are required to
disclose in the reports we file with the Securities and Exchange Commission (SEC), and to process, summarize and disclose this information within the time periods specified in the rules of the SEC. Our management, with the participation of our Chief
Executive Officer and our Chief Financial Officer, has conducted an evaluation of the design and operation of our disclosure controls and procedures as defined in Rule 13a-15(e) and 15d-15(e) under the Exchange Act. Based on this
evaluation, our Chief Executive Officer and our Chief Financial Officer have concluded that our disclosure controls and procedures are effective as of the end of the period covered by this report to ensure that information required to be disclosed
in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SECs rules and forms.

Changes in Internal Control Over Financial Reporting

There has been no change in our internal
control over financial reporting during the three months ended March 31, 2009 that has materially affected, or is reasonably likely to materially affect, our internal controls over financial reporting.



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PART II  OTHER INFORMATION



|ITEM 1. | LEGAL PROCEEDINGS
|------- | -----------------

In the ordinary course of our
business, we become involved in pending and threatened legal actions and proceedings, most of which involve claims of medical malpractice related to medical services provided by our affiliated hospitalists. We may also become subject to other
lawsuits which could involve significant claims and/or significant defense costs.

We believe, based upon our review of pending actions and
proceedings, that the outcome of such legal actions and proceedings will not have a material adverse effect on our business, financial condition, results of operations, or cash flows. The outcome of such actions and proceedings, however, cannot be
predicted with certainty and an unfavorable resolution of one or more of them could have a material adverse effect on our business, financial condition, results of operations, or cash flows in a future period.

ITEMS 1A, 2, 3, 4 AND 5 ARE NOT APPLICABLE



|ITEM 6. | EXHIBITS
|------- | --------

(a) Exhibits

Exhibits required by Item 601 of Regulation S-K are listed in the Exhibit Index hereto and include the following:



|               |  |                                                                                                                                                                                               
|-------------- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit Number |  | Description of Document                                                                                                                                                                       
|               | 
|31.1           |  | Certification of the Chief Executive Officer pursuant to Rule 13a-14(a) or Rule 15d-14(a) of the Securities Exchange Act of 1934 as adopted pursuant to Section 302 of the Sarbanes-Oxley Act.
|               | 
|31.2           |  | Certification of the Chief Financial Officer pursuant to Rule 13a-14(a) or Rule 15d-14(a) of the Securities Exchange Act of 1934 as adopted pursuant to Section 302 of the Sarbanes-Oxley Act.
|               | 
|32.1           |  | Certification of the Chief Executive Officer pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act.                                                 
|               | 
|32.2           |  | Certification of the Chief Financial Officer pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act.                                                 



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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly
caused this report to be signed on its behalf by the undersigned thereunto duly authorized on the 4thday of May 2009.



IPC THE HOSPITALIST COMPANY, INC.By:

/S/ ADAM D. SINGER, M.D.Adam D. Singer, M.D. Chief Executive
OfficerBy:

/s/ DEVRA G. SHAPIRODevra G. Shapiro Chief Financial
Officer




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EXHIBIT INDEX



|               |  |                                                                                                                                                                                               
|-------------- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit Number |  | Description of Document                                                                                                                                                                       
|               | 
|31.1           |  | Certification of the Chief Executive Officer pursuant to Rule 13a-14(a) or Rule 15d-14(a) of the Securities Exchange Act of 1934 as adopted pursuant to Section 302 of the Sarbanes-Oxley Act.
|               | 
|31.2           |  | Certification of the Chief Financial Officer pursuant to Rule 13a-14(a) or Rule 15d-14(a) of the Securities Exchange Act of 1934 as adopted pursuant to Section 302 of the Sarbanes-Oxley Act.
|               | 
|32.1           |  | Certification of the Chief Executive Officer pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act.                                                 
|               | 
|32.2           |  | Certification of the Chief Financial Officer pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act.                                                 



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