TWST: Would you begin with a brief historical sketch of Prospect Medical Holdings and a picture of the company at the present time?
Dr. Terner: Prospect Medical Holdings is a managed care management company. We manage the medical care of approximately 185,000 enrollees who have signed up with an HMO and have chosen one of the Prospect Medical Group's family of IPAs to provide their medical care.
IPA stands for Independent Practice Association (an association of independent physicians), which is a professional corporation that contracts with primary care and the whole range of specialist physicians (each having their own offices, their own employees and responsible for their own overhead), providing a physician network to care for the patients enrolled in HMOs. Some or all of the physicians have an equity interest in any given IPA. When the Prospect Medical Group acquires an IPA, all of the equity is transferred to the single shareholder of the Prospect Medical Group. The HMOs delegate the entire medical care of these enrollees to us. We organize or acquire IPAs and have developed the systems to facilitate the efficient delivery of medical care to these enrollees.
TWST: Are there other companies competing with you in this area?
Dr. Terner: There are many. There are 150 IPAs and medical groups in California that do roughly the same thing as we do. California is a mature state with respect to managed care, with HMO penetration at 47%. While there is room for all of us, internal growth is anemic, spotty and often negative. Consquently, we have sought to grow by acquiring other groups. Five years ago there were 300 groups in California; 150 have disappeared due to bankruptcy, consolidation or acquisition. The remaining IPAs tend to be profitable. Prospect Medical has made 11 acquisitions over the last eight or nine years and, more important, consolidated them all into a single, sophisticated, state of the art IDX IT system. We've increased our revenue from $24 million to $134 million over that period and doubled our revenue in the last three years, having made three major acquisitions. As we've grown larger, our financial metrics have grown and improved, enabling us to make larger acquisitions.
TWST: What are the two or three best reasons for the long-term investor to take a good look at Prospect?
Dr. Terner: He should look at our balance sheet, which is solid. He should look at our earnings record, which is solid. He should look at our price-earnings ratio, which is 50% below what comparable companies are valued at in the marketplace. He should look at my previous record as CEO of another managed healthcare company. He should look at the Southern California market, which is the largest in the country; 47% of it is HMOs, so there is plenty of business here and plenty of acquisitions to be made. I can't think of a better reason why anybody shouldn't at least put some small amount of their money into a company as solid and as consistently profitable as we are.