Healthcare expenditures are expected to increase over the next ten years as the population in the United States ages and demand for acute care services and inpatient care grows. According to the Centers for Medicare and Medicaid Services, total U.S. spending on hospital care was $612 billion in 2005 and is expected to grow at a compound annual growth rate of 7.0% to $1,288 billion in 2016.

Hospitalist medicine is an emerging specialty organized around inpatient care, primarily delivered in hospitals. Hospitalists focus on a patient’s care from the time of admission to discharge, working in close consultation with primary care physicians, other referring physicians and medical providers to drive the inpatient care delivery system and manage the entire inpatient episode of care.

Hospitalists differ from primary care physicians and specialists by treating patients only in a non-office based setting. By focusing exclusively on inpatient care, a hospitalist develops practiced expertise in both the diagnosis and treatment of common conditions that require hospitalization and the optimization of patient care within a hospital. According to a study in the Journal of the American Medical Association, hospitalist programs have resulted in an average 13.4% reduction in hospital costs and an average 16.6% reduction in the average length of a patient’s hospital stay.

According to the SHM, the number of hospitalists has grown from an estimated 800 in the mid-1990s to approximately 20,000 in 2006, making it one of the fastest-growing medical disciplines in the United States. It is believed that over 40% of all hospitals have formal hospitalist programs and a greater number of hospitals have hospitalists practicing within the facility. SHM also estimates that the number of hospitalists will reach approximately 30,000 by 2010.

The Company provides its affiliated hospitalists with access to IPC-Link through its web-based Virtual Office portal to support their clinical, administrative and communications needs. IPC-Link is distinctive in its ability to capture the results of each doctor-patient encounter and organize these results into a searchable database. IPC-Link enables the Company’s affiliated hospitalists to view and record important patient data, and allows hospitalists in a practice group to share patient information as needed.

The Company uses IPC-Link to create customized surveys for patients who are discharged to home from an inpatient facility. To assist in monitoring and documenting the patient’s discharge or transition to outpatient care, IPC-Link provides the Company’s call center with patient information and follow-up instructions.

Each of the Company’s operating regions is led by an experienced executive director and team of marketing and administrative staff that is responsible for the overall non-clinical management of the Company’s affiliated practice groups within a region, as well as coordinating hospitalist recruitment, monitoring financial performance and contracting with facilities and payors.

As a national company, the Company has greater resources to commit to recruiting hospitalists than small practice groups do. The Company’s recruiting strategy includes advertising in national physician publications and websites, exhibiting at professional association meetings, establishing a regular presence at select residency programs and leveraging the existing hospitalist relationships.

The Company has developed extensive training programs and tools for its newly hired hospitalists and its tenured affiliated hospitalists.

Each month the Company provides its practice groups with a detailed financial statement that enables each of its affiliated hospitalists to see the financial performance of their respective practices. The Company’s incentive compensation plan is based on these financial statements and provides transparency regarding bonus compensation to the affiliated hospitalists.

The Company assumes responsibility for all billing, reimbursement and collection processes relating to hospitalist services provided by its affiliated hospitalists and practice groups. The Company provides extensive training to its affiliated hospitalists that emphasizes detailed documentation and proper coding protocol for services provided and procedures performed.

Depreciation and amortization expense increased by $0.1 million, or 24.9%, to $0.6 million for the six months ended June 30, 2007, as compared to $0.5 million for the six months ended June 30, 2006.

Income from operations increased $3.3 million, or 92.3%, to $6.9 million, as compared to $3.6 million for the same period of the prior year.

Net interest expense is $0.6 million for the six months ended June 30, 2007, as compared to net interest expense of $0.5 million for the six months ended June 30, 2006.

Net income increased to $3.6 million for the six months ended June 30, 2007, as compared to $1.6 million for the six months ended June 30, 2006.