(UPDATED: See below.)

sermo-logo.gifCambridge, Mass.-based Sermo, an online social network with a twist, offers physicians the opportunity to ask for and offer advice free of charge. The catch: Well-heeled investors can pay to listen in.

Sermo, which just raised $26.7 million in a third funding round (details below), offers doctors the opportunity to share, discuss and vote on the importance of each others’ medical observations. The intriguing notion here is that doctors are likely to identify emerging trends in disease, treatment methods, drug side effects and so forth simply by sharing their local knowledge with one another. The company aims to maintain a high-quality conversation by restricting full membership to licensed doctors.

But what the company bills as a way to advance public health by harnessing this social knowledge is also an exercise in hard-edged capitalism. For $100,000 to $500,000 a year, Wall Street firms are also welcome to beam into the online discussion in order to discover fresh sources of medical intelligence. These outsiders won’t be able to identify the participating docs, but can pose questions to the community and of course will be free to base investment decisions on whatever they learn, such as whether a given drug seems safe and possibly even whether an experimental drug seems to be working in clinical trials.

Complicating matters is that doctors aren’t asked to disclose conflicts of interest that might call their judgments into question. The doctors themselves are also eligible for bonuses from Sermo for postings or votes that are deemed valuable, although only after the particular topic has been closed. The company does eventually plan to give government officials, academics and other healthcare companies — read, insurers, drug companies and hospitals — access to the network as well.

In May, the American Medical Association joined the party, announcing a partnership with Sermo under which the AMA can post questions to doctors in exchange for including “Discuss on Sermo” links in its print and Web publications. The move attracted a certain amount of criticism at the time — see, for instance, some comments in this AP story and this post from Pharmalot’s Ed Silverman, who in a rare departure from his usual equanimity denounced it as a “new way to exploit docs.”

Investors in the latest financing round include Legg Mason, Longworth Venture Partners and Softbank Capital. A spokeswoman for Sermo said Legg Mason contributed $25 million, while the other investors made up the $1.7 million difference.

There’s a description of how the service works here, and here’s a screenshot, too:

UPDATE: Added screenshot and a link to how Sermo works, slightly revised the description of the service and fixed the link to the AP story.

UPDATE REDUX: Sermo’s spokeswoman confirmed details of the funding round, so I’ve rewritten those sections and further refined a description of the service.