Is Private Equity the Future of Dermatology: A Boon or a Bane for Patients and Physicians?

🔍 Key Finding Private equity ownership of dermatology practices is increasing, offering financial benefits to physicians but raising concerns about patient care quality, mid-level provider overuse, and healthcare resource allocation. Dermatologists should be aware of the financial and ethical implications before selling their practices to private equity firms.

🔬 Methodology Overview

• Design: Systematic review
• Data Sources: PubMed/MEDLINE and Web of Science
• Search Dates: July 2021, with studies included prior to this date.
• Search Terms: “private equity OR consolidation OR corporatization OR venture capital OR outlier practice patterns OR private equity-based group OR acquisitions) AND dermato*”
• Selection Criteria: (1) Relevant studies analyzing private equity acquisitions of dermatology practices, and (2) articles analyzing corporatization and consolidation of private equity-based groups. English language only. Excluded studies not pertaining to both private equity and dermatology, and articles discussing only private equity or dermatology.
• Quality Assessment: Oxford Center for Evidence-Based Medicine 2011 Levels of Evidence.
• Analysis Approach: Qualitative synthesis of findings.

📊 Results

• Private equity (PE) acquisition of dermatology practices is increasing rapidly: A 349% growth rate was observed from 2012 to 2018, and PE-backed dermatology groups increased by 10.1% from 2018 to 2019. An estimated 10+% of US dermatology practices are owned by PE firms.
• PE firms offer attractive financial incentives: Selling dermatologists receive upfront payments of 3-5 times adjusted EBITDA for solo practices, 4-7 times for small groups, and potentially 8-13 times for larger groups, often with additional equity incentives.
• PE-owned clinics utilize more mid-level providers: These clinics employ a greater number and higher ratio (0.83) of mid-level providers (physician assistants and nurse practitioners) to dermatologists.
• Increased access to care, but potential quality concerns: PE-owned clinics offer increased appointment availability with mid-level providers, but decreased availability with dermatologists. Studies suggest mid-level providers have a higher number needed to biopsy (NNB) to detect malignancy (4.69 vs 2.82 for dermatologists).
• Dermatology residents express reservations about PE: 65% of surveyed residents indicated they were not open to working for PE-backed practices due to concerns about autonomy, salary, and patient care quality.
• Financial implications for healthcare: PE firms typically divert approximately 20% of revenue generated for investor returns, raising concerns about the allocation of healthcare resources.

💡 Clinical Impact Private equity ownership of dermatology practices increases patient access to care, particularly with mid-level providers, but may decrease access to dermatologists and potentially impact quality of care due to differences in training and experience. Further research is needed to fully assess the impact of private equity acquisitions on clinical outcomes, cost, and quality of care.

🤔 Limitations

• Difficulty quantifying the quality of patient care delivered by private equity-owned practices due to a lack of objective discussion and awareness.
• Increased administrative burden for physicians in the face of decreased revenue and profit margins.
• Potential loss of healthcare dollars to non-healthcare entities that have little incentive to reinvest in healthcare practices.
• Overvaluation of dermatology practices leading to inflated prices and potential bankruptcies.
• Potential corruption of the doctor-patient relationship due to the fiduciary responsibility of PEGs to their investors.
• Lack of transparency regarding ownership disclosure to patients.
• Overutilization of mid-level providers with less training than dermatologists, potentially compromising quality of care and increasing costs.
• Focus on maximizing profits potentially leading to compromised patient care and overutilization of healthcare resources.

✨ What It Means For You Dermatologists face increasing administrative burdens and financial pressures, leading many to sell their practices to private equity (PE) firms. While this can alleviate administrative tasks and offer financial incentives, it also raises concerns about potential impacts on patient care, physician autonomy, and healthcare costs due to increased utilization of mid-level providers and focus on investor returns. Dermatologists should be aware of the complexities of these acquisition deals and prioritize patient well-being when considering such transactions.

Reference Sung CT, Salem S, Oulee A, Yahia R, Mesinkovska NA, Zachary CB. A Systematic Review: Landscape of Private Equity in Dermatology From Past to Present. J Drugs Dermatol. 2023;22(4):404-408. https://doi.org/10.36849/JDD.6892