PracticeUpdate Conference Series World Congress of Dermatology 2019

Perils of Private-Equity Dermatology Practices Many and Far-Reaching Potential to affect both practice and access to care.

A warning against private-equity dermatology practice was delivered in a presentation at WCD 2019: “Is private equity-controlled medi- cal care the kind of medical care that we want to be a part of?” presenter Jane M. Grant-Kels, MD, from UConn Health in Farmington, asked the audience. “The running of a dermatology practice in the United States, or anywhere, is running a small business,” said Dr. Grant-Kels. “Overhead is going up. There is a vocabulary list of new paperwork and bureaucracy. There are contracts that you need an attorney to understand that you have to sign with insurers, and it takes a very sophisticated physician to understand what they are signing. There are mandated electronic medical records, and a new phenomenon is that medical students are graduating with more debt than they've ever had.” In addition, older dermatologists eyeing retirement are looking to sell their practices. This opens the door for private equity, and the impending takeover is alarming. Currently, about 10% of dermatology practices in the United States are controlled by pri- vate equity. In 2009 there were 229 dermatology practices bought by private equity. In 2019, there were 747. “They are bragging that in 5 years they are going to own 80% of dermatology in the United States,” said Dr. Grant-Kels. The notion of partnering with a private equity firm can be appealing on the surface, but Dr. Grant- Kels describes it as “a pig with lipstick.” A private equity firmmight easily offer to pay a dermatologist the equivalent of six times the practice’s annual earnings before interest, taxes, depreciation and amortization. This can amount to a huge windfall and certainly more than dermatologists could hope to earn by selling their practices to anyone else. There are other benefits as well. Private equity firms, noted Dr. Grant-Kels, are “good at centraliz- ing practice and lowering overhead. They are good at running the business, streamlining them, making themmore profitable, and relieving dermatologists of management [responsibilities].” But the disadvantages far outweigh the benefits. “Private equity firms and venture capitalists are interested in one thing: making money,” she said.

Dr. Jane M. Grant-Kels

“Those of us in medicine have many other goals, and many of us make decisions for our patients where we actually lose money because patient care comes first. I don’t see how these values can overlap.” Dermatologists are usually required to stay on as employees but lose much of their autonomy, right down to being mandated what equipment and instruments to purchase and use. Typically, 20% of the profits of the practice go directly to the equity partners, which makes reinvesting in the business difficult. Private equity firms may let go of more seasoned physicians in the practice, replacing them with younger physicians, who will work for less, as well as physician extenders such as nurse practitioners and physicians’ assistants. A single physician may oversee as many as 5 to 10 physician extenders, who often see new patients or perform complex diagnoses and procedures that are beyond their scope of training. The pri- vate equity firmmay also mandate more expensive treatment options, even if it goes against the patient’s best interests. “Any primary skin cancer on the face has to be sent for Mohs, even if you think you can excise it,” said Dr. Grant-Kels.

PRACTICEUPDATE CONFERENCE SERIES • WCD 2019 10