Private equity: Salvation or death sentence?

The dermatologist had been in practice just a few years when he was approached by a private equity group. This was around 2015, when dermatology was just starting to buzz about investor buyouts. He was curious, so he agreed to meet with the company.

“They approached me with the idea that they could help me grow my practice, help my patients, and cut down overhead,” said the northern Alabama dermatologist, who asked that his name not be used. Over a lavish dinner, the investors lauded the clinician for his business acumen and for having built a great practice so quickly. They made an enticing buyout offer.

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Before agreeing, he thought it over. He told the investors he wanted a few more years on his own before he’d consider a buyout. They encouraged him to think about it some more. He did, but the answer was still no.

Suddenly, the investors became aggressive and threatening. “They told me, ‘you have just made the biggest mistake of your early career. We’re going to make sure that our practice swallows you up, and if we can’t take you over and put you out of business, we’re going to buy up everyone around you so you can’t survive,’ ” said the dermatologist.

Surprisingly, the experience did not sour him on private equity – he even entertained a successor company’s offer. But he’s become more circumspect. “It has the potential to do good,” he said, adding that such financial support could help him pay employees, keep the lights on, and improve care. But the investors’ emphasis on profit is not appealing, he said.

“I’m going to have to have good proof that it’s truly going to improve patient care and outcomes. And I haven’t seen that yet,” he said.

Salvation or death sentence?

Depending on whom you ask, the continuing growth of private equity purchases of dermatology practices is either the death – or salvation – of the specialty.

Many dermatologists question whether the financial backers will invest in quality of care, or if they just will hire mid-level providers to churn out procedures to plump up revenues.

Neither the controversy nor the acquisitions show any sign of abating.

The American Academy of Dermatology has hosted debates on the topic at its annual meetings – and was to do so in 2020 until COVID-19 led to the meeting’s cancellation. AAD has not weighed in with any official policy and is not releasing data it may be collecting on the potential impact of private equity ownership. The organization provided a statement from President George J. Hruza, MD, who said, “the AAD supports a member’s right to choose the model that works best for them,” adding that the Academy “expects its members to provide safe and effective patient care, regardless of a dermatologist’s practice setting.” Dr. Hruza sold his Chesterfield, Mo., practice to United Skin Specialists, a private equity–backed company, in 2016, and still works at the same practice.

Some have said the acquisitions need to stop. “Until meaningful data are available on what happens to the quality of care and affordability for patients and payers, dermatologists should stop selling their practices to private equity firms, and legislators should prohibit such transactions,” wrote Joshua M. Sharfstein, MD, and Jamar Slocum, MD, of the Johns Hopkins Bloomberg School of Public Health, Baltimore, in an editorial in July (JAMA Dermatol. 2019;155[9]:1007-8).

Although he acknowledged that he has not tracked the issue closely and that little data exist on the impact on quality or cost, Dr. Sharfstein has not changed his tune. “I think there are enough warning signs to say we should put the brakes on,” he said in an interview.

“For what reason?” asked Betsy Wernli, MD, president of Forefront Dermatology, an investor-owned group based in Manitowoc, Wis. She said it seems that “on this topic, we abandon our scientific foundations and default to emotion and anecdote,” she said in an interview. “Having capital, and an investor that supports us has allowed us to perform better patient care,” she said. Dermatologist variance across all practices and practice models should be cause for more concern, she added.

Sailesh Konda, MD, has been an outspoken critic. Dr. Konda, medical director and clinical assistant professor in the department of dermatology at the University of Florida, Gainesville, and colleagues detailed the complicated financial machinations of private equity in the Journal of the American Academy of Dermatology. They showed that private investors seemed to hone in on buying outlier practices that performed high numbers of procedures. The paper – first made public in the fall of 2018 – created an uproar, especially among private equity companies. It was initially removed from the website in conjunction with a request from the editor that its conclusions be altered to be less harsh on private equity, according to the New York Times. The paper was eventually published in 2019 (J Am Acad Dermatol. Jul;81[1]:287-296.e8).

Dr. Konda has spoken at various dermatology forums and health care gatherings on private equity. He told the Times that he had given 16 talks to health care groups in 2018, and he was due to speak to a health care investors’ group in 2020. But he would not comment on the record for this story.

Brett Coldiron, MD, a former president of the AAD, also has been critical. He believes investor-owners push for more biopsies, freezing of actinic keratoses, Moh’s surgery, and other well-paying procedures. “I’m convinced that private equity may be the undoing of our specialty,” Dr. Coldiron said in an interview.

In a paper titled, “Private Equity Acquisition of Physician Practices,” published in the Annals of Internal Medicine in January 2019, Lawrence Casalino, MD, PhD, chief of the division of health policy and economics at New York’s Weill Cornell Medicine, and colleagues wrote that “private equity firms focus on specialties with high potential for additional income from elective procedures and ancillary services,” and that “dermatology has been a major focus” (Ann Intern Med. 2019;170[2]:114-5).

And in a viewpoint published in JAMA in February 2019, first-year medical student Suhas Gondi and Zirui Song, MD, PhD, both of Harvard Medical School, Boston, concluded that investor-owned practices could drive up overall health spending in part because they extract better reimbursement from insurers (JAMA. 2019;321[11]:1047-8).

Access could also become an issue if the companies drive smaller independent practices out of business, they wrote.

On the other hand, they said, “these investments may also benefit patients and bring more efficiency to a system burdened with waste.” The authors called for more research and “thoughtful regulation” to enhance the potential positives while mitigating the negatives.

So far, the acquisitions have largely escaped the notice of regulators or lawmakers. Congress has made noises about targeting specialty practices owned by private equity as a means of taming surprise medical bills, but that legislation has been stymied.

Dr. Coldiron is convinced that private investors will eventually be tripped up by state laws that prohibit the corporate practice of medicine.

Leslie Baumann, MD, who sold her Miami practice in October 2019 to the investor-owned Skin and Cancer Associates, said critics are too cynical. “What if these private equity firms are going to actually make our specialty better?” she asked in an interview.

What makes dermatology attractive?

Private equity has been acquiring specialty practices since at least 2009, with an acceleration over the last 5 years. Dermatology has been a frequent target, in part because so many dermatologists were in independent or small group private practices, making them ripe for takeover.

A 2015 report on the specialty by Cegedim, a company that provides information technology support to health care, found that the majority of practices had fewer than five physicians and that 57% of the practices were independent.

But more dermatologists are choosing employment. In a 2018 Medscape survey, 57% of dermatologists reported they were employed, while 49% were self-employed.

During 2013-2016, investors bought 35 dermatology practices – comprising 334 physicians, according to one study published in February (JAMA. 2020;323[7]:663-5). Investors bought 69 anesthesiology practices, 43 emergency medicine practices, and 39 family medicine practices during the same period.

Harvard’s Mr. Gondi and Dr. Song estimated that dermatology practices accounted for 15% of investor purchases in 2015 and 2016, even though dermatologists make up just 1% of U.S. clinicians.

In another paper published in JAMA Dermatology, Sally Tan, MD, and colleagues at Brigham and Women’s Hospital, Boston, and Harvard medical and business schools, estimated that, in 2019, at least 184 practices, comprising 381 clinics, were owned by 17 private equity groups and that the acquisitions had been accelerating: from 5 in 2012 to 59 in 2017 to 34 in the first 5 months of 2018 (JAMA Dermatol. 2019;155[9]:1013-21).

“It’s a very attractive area for investors because they know that the future is bright for dermatology,” said Reuven Porges, MD, CEO of Ft. Lauderdale-based Skin and Cancer Associates, which is owned by a private investor. Because dermatology involves providing many ancillary services and cash-only cosmetic services, “it has tremendous potential to continue to be successful in the future regardless of what health care changes are coming,” Dr. Porges said in an interview.

Investors also see promise in dermatology in the United States because “there’s a huge supply demand mismatch,” said Vance Vanier, MD, a cofounding managing partner at Chicago Pacific Founders, the private equity owner of Pinnacle Dermatology, which has 52 locations in Illinois, Indiana, Michigan, Minnesota, and Tennessee.

Theoretically, when investors handle billing, insurance negotiations, and health information technology, it gives clinicians more time to practice, Dr. Vanier said in an interview.

“Once that doctor is freed up to not do administrative tasks and focus on patient care, then, if they want to, they can see more patients and be more responsive to their needs,” he said.

Dr. Vanier said investor acquisitions are here to stay. “This is a trend that could go on for another 50 years before any saturation point is hit,” he said. “It’s a $2 trillion market. It’s hard to wrap your head around how enormous health care services is,” he said.

Dermatology acquisitions will be driven by the continuing imbalance of physician supply and patient demand; the financial pressure on newly graduating physicians who have big debt loads; the requirements for investment in health information technology to report quality metrics; and an aging population, Dr. Vanier said.

In a JAMA Dermatology viewpoint, Jack Resneck Jr., MD, professor of dermatology, University of California, San Francisco, listed many of the same factors – plus a skin cancer epidemic – as fueling dermatology acquisitions (JAMA Dermatol. 2018;154[1]:13-4).

Medical practices – not just dermatology practices – also offer a pure financial play. “Acquisitions of smaller practices provide a major arbitrage opportunity,” Dr. Casalino and colleagues said in the January 2019 Annals of Internal Medicine paper. In a merger of smaller practices into larger, the smaller practice’s valuation immediately becomes that of the bigger one, they wrote.
 

 

Could the bottom fall out?

Creating giant groups through consolidation is a main aim for private equity.

Skin and Cancer Associates, founded in 1971, was a large entity, with 25 practices. But for a long time, its leaders had wanted to become a regional or a national player, said Dr. Porges. Those leaders asked Dr. Porges – who helped take his former radiology practice through a private equity purchase – to help them attract investors. In March 2018, Susquehanna Private Capital signed on as a “partner” with Skin and Cancer Associates.

It has since almost doubled in size, with 40 locations and 60 dermatologists, all in Florida, Dr. Porges said. “The only limiting factor for growing it as fast as we want, is really money,” he said.

Consolidation is just an initial step. Most investors have a finite timeline for cashing out. “The ultimate goal is often to realize a profitable secondary sale in three to seven years to another PE investor (or even a publicly traded entity),” Dr. Resneck wrote in the 2018 JAMA Dermatology paper.

Not all private equity companies are the same, said Dr. Wernli, of Forefront. Dermatologists can investigate a company’s “hold period” – how long they keep an investment before trading – and the strength of its capitalization before deciding to sell, she said.

Since 2016, Forefront has been owned by the Ontario Municipal Employee Retirement System (OMERS), a pension fund for the province’s public workers. OMERS bought Forefront from Varsity Healthcare Partners, which had owned the dermatology group for just 2 years.

Dr. Wernli said OMERS is a good, solid investor. “They have unlimited resources to invest so they don’t have to quickly flip a company to satisfy an investment in another company,” she said.

Some investor-backed dermatology practices have gone belly up. In 2012, WestWind Investors bought DermOne, based in Toms River, N.J. But by early 2018, the business had fallen apart, and some practices – in North Carolina, New Jersey, Texas, and Virginia – just shut their doors.

Long Island City, N.Y.–based Schweiger Dermatology Group, backed by private equity, snapped up nine of the New Jersey DermOne practices in March 2018.

Another private equity–backed company, U.S. Dermatology Partners, defaulted on a $377 million loan in January 2020. As reported by Bloomberg, the company had $340 million in revenue in 2018. U.S. Dermatology’s owners are reportedly working out a recapitalization or debt-for-equity swap with the lenders.

Dr. Wernli said that financial problems aren’t unique to investor-owned practices and that doctors could still be out of a job if a private practice goes under.

“A private practice can also default on their loans that they’ve used to fund their own personal practice, leaving employed physicians in the same situation,” she said.

Patients are likely to be in the dark, however, until the doors close.

Pressure on practices

Private equity is changing the shape of practice for both those who work for investor-owned businesses and those still out on their own.

The Alabama dermatologist, for instance, said it has made it harder for him to recruit new doctors, who are offered big signing bonuses and a steady income by the investor-owned practices. “They’re skewing the numbers,” he said, adding that residents are now expecting a big payment and benefits.

Dr. Baumann said that when she was on her own, she had trouble finding and recruiting good dermatologists. But it has become easier since she’d sold to Skin and Cancer Associates, she said, noting that Dr. Porges recently found a qualified candidate for her to interview a week after she put in a request.

Another dermatologist in a Midwestern metropolitan practice – who did not want his name used – said that when it came time for him to increase his equity stake, his older partner, who was near retirement and had explored selling to private equity – wanted four-and-a-half times the price that had been discussed when he joined the practice.

The younger partner believes the private equity offers inflated the practice’s valuation in his partner’s mind. He ended up leaving the practice.

Many dermatologists have been led to believe that their practices are worth more than they might be, according to Dr. Coldiron. “I think a lot of these doctors that sell out are deluded. They think that they’re getting a lot of money and they’re not,” he said.

Typically, investors may offer three or four times earnings before interest, taxes, depreciation and amortization (EBITDA). The money paid out is taxed at the capital gains rate, which provides some savings. “But you have to pay that all back, because when they sign you up, you become an employee,” Dr. Coldiron said.

Doctors often agree to work for 5 years, but during that period, their base salary is decreased while the buyout cash is meted out to them, he added. A chunk of the buyout usually is also given as equity, but that equity is worthless unless the investor sells to another entity.

Pinnacle Dermatology doesn’t want doctors to retire immediately upon an acquisition, said Dr. Vanier of Chicago Pacific Founders. “We want to find physician partners who want to keep working,” he said. “We strongly believe if you don’t have strong physician leadership, experienced physician leadership, that your odds of success go down.”

Chicago Pacific also believes physicians should have an ownership interest, he said. It allows them to share in the eventual financial rewards – whether that’s 5 or 20 years later, said Dr. Vanier.

Dr. Coldiron sees other pressures that skew practice styles and can harm patient care. Clinicians in investor-owned practices are often urged to refer all dermatopathology to labs owned by the practice and often, a Moh’s surgeon is employed to service all the practices – sometimes even being flown in from elsewhere, he claimed.

That takes away the clinician’s autonomy in terms of referring where he or she feels appropriate and also could harm pathologists and Moh’s surgeons that depend on those referral streams, he added.

In their paper, Mr. Gondi and Dr. Song wrote that this practice is concerning because “keeping referrals within the practice may render referral patterns less responsive to patient needs or preference.”
 

 

Procedure factories?

Many critics say investor-backed practices are goosing revenues by hiring more mid-level providers – such as nurse practitioners and physician assistants – and getting them to perform more procedures.

Midlevel practitioners do more biopsies than dermatologists do to get a diagnosis, according to Dr. Coldiron.

A 2018 JAMA Dermatology study appears to back that up. Physician assistants needed to conduct 3.9 biopsies to diagnose one skin cancer, compared to 3.3 for dermatologists. For a single melanoma, the number needed to biopsy was 39.4 for PAs and 25.4 for dermatologists (JAMA Dermatol. 2018;154[5]:569-73).

Skin biopsies have almost doubled in the last decade, said Dr. Coldiron. “The skin cancer epidemic would account for only half of that,” he said.

“The ultimate loser is the patient – because the patient doesn’t get the highest quality care and the patient has unnecessary things done to him or her,” he said. But, he said, he could not directly tie the biopsy increase to the rise of private equity.

Forefront tracks the number of biopsies per patient done by every dermatologist in its network – to make sure that no one is outside the norms set by the Centers for Medicare and Medicaid Services, said Dr. Wernli. And she said biopsies declined after the group was bought by private equity.

Dr. Baumann said the average number of biopsies per patient at Skin and Cancer Associates in 2019 was 0.20 – less than the 0.30 average reported by Medicare that same year.

The rising use of mid-level providers existed long before private equity came on the scene, said Dr. Wernli. “There’s not enough board-certified dermatologists to satisfy need,” she said, noting that, in addition, many clinicians won’t serve rural areas. “If we don’t move and extend ourselves, there will be someone who fills our shoes,” she said, adding that Forefront has 1 mid-level for every 1.5 to 2 dermatologists.

Skin and Cancer Associates has 55 doctors and 29 physician assistants, said Dr. Baumann, adding that she had not been pressured to add any mid-level providers to her practice.
 

Excitement about sale shot down

Dr. Wernli and Dr. Baumann both have been happy with their decision to ally with private equity. For Dr. Baumann, however, her move was tinged by online attacks that reflected the strong opinions on the topic.

She began looking into selling her practice when one of her businesses – Skin Type Solutions – began taking off. Both her clinical practice and research business were thriving. She had two children at home and was having a hard time keeping up with the administrative end of her businesses.

None of her partners nor any groups in Miami showed interest in purchasing the practice, so she began researching private equity. She spoke with seven companies before settling on Skin and Cancer Associates. They had “a long track record of successfully running practices,” said Dr. Baumann, adding that “the doctors who work there are happy, and I respect the quality of the physicians and the organization.”

When she closed the deal in October 2019, she agreed to stay on for 5 years and signed a noncompete clause that she deems “very reasonable.” Among the perks she cites: being able to consult via telemedicine with an expert on pigmented lesions; quick and easy referrals to a Moh’s surgeon; being able to train residents; and having paid personal time off.

It’s less responsibility and the same or better job satisfaction, she said.

But when she shared the news on a private Facebook group for board-certified dermatologists, she was vilified. Of some 195 comments, about half were “mean,” said Dr. Baumann.

“I was shocked about how strongly everybody feels,” she said. Those commenting accused her of doing it for the money or said that her move was contributing to the ruination of dermatology.

“I just defended myself,” she said. “For me, it was my time.”

Dr. Coldiron and Dr. Baumann are members of the Dermatology News editorial advisory board.

The dermatologist had been in practice just a few years when he was approached by a private equity group. This was around 2015, when dermatology was just starting to buzz about investor buyouts. He was curious, so he agreed to meet with the company.

“They approached me with the idea that they could help me grow my practice, help my patients, and cut down overhead,” said the northern Alabama dermatologist, who asked that his name not be used. Over a lavish dinner, the investors lauded the clinician for his business acumen and for having built a great practice so quickly. They made an enticing buyout offer.

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Before agreeing, he thought it over. He told the investors he wanted a few more years on his own before he’d consider a buyout. They encouraged him to think about it some more. He did, but the answer was still no.

Suddenly, the investors became aggressive and threatening. “They told me, ‘you have just made the biggest mistake of your early career. We’re going to make sure that our practice swallows you up, and if we can’t take you over and put you out of business, we’re going to buy up everyone around you so you can’t survive,’ ” said the dermatologist.

Surprisingly, the experience did not sour him on private equity – he even entertained a successor company’s offer. But he’s become more circumspect. “It has the potential to do good,” he said, adding that such financial support could help him pay employees, keep the lights on, and improve care. But the investors’ emphasis on profit is not appealing, he said.

“I’m going to have to have good proof that it’s truly going to improve patient care and outcomes. And I haven’t seen that yet,” he said.

Salvation or death sentence?

Depending on whom you ask, the continuing growth of private equity purchases of dermatology practices is either the death – or salvation – of the specialty.

Many dermatologists question whether the financial backers will invest in quality of care, or if they just will hire mid-level providers to churn out procedures to plump up revenues.

Neither the controversy nor the acquisitions show any sign of abating.

The American Academy of Dermatology has hosted debates on the topic at its annual meetings – and was to do so in 2020 until COVID-19 led to the meeting’s cancellation. AAD has not weighed in with any official policy and is not releasing data it may be collecting on the potential impact of private equity ownership. The organization provided a statement from President George J. Hruza, MD, who said, “the AAD supports a member’s right to choose the model that works best for them,” adding that the Academy “expects its members to provide safe and effective patient care, regardless of a dermatologist’s practice setting.” Dr. Hruza sold his Chesterfield, Mo., practice to United Skin Specialists, a private equity–backed company, in 2016, and still works at the same practice.

Some have said the acquisitions need to stop. “Until meaningful data are available on what happens to the quality of care and affordability for patients and payers, dermatologists should stop selling their practices to private equity firms, and legislators should prohibit such transactions,” wrote Joshua M. Sharfstein, MD, and Jamar Slocum, MD, of the Johns Hopkins Bloomberg School of Public Health, Baltimore, in an editorial in July (JAMA Dermatol. 2019;155[9]:1007-8).

Although he acknowledged that he has not tracked the issue closely and that little data exist on the impact on quality or cost, Dr. Sharfstein has not changed his tune. “I think there are enough warning signs to say we should put the brakes on,” he said in an interview.

“For what reason?” asked Betsy Wernli, MD, president of Forefront Dermatology, an investor-owned group based in Manitowoc, Wis. She said it seems that “on this topic, we abandon our scientific foundations and default to emotion and anecdote,” she said in an interview. “Having capital, and an investor that supports us has allowed us to perform better patient care,” she said. Dermatologist variance across all practices and practice models should be cause for more concern, she added.

Sailesh Konda, MD, has been an outspoken critic. Dr. Konda, medical director and clinical assistant professor in the department of dermatology at the University of Florida, Gainesville, and colleagues detailed the complicated financial machinations of private equity in the Journal of the American Academy of Dermatology. They showed that private investors seemed to hone in on buying outlier practices that performed high numbers of procedures. The paper – first made public in the fall of 2018 – created an uproar, especially among private equity companies. It was initially removed from the website in conjunction with a request from the editor that its conclusions be altered to be less harsh on private equity, according to the New York Times. The paper was eventually published in 2019 (J Am Acad Dermatol. Jul;81[1]:287-296.e8).

Dr. Konda has spoken at various dermatology forums and health care gatherings on private equity. He told the Times that he had given 16 talks to health care groups in 2018, and he was due to speak to a health care investors’ group in 2020. But he would not comment on the record for this story.

Brett Coldiron, MD, a former president of the AAD, also has been critical. He believes investor-owners push for more biopsies, freezing of actinic keratoses, Moh’s surgery, and other well-paying procedures. “I’m convinced that private equity may be the undoing of our specialty,” Dr. Coldiron said in an interview.

In a paper titled, “Private Equity Acquisition of Physician Practices,” published in the Annals of Internal Medicine in January 2019, Lawrence Casalino, MD, PhD, chief of the division of health policy and economics at New York’s Weill Cornell Medicine, and colleagues wrote that “private equity firms focus on specialties with high potential for additional income from elective procedures and ancillary services,” and that “dermatology has been a major focus” (Ann Intern Med. 2019;170[2]:114-5).

And in a viewpoint published in JAMA in February 2019, first-year medical student Suhas Gondi and Zirui Song, MD, PhD, both of Harvard Medical School, Boston, concluded that investor-owned practices could drive up overall health spending in part because they extract better reimbursement from insurers (JAMA. 2019;321[11]:1047-8).

Access could also become an issue if the companies drive smaller independent practices out of business, they wrote.

On the other hand, they said, “these investments may also benefit patients and bring more efficiency to a system burdened with waste.” The authors called for more research and “thoughtful regulation” to enhance the potential positives while mitigating the negatives.

So far, the acquisitions have largely escaped the notice of regulators or lawmakers. Congress has made noises about targeting specialty practices owned by private equity as a means of taming surprise medical bills, but that legislation has been stymied.

Dr. Coldiron is convinced that private investors will eventually be tripped up by state laws that prohibit the corporate practice of medicine.

Leslie Baumann, MD, who sold her Miami practice in October 2019 to the investor-owned Skin and Cancer Associates, said critics are too cynical. “What if these private equity firms are going to actually make our specialty better?” she asked in an interview.

What makes dermatology attractive?

Private equity has been acquiring specialty practices since at least 2009, with an acceleration over the last 5 years. Dermatology has been a frequent target, in part because so many dermatologists were in independent or small group private practices, making them ripe for takeover.

A 2015 report on the specialty by Cegedim, a company that provides information technology support to health care, found that the majority of practices had fewer than five physicians and that 57% of the practices were independent.

But more dermatologists are choosing employment. In a 2018 Medscape survey, 57% of dermatologists reported they were employed, while 49% were self-employed.

During 2013-2016, investors bought 35 dermatology practices – comprising 334 physicians, according to one study published in February (JAMA. 2020;323[7]:663-5). Investors bought 69 anesthesiology practices, 43 emergency medicine practices, and 39 family medicine practices during the same period.

Harvard’s Mr. Gondi and Dr. Song estimated that dermatology practices accounted for 15% of investor purchases in 2015 and 2016, even though dermatologists make up just 1% of U.S. clinicians.

In another paper published in JAMA Dermatology, Sally Tan, MD, and colleagues at Brigham and Women’s Hospital, Boston, and Harvard medical and business schools, estimated that, in 2019, at least 184 practices, comprising 381 clinics, were owned by 17 private equity groups and that the acquisitions had been accelerating: from 5 in 2012 to 59 in 2017 to 34 in the first 5 months of 2018 (JAMA Dermatol. 2019;155[9]:1013-21).

“It’s a very attractive area for investors because they know that the future is bright for dermatology,” said Reuven Porges, MD, CEO of Ft. Lauderdale-based Skin and Cancer Associates, which is owned by a private investor. Because dermatology involves providing many ancillary services and cash-only cosmetic services, “it has tremendous potential to continue to be successful in the future regardless of what health care changes are coming,” Dr. Porges said in an interview.

Investors also see promise in dermatology in the United States because “there’s a huge supply demand mismatch,” said Vance Vanier, MD, a cofounding managing partner at Chicago Pacific Founders, the private equity owner of Pinnacle Dermatology, which has 52 locations in Illinois, Indiana, Michigan, Minnesota, and Tennessee.

Theoretically, when investors handle billing, insurance negotiations, and health information technology, it gives clinicians more time to practice, Dr. Vanier said in an interview.

“Once that doctor is freed up to not do administrative tasks and focus on patient care, then, if they want to, they can see more patients and be more responsive to their needs,” he said.

Dr. Vanier said investor acquisitions are here to stay. “This is a trend that could go on for another 50 years before any saturation point is hit,” he said. “It’s a $2 trillion market. It’s hard to wrap your head around how enormous health care services is,” he said.

Dermatology acquisitions will be driven by the continuing imbalance of physician supply and patient demand; the financial pressure on newly graduating physicians who have big debt loads; the requirements for investment in health information technology to report quality metrics; and an aging population, Dr. Vanier said.

In a JAMA Dermatology viewpoint, Jack Resneck Jr., MD, professor of dermatology, University of California, San Francisco, listed many of the same factors – plus a skin cancer epidemic – as fueling dermatology acquisitions (JAMA Dermatol. 2018;154[1]:13-4).

Medical practices – not just dermatology practices – also offer a pure financial play. “Acquisitions of smaller practices provide a major arbitrage opportunity,” Dr. Casalino and colleagues said in the January 2019 Annals of Internal Medicine paper. In a merger of smaller practices into larger, the smaller practice’s valuation immediately becomes that of the bigger one, they wrote.
 

 

Could the bottom fall out?

Creating giant groups through consolidation is a main aim for private equity.

Skin and Cancer Associates, founded in 1971, was a large entity, with 25 practices. But for a long time, its leaders had wanted to become a regional or a national player, said Dr. Porges. Those leaders asked Dr. Porges – who helped take his former radiology practice through a private equity purchase – to help them attract investors. In March 2018, Susquehanna Private Capital signed on as a “partner” with Skin and Cancer Associates.

It has since almost doubled in size, with 40 locations and 60 dermatologists, all in Florida, Dr. Porges said. “The only limiting factor for growing it as fast as we want, is really money,” he said.

Consolidation is just an initial step. Most investors have a finite timeline for cashing out. “The ultimate goal is often to realize a profitable secondary sale in three to seven years to another PE investor (or even a publicly traded entity),” Dr. Resneck wrote in the 2018 JAMA Dermatology paper.

Not all private equity companies are the same, said Dr. Wernli, of Forefront. Dermatologists can investigate a company’s “hold period” – how long they keep an investment before trading – and the strength of its capitalization before deciding to sell, she said.

Since 2016, Forefront has been owned by the Ontario Municipal Employee Retirement System (OMERS), a pension fund for the province’s public workers. OMERS bought Forefront from Varsity Healthcare Partners, which had owned the dermatology group for just 2 years.

Dr. Wernli said OMERS is a good, solid investor. “They have unlimited resources to invest so they don’t have to quickly flip a company to satisfy an investment in another company,” she said.

Some investor-backed dermatology practices have gone belly up. In 2012, WestWind Investors bought DermOne, based in Toms River, N.J. But by early 2018, the business had fallen apart, and some practices – in North Carolina, New Jersey, Texas, and Virginia – just shut their doors.

Long Island City, N.Y.–based Schweiger Dermatology Group, backed by private equity, snapped up nine of the New Jersey DermOne practices in March 2018.

Another private equity–backed company, U.S. Dermatology Partners, defaulted on a $377 million loan in January 2020. As reported by Bloomberg, the company had $340 million in revenue in 2018. U.S. Dermatology’s owners are reportedly working out a recapitalization or debt-for-equity swap with the lenders.

Dr. Wernli said that financial problems aren’t unique to investor-owned practices and that doctors could still be out of a job if a private practice goes under.

“A private practice can also default on their loans that they’ve used to fund their own personal practice, leaving employed physicians in the same situation,” she said.

Patients are likely to be in the dark, however, until the doors close.

Pressure on practices

Private equity is changing the shape of practice for both those who work for investor-owned businesses and those still out on their own.

The Alabama dermatologist, for instance, said it has made it harder for him to recruit new doctors, who are offered big signing bonuses and a steady income by the investor-owned practices. “They’re skewing the numbers,” he said, adding that residents are now expecting a big payment and benefits.

Dr. Baumann said that when she was on her own, she had trouble finding and recruiting good dermatologists. But it has become easier since she’d sold to Skin and Cancer Associates, she said, noting that Dr. Porges recently found a qualified candidate for her to interview a week after she put in a request.

Another dermatologist in a Midwestern metropolitan practice – who did not want his name used – said that when it came time for him to increase his equity stake, his older partner, who was near retirement and had explored selling to private equity – wanted four-and-a-half times the price that had been discussed when he joined the practice.

The younger partner believes the private equity offers inflated the practice’s valuation in his partner’s mind. He ended up leaving the practice.

Many dermatologists have been led to believe that their practices are worth more than they might be, according to Dr. Coldiron. “I think a lot of these doctors that sell out are deluded. They think that they’re getting a lot of money and they’re not,” he said.

Typically, investors may offer three or four times earnings before interest, taxes, depreciation and amortization (EBITDA). The money paid out is taxed at the capital gains rate, which provides some savings. “But you have to pay that all back, because when they sign you up, you become an employee,” Dr. Coldiron said.

Doctors often agree to work for 5 years, but during that period, their base salary is decreased while the buyout cash is meted out to them, he added. A chunk of the buyout usually is also given as equity, but that equity is worthless unless the investor sells to another entity.

Pinnacle Dermatology doesn’t want doctors to retire immediately upon an acquisition, said Dr. Vanier of Chicago Pacific Founders. “We want to find physician partners who want to keep working,” he said. “We strongly believe if you don’t have strong physician leadership, experienced physician leadership, that your odds of success go down.”

Chicago Pacific also believes physicians should have an ownership interest, he said. It allows them to share in the eventual financial rewards – whether that’s 5 or 20 years later, said Dr. Vanier.

Dr. Coldiron sees other pressures that skew practice styles and can harm patient care. Clinicians in investor-owned practices are often urged to refer all dermatopathology to labs owned by the practice and often, a Moh’s surgeon is employed to service all the practices – sometimes even being flown in from elsewhere, he claimed.

That takes away the clinician’s autonomy in terms of referring where he or she feels appropriate and also could harm pathologists and Moh’s surgeons that depend on those referral streams, he added.

In their paper, Mr. Gondi and Dr. Song wrote that this practice is concerning because “keeping referrals within the practice may render referral patterns less responsive to patient needs or preference.”
 

 

Procedure factories?

Many critics say investor-backed practices are goosing revenues by hiring more mid-level providers – such as nurse practitioners and physician assistants – and getting them to perform more procedures.

Midlevel practitioners do more biopsies than dermatologists do to get a diagnosis, according to Dr. Coldiron.

A 2018 JAMA Dermatology study appears to back that up. Physician assistants needed to conduct 3.9 biopsies to diagnose one skin cancer, compared to 3.3 for dermatologists. For a single melanoma, the number needed to biopsy was 39.4 for PAs and 25.4 for dermatologists (JAMA Dermatol. 2018;154[5]:569-73).

Skin biopsies have almost doubled in the last decade, said Dr. Coldiron. “The skin cancer epidemic would account for only half of that,” he said.

“The ultimate loser is the patient – because the patient doesn’t get the highest quality care and the patient has unnecessary things done to him or her,” he said. But, he said, he could not directly tie the biopsy increase to the rise of private equity.

Forefront tracks the number of biopsies per patient done by every dermatologist in its network – to make sure that no one is outside the norms set by the Centers for Medicare and Medicaid Services, said Dr. Wernli. And she said biopsies declined after the group was bought by private equity.

Dr. Baumann said the average number of biopsies per patient at Skin and Cancer Associates in 2019 was 0.20 – less than the 0.30 average reported by Medicare that same year.

The rising use of mid-level providers existed long before private equity came on the scene, said Dr. Wernli. “There’s not enough board-certified dermatologists to satisfy need,” she said, noting that, in addition, many clinicians won’t serve rural areas. “If we don’t move and extend ourselves, there will be someone who fills our shoes,” she said, adding that Forefront has 1 mid-level for every 1.5 to 2 dermatologists.

Skin and Cancer Associates has 55 doctors and 29 physician assistants, said Dr. Baumann, adding that she had not been pressured to add any mid-level providers to her practice.
 

Excitement about sale shot down

Dr. Wernli and Dr. Baumann both have been happy with their decision to ally with private equity. For Dr. Baumann, however, her move was tinged by online attacks that reflected the strong opinions on the topic.

She began looking into selling her practice when one of her businesses – Skin Type Solutions – began taking off. Both her clinical practice and research business were thriving. She had two children at home and was having a hard time keeping up with the administrative end of her businesses.

None of her partners nor any groups in Miami showed interest in purchasing the practice, so she began researching private equity. She spoke with seven companies before settling on Skin and Cancer Associates. They had “a long track record of successfully running practices,” said Dr. Baumann, adding that “the doctors who work there are happy, and I respect the quality of the physicians and the organization.”

When she closed the deal in October 2019, she agreed to stay on for 5 years and signed a noncompete clause that she deems “very reasonable.” Among the perks she cites: being able to consult via telemedicine with an expert on pigmented lesions; quick and easy referrals to a Moh’s surgeon; being able to train residents; and having paid personal time off.

It’s less responsibility and the same or better job satisfaction, she said.

But when she shared the news on a private Facebook group for board-certified dermatologists, she was vilified. Of some 195 comments, about half were “mean,” said Dr. Baumann.

“I was shocked about how strongly everybody feels,” she said. Those commenting accused her of doing it for the money or said that her move was contributing to the ruination of dermatology.

“I just defended myself,” she said. “For me, it was my time.”

Dr. Coldiron and Dr. Baumann are members of the Dermatology News editorial advisory board.

The dermatologist had been in practice just a few years when he was approached by a private equity group. This was around 2015, when dermatology was just starting to buzz about investor buyouts. He was curious, so he agreed to meet with the company.

“They approached me with the idea that they could help me grow my practice, help my patients, and cut down overhead,” said the northern Alabama dermatologist, who asked that his name not be used. Over a lavish dinner, the investors lauded the clinician for his business acumen and for having built a great practice so quickly. They made an enticing buyout offer.

Ja_inter/DigitalVision Vectors

Before agreeing, he thought it over. He told the investors he wanted a few more years on his own before he’d consider a buyout. They encouraged him to think about it some more. He did, but the answer was still no.

Suddenly, the investors became aggressive and threatening. “They told me, ‘you have just made the biggest mistake of your early career. We’re going to make sure that our practice swallows you up, and if we can’t take you over and put you out of business, we’re going to buy up everyone around you so you can’t survive,’ ” said the dermatologist.

Surprisingly, the experience did not sour him on private equity – he even entertained a successor company’s offer. But he’s become more circumspect. “It has the potential to do good,” he said, adding that such financial support could help him pay employees, keep the lights on, and improve care. But the investors’ emphasis on profit is not appealing, he said.

“I’m going to have to have good proof that it’s truly going to improve patient care and outcomes. And I haven’t seen that yet,” he said.

Salvation or death sentence?

Depending on whom you ask, the continuing growth of private equity purchases of dermatology practices is either the death – or salvation – of the specialty.

Many dermatologists question whether the financial backers will invest in quality of care, or if they just will hire mid-level providers to churn out procedures to plump up revenues.

Neither the controversy nor the acquisitions show any sign of abating.

The American Academy of Dermatology has hosted debates on the topic at its annual meetings – and was to do so in 2020 until COVID-19 led to the meeting’s cancellation. AAD has not weighed in with any official policy and is not releasing data it may be collecting on the potential impact of private equity ownership. The organization provided a statement from President George J. Hruza, MD, who said, “the AAD supports a member’s right to choose the model that works best for them,” adding that the Academy “expects its members to provide safe and effective patient care, regardless of a dermatologist’s practice setting.” Dr. Hruza sold his Chesterfield, Mo., practice to United Skin Specialists, a private equity–backed company, in 2016, and still works at the same practice.

Some have said the acquisitions need to stop. “Until meaningful data are available on what happens to the quality of care and affordability for patients and payers, dermatologists should stop selling their practices to private equity firms, and legislators should prohibit such transactions,” wrote Joshua M. Sharfstein, MD, and Jamar Slocum, MD, of the Johns Hopkins Bloomberg School of Public Health, Baltimore, in an editorial in July (JAMA Dermatol. 2019;155[9]:1007-8).

Although he acknowledged that he has not tracked the issue closely and that little data exist on the impact on quality or cost, Dr. Sharfstein has not changed his tune. “I think there are enough warning signs to say we should put the brakes on,” he said in an interview.

“For what reason?” asked Betsy Wernli, MD, president of Forefront Dermatology, an investor-owned group based in Manitowoc, Wis. She said it seems that “on this topic, we abandon our scientific foundations and default to emotion and anecdote,” she said in an interview. “Having capital, and an investor that supports us has allowed us to perform better patient care,” she said. Dermatologist variance across all practices and practice models should be cause for more concern, she added.

Sailesh Konda, MD, has been an outspoken critic. Dr. Konda, medical director and clinical assistant professor in the department of dermatology at the University of Florida, Gainesville, and colleagues detailed the complicated financial machinations of private equity in the Journal of the American Academy of Dermatology. They showed that private investors seemed to hone in on buying outlier practices that performed high numbers of procedures. The paper – first made public in the fall of 2018 – created an uproar, especially among private equity companies. It was initially removed from the website in conjunction with a request from the editor that its conclusions be altered to be less harsh on private equity, according to the New York Times. The paper was eventually published in 2019 (J Am Acad Dermatol. Jul;81[1]:287-296.e8).

Dr. Konda has spoken at various dermatology forums and health care gatherings on private equity. He told the Times that he had given 16 talks to health care groups in 2018, and he was due to speak to a health care investors’ group in 2020. But he would not comment on the record for this story.

Brett Coldiron, MD, a former president of the AAD, also has been critical. He believes investor-owners push for more biopsies, freezing of actinic keratoses, Moh’s surgery, and other well-paying procedures. “I’m convinced that private equity may be the undoing of our specialty,” Dr. Coldiron said in an interview.

In a paper titled, “Private Equity Acquisition of Physician Practices,” published in the Annals of Internal Medicine in January 2019, Lawrence Casalino, MD, PhD, chief of the division of health policy and economics at New York’s Weill Cornell Medicine, and colleagues wrote that “private equity firms focus on specialties with high potential for additional income from elective procedures and ancillary services,” and that “dermatology has been a major focus” (Ann Intern Med. 2019;170[2]:114-5).

And in a viewpoint published in JAMA in February 2019, first-year medical student Suhas Gondi and Zirui Song, MD, PhD, both of Harvard Medical School, Boston, concluded that investor-owned practices could drive up overall health spending in part because they extract better reimbursement from insurers (JAMA. 2019;321[11]:1047-8).

Access could also become an issue if the companies drive smaller independent practices out of business, they wrote.

On the other hand, they said, “these investments may also benefit patients and bring more efficiency to a system burdened with waste.” The authors called for more research and “thoughtful regulation” to enhance the potential positives while mitigating the negatives.

So far, the acquisitions have largely escaped the notice of regulators or lawmakers. Congress has made noises about targeting specialty practices owned by private equity as a means of taming surprise medical bills, but that legislation has been stymied.

Dr. Coldiron is convinced that private investors will eventually be tripped up by state laws that prohibit the corporate practice of medicine.

Leslie Baumann, MD, who sold her Miami practice in October 2019 to the investor-owned Skin and Cancer Associates, said critics are too cynical. “What if these private equity firms are going to actually make our specialty better?” she asked in an interview.

What makes dermatology attractive?

Private equity has been acquiring specialty practices since at least 2009, with an acceleration over the last 5 years. Dermatology has been a frequent target, in part because so many dermatologists were in independent or small group private practices, making them ripe for takeover.

A 2015 report on the specialty by Cegedim, a company that provides information technology support to health care, found that the majority of practices had fewer than five physicians and that 57% of the practices were independent.

But more dermatologists are choosing employment. In a 2018 Medscape survey, 57% of dermatologists reported they were employed, while 49% were self-employed.

During 2013-2016, investors bought 35 dermatology practices – comprising 334 physicians, according to one study published in February (JAMA. 2020;323[7]:663-5). Investors bought 69 anesthesiology practices, 43 emergency medicine practices, and 39 family medicine practices during the same period.

Harvard’s Mr. Gondi and Dr. Song estimated that dermatology practices accounted for 15% of investor purchases in 2015 and 2016, even though dermatologists make up just 1% of U.S. clinicians.

In another paper published in JAMA Dermatology, Sally Tan, MD, and colleagues at Brigham and Women’s Hospital, Boston, and Harvard medical and business schools, estimated that, in 2019, at least 184 practices, comprising 381 clinics, were owned by 17 private equity groups and that the acquisitions had been accelerating: from 5 in 2012 to 59 in 2017 to 34 in the first 5 months of 2018 (JAMA Dermatol. 2019;155[9]:1013-21).

“It’s a very attractive area for investors because they know that the future is bright for dermatology,” said Reuven Porges, MD, CEO of Ft. Lauderdale-based Skin and Cancer Associates, which is owned by a private investor. Because dermatology involves providing many ancillary services and cash-only cosmetic services, “it has tremendous potential to continue to be successful in the future regardless of what health care changes are coming,” Dr. Porges said in an interview.

Investors also see promise in dermatology in the United States because “there’s a huge supply demand mismatch,” said Vance Vanier, MD, a cofounding managing partner at Chicago Pacific Founders, the private equity owner of Pinnacle Dermatology, which has 52 locations in Illinois, Indiana, Michigan, Minnesota, and Tennessee.

Theoretically, when investors handle billing, insurance negotiations, and health information technology, it gives clinicians more time to practice, Dr. Vanier said in an interview.

“Once that doctor is freed up to not do administrative tasks and focus on patient care, then, if they want to, they can see more patients and be more responsive to their needs,” he said.

Dr. Vanier said investor acquisitions are here to stay. “This is a trend that could go on for another 50 years before any saturation point is hit,” he said. “It’s a $2 trillion market. It’s hard to wrap your head around how enormous health care services is,” he said.

Dermatology acquisitions will be driven by the continuing imbalance of physician supply and patient demand; the financial pressure on newly graduating physicians who have big debt loads; the requirements for investment in health information technology to report quality metrics; and an aging population, Dr. Vanier said.

In a JAMA Dermatology viewpoint, Jack Resneck Jr., MD, professor of dermatology, University of California, San Francisco, listed many of the same factors – plus a skin cancer epidemic – as fueling dermatology acquisitions (JAMA Dermatol. 2018;154[1]:13-4).

Medical practices – not just dermatology practices – also offer a pure financial play. “Acquisitions of smaller practices provide a major arbitrage opportunity,” Dr. Casalino and colleagues said in the January 2019 Annals of Internal Medicine paper. In a merger of smaller practices into larger, the smaller practice’s valuation immediately becomes that of the bigger one, they wrote.
 

 

Could the bottom fall out?

Creating giant groups through consolidation is a main aim for private equity.

Skin and Cancer Associates, founded in 1971, was a large entity, with 25 practices. But for a long time, its leaders had wanted to become a regional or a national player, said Dr. Porges. Those leaders asked Dr. Porges – who helped take his former radiology practice through a private equity purchase – to help them attract investors. In March 2018, Susquehanna Private Capital signed on as a “partner” with Skin and Cancer Associates.

It has since almost doubled in size, with 40 locations and 60 dermatologists, all in Florida, Dr. Porges said. “The only limiting factor for growing it as fast as we want, is really money,” he said.

Consolidation is just an initial step. Most investors have a finite timeline for cashing out. “The ultimate goal is often to realize a profitable secondary sale in three to seven years to another PE investor (or even a publicly traded entity),” Dr. Resneck wrote in the 2018 JAMA Dermatology paper.

Not all private equity companies are the same, said Dr. Wernli, of Forefront. Dermatologists can investigate a company’s “hold period” – how long they keep an investment before trading – and the strength of its capitalization before deciding to sell, she said.

Since 2016, Forefront has been owned by the Ontario Municipal Employee Retirement System (OMERS), a pension fund for the province’s public workers. OMERS bought Forefront from Varsity Healthcare Partners, which had owned the dermatology group for just 2 years.

Dr. Wernli said OMERS is a good, solid investor. “They have unlimited resources to invest so they don’t have to quickly flip a company to satisfy an investment in another company,” she said.

Some investor-backed dermatology practices have gone belly up. In 2012, WestWind Investors bought DermOne, based in Toms River, N.J. But by early 2018, the business had fallen apart, and some practices – in North Carolina, New Jersey, Texas, and Virginia – just shut their doors.

Long Island City, N.Y.–based Schweiger Dermatology Group, backed by private equity, snapped up nine of the New Jersey DermOne practices in March 2018.

Another private equity–backed company, U.S. Dermatology Partners, defaulted on a $377 million loan in January 2020. As reported by Bloomberg, the company had $340 million in revenue in 2018. U.S. Dermatology’s owners are reportedly working out a recapitalization or debt-for-equity swap with the lenders.

Dr. Wernli said that financial problems aren’t unique to investor-owned practices and that doctors could still be out of a job if a private practice goes under.

“A private practice can also default on their loans that they’ve used to fund their own personal practice, leaving employed physicians in the same situation,” she said.

Patients are likely to be in the dark, however, until the doors close.

Pressure on practices

Private equity is changing the shape of practice for both those who work for investor-owned businesses and those still out on their own.

The Alabama dermatologist, for instance, said it has made it harder for him to recruit new doctors, who are offered big signing bonuses and a steady income by the investor-owned practices. “They’re skewing the numbers,” he said, adding that residents are now expecting a big payment and benefits.

Dr. Baumann said that when she was on her own, she had trouble finding and recruiting good dermatologists. But it has become easier since she’d sold to Skin and Cancer Associates, she said, noting that Dr. Porges recently found a qualified candidate for her to interview a week after she put in a request.

Another dermatologist in a Midwestern metropolitan practice – who did not want his name used – said that when it came time for him to increase his equity stake, his older partner, who was near retirement and had explored selling to private equity – wanted four-and-a-half times the price that had been discussed when he joined the practice.

The younger partner believes the private equity offers inflated the practice’s valuation in his partner’s mind. He ended up leaving the practice.

Many dermatologists have been led to believe that their practices are worth more than they might be, according to Dr. Coldiron. “I think a lot of these doctors that sell out are deluded. They think that they’re getting a lot of money and they’re not,” he said.

Typically, investors may offer three or four times earnings before interest, taxes, depreciation and amortization (EBITDA). The money paid out is taxed at the capital gains rate, which provides some savings. “But you have to pay that all back, because when they sign you up, you become an employee,” Dr. Coldiron said.

Doctors often agree to work for 5 years, but during that period, their base salary is decreased while the buyout cash is meted out to them, he added. A chunk of the buyout usually is also given as equity, but that equity is worthless unless the investor sells to another entity.

Pinnacle Dermatology doesn’t want doctors to retire immediately upon an acquisition, said Dr. Vanier of Chicago Pacific Founders. “We want to find physician partners who want to keep working,” he said. “We strongly believe if you don’t have strong physician leadership, experienced physician leadership, that your odds of success go down.”

Chicago Pacific also believes physicians should have an ownership interest, he said. It allows them to share in the eventual financial rewards – whether that’s 5 or 20 years later, said Dr. Vanier.

Dr. Coldiron sees other pressures that skew practice styles and can harm patient care. Clinicians in investor-owned practices are often urged to refer all dermatopathology to labs owned by the practice and often, a Moh’s surgeon is employed to service all the practices – sometimes even being flown in from elsewhere, he claimed.

That takes away the clinician’s autonomy in terms of referring where he or she feels appropriate and also could harm pathologists and Moh’s surgeons that depend on those referral streams, he added.

In their paper, Mr. Gondi and Dr. Song wrote that this practice is concerning because “keeping referrals within the practice may render referral patterns less responsive to patient needs or preference.”
 

 

Procedure factories?

Many critics say investor-backed practices are goosing revenues by hiring more mid-level providers – such as nurse practitioners and physician assistants – and getting them to perform more procedures.

Midlevel practitioners do more biopsies than dermatologists do to get a diagnosis, according to Dr. Coldiron.

A 2018 JAMA Dermatology study appears to back that up. Physician assistants needed to conduct 3.9 biopsies to diagnose one skin cancer, compared to 3.3 for dermatologists. For a single melanoma, the number needed to biopsy was 39.4 for PAs and 25.4 for dermatologists (JAMA Dermatol. 2018;154[5]:569-73).

Skin biopsies have almost doubled in the last decade, said Dr. Coldiron. “The skin cancer epidemic would account for only half of that,” he said.

“The ultimate loser is the patient – because the patient doesn’t get the highest quality care and the patient has unnecessary things done to him or her,” he said. But, he said, he could not directly tie the biopsy increase to the rise of private equity.

Forefront tracks the number of biopsies per patient done by every dermatologist in its network – to make sure that no one is outside the norms set by the Centers for Medicare and Medicaid Services, said Dr. Wernli. And she said biopsies declined after the group was bought by private equity.

Dr. Baumann said the average number of biopsies per patient at Skin and Cancer Associates in 2019 was 0.20 – less than the 0.30 average reported by Medicare that same year.

The rising use of mid-level providers existed long before private equity came on the scene, said Dr. Wernli. “There’s not enough board-certified dermatologists to satisfy need,” she said, noting that, in addition, many clinicians won’t serve rural areas. “If we don’t move and extend ourselves, there will be someone who fills our shoes,” she said, adding that Forefront has 1 mid-level for every 1.5 to 2 dermatologists.

Skin and Cancer Associates has 55 doctors and 29 physician assistants, said Dr. Baumann, adding that she had not been pressured to add any mid-level providers to her practice.
 

Excitement about sale shot down

Dr. Wernli and Dr. Baumann both have been happy with their decision to ally with private equity. For Dr. Baumann, however, her move was tinged by online attacks that reflected the strong opinions on the topic.

She began looking into selling her practice when one of her businesses – Skin Type Solutions – began taking off. Both her clinical practice and research business were thriving. She had two children at home and was having a hard time keeping up with the administrative end of her businesses.

None of her partners nor any groups in Miami showed interest in purchasing the practice, so she began researching private equity. She spoke with seven companies before settling on Skin and Cancer Associates. They had “a long track record of successfully running practices,” said Dr. Baumann, adding that “the doctors who work there are happy, and I respect the quality of the physicians and the organization.”

When she closed the deal in October 2019, she agreed to stay on for 5 years and signed a noncompete clause that she deems “very reasonable.” Among the perks she cites: being able to consult via telemedicine with an expert on pigmented lesions; quick and easy referrals to a Moh’s surgeon; being able to train residents; and having paid personal time off.

It’s less responsibility and the same or better job satisfaction, she said.

But when she shared the news on a private Facebook group for board-certified dermatologists, she was vilified. Of some 195 comments, about half were “mean,” said Dr. Baumann.

“I was shocked about how strongly everybody feels,” she said. Those commenting accused her of doing it for the money or said that her move was contributing to the ruination of dermatology.

“I just defended myself,” she said. “For me, it was my time.”

Dr. Coldiron and Dr. Baumann are members of the Dermatology News editorial advisory board.