The evolution of private equity in dermatology

Konda, Sailesh; Francis, Joseph

doi:10.1016/j.clindermatol.2020.02.007

Cited by 15 publications

(26 citation statements)

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“…Sale to an insurance company, for instance, may reduce patient access only to its employed urologists. 5 Employed physicians often have no input or knowledge of a sale decision and may have transferability clauses in their contracts, which allows for transfer of their employment to the new entity upon sale. 23 Following sale, former paths to partnership may cease to exist and physician contracts may be renegotiated to reduce salary and autonomy in the setting of increased platform power.…”

Section: Discussionmentioning

confidence: 99%

“…21 Given that the PE owned management services organization ultimately has power to replace a practice's chief medical officer, PE firms have the ability to influence physician behavior. 1,5,6 Interventions to increase physician performance may include productivity reports, increased self-referrals for ancillary services and expanded roles of mid-level clinicians without sufficient physician supervision. 5,28 PE firms backing 2 of the 5 urology platforms identified in this study have already invested in the dermatology sector and it is expected that they apply similar strategies in the urology market; however, further research will be required to understand the impact of PE ownership on urology practice patterns.…”

Section: Discussionmentioning

confidence: 99%

“…1,5,6 Interventions to increase physician performance may include productivity reports, increased self-referrals for ancillary services and expanded roles of mid-level clinicians without sufficient physician supervision. 5,28 PE firms backing 2 of the 5 urology platforms identified in this study have already invested in the dermatology sector and it is expected that they apply similar strategies in the urology market; however, further research will be required to understand the impact of PE ownership on urology practice patterns. 2,8 Given the trend toward increasing debt levels in acquisitions, stakeholders should be aware that the debt laden structure of PE deals places acquired practices at significant financial risk in the setting of an economic downturn when practice revenue cannot cover interest payments on debt.…”

Section: Discussionmentioning

confidence: 99%

“…5,6 The management services organization will typically purchase all the financial assets of the physician practice and provide comprehensive management services, but place a physician in charge of the practice. 5,6 The strategic horizon for many PE-backed platforms involves acquisitions of additional practices and institution of operational optimizations over a 3-to-7-year time frame prior to sale of the platform to a strategic buyer such as a health system, insurer or other PE firm. 1,3,5 After success with this "buy and build" model in dermatology and ophthalmology, PE investors are increasingly seeking to replicate this practice across other medical specialties.…”

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confidence: 99%

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Urology Practice Acquisitions by Private Equity Firms from 2011–2021

et al. 2022

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Introduction: Private equity firms have recently acquired several large urology practices in the United States. As little is known about these acquisitions, we sought to characterize trends in urology practice consolidation. Methods:We compiled urology practice acquisition data via financial databases, news outlets, practice websites, and Internet keyword search for the time period January 1, 2011 through March 15, 2021. For each acquisition, we determined the acquiring group, number of employed urologists, practice locations, and status of ancillary services (pathology, radiology, or surgery centers). We estimated workforce effects based on the 2019 American Urological Association workforce census.Results: We identified 69 independent practice acquisitions in the study period, including 19 (28.4%) by hospital systems, 7 (10.4%) by multispecialty physician groups, 23 (34.3%) by urology practices, and 20 (29.9%) by private equity-backed platforms. Private equity firms initially targeted large urology practices (mean of 60.8AE32.6 urologists) with ownership of ancillary services and consolidated local market share through acquisitions of smaller practices (mean of 15.9AE14.5 urologists). As of March 2021, we estimate that 7.2% of private practice urologists in the U.S. were employed by one of 5 private equity-backed platforms; over 25% of all urologists practicing in New Jersey and Maryland are employed by a private equity-backed platform.Conclusions: Private equity acquisitions have accelerated to become a dominant form of urology practice consolidation in recent years and have achieved significant market influence in certain regions. Future research should assess the impact of private equity investment on practice patterns, health outcomes, and expenditures.

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Section: Discussionmentioning

confidence: 99%

Section: Discussionmentioning

confidence: 99%

Section: Discussionmentioning

confidence: 99%

mentioning

confidence: 99%

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Urology Practice Acquisitions by Private Equity Firms from 2011–2021

et al. 2022

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“…By 2020 there were more than 30 PE-backed dermatology groups. 2 Gastroenterology (GI) practices are now experiencing a similar trend of explosive PE growth.…”

Section: Gastroenterology Practice Consolidation Acceleratesmentioning

confidence: 99%

Gastroenterology Physician Practice Management and Private Equity: Thriving in Uncertain Times

Gilreath¹,

Patel²,

Suh³

et al. 2021

Clinical Gastroenterology and Hepatology

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Trends in Debt Valuations of Private Equity–Backed Dermatology Groups Before and During the COVID-19 Pandemic

Memon

Francis

et al. 2022

JAMA Dermatol

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IMPORTANCE Private equity (PE) firms have invested in and consolidated dermatology practices. Private equity firms typically operate by conducting leveraged buyouts, which occur when target companies are acquired with capital from PE firms and a combination of debt, which may include debt instruments held in business development corporations (BDCs).OBJECTIVE To investigate the valuations of dermatology PE-backed group (DPEG) debt instruments in BDCs' portfolios both before and during the COVID-19 pandemic. DESIGN, SETTING, AND PARTICIPANTSThis cross-sectional study, conducted from August 1, 2016, to August 31, 2021, examined public financial statements filed by BDCs lending to DPEGs. The public filings of BDCs were searched from inception of the DPEG's debt instrument in a BDC's portfolio, and the amortized cost and fair value of each debt instrument were tabulated. MAIN OUTCOMES AND MEASURESThe premium or discount at which each debt instrument was valued at a given time was calculated by dividing the difference between the fair value and the amortized cost by the amortized cost. Different testing methods were conducted for normal or nonnormal data to test differences in debt valuations across all DPEGs between 2 consecutive or nonconsecutive quarters. RESULTSThe search of the public filings found 10 BDCs containing data on 9 unique DPEGs. Overall, there were 15 trackable DPEG debt instruments because multiple BDCs can hold debt instruments for a given DPEG. Data were available from August 2016 through August 2021. During the study time frame, the amortized cost of the loans for an individual DPEG ranged from a low of $1.7 million to a high of $100 million. The valuation of debt instruments was stable for many DPEGs until some were discounted starting in May 2018, with a significant decrease from May 2019 to August 2019 (-1.4%; 95% CI, not applicable; P = .04), prior to the COVID-19 pandemic. Another significant decrease occurred during the pandemic from February to June 2020 (-9.0%; 95% CI, -13.6% to -4.4%; P = .002). US Dermatology Partners decreased to the lowest valuation (Golub BDC, -39.7%; TCG BDC Inc, -48.8%; TCG BDC II, -48.8%) of the DPEGs examined in November 2020 even after receiving a $10 million forgivable Small Business Administration Paycheck Protection Program loan in May 2020. After pharmaceutical companies announced effective COVID-19 vaccine candidates in November 2020, there was a modest and significant improvement in debt valuations (2.3%; 95% CI, 0.2%-0.4%; P = .03); however, they remained discounted. Only PhyNet Dermatology's debt instruments improved to a premium valuation by August 2021.CONCLUSIONS AND RELEVANCE Debt valuations of some DPEGs found in this cross-sectional study suggest a lower probability that their loans will be repaid in full. This could be a signal that some DPEGs are not performing well financially.

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The evolution of private equity in dermatology

Cited by 15 publications

References 14 publications

Urology Practice Acquisitions by Private Equity Firms from 2011–2021

Urology Practice Acquisitions by Private Equity Firms from 2011–2021

Gastroenterology Physician Practice Management and Private Equity: Thriving in Uncertain Times

Trends in Debt Valuations of Private Equity–Backed Dermatology Groups Before and During the COVID-19 Pandemic

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