Trends in Private Equity Acquisition of Dermatology Practices in the United States

Abstract

IMPORTANCE Private equity (PE) firms invest in dermatology management groups (DMGs), which are physician practice management firms that operate multiple clinics and often acquire smaller, physician-owned practices. Consolidation of dermatology practices as a result of PE investment may be associated with changes in practice management in the United States. OBJECTIVE To describe the scope of PE-backed dermatology practice acquisitions geographically over time. DESIGN, SETTING, AND PARTICIPANTS This cross-sectional study examined acquisitions of dermatology practices by PE-backed DMGs in the United States. Acquisition and investment data through May 31, 2018, were compiled using information from 5 financial databases. Transaction data were supplemented with publicly available information from 2 additional financial databases, 2 financial news outlets, and press releases from DMGs. All dermatology practices acquired by PE-backed DMGs were included. Acquisitions were verified to be dermatology practices that provided medical, surgical, and/or cosmetic clinical care. Private equity financing data were included when available. The addresses of clinics associated with acquired practices were mapped using spatial analytics software. MAIN OUTCOMES AND MEASURES The number and location of PE practice acquisitions over time were measured based on the date of deal closure, the geographic footprint of each DMG's acquisition, and the financing of each DMG. RESULTS Seventeen PE-backed DMGs acquired 184 practices between May 1, 2012, and May 22, 2018. These acquired practices accounted for an estimated 381 dermatology clinics as of mid-2018 (assessment period from May 1 to August 31). The total number of PE-owned dermatology clinics in the United States was substantially larger because these data did not reflect DMGs that opened new clinics (organic growth); acquisitions data represented only the ownership transfer of existing practices from physician to PE-backed DMG. Practice acquisitions increased each year, from 5 in 2012 to 59 in 2017. An additional 34 acquisitions took place from January 1 to May 31, 2018. The number of financing rounds to sustain transactions mirrored the aforementioned trends in practice acquisitions. Clinics associated with acquired practices spanned at least 30 states, with 138 of 381 clinics (36%) located in Texas and Florida. CONCLUSION AND RELEVANCE The study findings suggest that PE firms have a financial stake in an increasing number of dermatology practices throughout the United States. Further research is needed to assess whether and how PE-backed ownership influences clinical decision-making, health care expenditures, and patient outcomes.

Private Equity Acquisitions of Physician Medical Groups Across Specialties, 2013-2016

“…was not associated with better functional outcome. 1 Assessing treatment effectiveness in observational data is challenging because treatment decisions are based on patient characteristics that also are typically predictive of outcome, causing confounding by indication. Although the authors addressed this potential bias with propensity scores, we would like to emphasize the possibility of residual confounding.…”

Changes in dermatology practice characteristics in the United States from 2012 to 2017

“…Data on the sex and billing address of each dermatologist were extracted. Based on their billing address, the dermatologists were categorized into 1 of the following 4 (2)(3)(4)(5), medium (6-10) and large ( [10).…”

“…2,3 Dermatology practices have also sustained structural changes in the last decade with the increasing consolidation of practices through private equity acquisitions. 4,5 Dermatologists are increasingly being drawn toward working in large groups rather than starting their own practices. 6 Some concerns regarding the corporatization of medicine have been expressed, such as the perpetuation of disparities in the health care system.…”

JAMA Dermatology—The Year in Review, 2019

“…The journal also highlighted vital self-reflections for our specialty, such as antibiotic stewardship, 10 quality improvement, 11 the use of Mohs micrographic surgery for invasive melanoma, 12 and the rapid rise of private equity acquisition of dermatology practices. 13 Over the past year, there have been several transitions in editorial leadership: • Appointment of Adewole Adamson, MD, MPP, to the position of Associate Editor. He continues to serve as our Web Editor and JAMA Dermatology podcast host.…”