What Does the Rise of Private Equity-Backed Dermatology Clinics Mean for the Future of Dermatology?

Private equity (PE) firms are scooping up dermatology practices at alarming rates, raising concerns about their business strategies, according to a study recently published in JAMA Dermatology.

Researchers from Harvard Medical School identified 381 dermatology clinics that had been acquired by PE firms. PE firms are limited partners, typically endowments, pension funds, and high–net worth people, who are interested in generating returns on their investments. More and more PE firms are seeking a stake in dermatology, and the number of PE-backed practices grew an average of 65 percent a year from 2012 to 2017, with a compound rate of 50.9 percent. 

PE firms experience enormous financial benefit from investing in dermatology practices. They’re able to save on major costs by consolidating practices and implementing structures where multiple practices share operational systems, such as marketing, billing, inventory management, and information technology. These PE-backed clinics also have the ability to offer below-market prices on services and can arrange for better reimbursement contracts with payers.

PE-funded clinics are having a slow but drastic effect on dermatology practices across the country. Today, there are fewer dermatologists running their own clinic than a decade ago. Those solo practices are usually run by physicians, whereas PE-funded clinics have non-physician directors who are making serious administrative decisions. Dermatologists are worried that this shift in ownership takes away from their autonomy and creates conflicts of interest from profit-seeking backers, since PE firms are required to generate investor returns. PE-backed practices also employ higher numbers of physician assistants and nurse practitioners who haven’t undergone the same level of training as a board-certified dermatologist.