Dermatologist dispels negative concerns about private equity
CHICAGO — In conducting research on private equity to help Suzanne Bruce, MD, decide how to transition her dermatology practice in Houston — to allow more time with her family and relieve the administrative burden of the practice — she discovered an overwhelming amount of negativity and vitriol.
“After weighing the pros and cons, I sold to a private equity-backed group,” said Bruce, founder and president of Suzanne Bruce and Associates in Houston. “It is led by dermatologists with a strong clinical and business background. The group’s culture and medical practice philosophy align with us, which make it the right fit.”
According to trends published in JAMA Dermatology, from 2012 to 2018 there were 17 private equity-backed dermatology management groups that acquired 184 practices, which accounted for 380 dermatology clinics as of mid-2018, Bruce said during the American Society for Dermatologic Surgery annual meeting.
Bruce said the advantages of practice consolidation to private equity are:
- economies of scale through shared back-office functions;
- the ability to negotiate more favorable reimbursement contracts with payers and vendors;
- more availability of capital for facilities, equipment and electronic medical records;
- relieves physicians of administrative burden; and
- reduces the financial risk for physician owners.
The concerns regarding private equity-owned practice include:
- loss of physician autonomy;
- nonphysician managers in key decision-making roles;
- potential conflicts of interest that may arise from profit-seeking behaviors;
- the overuse and inefficient supervision of mid-level managers; and
- the focus on short-term profits over long-term practice sustainability.
“I think to combat the loss of autonomy, you have to affiliate with a private equity firm [that] is led by dermatologists who keep our interests and the interests of our patients in the front and center,” Bruce said.
Moreover, less autonomy can also result in less financial risk and less administrative burden, she said.
“I’m ready at this stage of life to get on to different pursuits and other interests. I’m willing to have the trade-off of less autonomy for less responsibility,” Bruce said.
“Some say it’s difficult to mix private equity and optimal patient care, as the goals of each are conflicted,” she said. “Back in Houston, where I live, people who have sold to private equity used to be my residents, they practice high-quality dermatology. So, I don’t think there’s anything unethical going on there.”
Critics also say that private equity overuses those in physician extender roles.
“Again, I have the same attitude, I would never join a private equity group that was inappropriately using physician extenders,” she said. “There are people out there not doing it the right way. You don’t affiliate yourself with those kind of people. I would want to affiliate with someone who is putting the patient first. If they are led by dermatologists, you can look at what the private equity funding mechanism is and you can ask for a private equity buyout clause or a nonassignable clause, which limits your employers ability to sell your contract to another equity.”
She conducted an informal SurveyMonkey online poll of dermatologists who sold to a private equity firm. Eighteen of 20 respondents were happy with their experience and would sell again.
“They were pleased with the lack of administrative burden, less human resource headaches, the release of financial risk, the available IT support and training opportunities,” Bruce said. “The two dermatologists who were unhappy with their experience were unsatisfied with the lack of physician autonomy in decision-making, the red tape, and the loss of control over billing, hiring and firing.”
Bruce added that she tried to sell her practice to another dermatologist or dermatologist group but did not find the right fit. She could not find an interested party that supported equity going to her other physicians in the transaction.
“Rather than turn the lights out on my practice, I’m going to band together with other like-minded dermatologists who want to practice in a responsible, ethical manner and try to make the practice the best that it can be,” Bruce said. – by Abigail Sutton
Bruce S, et al. Private practice vs. private equity debate. Presented at: American Society for Dermatologic Surgery Annual Meeting; Oct. 24-27, 2019; Chicago.
Tan S, et al. JAMA Dermatol. 2019;doi:10.1001/jamadermatol.2019.1634.
Disclosure: Bruce reports she owns her own practice but has signed a letter of intent to sell to a private equity-backed group.