Consequences and Outcomes of Consolidation in Dermatology Driven by Private Investors

Consolidation is happening all throughout the healthcare industry in the United States, but the shift to consolidation in dermatology began to pick up speed in just the last 3 to 5 years and it has been driven by private investors, according to a new Viewpoint in JAMA Dermatology.

Author Jack S. Resneck Jr, MD, of the University of California San Francisco School of Medicine, explained that as of 2014, approximately three-fourths of dermatologists remained in solo practices or single-specialty groups, but that dermatologists accounted for 15% of recent practice acquisitions by private equity (PE) firms.

“Several factors draw external investors to dermatology, including high patient demand, an ongoing skin cancer epidemic, an aging population, the shortage of dermatologists, expanded insurance coverage, and perceived opportunities to expand cosmetic services, add nonphysician clinicians, and profit from internal redirection of ancillary laboratory services or procedural referrals,” Resneck wrote.

He is concerned about irreversible risks that may occur as independent practices are replaced by “investor-owned conglomerates.” For instance, a lack of diversity of practice venues for dermatologists and patients to choose from in the future, or a loss of autonomy for dermatologists working in these purchased practices.

Other concerns include the PE firms seeking to increase profitability by relying more heavily on physician assistants in unsupervised satellite sites, and redirecting surgery referrals to employees in the consolidated group instead of allowing the dermatologists to choose the best option for the patient.

The dermatologists at these practices may run afoul of legal and regulatory compliance issues. Some of these methods that are used to improve profitability may carry risks of Stark law noncompliance, False Claims Act exposure, and malpractice litigation, Resneck noted.

He then called upon individual, independent practices that still remain to really weigh the costs and benefits for themselves and their patients before choosing to sell.

“I hope that the specialty will proactively consider this rapidly evolving landscape while there is still time to have some influence, or we may soon wake up to a radically different specialty that we had not paused to contemplate,” Resneck concluded.