A recent article in The Dermatologist digital magazine disclosed a fascinating statistic: Nearly 20% of all the private equity acquisitions of health care practices since 2014 have been dermatology-related. Considering that dermatologists account for less than 1% of all specialty physicians, the number of acquisitions is truly astonishing.
That there is a trend toward consolidation in dermatology cannot be denied, but what’s behind the trend?
Administrative and regulatory burdens are hurting physicians
According to the Second Annual Practice Profitability Index report, 70% of all physicians spend at least one full day each work on paperwork and other administrative burdens—and nearly a fourth are spending more than 40% of their time on duties not directly related to patient care.
Not surprisingly, the number of doctors who choose to remain in independent practice is rapidly shrinking, as a result of decreasing reimbursement and increasing costs associated with running a medical practice. A report issued by Accenture in 2015 noted that the independent physicians had decreased from 57% in 2000 to just 37% in 2013; the report projected that fewer than one in three would be independent by the start of 2017.
As dermatologist W. Patrick Davey, M.D. observed in the article, “The administrative burden of trying to run a group practice today with increasing demands for documentation, electronic record keeping, and insurance carrier consolidation are all part of what’s making physicians sell.”
Economies of scale make consolidation attractive for dermatologists
When a dermatologist chooses to sell his or her practice, one of the chief advantages is the increased efficiencies and lower operating costs afforded by consolidated practices. Advanced Dermatology & Cosmetic Surgery (ADCS), the largest dermatology practice in the country, has acquired 157 practices since its inception in 1989. And its founder, Dr. Matt Leavitt, isn’t finished yet.
On the company’s website, a section devoted to “selling your practice” outlines some of the reasons consolidating a practice makes sense for small and solo dermatology groups:
- Higher compensation as a result of lower costs achieved by leveraging the buying power of a massive group—supplies, equipment, employee benefits.
- Better insurance reimbursement due to the bargaining power afforded a large provider group practice like ADCS.
- Access to state of the art diagnostic and treatment technology.
- Low cost access to working capital to grow your practice.
- More time to focus on patient care because the management and administrative burdens are handled at the corporate level.
The company even offers options to monetize a practice as a pathway to retirement, which is an increasingly popular choice with many solo and small practice providers discouraged by changes in the health care system.
Loss of control and independence remains a concern for dermatologists
It’s not all sunshine for dermatologists who choose to consolidate, however. Some doctors discover an unwelcome loss of autonomy in clinical decision-making, such as which patients can be referred for Mohs surgery or other specialized procedures. And decisions about compensation for both providers and staff can be made by committee at the corporate level, which may affect the flow of talent and ability to retain key staff in a small practice.
Download: Dermatology Practice Turn Around Case Study
Dr. Leavitt stresses that doctors who consolidate with ADCS retain full medical decision-making authority within their own practices, but that’s not always the case with other private equity acquisitions. Dermatologists exploring consolidation need to take a highly skeptical eye to any proposals to ensure that their interests and objectives are protected during the negotiation process.
If you’re a solo or small dermatology practice concerned about revenue, reimbursement, and shrinking bottom line, the dermatology billing experts at M-Scribe may be able to help you improve your practice financials. Contact us today for a free consultation.