Study finds little impact of private equity on dermatology practices

Modest price increases

The authors analyzed data from the Health Care Cost Institute, which aggregates claims for some 50 million individuals insured by Aetna, Humana, and United Healthcare. The data do not include Medicare claims.

They examined dermatologists in practices bought between 2013 and 2016 and compared them to dermatologists who were in practices not owned by private equity. Each dermatologist had to have at least 2 years of data, and the authors compared preacquisition with postacquisition data for those in PE-owned practices.

They identified 64 practices – with 246 dermatologists – bought by private investors. Preacquisition, PE practices were larger than non-PE practices, with 4.2 clinicians (including advanced practitioners) per practice, compared with 1.7 in non–investor-owned practices.

The authors looked at volume and prices for routine office visits (CPT code 99213), biopsies (11101), excisions (11602), destruction of first lesion (cryotherapy; 17000), and Mohs micrographic surgery (17311).

Prices for a routine office visit rose nominally in the first quarter after acquisition (under $1), stayed at 0 in the second quarter, decreased in the third quarter, and was 0 again in the fourth quarter. It was not until the fifth quarter post acquisition that prices rose, increasing by 3% ($2.26), and then rising 5% ($3.20) in the ninth quarter.

Dr. Braun said the price increases make sense because practices get “rolled up” into larger platforms, theoretically giving them more negotiating leverage with insurers. And he said the paper’s results “are consistent with physician practice consolidation research – mainly hospitals acquiring practices – that prices increase after acquisition.” He acknowledged that the dermatology paper found “more modest effects,” than other studies.

Dr. Francis, however, said the increases are basically “pocket change,” and that they reflect a failed promise from private investors that clinicians in PE-owned practices will be paid more. The small differences in pay may also mean that insurers are likely not acquiescing to the theoretical leverage of larger dermatology entities.

PE-owned dermatologists saw about 5% more patients per quarter initially, rising to 17% more per quarter by eight quarters after purchase, according to the study.

The study reported a significant increase in Mohs surgery and cryotherapy in the first quarter post purchase, and a significant increase in biopsies after eight quarters. But Dr. Braun and colleagues concluded that total spending per patient did not change significantly after acquisition. “That says that maybe physicians aren’t changing their behaviors that much,” Dr. Braun said in an interview.

Dr. Perlis disagreed, noting that practices rarely change quickly. “Anecdotally, most groups that are taken over, nothing changes initially,” while the new owners are getting a feel for the practice.

He also said the paper erred in not addressing quality of and access to care. “Quality and patient satisfaction and access are also other important factors that need to be examined.”

Not benign players

Both Dr. Perlis and Dr. Francis said the study may have been improved by having a dermatologist as a coauthor. Dr. Braun countered that he and his colleagues consulted several dermatologists during the course of the study, and that they also conducted 30 interviews with proponents and opponents of PE ownership.

The authors warned of what they viewed as some disturbing trends in PE-owned practices, including what Dr. Braun called “stealth” consolidation – investors making small purchases that fall outside of federal regulation, and then amassing them into large entities.

He also commented that it was “alarming” that PE-owned practices were hiring a larger number of advanced practitioners. The authors also expressed concern about leveraged buyouts, in which investors require a practice to carry high debt loads that can eventually drive it into bankruptcy.

“These are not benign players,” said Dr. Francis. He noted that it took “an act of Congress to stop surprise billing,” a tactic employed by PE-owned health care entities. “Policy makers should be looking at what’s best for patients, especially Medicare and vulnerable patients.”

Dr. Perlis also has qualms about PE-owned practices. “The money to support returns to investors has to come from somewhere and that creates an inherent tension between patient care and optimizing revenue for investors,” he said. “It’s a pretty head-on conflict.”