Trends in Private Equity Acquisition of Dermatology Practices in the United States

Abstract

Purpose: Private equity (PE) firms invest in dermatology management groups (DMGs), which are physician practice management firms that operate multiple clinics and often acquire smaller, physician-owned practices. The purpose of this study was to describe the historical and geographic scope of dermatology practice acquisitions by private equity (PE) firms. These trends are important to study because consolidation of dermatology practices as a result of PE investment may be associated with changes in practice management in the United States. Methods: This cross-sectional study examined acquisitions of dermatology practices by PE- backed DMGs in the United States. Acquisition and investment data through May 31, 2018, were compiled using information from 5 financial databases. Transaction data were supplemented with publicly available information from 2 additional financial databases, 2 financial news outlets, and press releases from DMGs. All dermatology practices acquired by PE-backed DMGs were included. Acquisitions were verified to be dermatology practices that provided medical, surgical, and/or cosmetic clinical care. Private equity financing data were included when available. The addresses of clinics associated with acquired practices were mapped using spatial analytics software. Results: Seventeen PE-backed DMGs acquired 184 practices between May1, 2012, and May 22, 2018. These acquired practices accounted for an estimated 381 dermatology clinics as of mid- 2018 (assessment period from May 1 to August 31). The total number of PE-owned dermatology clinics in the United States was substantially larger because these data did not reflect DMGs that opened new clinics (organic growth); acquisitions data represented only the ownership transfer of existing practices from physician to PE-backed DMG. Practice acquisitions increased each year, from 5 in 2012 to 59 in 2017. An additional 34 acquisitions took place from January 1 to May 31, 2018. The number of financing rounds to sustain transactions mirrored the aforementioned trends in practice acquisitions. Clinics associated with acquired practices spanned at least 30 states, with 138 of 381 clinics (36%) located in Texas and Florida. Conclusions: The study findings suggest that PE firms have a financial stake in an increasing number of dermatology practices throughout the United States. Further research is needed to assess whether and how PE-backed ownership influences clinical decision-making, health care expenditures, and patient outcomes.