[copper_think]

What is the value that private equity and/or VC are adding to dermatology? I guess what I'm asking is, why would the physicians be interested in sharing some portion of their income with these non-physicians?

Medicine, like other guild professions like law, dentistry, and accounting, is an enterprise which seems to naturally fit the partnership model instead.

[Eridrus]

Medicine is a market for lemons, so reputation/brand is important. Many good doctors are full up on patients, but if they can convince you that an unknown doctor in their practice is just as good/under their supervision, they can pocket some of those gains.

This doesn't really require private equity, but PE is providing a way to get a lump sum for this to doctors, and milking that cash cow.

There is also a growing remote/virtual dermatology sector which can see gains from technology, but I doubt PE is involved.

[jedberg]

There is a strange bit about being a doctor or lawyer -- you aren't allowed to for a C corp for your own practice. However, if someone else forms the corp and you work for them, then you get all the protections of a C corp, as long as you don't own the majority share.

So one thing they add is legal protection.

[dctoedt]

> There is a strange bit about being a doctor or lawyer -- you aren't allowed to for a C corp for your own practice.

1. In at least some U.S. jurisdictions (and possibly all), lawyers' practices can indeed be set up as corporations; my former firm was an example. The individual lawyers in the firm are still personally liable for their own malpractice and for that of any junior attorneys and/or staff whom they supervise. The corporate form does protect them from personal liability for the office lease, etc., unless they've personally guaranteed the lease, which is not uncommon. (Don't know how it works for doctors but I assume it's similar.)

2. "C corp" is an income-tax classification; AFAIK it has nothing to do with non-tax liability.

[bmh100]

C Corp is a legal entity classification, along the lines of S Corp, LLC, partnership, and sole proprietorship. What might be confusing is that S corps can use pass-through taxation or retained earnings (C Corp) depending on what the owners choose. There are various forms of partnerships with different levels of liabilities to the partners: general partnership, limited partnership (LP), limited liability partnership (LLP), etc. Partnerships generally provide much less protection than a C Corp.

[chillydawg]

I'm sure there is insurance cheaper than 50% of all profit.

[pas]

2 docs +1 guy forms a corp with shares ratio 48-48-2, and done?

[lordnacho]

So find a doctor you trust from medical school, and you hire him for your C-Corp and he hires you for his?

[darawk]

The same thing they add to any other business: Better management, efficiency, etc..

I don't think any profession 'naturally fits the partnership model'. Some professions have simply managed to enshrine protectionism for themselves into law. There's precious little evidence that this is in any way beneficial for consumers and serves to do anything other than enrich the members of the professional guild at the expense of the public.

[sueders101]

The value add is an enthusiastic pursuit of profit. Ownership by a collection of doctors drives lower margins/profits than ownership by a private equity firm. Economies of scale can also help, but that’s not the driving reason behind PE acquisitions. There’s a degree of good faith/naïveté when medical providers and pharmacies bill insurance providers. PE firms can leverage this expectation and push for increased costs with little, if any, additional overhead.

[bradleyjg]

A kind of commitment device so that doctors can ensure their fellow doctors will act unethically without having to do the enforcement themselves.

[Havoc]

When you've got 10+ doctors sharing the same building & infrastructure etc then it starts looking more like a classic business. Accounts receivable department etc

[quizbiz]

Simple economics of scale. centralizing a highly effective management and financial instruments create a lot of value, often called a roll-up strategy. a company worth 1 merged with a company worth 1 is typically worth more than 2.

[maxerickson]

Apparently for younger doctors, access to patients.

That is, joining an existing practice is more immediately rewarding than trying to establish an independent one.

[ReallyAnonymous]

I am a general surgeon employed by a hospital system in the southeast.

PE / VC don't add anything other than trying to skim a profit off the top of medicine, like any other capitalist. Dermatology is a lucrative practice. They don't have to work in hospitals, so they set their own hours. VC/PE's are doing the long game - purchase a practice (dermatology / anesthesiology, orthopedics ) and reward the current partners who basically get to receive compensation for their future earnings. In return, the current partners accept a lower salary going forward. Lucrative with guaranteed $$$ for senior partners with a few years left to practice. For new partners not so much. And definitely not for new hires. The problem is that the cost of establishing a new practice is overwhelming. You can plant a stake as a new physician in a town, but then you have to rent an office / furnish it / equip it / and employ people without any guarantee that you will get patients.

Or, when you graduate with $300k debt, you take the job that pays you $200k / year guaranteed with no risk, but accept the fact that you will be earning less than you generate. And I'm sure there's a non compete clause (I have one).

What will happen, over time, however, is that less and less people will choose that subspecialty, just like what happened to pilots.

Of course, then the VC/PE will just close shop and walk away.

In general surgery, our reimbursements have been lower than any other surgical subspecialties for years, but our saving grace is that you really can't have a hospital without a surgeon. Here in SC, there are ZERO self employed general surgeons. 30% of what we do are urgent/emergent interventions, and tons of people here in SC have either medicaid or no insurance. When I became a hospital employee, my salary tripled. Before that, if I made > $150k that was a good year. And that's 80 hour work weeks.

Because that was typical around the nation, general surgery went from being one of the most competitive residencies to one of the least. My senior partner (10 years older) was top 5% of his class. I was top 25%. For about 5-10 years, all you needed to get a residency spot was to graduate from medical school. It's recently become more competitive, probably bc most of us are employed, boosting our salaries.

Hospitals make their money from the facility fees. I do all my surgeries in my hospital system's hospitals, not the competitor's hospital.

Dermatology is one of, if not the hardest, medical professions to match in, because for whatever reason, their reimbursements are high.

For example, if I do a laparoscopic appendectomy on an 80 year old, I get $623 (CPT 44970). They'll spend a couple of days in the hospital which is not chargeable by me bc 90 days of post op care is included in the fee.

A dermatologist that cuts off a 1.5 cm skin cancer in his office gets $251 to cut it off (CPT 11602) and $307 to close the wound (12032). No nights / weekends / and pretty stressless procedure (to me).

Anyway, VC/PE want some of that revenue

[sizzle]

So is it usually the case that whenever you see a group run medical practice, in comparison to a solo practice, that the facilities are managed by some sort of larger VC/PE group, assuming they are a private,for-profit organization rather than a hospital owned by the city or local university?

The business side of healthcare is fascinating and somewhat terrifying once you follow the money and see how this correlates to positive patient outcomes. I hope more researchers are willing to study this phenomenon without fear of losing career prospects.

[ReallyAnonymous]

no. Some are a conglomeration of private practices that joined to better negotiate with insurance companies, some are owned by other entities, some are independent. My group was self employed up until 5 years ago, but no insurance company would talk to us to give us a raise because they said we were so small (and wouldn't drop from being a provider). They didn't look to see that we didn't own a lab, a CT scanner, a surgery center, etc... They just knew we had no leverage. Now, my colleagues that remain independent say that insurance companies ask them what can we do to keep you independent? b/c when a hospital owns all the physicians in a county, they pretty much get the upper hand in the negotiations.

Basically, it's a bunch of business people making maneuvers to try and extract as much money from the system as possible, which is why it's >$30k / year to insure a family in the USA. This makes small businesses unable to compete against companies located in socialized medicine countries, in my opinion. It also makes it impossible to compete against a business that does not offer insurance to their employees.

Eventually, we'll go single payer, bc it cannot continue at this rate.

PS - Any non profit organization has to publish their tax returns. Search Form 990 and the non profit name to pull it up. All non profits have to publish the top 20 earners - some will be administrators and others will be physicians.

[cryoshon]

you should write a more extensive article on this, you explain it extremely clearly and the public's respect for your profession will mean that people will listen.

[adrian_mrd]

Thanks for sharing this. It was a great appendum to the article and useful to understand the practicalities of how some surgeries/appointments in the USA medical system are funded (and how some medical practices/clinics are private equitied).