Healthcare providers are attractive to private equity 1) because of stable, non-cyclical cash flow, 2) benefits to scale (ie better negotiating leverage with payers), 3) ability to easily increase revenue at small clinics by "optimizing" billing (ie use more lucrative codes for the same procedure) and practice management (optimizing procedure mix and scheduling) and 4) regulatory protection -- local monopolies enjoy durable economic advantages and often are politically entrenched as healthcare providers are major employers
These factors aren't limited to private equity backed healthcare, though. Even non-profits take advantage of these things (sutter health in the bay area is an example). If you're looking for why US healthcare is so expensive, this isn't a bad place to start
The issue was a lot of private equity folks realized that you could just get in the market and if you didn't get enough rides... you just cranked up the price and went after individuals who where hardly in a position to shop around when they needed the ride.
Now there is an excess of medical helicopters, solution? Crank up the price...
Plus ça change...
Edit - here it is:
Now I can buy a clinic and pressure all the doctors through an incentive scheme that they are not used to, and get them all to nudge the borderline cases into must-act cases. And chances are each individual case is somewhat defensible, and the doctor is still an authority. It's perfect, the doctors are not even going to admit their bias. But as a whole, a lot of people will be on treatments that they wouldn't have been on.
I think what you've described is really the US healthcare system as a whole.
I really don't understand why this isn't more of a focus of discussion. The US healthcare system is so monopolized, and so lacking in competition and transparency, it's obvious why healthcare costs are skyrocketing.
I understand the outrage over this story, but I don't understand why it might be surprising to some. So much of the US healthcare system is driven by similar incentives, especially at private, for-profit hospitals (and even at nonprofit public hospitals).
Think about it this way. Take some fundamental human need. Now legislate and structure society so only a relatively tiny number of people with a specific certificate, based on program completion, not skills demonstration per se, can supply that need. Go even further and structure the regulation of that certification by people who already have the certificate, under the argument that they are the only ones who are in a position to judge it. Now reinforce the whole thing by FUD arguments that any other approach will lead to catastrophe, illness, and death.
What do you think is going to happen?
Almost everything about the US healthcare system is characterized by rent-seeking, monopolies, or power structures and lack of transparency. It's begging for corruption. If you wanted to design an economic sector so as to drive up costs, you'd end up with something that looks basically like US healthcare.
A socialized healthcare system is actually truer to a functioning free market than what we currently have. By negotiating prices and treatment ahead of time (albeit collectively), both sides of the transaction have the ability to make informed decisions. Whereas in our current system prices are (at best!) negotiated by a sick person while they're over a barrel, and in most cases not even negotiated just let ride on the roulette wheel of health "insurance".
An open market (transparent, competitive, and payer-indifferent prices) could be even better, especially for more elective less time sensitive procedures like dermatology. But that's a long ways away from how things currently are, and in the opposite direction of how they're moving.
Academia isn’t built to cope with well funded adversaries. Journalists handle the heat much better, at least the NYT got hold of it.
https://www.nytimes.com/2014/01/05/business/media/banished-f...
Archived at https://archive.fo/v5b1x
I'm sure even the NY Times has its limits and so do the likes of al Jazeera and the BBC.
Another question: Could Intel or nVidia or Microsoft or Facebook do something similar for tech journalists?
Medicine, like other guild professions like law, dentistry, and accounting, is an enterprise which seems to naturally fit the partnership model instead.
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.
So one thing they add is legal protection.
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.
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.
That is, joining an existing practice is more immediately rewarding than trying to establish an independent one.
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
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.
Everything came back pretty much normal.
We were sent to this fern after a friend went there. He also had an excision. Also under 30.
Now, we feel pretty much like we were played. Maybe this is relevant to this issue.
I'm sure that this area of medicine has been selected by equity firms because of the prevalence of cosmetic-related procedures that are inherently high-margin in this field. But there is so much money being sucked into this sector of the economy that this will encompass other types of medicine. The other area that seems to be active now is hospice care - the large insurer Anthem just bought a large palliative care provider this year. How this is not playing both sides of the trade kind of escapes me.
The whole health care sector is starting to resemble the payday loan market on a vast scale and with even less regulation. And with 2 profit-seeking players interested in shaking down the consumer in every transaction, not just one. Or, one player pretending to be two players for maximum profit.
Telecoms, computers, retailing, everything is trending towards a handful of big players with enough vertical integration to be able to survive. Initially, this is could be good for consumers as the cost savings of economies of scale might be passed on to them, but we will pay for it at the end when there is only 2 vendors to choose from and they dictate the price.
No physician wants to be the one who says - don't worry about that -
having said that, if a dr recommends excision, and you're hesitant, get a second opinion.
but I also think that dermatologists see and biopsy so many lesions, that after a while, they should be able to be very selective in what they biopsy.
Fight vc money with vc money basically.
We have been and should continue pushing for better alternatives. ACOs [2] and integrated managed care [3] are promising possibilities and there are assuredly others.
[1]: https://en.wikipedia.org/wiki/Fee-for-service
[2]: https://en.wikipedia.org/wiki/Accountable_care_organization
The proposed changes to Medicare reimbursement - which essentially pays the same for an office visit regardless of complexity - seems to be also pushing that way.
Speaking only from personal perspective, helping complex patients is incredibly rewarding and I would absolutely hate for the system to steer the specialty away from that.
https://old.reddit.com/r/medicine/comments/9rpajq/dermatolog...
Copy of the starter comment by OP there:
> Starter comment: NYTimes discusses an article that details Venture Capital buying dermatology practices that do an unusually high proportion of high dollar procedures. The article made it through peer review and was posted as an article in press. It was suddenly pulled. The AAD’s incoming president works for an VC Owners clinic and sits on their board. Lawyers for one firm called lead authors institution to demand changes. This is a huge assault on academic freedom. More so than any nonsense from Washington. Coming on the heels of AAD telling multiple people incorrectly that they failed the board exam over the past few years, this is another major scandal that could result huge changes. Or retaliation.
From another comment there that is a tl;dr of some the problem:
> VC involvement in derm practices is a huge, huge issue. One of the bigger practices in town recently was bought by a VC firm, and, lo and behold, all their borderline melanomas now, after being read by their "new" pathologist, need re-resections to get more ti$$ue. I no longer refer to them. Don't even get me started on electronic brachytherapy.
> This week a lawyer for Advanced Dermatology and Cosmetic Surgery, which is backed by private equity and is the largest dermatology practice in the United States, called the general counsel at the University of Florida, where two of the authors are employed, demanding specific changes to the paper.
I'm disgusted by these high-powered law firms using thuggish tactics to try to silence critics. I have no problem with these lawyers responding to the article, in public, after it is published, but using the threat of expensive litigation to shut people up is just gross and morally bankrupt.
It seems to me that many technology firms copy-and-paste the soul of EULAs to protect themselves (against the worse cases that may arise) with little thought about the effect these long list of restrictions cause. It often seems it cascaded from Microsoft's use of EULAs from Windows 95, Office 95 and onwards, because it was the norm to consumers in that 'monopoly' environment.
The role of lawyers in suppressing ideas, choices and debate - be it in healthcare (the USA dermatology sector as per the OP article) or in technology - the Hacker News set - warrants further debate.
Especially if ethics are to play a greater role in the future of technology - as seems to be the general consensus of forward-thinking governments and progressive technologists.
These EULAs are the equivalent of warning labels on soda bottles that loosely read "Warning: Contents under pressure, don't point at your eyes"... who is that written for? We laugh and call it unnecessary, but that warning exists because there is precedent that must now be defended against.
When those ludicrous cases are widely used as a means of attack or personal enrichment, of course corporations will respond with excessive legal restrictions. Their shareholders don't want to lose money to frivolous lawsuits or be exposed to risks competitors have covered.
The comedy option is to print it out, cross out and initial each clause you disagree with, sign it, and mail it to them certified with a letter saying you agree under these terms please write back if they don't agree.
This actually works with all contracts of adhesion, but you will get a lot of confused looks from the flunkies.
Giving overly generous Yelp reviews is fine, who cares? Publishing "generous" science as fact is morally wrong.
The actions of Boies law firm, as documented in the book, are particularly egregious. Worse still is that Boies himself has a track record of being super tech savvy; he’s litigated against Microsoft and Google. As he was a board member at Theranos, it stretches credulity that he wasn’t more aware of the deception. Paid in equity too, how is that not a conflict of interest? How is it even legal?
But there should be some ethics about helping clients with a lot of money bullying people with no money. Reading about the way Theranos abused whistleblowers with the help of lawyers was infuriating. The little guy simply has no chance against this unless you are willing to risk everything.
However, here it was not a scientist calling the authors, but a lawyer calling the general counsel. This is a clear hint that the call was not about correcting an error in the paper, but about bullying them and preventing the public from reading what the authors have to say.
It might not even be to try to get changes made, it might have its value in researchers thinking about how irritating and time consuming and possibly stressful it is to speak up next time.
It's not the lawyers so much as the private equity folks who hired them. Asking lawyers to forego business on [subjective] moral grounds is similar to doing so for engineers - like recent refusals to work on government projects. Some will, some won't.
