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    Is venture capital the future of dermatology?

    Dr. DraelosThe Affordable Care Act (ACA) has changed the organizational structure of medicine tremendously. I attended a meeting of the American Medical Association as vice-president of the American Academy of Dermatology in 2012 and asked the head of the Centers for Medicare and Medicaid Services what the governmental vision was for private practice under the ACA. Her response: it was no longer a financially and organizationally viable model. I was surprised. The majority of dermatologists at that time were in private practice.

    In the past five years, her vision has become reality. With rising overhead and time-consuming reporting requirements, economies of scale have become necessary, encouraging physicians to organize into larger group structures. Many of these larger group structures are hospital based, however dermatology has always treated outside-of-the-body disease and remained outside of the hospital, for the most part.

    This has necessitated the formation of hospital independent groups, many of which are rather creative business structures.

    One emerging model is the purchase of private dermatology offices by venture capital-funded groups who combine practices under one organization; therefore, centralizing billing, managerial staff, purchasing, web-based appointments, electronic medical records, advertising, etc. This allows the realization of economies of scale and the individual dermatologist to receive some monetary value for a practice that might be otherwise impossible to sell as private practice diminishes.

    Dermatologists nearing retirement might find this a good option. My concern is that venture capital-owned large dermatology groups are commoditizing our specialty and taking control of the future of dermatology out of the hands of the dermatologist.

    Venture capitalists have a singular goal: to make money. This money must be made on a short timeline, usually a five-year cycle. The purchase and sale of entities by venture capitalists is governed by economic forces, which may be highly unpredictable and irrational. If one venture goes south, sale of a profitable venture is necessary to raise money for other entrepreneurial endeavors or to cash out share holders. Smaller venture capitalists typically sell to larger venture capitalists, increasing consolidation.

    Currently, there are a number of venture capital-funded groups purchasing dermatology practices regionally in the eastern, western, and southern United States, which might be expected to merge in the future. This shifts control of dermatology from physicians to business entities, representing a dramatic philosophical change. The goal of improving the health of those suffering from skin disease now morphs into making money for investors.

    Another interesting business corollary emerging is the purchase of dermatology practices by venture capital or investor-funded medspas. These medspas may be located in malls, hotel lobbies, department stores, or free-standing facilities. They provide massages, facials, manicures, hair treatments, laser hair removal, aesthetic injectables, and skincare product sales. They now wish to provide medical and surgical dermatology procedures by purchasing practices close to an existing medspa and physically relocating the practice within the medspa facility. Dermatologists are encouraged to join medspas because they offer the opportunity to “treat a high volume of patients in world-class, conveniently located facilities, with state-of-the-art technology, significant investment in infrastructure (people, systems, and capital), and an attractive earnings opportunity that affords a balanced quality of life.” This quote, taken from a medspa promotional letter, mentions everything except for the reason that compelled me to become a dermatologist. I became a dermatologist because I wanted to decrease the suffering of people with skin disease.

    Considering the ideas presented in this discussion, we now need to determine if venture capital represents the future of dermatology. Certainly, venture capital has already purchased many dermatology practices and is gaining popularity, so it is already part of the future of dermatology. This cannot be denied.

    However, the question remains as to how dermatologists will retain control of their humanitarian aspirations amid a profit driven business model. It also remains to be determined how dermatologic medical science will mesh with a nontraditional practice environment. Can you do Mohs surgery next door to a room for massages?

    Dermatologists will certainly need to give careful consideration to practice models as we shape our specialty for the future. I have always thought money and medicine, like oil and vinegar, do not mix. We are now challenged to mix money and our specialty. What will be the outcome? We will have the answer in another five years. 

    Zoe Diana Draelos, M.D.
    Zoe Diana Draelos, M.D., is a consulting professor of dermatology, Duke University School of Medicine, Durham, N.C. She is investigator, ...


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    • Anonymous
      One of the major factors in the growth of these venture capital groups is the massive student debt of those coming out of the programs. They are not able to start their own practices or purchase the practices of those nearing retirement. Another factor is that most of the programs teach little to no business skills. The local hot dog vendor has more business knowledge. The derm programs should start giving the residents some business survival skills to help eliminate their fears of going into their own practices. There is hope because there still is a shortage of dermatologists. Many will not like practicing medicine in this new environment and will choose the doctor-patient relationship over working for corporate America's bottom line. Also many of the venture capital firms are highly leveraged and some may not survive leaving some of the retiring dermatologists high and dry on the sale of their practices to these venture capital groups. Dermatologists with some entrepreneurship and business training can easily compete with venture capital firms. It is up to the derm programs to also train them for private practice in business also. Young dermatologists must remember that dermatologists have the license to treat patients, not the MBAs.
    • [email protected]
      What we see happening in the world of dermatology is consolidation by Private Equity not Venture Capital. Venture Capital firms are seeking startup situations that are high risk but offer a very high return on investment. Private Equity firms are seeking to acquire and/or consolidate profitable/mature businesses (or medical practices) that are more low risk and through consolidation increase profit margins with the efficiency of the larger entity. Some of which was identified in the article such as centralized billing, management oversight, advertising, etc. Also, it just may be that the cosmetic side of dermatology is enticing these investment groups. It seems that, more and more dermatologists, coming out of their residencies are not seeking to take a position with a larger group and not take on the risk of opening a medical practice. Consolidation offers many physicians this opportunity to leverage their medical degree without having to put their dollars on the line. Making money is the goal of a business but with increased competition it is essential to provide the highest level of customer service, quality of care and safety to successfully remain in business. Applying larger business support, training, and customer-centric methods should actually raise the bar in the world of Dermatology. Francis X Acunzo CEO Acara Partners

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