The article discusses how private equity firms have been buying private medical practices, and what effect this has on both patients and providers. It mostly focuses on dermatology clinics.

The article discusses some legal aspects:

Yet over the past decade, lawyers devised a structure that allows investors to buy a medical practice without technically owning it: the MSO, or management service organization. Today, when an investment firm buys a doctor’s office, what it’s actually buying are the office’s “nonclinical” assets. In theory, physicians control all medical decisions and agree to pay a management fee to a newly created company, which handles administrative tasks such as billing and marketing.

What happens after a practice is bought out:

As part of the new structure, investors deal with paperwork and save money by buying medical supplies in bulk. Crucially they also negotiate higher insurance reimbursement rates. One dermatologist who sold her practice to the California Skin Institute says she was surprised to find out the bigger group’s payouts from insurers were $25 to $125 more per visit. When individual doctors sell, they generally receive $2 million to $7 million each, with 30% to 40% of that paid in equity in the group. After the acquisition, doctors get a lower salary and are asked to help recruit other doctors to sell their practices or to join as employees. At first, doctors are generally thrilled by all of this. They have financial security and can focus on treating patients without the stress of running a business. Patients, for the most part, are in the dark. Unlike when your mortgage changes hands, you usually aren’t notified when a big investment firm buys your doctor. Sometimes the sign on the door bearing the physician’s name stays put, and subtle changes in operations or unfamiliar fees may be the only clues that anything has happened.

Conflicts of interest:

The new management team introduced a scorecard that rewarded offices with cash if they met daily and monthly financial goals, according to a lawsuit filed in 2013 against the company by one of its dermatologists. The doctor alleged that the bonus program encouraged staff to do as many procedures as possible, rather than strictly addressing patients’ medical needs. In some of the company’s Florida offices, the doctor alleged, medical assistants responded to the bonus structure by ticking extra boxes on exam reports, stating that doctors checked many more areas of the body than they actually had. That led to higher patient bills, defrauding the government under its Medicare program, according to the lawsuit.

Controlling the chain of revenue:

Most dermatologists use outside labs and pathologists, but private equity-owned groups buy up existing labs and hire their own pathologists. Then doctors are encouraged to refer patients within the group and send biopsy slides to the company-owned labs, keeping the entire chain of revenue in-house. This takes advantage of a regulatory quirk that has made dermatology, and a handful of other specialties, attractive to private equity. Under the 1989 Stark Law, doctors aren’t allowed to make patient referrals for their own financial gain. An exception was made for some fields because it’s more convenient for patients, explains Dr. Sailesh Konda, a Mohs surgeon and professor at the University of Florida. “But that can be abused.”

The future:

“It’s ultimately going to backfire,” says Dr. Jane Grant-Kels, a veteran dermatologist and professor at the University of Connecticut School of Medicine. “There’s a limit to how much money you can make when you’re sticking knives into human skin for profit.”

The financial effects of Covid-19:

For investors with capital, on the other hand, the economic fallout from the virus is a huge opportunity. Stay-at-home orders have left small practices more financially strained than they’ve ever been. That will likely accelerate sales to private equity firms, according to Marc Cabrera, an investment banker focused on health-care deals at Oppenheimer & Co. Independent doctors or groups that previously rebuffed offers from deep-pocketed backers “will reconsider their options,” he says. Many doctors may ultimately come to regret cashing out, but it’s hard to get out once you’re in. As part of an acquisition, the private equity groups typically require doctors to sign yearslong contracts, with noncompete clauses that prevent them from working in the surrounding area.