In the two years after a private equity firm bought them, charges per insurance claim at 578 dermatology, gastroenterology and ophthalmology practices rose by an average of $71, or 20.2%, relative to similar practices that stayed independent. Those practices also saw 25.8% more unique patients. That is the central result of a study of private equity acquisitions of dermatology, gastroenterology and ophthalmology practices published in JAMA Health Forum in September 2022.

Two cautions first. The paper is four years old. And it is about insured medical practices, not med spas. We found no comparable study of private equity ownership in cash-pay aesthetics in the sources we read, which is the reason an older paper about neighboring specialties is still worth an owner's time.

Who did it and how

The authors are Yashaswini Singh, Zirui Song, Daniel Polsky, Joseph D. Bruch and Jane M. Zhu. They identified practices acquired by private equity firms from 2016 to 2020 using the PitchBook deal database, checked against and added to from press releases, industry reports and practice websites, and linked the physicians at those practices to commercial insurance claims held by FAIR Health for 2015 through 2020. We read the full open-access text.

It is a difference-in-differences study, which compares the change at acquired practices with the change at matched practices that were not acquired, so that a trend affecting everyone is not counted as an effect of the deal. Each acquired practice was matched with up to five independent practices in the same specialty, 2,874 controls in all, and followed from one year before acquisition to two years after.

Physicians were held constant: the sample was limited to doctors at the same practice site in both 2016 and 2019.

What changed after the deal

Charges per claim rose $71 more at acquired practices than at controls. The allowed amount per claim, an imputed figure the paper uses as its measure of the price paid, rose $23, or 11.0%.

Unique patients rose 25.8%, an increase the authors say was driven by new-patient visits, which climbed 37.9%. Total encounters rose 16.3%. A 37.1% rise in evaluation-and-management visits was not statistically significant, meaning the data could not rule out chance.

Coding shifted too. The share of established-patient office visits billed as longer than 30 minutes rose 9.4%, while the patients' measured risk scores did not change significantly.

Dermatology did not behave exactly like the other two. All three specialties saw more patients and higher charges, the authors write, but the allowed amount per claim increased for ophthalmology and gastroenterology and not for dermatology. Within dermatology, volume and spending rose for office visits and pathology services but not for biopsy procedures.

What the authors say it cannot show

The paper is frank that it cannot explain its own price result. Higher allowed amounts "could be explained by service mix changing toward higher-priced services; changes in billing practices, including more efficient charge capture or intensive coding; or higher negotiated prices for each service," the authors write, and their data could not separate the three.

Volume has the same problem. Because the physicians were the same before and after, the authors think new physician hires are an unlikely cause. They suggest management changes such as longer hours, branding and advertising or wider referral networks, and they also raise the possibility of overuse of profitable services. They could not count nurse practitioners and other advanced practitioners, who often bill under a supervising physician, so added staff of that kind may account for some of the growth.

Other limits are listed plainly. Some acquisitions may have been missed, the physician-practice data may contain sampling or measurement error, acquired practices may differ from independent ones in unobserved ways, and follow-up ran only eight quarters. Some specialty-level estimates, which would include the dermatology results above, may be short on statistical power because fewer acquisitions sit behind each one, and the claims data were aggregated in a way that ruled out service-level analysis. The claims are commercial insurance only, so the findings "may not be generalizable to other payers." Quality of care and patient satisfaction are left as questions for future research.

What it means for an aesthetics owner

The study stops there. What follows is our analysis, and none of it should be read as a finding about med spas.

An insurance claim has a charge and an allowed amount. A cash-pay toxin or filler visit has neither, so the 20.2% and 11.0% figures have no direct equivalent in a practice that sets its own price list.

Volume travels a little better, as a hypothesis. The explanations the authors offer for 37.9% more new-patient visits with the same doctors include operational ones: hours, marketing, referrals, and possibly more non-physician providers. A buyer of an aesthetics practice has those levers too. If you are weighing an offer, it is reasonable to ask which of them the growth plan depends on, and who will be treating the added patients and supervising the people who do.

Sources

  • Singh Y, Song Z, Polsky D, Bruch JD, Zhu JM. "Association of Private Equity Acquisition of Physician Practices With Changes in Health Care Spending and Utilization." JAMA Health Forum 2022;3(9):e222886. doi:10.1001/jamahealthforum.2022.2886: https://pmc.ncbi.nlm.nih.gov/articles/PMC9440392/