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The Healthcare Investor Insights on Issues & Trends that Impact Investments in Healthcare & Life Science Businesses

Dermatology Spotlight Panel: 5 Key Points

Posted in Healthcare Services Investing

The next in our series of posts sharing key takeaways from panels at the Healthcare & Life Sciences Private Equity and Lending Conference focuses on opportunities for investment in dermatology. It is authored by our colleagues Tom Zahn and Chris DeGrande.

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Dermatology Spotlight Panel: 5 Key Points

By Tom Zahn and Chris DeGrande

Dermatology continues to be an area of strong interest for private equity investors, and both platform and add-on investments continued at a robust pace in 2017. This activity as well other trends in the field of dermatology were explored by experts who spoke on a panel at the McGuireWoods 15th Annual Healthcare and Life Sciences Private Equity & Finance Conference on Wednesday, February 21.

Experts included Dan Conroy, Chief Development Officer of United Dermatology Partners; J. Kyle Brown, Director of Brown, Gibbons, Lang & Company; Samarth Chandra, Partner at Enhanced Equity Funds; and Elizabeth Campbell, Principal at LLR Partners.

Five of the key topics discussed were as follows:

1. Dermatology remains highly fragmented relative to other fields, with roughly only 5% of the industry currently consolidated. During the last 12 months, there has been strong M&A activity for both platform practices and add-ons, and the panelists expect to see continued add-on growth. Many dermatology practices are becoming more sophisticated with regard to investment strategies, and so it is becoming more difficult for investors to differentiate themselves to dermatologists looking for investment partners.

2. The dermatology field is an attractive field due a variety of factors, including the fragmented nature of the industry and the field’s added retail element. In addition, the productivity level for dermatologists tends to be very high, and profitability can be further increased by owning lab/pathology services in addition to a dermatology practice.

3. Effective use of midlevel providers can be a key to increasing the success of a dermatology practice. It is still very important to use board certified dermatologists to drive the practice, but midlevels can be used to provide services so long as these services are appropriate. Practices should be aware that different states may require certain ratios of physicians to midlevels or may have additional supervision requirements.

4. While the panelists did not report a giant leap forward in negotiating favourable contract terms with payors (as a result of growing platforms obtaining more leverage), they did report minor successes in this area. The presence of larger, diversified practices has in many instances at least resulted in the prevention of cuts to reimbursement rates by payors, and in some cases resulted in minor rate increases as well. One key element is the increased ability of the personnel brought in by investors to better negotiate with these large payors, as these personnel are often professional individuals experienced in such negotiations.

5. Marketing is a major focus area for almost all dermatology practices. Online marketing is a key source to drive patient flow, and the use of online feedback surveys is useful to understand the success of the practice. Online marketing and scheduling can help to get a patient in quickly for his or her first visit in order to encourage the patient to come to the practice long term.

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