What’s with the rash of private equity in dermatology practices these days?

There has been a 12-fold spike of private equity firms owning dermatology companies from 2012 to 2017.

According to a new op-ed from Joshua Sharfstein, former FDA deputy commissioner, more than 700 dermatology practices are now owned by private equity — a 12x increase from 2012 to 2017.

What’s with the rash of private equity in dermatology practices these days?

Per Axios, private equity providers have always gravitated toward more urgent health care — like ambulances — but skincare is wildly lucrative in its own right, and health care experts fear the PE derma-blitz could lance the growth of the industry in the long term.

Private equity: warts and all

The rise of these investments raises a lot of eyebrows over what a private equity firm’s grow-at-all-cost mentality will do to the dermatology industry  — and the crater-sized blemishes that PE takeovers often form for companies once they sell.

Many financial observers tracked the Toys ‘R’ Us saga, and, ultimately, its demise, to the 2005 takeover of private equity firms — which generated large fees for the new owners while they slashed staff and reduced employee benefits.

Then there’s the unnecessary growth 

According to Sharfstein, private equity firms generally aim for a lofty 20% return rate each year, which often involves a stop-at-nothing effort to increase revenues.

But you gotta spend money to make money — and that’s exactly what forced Toys ‘R’ Us to take on billions in debt.

But, on the other side of the pimple…

The skin care industry’s fiscal complexion has gotten even better over the years, and some dermatologists are loving the new attention.

Buyouts are always enticing to a business owner. And private equity generally includes upfront payments (usually around $1m per physician working at the practice) — and money always pocks — er, talks…

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