‘Get that money!’ Dermatologist says patient care suffered after private equity-backed firm bought her practice
A former doctor at a private equity-owned dermatology chain alleges lost biopsies, overbooking and questionable quality control in the company-owned lab.
The email to the health care workers was like something out of “The Wolf of Wall Street.” “We are in the last few days of the month and are only 217 appointments away from meeting our budget,” the August 2020 memo stated. “Don’t forget the August bonus incentive for all patients scheduled in August! That’s the easiest money you can make. Get that money!!”
The “Get that money!!” entreaty wasn’t addressed to a bunch of hard-charging, coke-snorting stockbrokers. It went to Michigan-based employees of Pinnacle Dermatology, a private equity-owned group of 90 dermatology practices across America.
The memo was shared with NBC News by a former Pinnacle employee, Dr. Allison Brown, a board-certified dermatologist and dermatopathologist. Brown says Pinnacle terminated her shortly after she advised management of questionable practices that she contends were hurting patients.
Among the practices Brown alleges: overlooked diagnoses, lost patient biopsies, questionable quality control in the company-owned lab and overbooking of patients without sufficient support staff.
Physicians have a duty to put their patients’ interests first. But when aggressive financiers take over medical operations, the push for profits can take precedence, doctors in an array of specialties have told NBC News. Paying bonuses for increased patient visits may result in unnecessary appointments and costs, for example.
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Among the most aggressive health care financiers in the market today are private equity firms. The new titans of finance, these firms have taken over broad swaths of U.S. industry in recent years. Using large amounts of debt to finance their acquisitions, private equity firms acquire companies, aim to increase their profits and then try to resell them a few years later for more than they paid.
Outside investors, such as public pension funds and endowments, commit big money to the deals in hope of generating high returns.
Private equity is reshaping the health care industry, practitioners, economists and academic researchers contend. Private equity funds dedicated solely to health care operations have been especially busy, raising $350 billion from investors over the past decade, according to Preqin, a private equity data source. Last year, almost $50 billion was raised from investors for health care buyouts, up from $8 billion in 2010.
A focal point in such takeovers has been physician-owned dermatology practices, a highly fragmented sector of small operations that private equity firms have considered ripe for consolidation over the past decade. Just before the pandemic, researchers counted more than 30 private equity-backed dermatology groups in the country and said about 15 percent of dermatology practices were private equity-owned. The number has probably grown, the researchers say.
Private equity firms contend that they create jobs, support businesses and help provide comfortable retirements for pensioners invested in the strategy. But many outside the industry are especially critical of the industry’s involvement in health care. One private equity-owned hospital staffing company, for example, was behind many of the surprise emergency department bills that outraged hospital patients and resulted in a new law to curb the practices. It takes effect next month.
“The private equity business model is fundamentally incompatible with sound health care that serves patients,” concluded a paper in May co-authored by Richard M. Scheffler, professor of health economics and public policy at the University of California, Berkeley; Laura M. Alexander, the vice president of policy at the American Antitrust Institute, a nonprofit organization; and James R. Godwin, a Ph.D. candidate at the UCLA Fielding School of Public Health.
The researchers found that private equity’s focus on short-term profits “leads to pressure to prioritize revenue over quality of care, to overburden health-care companies with debt, strip their assets, and put them at risk of long-term failure, and to engage in anticompetitive and unethical billing practices.”
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In addition, economists and practitioners who have studied private equity-backed health care entities say they often try to increase revenue by providing services typically outsourced to third parties. For example, many dermatology practices backed by private equity acquire their own labs to analyze specimens. They can be a source of additional revenue, research shows, and may provide incentives for the practices to run extra tests, presenting possible conflicts of interest.
Pinnacle Dermatology, which is based in Brentwood, Tennessee, and operates in 11 states, has been buying small physician-owned practices and outpatient services.
Dr. Jose Rios, Pinnacle’s president and chief medical officer, provided the following statement: “Our top priorities are always patient safety and clinical quality. Pinnacle Dermatology’s compliance and quality assurance programs lead the industry. We are proud of our track record, our high levels of patient satisfaction and the equally high patient loyalty that results and will continue to provide valuable dermatological care at the highest possible levels.”
Backing Pinnacle is Chicago Pacific Capital, a private equity firm founded in 2014. The firm “invests in companies that it believes are positioned to lead innovations in health-care delivery and in caring for aging populations,” a regulatory filing says. Chicago Pacific had $1.8 billion under management, including borrowings, as of December 2020.
Chicago Pacific didn’t respond to a phone call and a detailed email seeking comment about Pinnacle.
Brown, the former Pinnacle physician, who has also taught dermatology at two medical schools, said she decided to share her experience at the company out of concern for patient safety. “I worked in an office that was physician-owned until the physician passed away and we were bought out,” Brown said. “I experienced from the inside what happened to the practice” after private equity arrived.
Among the changes Brown said she saw after Pinnacle took over were an increase in patient biopsies that got lost and a drop in the quality and number of instruments purchased for the practice. She said the office booked her for 40 patient appointments a day without adequate support staff. Brown also described cases of patients were seen multiple times for problems that could have been resolved in single visits, raising the patients’ costs.
Even worse, Brown said, patient diagnoses fell through the cracks; for months, the office didn’t follow through on treating a patient’s melanoma, for example. “If you miss a melanoma and you’re not being treated, there could be significant morbidity and mortality with that,” she said.
A letter Brown’s lawyer sent to Pinnacle in the fall of 2020 and reviewed by NBC News detailed her criticisms. Shortly after the letter went out, Brown was let go.
The company contended that she had behaved unethically, Brown said, but she said she and her lawyer obtained her personnel file and found nothing in it to support the claim. “They started targeting me,” Brown said. “They weren’t happy with me sending emails up the chain about stuff going wrong.”
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These without medical licenses have discovered that heath care is profitable, but they have no idea how hard it is to do well after they begin to micro-manage and ‘trim corners’ from their chairs.