In the September issue of Dermatology Times, I authored an editorial entitled, “A different perspective on venture capital and the future of dermatology.” In that piece I argued that in the rapidly evolving landscape of American medicine, venture capital-backed enterprises that purchase and manage dermatology practices may represent an excellent alternative for small private practices having difficulty navigating regulatory requirements, third party payer issues, and may have the fear that the future will not bode well for the independent practice business model.
Based on my recent experience with one such company, I was of the opinion that these entities were honest, transparent and truly interested in quality medical care. I was optimistic that this approach would guarantee the future of my practice while maintaining the essence of how we care for our patients. All of that may have been true in the abstract, but it certainly did not work out that way for us. I would like to share with you my experience in trying to move our practice into the corporate world. I would also offer some suggestions for those of you with an interest in making a change in your practices so that you can avoid the incredibly unpleasant and expensive lessons that I learned along the way.
In Spring 2017, I was contacted by a representative of a company, funded by a venture capital fund, who was interested in evaluating my practice for possible purchase. In the course of our discussions, I was assured that I would be free to practice medical dermatology exactly as I had for many years. The representative advised me that the most important goal of their business was to develop and promote quality medical practices.
This all sounded very encouraging, so I signed a letter of intent that gave the company and me up to 120 days to perform due diligence. As time went on, the company representative remained quite certain that they wished to move quickly to consummate the deal. A tentative signing date was September 1, but was moved back to September 13 so that the lawyers for both sides could finalize details of the sale. In the meantime, the corporate operations officer visited us and talked with our landlord about renovations and additions to our workspace. This led to the landlord hiring an architect to start work on the improvements.
Early in September, a person from the human resources department of the company travelled to our office and began the process of enrolling our employees in their benefits plans. We also began the search for additional workers who would be needed with our expanding operation.
On September 6, I received an email from the company representative who described “unfortunate news.” He stated that because of my “well-publicized feelings toward profit in dermatology and in particular the role of cosmetics,” the physician partners elected not to pursue the purchase of the practice after all. He did offer “my sincere apologies about the timing” and wished me the best of luck in the future.
Setting aside the fact that the tentative buyer never discussed with me my views about the profit motive in dermatology practice and cosmetics as a part of a spectrum of possible services offered by the organization in general, I felt somewhat chastened by my naïve notions that these business entities would enter negotiations with honest intentions. My view now is that all of the pronouncements about the altruistic missions of the company were part of the sales strategy that had been carefully nurtured and executed perfectly.
What can I deduce from this personal and professional setback?
Here are a few bits of advice for those considering this type of change in your practice.
- The main goal of these companies when acquiring your practice is to maximize profits for themselves. Everything else is secondary. I suspect that if they can turn around and “flip” the investment to their benefit, they will do so. What that means for your future is problematical.
- Do not spend any money on lawyers, accountants, etc., until the buyer has committed in writing his intentions to purchase your practice. If this is not possible, have them agree to pay for your legal and accounting fees for the services rendered.
- When performing your due diligence, speak with both physicians who are currently employed and those who have elected not to be purchased for whatever reason. My experience is that it is not easy to get complete answers from those who are part of the corporate structure. Try soliciting this information via social media, if possible.
- Try to avoid making the possible sale of your practice public knowledge for as long as possible. It can be very stressful for your employees to have this type of change hanging over their heads for months at a time.
- Attempt to compare the details of offers from several suitors if possible. Not only may you find the best deal for you and your practice, but you will get a better idea of alternative business plans, one of which may be more suitable for you than others.
My final thought is: Be careful. These people are not your friends and are not necessarily doing what is in your best interest. I am sure that most of the enterprises in this type of business are honest and forthright, but do not assume that until they have demonstrated it to your satisfaction.