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.
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.”
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.”
Pinnacle declined to answer detailed questions about Brown’s criticisms and termination.
Brown said she got along well with her associates in the practice, some of whom called her Dr. Awesome and gave her a drinking glass with that title embossed on it.
The company’s laboratory in Lombard, Illinois, where Pinnacle offices sent specimens for analysis, was also problematic, Brown said. The operation was very disorganized; slides and specimens sent for second opinions and quality control got lost more than once, she said. She filed a complaint with the Illinois Public Health Department.
Rios, of Pinnacle, said Brown’s criticisms of Pinnacle’s lab “are baseless allegations brought by a disgruntled former employee.” He added that Pinnacle’s lab is accredited by the College of American Pathologists and certified under federal regulations associated with the Clinical Laboratory Improvement Amendments.
Dr. Sailesh Konda is a Mohs surgeon — someone who performs a type of surgery used to treat skin cancer — and an associate clinical professor of dermatology at the University of Florida. He has also conducted extensive research into private equity’s impact on the dermatology field.
Konda said Brown’s experience isn’t unusual. “Dermatologists from all over the country have shared with me their experiences with private equity-backed groups promoting profits over patient care,” he said. “Many are shackled with non-disparagement agreements and are afraid to publicly share their experiences. These stories need to be told.”
Independent academic research also indicates that negative outcomes have resulted from private equity firms’ involvement in dermatology. A main source of problems is the tendency among private equity-owned practices to hire more “physician extenders” to see dermatology patients, including physician assistants and nurse practitioners who cost less to employ. An academic study from last year in the Journal of the American Academy of Dermatology concluded that private equity-backed dermatology practices employ greater numbers of physician assistants and a higher rate of such professionals to physicians. Rios declined to discuss the company’s reliance on physician extenders.
Physician extenders’ lack of experience can pose problems for patients by not identifying skin cancers, a 2018 investigation published in the Journal of the American Medical Association found. The study, which examined more than 33,000 skin cancer screenings among 20,000 patients, found that physician extenders failed to identify cancers significantly more often than doctors did.
The extenders also ordered more biopsies than doctors, generating increased fees for their patients. Physician extenders are supposed to be monitored by doctors, but private equity-backed companies often assign remote supervising physicians, in far-off locations, who have never met the people they are supervising. That diminishes effective oversight.
Research in the Journal of the American Academy of Dermatology in 2018 found physician extenders working at a private equity-backed group performing “dermatologic procedures of questionable medical necessity” on nursing home patients in Michigan. In the study, 75 percent of the treated patients had diagnoses of Alzheimer’s disease.
Another study published in the Journal of the American Medical Association Dermatology found that private equity-backed practices were more likely to offer appointments with physician extenders than with doctors. If physician extenders fail to make appropriate diagnoses, it can be a problem.
Rios declined to comment on the research showing negative outcomes among dermatology practices backed by private equity firms.
Five other former Pinnacle workers shared concerns about the company’s practices but asked not to be identified for fear of retribution or because they had signed non-disparagement agreements. They corroborated Brown’s experience of the push for more appointments, not ordering enough or high-quality supplies and problems with the lab.
Such agreements are common among medical practices bought by private equity firms. That’s why it’s so rare, practitioners say, for a physician like Brown to speak out about her experiences. Brown never signed such an agreement with Pinnacle, she said.
Brown and her lawyer continue to fight for three months of back pay she says she is owed, as well as reimbursement for insurance coverage that she paid out of her own pocket. The company’s most recent offer, Brown said, was $5,000 plus her signature on a non-disparagement agreement. She rejected the deal.
“Dermatology is often not a life-and-death situation,” Brown said. “But it’s still a specialty, it still requires expertise, and patients deserve to see the best-trained professionals at all times.”
