Private Equity in Dermatology: What Every Practice Owner Needs to Know
If you're a dermatologist, you've probably gotten the call. Maybe it was a polished consultant with a compelling presentation, or perhaps another practice owner sharing their "exit strategy" over coffee. Private equity firms are buying dermatology practices at an unprecedented pace, and they're not slowing down.
Here's what's really happening—and what it means for your practice.
The Numbers Don't Lie
Private equity-backed dermatology practices exploded by 349% from 2012 to 2018. Today, PE firms control roughly 10-15% of all private dermatology practices in the U.S., and they're not done shopping.
Why dermatology? Three reasons that make investment firms salivate:
Growth potential. An aging population means more skin cancer screenings, more cosmetic procedures, and more chronic skin conditions that need ongoing care.
Fragmentation. Unlike other medical specialties that consolidated years ago, dermatology remained mostly independent practices—perfect targets for rollups.
Revenue resilience. Even during economic downturns, people still need medical dermatology, and they'll pay out-of-pocket for cosmetic procedures.
What's Driving the PE Frenzy
The consolidation isn't random. PE firms spotted several trends that make dermatology irresistible:
Expansion opportunities everywhere. Medical dermatology is just the starting point. Add cosmetic services, medspas, dermatopathology labs, and suddenly you're looking at multiple revenue streams from the same patient base.
Operational efficiencies. Independent practices often struggle with administrative overhead, marketing, and negotiating with insurance companies. PE firms can centralize these functions across multiple locations.
Strategic mergers. Large PE-backed platforms are merging with each other to reduce competition and expand geographic reach. It's consolidation on top of consolidation.
The leveraged buyout appeal. Practice owners get substantial upfront cash plus equity stakes tied to future performance. For many dermatologists approaching retirement, it's an attractive exit strategy.
The PE Pitch: Why Practices Say Yes
When PE firms come calling, they're not just offering money—they're offering solutions to real problems that practice owners face:
Capital for growth. Want to upgrade to the latest laser technology? Expand to a second location? PE provides the funding that bank loans might not cover.
Administrative relief. Let someone else handle insurance negotiations, HR issues, and marketing while you focus on patient care. For many physicians, this sounds like paradise.
Negotiating power. A 20-location dermatology group has significantly more leverage with insurance companies than a solo practice. Better reimbursement rates can mean more revenue without seeing more patients.
Scale advantages. Offer cosmetic services, hire mid-level providers, and create comprehensive skin care centers that generate revenue beyond traditional medical visits.
Exit strategy. For practice owners ready to step back, PE offers a way to cash out while potentially staying involved and benefiting from future growth.
The Reality Check: What You're Really Signing Up For
But here's what the glossy presentations don't emphasize:
You're giving up control. Clinical decisions, staffing choices, equipment purchases, and referral patterns may no longer be entirely yours. PE firms have invested millions—they expect a say in how the practice operates.
Volume pressure is real. PE firms need returns within 3-7 years. That often means seeing more patients, performing more procedures, and pushing higher-margin cosmetic services. The pressure to generate revenue can be intense.
Quality concerns. Critics argue that PE's focus on profitability leads to assembly-line medicine. When investors are prioritizing returns, patient care quality can suffer.
Cultural shift. Many dermatology residents are actively avoiding PE-backed practices, citing concerns about autonomy, compensation, and work environment. This could create long-term staffing challenges.
Short-term thinking. PE firms operate on 3-7 year investment cycles. Decisions that maximize short-term returns might not align with long-term practice sustainability or patient outcomes.
The Technology Factor
Here's something the industry discussions often miss: PE consolidation is accelerating the technology gap between practices.
PE-backed groups are investing heavily in electronic health records, practice management systems, patient portals, and diagnostic equipment. Independent practices often struggle to keep up with these capital investments.
This creates a competitive advantage for PE-backed practices in areas like:
- Patient scheduling and communication
- Streamlined documentation and billing
- Advanced diagnostic capabilities
- Marketing and online presence
If you're staying independent, you need a technology strategy that keeps pace—or you risk being left behind.
What's Coming Next
The PE wave in dermatology isn't cresting yet. Here's what industry experts predict:
Continued consolidation. Interest rates and market conditions might slow the pace, but the fundamental drivers remain strong.
Adjacent expansion. Expect PE firms to move into plastic surgery, medspas, and other aesthetic services. Some are already building comprehensive "beauty and wellness" platforms.
Regulatory scrutiny. As PE influence grows, expect increased attention from regulators and professional organizations regarding quality standards and ethical practices.
Market saturation. Eventually, the most attractive practices will be acquired, and PE firms will need to focus on optimizing existing investments rather than new acquisitions.
Making the Decision: What Practice Owners Should Consider
If you're considering a PE offer, ask these questions:
- What level of clinical autonomy will you retain? Get specific commitments in writing.
- How will success be measured? Understand the performance metrics that will drive decision-making.
- What's the long-term growth plan? Is it sustainable, or focused on short-term returns?
- How will this affect your staff and culture? Consider the impact on employees who've been with you for years.
- What happens if the partnership doesn't work out? Understand your exit options.
If you are planning to sell all or part of your practice, check out our post here on maximizing the valuation.
The Bottom Line
Private equity in dermatology isn't inherently good or bad—it's a business reality that's reshaping the field. Some practice owners thrive in PE-backed environments, enjoying the resources and growth opportunities. Others find the loss of autonomy and cultural changes difficult to accept.
What matters is making an informed decision based on your priorities: financial goals, clinical autonomy, work-life balance, and long-term vision for your practice.
The dermatology landscape is changing rapidly. Whether you join the PE wave or stay independent, success will depend on adapting to new market realities while maintaining the quality of patient care that defines excellent dermatology practice.
The choice is yours—but make sure you understand what you're choosing.
Sources
- Investment and Consolidation within Dermatology - Provident Healthcare Partners
https://www.providenthp.com/wp-content/uploads/2019/08/Investment-and-Consolidation-within-Dermatology_Updated.pdf - Private Equity and the Dermatology Industry - VMG Health
https://vmghealth.com/insights/blog/private-equity-and-the-dermatology-industry/ - Dermatology: Looking Good | FTI Consulting
https://www.fticonsulting.com/insights/articles/dermatology-looking-good - A Systematic Review: Landscape of Private Equity in Dermatology
https://jddonline.com/articles/a-systematic-review-landscape-of-private-equity-in-dermatology-from-past-to-present-S1545961623P0404X - Landscape of Private Equity in Dermatology From Past to Present - PubMed
https://pubmed.ncbi.nlm.nih.gov/37026887/ - State of Dermatology Private Equity - Physician Growth Partners
https://physiciangrowthpartners.com/white-paper/state-of-dermatology-private-equity-summer-2024/ - The State of Private Equity in 2024 - Practical Dermatology https://practicaldermatology.com/columns/practice-management/state-private-equity-2024-impact-practice-dermatology/27173/
- 123s of Private Equity in Dermatology | ByrdAdatto
https://byrdadatto.com/banter/123s-of-private-equity-in-dermatology/ - Opinions clash over private equity's effect on dermatology | MDedge
https://community.the-hospitalist.org/content/opinions-clash-over-private-equitys-effect-dermatology