Preparing for Private Equity: Benefits and Drawbacks

Over the past decade, the health care industry has emerged as a prime target for private equity (PE) investment. Investors are drawn to the combination of an aging population, increasing demand for specialized care, and the potential for efficiencies gained through consolidation. Dermatology, in particular, has attracted substantial interest due to high patient demand (both medical and cosmetic), predictable revenue streams, and a relatively fragmented market. As of early 2023, estimates placed the percentage of PE-backed dermatology practices at 10% to 15%,¹ with practices such as Schweiger Dermatology Group and Epiphany Dermatology growing to nearly 100 locations each under PE ownership.

While dermatology’s recurring revenue streams, low equipment costs, and relatively high margins are appealing to investors, many dermatologists also find PE to be a viable and attractive alternative to the challenges of private practice ownership. From 2020 to 2023, there were at least 68 dermatology transactions recorded annually, and the number of PE-backed dermatology platforms is now nearing 40.²

Financial pressures often serve as the primary catalyst for dermatology practices to sell to PE firms. When adjusted for inflation, Medicare physician payments have declined by 33% from 2001 to 2025. The 2025 federal budget has provided a modest 2% Medicare payment boost, which is good for practicing dermatologists, but this is alongside increased operating costs for private medical practices, which have climbed as high as 39% even when adjusting for spikes in inflation.

Advantages and Disadvantages

Practicing under PE ownership has both advantages and disadvantages, and they should be understood before choosing this option.

Advantages include:

Financial security

Ability to monetize one’s life’s work and create a retirement cushion

Access to capital for modernization, technology, and expanded services

Operational efficiencies through streamlined processes and cost reductions

Relief from administrative and business management burdens

Broader professional networks and institutional resources

Disadvantages include:

Loss of autonomy, particularly when PE-implemented changes conflict with existing practice culture or patient care philosophy

Cost-cutting measures that can impact care quality

Cultural shifts and management changes that may affect staff morale and patient relationships

Prioritization of short-term financial returns over long-term sustainability

Increased resource strain due to acquisition-related debt

The Right Moves

Maximizing the benefits and minimizing the drawbacks often hinges in part on the preparation that a practice owner puts in prior to the sale.

Always research the PE firm thoroughly. PE firms have varying business models, exit strategies, and approaches to practice management. Confirm that the firm’s goals align with your own and that you understand their timeline for investment and returns (typically 3 to 7 years).

Engage legal and financial advisors. These transactions are complex, and proper guidance is essential to safeguard your interests.

Review all existing contracts—including leases, vendor agreements, device warranties, and physician employment contracts—and determine which to cancel or transfer. Understand termination clauses and the potential cost of transitions.

Understanding EBITDA (earnings before interest, taxes, depreciation, and amortization) and valuation factors is essential. Influences include practice size and type (medical vs cosmetic), productivity, demographics, patient volume, referral networks, and local competition. Practices can increase valuation by expanding revenue streams (eg, adding cosmetic services), minimizing unnecessary expenses, and strengthening billing and collections efficiency.

Consider how the transition may affect patient care and your practice’s reputation. Communicate openly with staff and patients to maintain trust and stability.

Finally, consider alternative strategies. These include partnerships with other private practices or group practices, joining a physician-owned management group, independently expanding your practice instead of selling, or merging with hospitals or academic institutions.

Post-Sale

If you decide to move forward with a sale, consider your role post-sale. Will you remain as an employee or transition to an advisory role? Understand any employment contracts, including noncompete clauses you will be required to sign as part of the sale.

Practice integration is typically a major challenge. Staff must adjust to new workflows, electronic records systems, billing practices, and more. Maintaining morale during this phase is crucial, and disruptions in patient care should be minimized.

The ultimate goal is not only to maximize your practice’s value but to ensure a smooth transition and continued success under new ownership. Being as prepared as possible increases the likelihood of achieving that goal. 

1. Sung C, Salem S, Oulee A, Yahia R, Mesinkovska N, Zachary C. A systematic review: landscape of private equity in dermatology from past to present. J Drugs Dermatol. 2023;22(4):404-409. doi:10.36849/JDD.6892

2. State of dermatology private equity—white paper. Physician Growth Partners. https://physiciangrowthpartners.com/white-paper/state-of-dermatology-private-equity-summer-2024/. Accessed August 18, 2025.

Todd Schlesinger, MD

• Dermatologist and Mohs surgeon, Epiphany Dermatology
  
  Charleston, SC