The ESOP Model: An Alternative to PE for Dermatology Practices

Not all practice models are as simple as private practice vs private equity. At Ada West Dermatology in Boise, Idaho, we’ve adopted a somewhat uncommon business model called an employee stock ownership plan (ESOP) and it’s worked very well for us.

Our practice had three original owners. As two of them approached retirement, we looked for ways to create exit strategies for them while preparing the practice for the future. Under the ESOP model, profits from the practice are used to buy out the original owners. Everyone who works at the practice—from front desk staff to physician assistants to dermatologists—becomes an owner and receives shares each year, proportionate to salary. Once the original owners have been fully bought out, all shareholders will receive portions of the net corporate profits annually. Over time, the value of those shares increases with the growth of the practice and eventually serves as a retirement fund when employees leave or retire.

We’re governed by a physician-led board of directors, which ensures that patient care remains the top priority while also supporting a positive and profitable company. When decisions need to be made, such as with equipment purchases and staffing changes, we hold a vote. That said, we usually aim for consensus. The board meets quarterly, and shorter virtual meetings are held as needed. Board work takes about 1 to 2 hours per week, which is much less than the average time private practice owners spend on management.

We love the ESOP model because it does a few key things:

It keeps physicians in leadership roles.

It allows every team member to share in the success of the business.

It maintains private ownership of the practice.

It’s only been about 4 years since we transitioned to this model, so we haven’t had to hire many new employees yet, but we anticipate that this structure will be a strong recruiting tool going forward.

In 2024, healthcare businesses made up only about 2% of ESOPs.¹ Corporate practice of medicine (CPOM) laws in some states can make ESOPs tricky, but there are workarounds.² If you’re thinking about this model, be sure to do your homework. For our practice, the benefits have made it well worth it. 

1. How an ESOP allows a physician to sell their practice and keep it independent. Meroka. Published April 30, 2024. Accessed August 18, 2025. https://www.meroka.com/resources/how-an-esop-lets-you-sell-your-practice-and-keep-it-independent

2. Exceptions and alternatives to the corporate practice of medicine. Cohen Healthcare Law Group. Published December 21, 2021. Accessed August 18, 2025. https://cohenhealthcarelaw.com/exceptions-and-alternatives-to-the-corporate-practice-of-medicine