Advisory Resources For Physicians

Associate Dermatologist Partnership Opportunities Within The New Private Equity Model

Posted by Eric J. Yetter on Mar 28, 2019 12:31:56 PM
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These days, many dermatology practices are faced with the challenge of securing their next generation of physician partners. Historically, practices brought in dermatology “associates” soon after residency or fellowship, and these associates immediately set their sights on the path to partnership. Although partnership was never guaranteed, it was expected to both reward physician loyalty and, more importantly, ensure practice continuity.

But what happens when that system breaks down? Today, time and time again, we hear from senior physician partners who are struggling to convince their younger associates to buy-in as a partner. What factors are influencing this flipped view of partnership.

Education Debt Acts as a Deterrent

The most obvious, analytical answer is the rising cost of education. Most physicians are aware of this growing problem, but let’s review the numbers. According to the AAMC reports for 2017-2018, one year at a public medical school was $35,952 for in-state students and $60,543 for out-of-state students, while private school averages were about $58,000. For historical perspective, just 20 years ago, in 1997-1998, one year at a public medical school was $10,211 for in-state students and $22,829 for out-of-state students, while private school averages were about $25,000.

These ballooning education costs are leaving new physicians with an unprecedented amount of debt. According to a StatNews report, medical students are now graduating with an average of $190,000 of debt. Furthermore, subsequent residencies and fellowships required to specialize in dermatology won’t produce high enough salaries to begin paying down their debt. At the end of the day, we have a graduating physician cohort who will carry education debt into their late thirties and beyond. It’s no wonder that the next generation of physicians is hesitant about buying-in for partnership stakes.

Employment Model Stability Gains Favor

Another growing trend and belief is that these younger physicians simply prefer the stability of the employment model. They prefer practicing as an employed physician, in a 9-5 lifestyle, focused on a fixed schedule of patients, without interest in practice ownership. For the time being, they will forgo partnership to avoid the responsibilities of handling HR, supplies, and general day-to-day management. To each their own, but this new mindset poses a problem as senior dermatologists approach retirement age and practice continuity lies in the balance.

Solution: Private Equity’s New Approach

Through private equity transactions, current physician partners are receiving the highest valuation multiples available, while simultaneously solving ownership continuity problems. By being acquired, senior physicians are essentially finding new partners that are eager to take over the pesky administrative functions and grow the practice while allowing their associate physicians to stay focused on patients. But, importantly, they’re not depriving the younger physicians of partnership opportunities down the road. Private equity acquirers are finding unique ways to provide important and attractive equity opportunities to the younger dermatologists, when they’re ready.

There are many questions swirling around private equity investments in dermatology practices. Some particularly important ones relate to how a transaction will alter the career trajectory of associate dermatologists – particularly those with an interest in partnership. Is there upside for physicians who did not participate in the initial equity transaction? Will they ever have an opportunity to gain an equity position in the practice? The answer is yes, and here’s why.

Private equity investors are heavily focused on aligned incentivization for all physicians as they consider medical practice investments. To successfully grow a practice, they depend on associate physicians’ continued involvement and ultimately, leadership. Private investors will not be successful unless young dermatologists thrive within the new partnership structure. After all, associate physicians will be the leaders that perpetuate practices for decades to come. Thus, investors are creating unique equity structures and partnership buy-in opportunities that align incentives for both individual practices and their global dermatology companies. Oftentimes, these new systems provide additional upside with lower personal risk – a highly attractive profile for younger physicians.

Retained or Rollover Practice Equity

For multiple reasons, most private equity investors ask physicians to retain a significant equity position in their local practice and/or the global dermatology company – usually at least 20%. This helps to align incentives for continued practice growth post-transaction. In some cases, that retained equity can be sold to associate physicians when the time is right.

Although the equity pool available for associate dermatologists is different than before, it may be more attractive than ever. The practice now has a financial partner focused on growth and increasing the value of any equity position in the practice. Furthermore, buy-ins from associate dermatologists no longer come with the pressure of overseeing administrative duties. Physicians will still lead all clinical decisions for the practice, but they now have resources to help take care of the rest.

Platform Equity Buy-In

In addition to retained or rollover practice equity, private equity-backed dermatology platforms are utilizing platform equity positions – usually some form of stock in the larger dermatology company – as an incentive for associate dermatologists. Many firms have developed partnership programs with defined performance targets where associates are offered a structured opportunity to buy-in. Both the private equity investors and physician partners hope and expect this equity to yield high returns during future recapitalizations of the dermatology platform.

New Incentive Alternatives Emerging

Each investor is unique, and so are the partnership opportunities available across this ecosystem. New incentivization programs are being developed that mimic stock option agreements and other structures that have been successful throughout the business world. As private investment in dermatology continues to mature, we can expect these programs to evolve to meet the desires of young dermatologists seeking a good career fit with stability and upside.


This article is an excerpt from our New, Comprehensive 30-Page White Paper: The Current State of Private Equity in Dermatology Practices and Surgery Centers.

This White Paper contains:

  • An in-depth discussion of private equity as a dermatology buyer
  • A history of private investments and consolidation
  • A discussion of the key considerations important to physician sellers
  • Components of a deal
  • Multiples and Valuation
  • Legal and Tax issues
  • And much more ...

Click the link below to download a copy now.

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Want to learn more? Contact our Leadership at PhysiciansFirst Healthcare Partners, read our blog or listen to our podcasts for more information about practice and surgery center acquisitions. We’re one of the few investment banks devoted entirely to physicians. 


Physicians interested in understanding what elements drive private equity transaction prices and seeking a shorthand estimate of what buyers are likely to offer for their practice and post-sale preferences should contact me directly with no obligation. See contact info below.


nullEric Yetter is Managing Partner at PhysiciansFirst Healthcare Partners - a boutique investment bank focused on physician-owned assets. He can be reached at (615) 647-6805 or via e-mail at

Topics: Private Equity, Physician Practice Mergers and Acquisitions, Dermatology