Valuing Dermatology Practices in 2025: A Comprehensive Guide for Dermatologists, Investors, and M&A Professionals

Will Hamilton
Jul 15
9 min read

The dermatology industry has been a hotbed of M&A activity for a decade now, driven by strong cash flow, predictable patient demand, and a balanced mix of medical and elective services. Private equity firms and strategic buyers are actively consolidating the space, targeting practices with multiple providers, ancillary revenue streams, and scalable operations. As competition increases, well-managed dermatology groups with diversified services and payer stability are commanding premium valuations in today’s market.

Whether you're preparing to sell a dermatology practice, evaluating a partnership opportunity, or seeking to benchmark financial performance, this article explores the key valuation methodologies, drivers, and risk factors that determine the value of a dermatology business.

I. Industry Context: Why Dermatology is in Demand

The dermatology industry is a fast-growing sector within the broader healthcare market, driven by increasing demand for both medical and cosmetic dermatological services, as well as service line expansion into aesthetic dermatology and the med spa / wellness category. Medical dermatology focuses on the diagnosis and treatment of skin conditions such as acne, eczema, psoriasis, and skin cancer, while cosmetic dermatology includes procedures like Botox, fillers, laser treatments, and chemical peels. The aging population, rising awareness of skin health, and advancements in minimally invasive cosmetic procedures have fueled industry growth. Additionally, the prevalence of skin cancer, particularly melanoma, has heightened the importance of early detection and treatment, further boosting demand for dermatological services. Dermatology practices are traditionally characterized by high margins, recurring revenue streams, and strong patient loyalty, making them attractive investment targets for private equity firms and strategic acquirers.

However, the sector faces challenges, including regulatory scrutiny, reimbursement pressures, and competition for skilled dermatologists. Declining reimbursement for common dermatologic procedures (e.g., biopsies, cryotherapy) has compressed margins and in-office ancillary revenue (like pathology and Mohs surgery) continue to be scrutinized, while payers are tightening networks. Despite these hurdles, the dermatology market remains robust, with continued innovation in treatments, increasing adoption of tele-dermatology, and a growing focus on personalized skincare solutions. As a result, the industry presents compelling opportunities for strategic partnerships, acquisitions, and investments, particularly in high-growth areas such as aesthetic dermatology and skin cancer care.

Key Growth Drivers

Key growth drivers for the industry include the following:

Increasing Prevalence of Skin Disorders: The rising incidence of skin conditions such as acne, eczema, psoriasis, and skin cancer is a major driver. Factors like pollution, lifestyle changes, and genetic predispositions contribute to this increase.
Aging Population: As the global population ages, there is a higher demand for anti-aging treatments and solutions for age-related skin issues such as wrinkles, age spots, and loss of elasticity.
Technological Advancements: Innovations in dermatological treatments, including laser therapies, minimally invasive procedures, and advanced topical formulations, are enhancing treatment efficacy and patient outcomes, driving market growth.
Rising Awareness and Aesthetic Consciousness: Increased awareness about skin health and the growing emphasis on physical appearance are leading to higher demand for cosmetic dermatology products and procedures.
Expansion of Dermatology Services: The expansion of dermatology clinics and the availability of specialized dermatology services in both developed and developing regions are making treatments more accessible to a larger population.
Increased Healthcare Spending: Rising healthcare expenditures, coupled with better insurance coverage for dermatological treatments, are enabling more people to seek and afford advanced dermatological care.

Reimbursement Outlook

Dermatology practices are facing headwinds from a Medicare reimbursement perspective, with a formalized 2.83% reduction in the Medicare conversion factor that took effect in January 2025. Despite inflationary pressures on the cost side, Medicare rates continue to decline, intensifying the so-called “practice squeeze” (costs rising faster than reimbursement). The American Academy of Dermatology is actively advocating for corrective legislation, like H.R. 879, to reverse these cuts and secure a modest 2% inflation adjustment, but the outcome remains uncertain.

As for commercial payers, reimbursement pressure is also mounting: coverage for standard services, including biopsies, cryotherapy, and in‑office pathology, is under scrutiny, leading to tighter network policies and declining margins in parts of routine dermatologic care . However, some high-margin services like Mohs surgery, cosmetic procedures, and dermatopathology continue to command stronger reimbursement and remain growth areas.

Looking toward 2026, early indications from proposed Medicare fee schedule rules suggest continued constraints: budget neutrality requirements and ongoing sequestration/PAYGO provisions may prevent meaningful rate increases absent major reform. While Congress and CMS could pivot on physician payment policy, expect payment rates to remain flat to modestly declining, and only practices well-diversified across procedures, payers, and ancillary offerings are likely to maintain stable net revenue and margin profiles.

II. Top Reasons to Get a Valuation of Your Dermatology Practice

The following is a list of common reasons for commissioning a valuation analysis or appraisal of a dermatology practice:

1. Preparing for a Sale or Strategic Partnership

To establish a defensible asking price when marketing the business
To evaluate offers from private equity, strategic buyers, or joint venture partners
To understand how your practice compares to market benchmarks

2. Internal Ownership Transition

For buy-in or buy-out of partners or associates
To support fair and compliant equity allocation among clinicians
To plan for generational succession or family transfers

3. Compliance with Healthcare Regulations

To support Fair Market Value (FMV) and Commercial Reasonableness (CR) assessments required by Stark Law and Anti-Kickback Statute in deals involving ownership by other healthcare providers
To document compliance in joint ventures, especially when there is a referral relationships (hospitals, ancillary service providers, or other physicians)

4. Estate & Tax Planning

For gift or estate tax reporting to the IRS (especially for closely held businesses)
To support asset protection strategies
To plan for long-term wealth transfer or charitable contributions

5. Litigation or Dispute Resolution

For divorce proceedings involving business asset division
In shareholder or partnership disputes
For economic damages assessments in legal proceedings

6. Business Planning & Strategic Growth

To establish a valuation baseline for performance benchmarking
To support capital raise, refinancing, or line-of-credit applications
To identify value drivers and areas for operational improvement

III. Valuation Approaches for Dermatology Practices

Valuation professionals typically apply three core methodologies to estimate the value of a dermatology practice:

Income Approach (Discounted Cash Flow or Capitalization of Earnings)

This approach values a business based on the present value of its expected future earnings or cash flows. It’s most appropriate when a practice has a stable operating history and predictable future performance.

Key assumptions include:

Normalized EBITDA or owner’s discretionary earnings
Growth rate assumptions (organic and acquisitive)
Risk-adjusted discount rate (typically 10–25% for dermatology)
Capital expenditure needs

Pros: Based on the business’ future earning power

Cons: Sensitive to forecasting errors and discount rate subjectivity

Market Approach (Comparable Transaction Method, e.g. Market Multiples)

This method uses observed EBITDA multiples or revenue multiples from recent M&A transactions in the dermatology space. Typical multiples for smaller dermatology practices are within the range of 4x to 8x EBITDA, depending on a wide variety of factors.

This article includes more details and information about dermatology practice valuation multiples.

Pros: Easy to benchmark; useful in active M&A environments

Cons: Requires access to quality private market data and careful adjustment for practice size, margin, geography, and a variety of other factors

Asset-Based Approach

Used only when the business is underperforming or being liquidated. The value is derived from the net assets (e.g., equipment, leasehold improvements) minus liabilities.

Pros: Useful in distressed scenarios

Cons: Intangible value of the practice can be difficult to quantify under this method

IV. Key Value Drivers in Dermatology Practice Valuation

Several specific factors can materially influence an dermatology practice's valuation multiple:

Earnings Quality

Buyers and valuation professionals place significant emphasis on normalized EBITDA and / or cash flow. Adjustments often include:

Owner compensation (if above/below market)
Non-recurring revenue or expenses
Related-party lease arrangements
Post-transaction adjustments
Out-of-period adjustments

Growth Potential

Discount rates and valuation multiples are a function of perceived risk and growth. Key considerations within the industry related to growth include the following:

Strong Provider Reputation and Clinical Outcomes: High patient satisfaction, low complication rates, and board-certified dermatologists with subspecialties (e.g., Mohs surgery) signal clinical quality and growth potential.
Strong Referral Base : Solid relationships with PCPs, OB-GYNs, or plastic surgeons provide a steady stream of inbound patients and support long-term growth.
Cosmetic Services Growth Trajectory: Rapid expansion in cosmetic offerings (lasers, injectables, etc.) often appeals to investors due to their high margins and out-of-pocket nature.
Scalability and Operational Infrastructure: Strong management, EMR systems, centralized billing, and capacity for provider expansion make the practice more scalable and easier to integrate into a larger platform.
Owner Dependence & Management Structure: Practices with a strong management team and minimal reliance on the owner for day-to-day operations are valued higher, as they present a smoother transition for buyers.

Risk Factors

Key considerations within the industry related to perceived risk include the following:

Stable and Diversified Payer Mix: A well-balanced mix of commercial, Medicare, and self-pay patients reduces reimbursement concentration risk and regulatory exposure.
In-Network Insurance Contracts: Being contracted with major payers ensures patient access and avoids volatility tied to out-of-network reimbursement rates.
Recurring Patient Base: A high percentage of returning patients for chronic care or ongoing cosmetic maintenance suggests predictable revenue and strong patient loyalty.
Geographic and Service Line Diversification: Multi-site operations or a variety of services (medical, surgical, cosmetic) provide revenue resilience in the face of local or payer-specific disruptions.
Provider Dependence and Staffing Challenges: Heavy reliance on one or two high-producing physicians or advanced practice providers creates continuity risk. Additionally, recruiting and retaining qualified clinical staff, especially in competitive or rural markets, can be costly and impact capacity or service quality.
Established Compliance and Regulatory Practices: Strong documentation, coding accuracy, HIPAA compliance, and risk-mitigation protocols lower the chance of billing audits or legal exposure.

V. Current Market Trends in Dermatology M&A

Dermatology was one of the earliest specialties targeted by private equity, with rapid platform formation and increasing add-on activity between 2015 and 2019. While M&A growth has slowed, the industry is still undergoing consolidation, with private equity-backed platforms and large dermatology management service organizations (MSOs) acquiring independent practices to achieve economies of scale, expand geographic reach, and enhance service offerings.

The number of announced dermatology M&A deals has held relatively steady in the 2020s. Many prime targets have already been acquired or aggregated into platforms, reducing the number of high-quality, independent practices available. Additionally, much of the focus has shifted to the related aesthetics and med spa / wellness categories.

There are a number of large dermatology platforms who have announced a large number of deals over the past five years. Epiphany Dermatology leads the way with 39, followed by Pinnacle, Schweiger, and DermCare, each with over 20.

New platform creation has clearly slowed in recent years, whether due to market maturity or regulatory concerns surrounding private equity investment in MSOs.

Dermatology EBITDA Multiple Trends

Larger dermatology platforms typically command higher EBITDA multiples than smaller independent clinics due to their scale, diversified revenue base, and reduced operational risk. These platforms benefit from centralized management, robust referral networks, and greater negotiating leverage with payers and vendors, factors that enhance profitability and stability. Additionally, buyers place a premium on the platform’s ability to support future growth through acquisitions or de novo expansion, while smaller clinics may be more dependent on a single provider or location. This combination of scalability, infrastructure, and lower risk profile makes larger platforms more attractive and valuable in the eyes of strategic and financial buyers.

According to our database, multiples for larger dermatology platforms with EBITDA of over $10 million annually range from 12x to 15x EBITDA.

Cash Flow Multiples for Small Dermatology Practices

There are a number of one and two physician dermatology clinics listed for sale currently, most of which are seeking a physician-to-physician type of deal. According to our research, small 1-4 provider practices are listed for sale for between 0.6x and 1x revenue at the 25th and 75th percentiles, respectively, and between 2.1x and 3x owner cash flow. However, it's difficult to glean much useful information from clinics so small where the level of owner involvement is unclear. A clinic making $400k per year in cash flow for an absentee owner is much different from a clinic making $400k per year in take-home for a full-time dermatologist-owner.

VI. Final Thoughts: Keys to Maximizing Value

If you're a dermatology physician practice owner or executive planning to explore a sale or equity partnership, consider the following strategies to enhance your valuation:
- Diversify Revenue Streams: Offer a balanced mix of medical dermatology, surgical procedures (e.g., Mohs), and high-margin cosmetic services to attract a wider patient base and improve profitability.
- Build a Scalable Operational Platform: Invest in strong back-office infrastructure, including modern EMRs, centralized billing, and data-driven management systems to support growth and ease integration for potential buyers.
- Strengthen Your Provider Team and Reduce Owner Dependence: Expand your team with additional dermatologists and mid-level providers to increase capacity and reduce reliance on the owner’s clinical production, which lowers perceived transition risk
- Optimize Payer and Referral Relationships: Maintain favorable in-network contracts and cultivate strong referral sources to ensure steady patient flow and reimbursement predictability, enhancing both revenue stability and growth potential.
- Professionalize Financials: Buyers prefer accrual-based, GAAP-compliant statements.
About HealthFMV
HealthFMV specializes in appraising healthcare businesses and services arrangements, including dermatology practices.
- Business Valuation: We perform independent, third-party valuations of healthcare businesses to document regulatory, tax, and financial reporting compliance, resolve ownership disputes, and help ensure both parties to the transaction are comfortable with the financial terms.
- Transaction Advisory: We work with healthcare business owners, organization executives, providers, and their health lawyers to develop transaction structures and deal terms that further their business objectives while maintaining compliance with the complex healthcare regulatory environment.
- Services Arrangements: We prepare fair market value and commercial reasonableness opinions for a variety of healthcare services arrangements including management services, hospital-based specialty stipends, case rates and PC/TC splits, block leasing, and shared savings distributions, among others.
Contact Will Hamilton at whamilton@healthfmv.com with questions about our healthcare valuation services or to discuss your specific situation. Visit scoperesearch.co for more information about our healthcare M&A research services.