Why Dermatology Sees Transformation in Practice Consolidation
Dermatologists who are considering the sale of their medical practices should know the latest information about their specialty area and practice consolidation trends.
The majority of dermatologist practices (35%) are operated as solo practices or single-specialty group practices (41%). However, 15% of recent practice acquisitions by private equity firms (PEFs) have been dermatology practices, even though this specialty comprises just 1% of physicians in the country.
Concern for the Commoditizing of Treatment of Skin Disease
A professor of dermatology expressed his concerns that as independent practices are replaced by investor-owned conglomerates, there may be more commoditizing of the treatment of skin disease.
Jack S. Resnick Jr, M.D., professor of dermatology at the University of California, San Francisco School of Medicine, recently published his thoughts on the sale of dermatologist practices in JAMA Dermatology. Resnick commented that he was hearing from many colleagues who were receiving “astonishingly” large cash offers to sell their practices and many other colleagues who had already sold their practices. He remarked that these dermatologists were very concerned about the pressures they were facing from PEFs to change the way they practiced medicine to maximize financial returns for investors.
“The decisions by many dermatologists to sell practices is understandable,” he said. The demands of running a medical practice can weigh heavy on a small practice. Compliance with regulatory requirements, maintaining referral sources, and securing fair healthcare plan contracts can be difficult, Resnick said.
A cash offer may sound ideal and quite alluring, but individual purchase prices can vary dramatically. Solo practices are typically sold between three to five times EBITDA (earnings before interest, taxes, depreciation, and amortization). This multiple jumps to between five to seven times EBITDA for small dermatology groups, and up to 13 times EBITDA for large, integrated, multisite groups.
The Downside of a Cash Offer for Your Dermatology Practice
Dermatologists can be enticed by extraordinary cash offers, but there are some pitfalls and concerns of which to be aware:
- Investors are focused on returns and generally earmark 20% of practice revenues in profits; they may remove resources from an already taxed healthcare system;
- Some PEFs place a premium on short-term revenue growth versus the long-term stability of the practice;
- The consolidation of practices and selling them at a profit may result in bankruptcies, which may create a situation of practitioners with no practice and patients without any available services;
- Dermatologists who sell their private practices to conglomerates may lose control of their business, including staffing and capital equipment purchase decisions;
- Dermatologists who work for PEFs have expressed concerns that investors want to increase profits by hiring physician assistants (PAs) to take on some of the workloads and reduce opportunities for dermatologists to recommend and select the best treatment for each patient; and
- The initial sale of the dermatology private practice may produce a large cash payout for the owner, but this may not flow to staff physicians who may see lower compensation in the future in the “normalization” of physician payment. Plus, if they leave the practice or are terminated, these doctors may have to address noncompete clauses.
Attracting External Investors
Remember that some of the factors that attract PEFs to dermatology are the high patient demand, the high rates of cutaneous cancers, our aging population, the shortage of dermatologists, and expanded insurance coverage.
Most private equity investors typically want to exit the investment in three to seven years and transfer the entity to another private or public investor at a higher multiple. Thus, dermatologists may experience a variety of different owners with different values over that period that aren’t always the same as the dermatologist’s values. This can result in diminished autonomy for practicing physicians.
Many Steps to Sell a Medical Practice
Dermatologists should be aware of this rapidly evolving practice environment. The consolidation and commoditization of dermatology practices are altering the specialty and the choices of practice venues for future dermatologists.
As physician practices are acquired, the issue of what a practice is worth is a significant question. Each situation is unique, and you should understand the facts and circumstances of any specific medical practice and the post-transaction compensation structure to provide an accurate estimate of the FMV of that medical practice. Speak with medical practice sales consultant Andrew Rogerson in Sacramento to get more information about the business climate and valuation concerns in your community.
This is a one-page summary on selling a medical practice, to help you get a general idea of the necessary steps you need to take.
Selling your dermatology medical practice in California doesn’t have to be difficult.
By following these four tips – understanding what buyers are looking for, knowing what they’re willing to pay, looking for buyers in the right places, and negotiating the best price – you can increase your chances of finding the right buyer and getting the best price for your medical practice.
Are you ready to sell or need some help deciding? Contact us today at this toll-free number (844) 414-9700 or simply email us at firstname.lastname@example.org
Rogerson Business Services: Why Hire Their Expertise
Overall, by working with a qualified medical business broker during your sell-side process, you can feel confident that all aspects of selling your medical practice in California will be handled with care and expertise.
With their help, you will be able to sell your medical practice at top dollar. Here are some of the valuation tactics that Rogerson Busienss Services, expert brokers in California help you achieve your goal:
- How To Increase Company Valuation? 4 Value Drivers You Need To Know
- What is Quality of Earnings Analysis: Sell a Business Due Diligence in California
- Adjusted Financial Statements When Selling a Business in California
- SDE Adjustments To Make Before Selling a Business in California
- How Do I Calculate The Value Of My Business To Sell In California
- What is My Business Worth? | Valuing and Selling Your Business
- How Much is a Business Worth to Sell | Determine Business Worth
- Income Approach Valuation | Finding Business Worth Easy
- How To Value A Business Quickly: Best Business Valuation Formula
- Seller’s Discretionary Earnings (SDE) Valuation | Selling a Business in California
- Financial Due Diligence When Selling a Business
Do you have any questions about how to value a dermatology medical practice? Leave a comment below and we’ll be happy to help!
If you are thinking about valuing and selling your dermatology medical practice in California, then working with a medical broker is a great option. A medical business broker can help you get the best price for your medical practice by doing things like valuing your medical practice business correctly, finding the right buyer, and negotiating the best terms. If you are ready to sell your medical practice business, contact Rogerson Business Services today.
Andrew Rogerson is a certified business broker based in Sacramento, California. Call Toll-Free at (844) 414-9700 or email him at email@example.com services the whole state of California.
This is part of the tips for Doctors wishing to sell their California medical practice and retire series ->