Industry Spotlight: Dermatology

Dermatology is a highly attractive physician practice management (PPM) sector with a long runway for investors to be successful. It has strong fundamentals common to most PPM sectors, and it has evolved significantly to offer even more opportunity in the future. This approximately $20 billion sector is expected to grow by around 13% per year over the next several years, with core medical-surgical dermatology services growing about 4% annually and cosmetic dermatology services growing about 18% annually.i

Here, Harris Williams professionals Corey Benjamin, a managing director in the Consumer Group, and Geoff Smith, managing director, and Charles Busch, vice president, in the Healthcare & Life Sciences Group, share their thoughts on why dermatology is appealing to buyers and investors, as well as key attributes of high-quality dermatology platforms.

Why are buyers and investors interested in the dermatology sector?

Smith: The dermatology sector has several attractive characteristics. Growing awareness around the importance of skin care is driving sustainable demand for medical-surgical dermatology, especially as the population continues to age over time. As a result, demand for medically necessary dermatology services is both recession and pandemic resistant. In addition, payor coverage for medical-surgical dermatology is expected to remain stable for the foreseeable future. There’s also a rapidly growing market for cosmetic dermatology, such as Botox, fillers, and laser treatments, providing a significant growth opportunity for medical- and surgical-focused platforms.

Benjamin: While the sector has traditionally been focused on medical-surgical procedures, like other consumer healthcare verticals, it’s evolving in response to shifting patient and consumer preferences. For example, dermatology practices are responding to the notable uptick in consumer demand for cosmetic services over the last five years by expanding their service offerings, creating a larger addressable market opportunity.

Busch: Another key emerging trend is greater utilization of physician associates and nurse practitioners. The scarce supply of board-certified dermatologists has historically been a challenge to sector growth. However, an increasing number of practices are employing a higher ratio of physician associates and nurse practitioners to better leverage their physicians. Successful physician associate and nurse practitioner recruitment strategies not only create significant organic growth opportunities but also allow practices to address underserved patient demand.

Smith: The dermatology landscape is an ideal environment for platforms of scale to thrive. The sector is still in the early innings of its evolution relative to other PPM sectors such as dental or physical therapy. It remains highly fragmented, with the largest platforms still comprising less than 20% of the industry. Structural forces are naturally driving independent practices towards larger groups, as investments in supporting resources allow platforms of scale to alleviate key pain points for dermatologists and unlock growth opportunities that are less accessible to independent practices. Furthermore, many platforms are still only scratching the surface on a diverse array of value creation opportunities, which signals much upside growth potential.

Which attributes should buyers prioritize in the sector?

Smith: Two high-quality dermatology platforms that Harris Williams recently advised—Forefront Dermatology and Dermatologists of Central States (DOCS)—are representative of attributes that are important for success as the industry matures.

Benjamin: Clinically, Forefront is incredibly strong. Culturally, it is very provider-centric. The company provides all of the supporting resources to create the ideal ecosystem for providers to thrive and practice at the top of their licensure. One of Forefront’s biggest differentiators is that it has always invested in infrastructure ahead of its growth. This has allowed it to drive substantial growth over time while remaining tightly integrated. 

Forefront also has developed and refined a highly efficient partnership strategy. The company has been very methodical about expanding its footprint in ways that allow it to leverage the benefits of geographic density. Forefront is actively driving organic growth by opening new de novo locations that fill in its existing footprint and recruiting new providers into existing clinics. Additionally, it is executing a thoughtful strategy to drive cosmetic service expansion and take full advantage of that opportunity. Centralized infrastructure and shared services are the backbone of Forefront’s strategy and enable it to successfully achieve scalable growth both organically and via new partnerships. 

Smith: DOCS has more than 85 locations across the Midwest. As it has grown, it has maintained its reputation for clinical excellence. It also has a very provider-centric culture. Fostering a supportive and collaborative environment for providers has been a core mission for DOCS dating back to the founding practices, and those values remain fundamental to everything the company does today. As a result, DOCS has been highly successful at attracting best-in-class providers to the practice.

Busch: The company has also been very deliberate with its growth strategy. DOCS has entered new geographies by partnering with local market leaders that are very much aligned with its strong clinical quality and provider-centric philosophy, which has allowed it to propagate its culture and reputation across a broader footprint. It has also focused on contiguous markets to build core market density. The result is a strong, integrated foundation that makes DOCS well positioned for continued growth. In addition to continuing to drive growth through new partnerships and provider recruitment, DOCS views cosmetics as a significant area for expansion and has a strategy in place to tap into the opportunity.

What advice do you have for prospective buyers and investors interested in dermatology?

Smith: Favorable trends will continue to drive growth in dermatology, and the sector offers substantial opportunity to build platforms of scale. Buyers and investors should keep in mind that scarcity of board-certified dermatologists means being an employer of choice is critical to growth. A physician-centric culture and excellent clinical quality are fundamental to recruiting and retention. A purpose-built infrastructure will support these objectives as well as provide significant operating leverage. Also, density matters in fully realizing the benefits of building a platform. Finally, most practices are dominantly focused on medical-surgical dermatology today, but those with a strategy to pursue cosmetic dermatology will likely find significant untapped growth opportunity. 


To learn more about Harris Williams’ views on the dermatology sector, download Exploring the Dermatology Landscape.

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To learn more about our experience in the dermatology sector, please contact our senior bankers.

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iSource: IBISWorld and American Med Spa Association

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