What every dermatologist should know about practice finances
Dermatology is one of the most financially rewarding medical specialties but understanding how the money side of medicine works is what separates financially confident physicians from those who feel behind. Whether you’re an employed dermatologist, a partner, an academic, or a solo owner, you need more than medical knowledge. You need to understand how dermatology practices make money, how those finances affect your pay, and how to use that information to make smart career and personal financial decisions.
This guide walks through the financial essentials every dermatologist should know and offers practical, actionable ways to build financial literacy and control your financial future.
Understand how money moves in dermatology
Every dermatologist should understand the basic financial anatomy of a practice. Even if you don’t own one, it’s the system that ultimately determines your income.
A dermatology practice generates revenue from several sources: medical dermatology visits covered by insurance, surgical or procedural work such as biopsies or Mohs surgery, and cosmetic dermatology, which is often paid directly by patients. Some practices also earn income from product sales, research trials, or pathology services.
Revenue flows through a billing and reimbursement process before it ever reaches you. Services are documented, coded, billed, and eventually collected. That revenue covers all the expenses needed to run the business including rent, supplies, staff, insurance, technology, and marketing. What’s left after those costs is what supports salaries, bonuses, and reinvestment into the practice.
Understanding this flow helps you see why your paycheck or productivity bonus looks the way it does. When you know how revenue and overhead interact, you can evaluate whether a job or partnership offer makes financial sense.
Learn the numbers that matter
Even if you’re not a finance person, there are a few key terms worth knowing. Collections refer to the actual revenue received by the practice after insurance and patient payments are processed. Overhead is the percentage of that revenue spent on running the business. Most well-run dermatology practices operate with overhead between 45-60%.
You’ll often hear about RVUs, or relative value units, which measure productivity.
Compensation models based on RVUs tie your income to how much work you do, not necessarily how much the practice collects. Days in accounts receivable tell you how long it takes for the practice to get paid for your work, and the net collection rate shows what percentage of billed services are successfully collected.
Knowing these terms lets you ask smart questions. If you’re offered a job with a percentage-of-collections bonus, you’ll want to know what the practice’s average collection rate is. If you’re on an RVU-based contract, you should understand how RVUs are calculated and paid out.
You don’t need to memorize the formulas, but you do need to recognize what they mean so you can protect your earning potential.
Make sense of compensation models
Dermatologists are paid in several different ways, and those different structures can have big implications for your long-term earnings. Some dermatologists are paid a straight salary, which is common in academic or hospital settings. Others earn a base salary plus a bonus tied to productivity or collections. Many private practices pay a set percentage of collections, meaning your paycheck depends directly on what you bring in and what the practice actually collects. Partnership or shareholder models include profit sharing, where you earn from your own work plus a portion of the practice’s overall profits.
Each approach has pros and cons. A salary offers stability but limited upside. A percentage-of-collections model rewards productivity but can fluctuate if billing or payer issues slow down payments.
The key is to understand how your contract ties to the financial health of the practice. Ask questions about average collection rates, payer mix, and typical overhead before signing anything. These numbers tell you more about your future paycheck than the headline salary number.
Watch practice overhead costs
Even if you don’t manage the books, overhead has a direct impact on your income. A practice with high rent, excessive staffing, or inefficient billing spends more of its revenue on expenses, leaving less for physicians.
Typical dermatology overhead includes staff salaries and benefits, rent, medical supplies, and administrative costs such as billing and EHR systems. When overhead is high, profit is low.
A lean, well-run practice can afford to pay its physicians more and invest in growth. Understanding that connection helps you spot opportunities and avoid pitfalls.
Learn the revenue cycle
The revenue cycle runs from the patient scheduling an appointment through final payment. Friction in the cycle means inefficiency and lower revenues. For a physician, accurate documentation is vital. If your notes are incomplete or if coding doesn’t match your documentation, claims can be denied or delayed. That delay directly affects collections and ultimately compensation.
Learning the basics of CPT coding, modifier use, and common denial causes isn’t about becoming a biller, it’s about protecting your income. When dermatologists understand how the billing process works, they can spot errors early and communicate better with billing staff.
Build personal financial literacy
Understanding practice finances is only part of the picture. You also need a strong handle on your own personal financial health. Every dermatologist should have a working knowledge of taxes, debt, insurance, and investing.
Learn the basics of how your income is taxed and what deductions or retirement options are available through your employer. If you have student loans, understand your repayment options and how interest interacts with your savings goals. Make sure you carry adequate malpractice, disability, and life insurance. Create an emergency fund with at least six months of expenses, especially if your income depends on collections.
Don’t rely solely on high earnings to guarantee financial security. Smart investing, controlled spending, and a plan for retirement matter as much as what you make.
Understand ownership without needing to own
You don’t have to own a practice to benefit from understanding what ownership means financially. Knowing how practices are valued, how buy-ins work, and how profits are distributed helps you evaluate partnership offers intelligently.
Even if you never plan to buy in, understanding ownership economics lets you negotiate better. When you know what drives profit in a practice, you can recognize fair compensation and identify potential for growth or equity.
Ask the right financial questions
As your career grows, make a habit of asking key financial questions.
How does this practice make money?
What’s the payer mix and overhead ratio?
How are my collections tracked and credited?
What financial metrics drive bonuses or raises?
Do I understand my take-home pay after taxes and benefits?
Would I know how to evaluate a buy-in offer if one came my way?
If you answer those questions clearly, you can navigate the financial landscape and take charge of your own success.
Key takeaways
Financial literacy is not just for practice owners. It’s for every dermatologist who wants control over their career and long-term security. Understanding how a practice makes and spends money helps you negotiate smarter contracts, collaborate effectively with your team, and make better personal financial choices.
Learn how money flows, ask questions, track your own performance, and think strategically about how each financial decision, both professional and personal, fits into your larger goals. The dermatologist who understands the science and the business side of medicine is well positioned to flourish in both.
Additional AAD resources
Practice finance and operations: See our growing resources for dermatologists on the business side of practice.
RVUs explained for dermatologists: Learn how Relative Value Units can impact your compensation.
How to read a balance sheet: Access our beginner’s guide to balance sheets.
This content was created with the particular needs of early-career dermatologists in mind. See the rest of our Career Launch resources for young physicians.
