To me it seems like PE has simply discovered a loophole in the system. We want a system where creating value for people is rewarded, but PE has found a way to legally get the rewards without improving society. Normally this is called a scam or a fraud, and there are laws for standard stuff like taking people's money without giving them what you promised.
For PE however, they've found a way around it, using the machinery available in the economy. For instance, once you are able to pay out a dividend that covers your cost of purchase, whatever comes next doesn't matter a whole lot from an investment point of view. You may have saddled the target with a huge debt, but that's a heads-I-win-tails-you-lose situation. If the firm does ok, PE actually win more. If it goes bankrupt, oh well. PE firm is still doing fine.
The risk is entirely on all the other interested parties: employees and customers.
But because we only have one side of the "created value" balance, all we can really see is some PE guys get paid. We don't see the other side, which is pretty hard to untangle. You can make an argument that everyone is better off with society organized this way, but you can't really ignore that many people seem to think they're worse off in this world.
I think it should be illuminating to balance narratives like this with simple questions along classical economic lines:
1. Why is private equity ending up with all these resources? Who is selling to them and why? Why didn't this happen before? It's not like PE is new.
2. When PE loads up a firm with supposedly unsustainable billions of debt, someone is on the other side of that transaction, lending the billions. Who does that and why? Are they perpetual suckers, unaware of the decades of experience we have doing this?
I don't necessarily think the conventional prestige media narrative around PE is wrong, but it never seems to get around to asking these basic economic questions. It can't be as simple as some metaphor where bandits are roaming the economic countryside pillaging innocent victims. Voluntary transactions are occurring and we need to understand why to address any underlying issues.
"Unpleasant things are happening, we need some sort of regulation" doesn't seem like a sufficient basis for socially beneficial action. Whatever underlying issues are making healthcare an attractive PE target will probably persist, and maybe get worse, if all we do is pass some kind of "PE bad, stop PE" law.
My current working theory. Happy to hear from any of the actual PE people who are reading this.
1. As you can imagine, not everyone has the wherewithal to launch a PE firm. Only people who are well connected in the financial world will get access to the funds. People who have friends in the investment sector for instance. There's plenty of stories about how VC (which isn't the same thing) investment is hard to get a meeting for if you don't know someone in the firm. PE works in a similar way, certain people know the players and get the deals together. Of course a lot of it is a promise of future business.
2. When a firm is acquired, the M&A advisors that did the deal get paid. When a firm is restructured (from bankruptcy), the same happens. Lawyers as well. These people all get paid to make the deals happen. Part of what happens is the M&A people will talk someone in the lending department into doing the deal. And remember it isn't just one bank or one lawyer or one lender on each deal. The lenders will all take a piece of the debt, which can be sold on (eg packaged in various tranched products) to investors (pension funds etc). If you smooth out the poop enough it doesn't smell so bad.
That's what I can glean from my far corner of the financial world, while I do work in finance I'm pretty removed from PE.
It feels like most answers to “who is at the losing end of any transaction” is pension funds, which are guaranteed by the government. So by your theory PE firms are sucking in taxpayer money by fleecing pension funds run by financiers who aren’t smart enough to get into PE.
Basically until pension funds aren’t bailed out by the government this will continue.
I'm adjacent to the space and I'd disagree with this statement: "fleecing pension funds run by financiers who aren’t smart enough to get into PE."
Institutional Investment Funds (pensions, endowments, sovereign funds, etc) need returns well beyond inflation to ensure long term stability.
To do this, they will mix and match various different investment vehicles to minimize risk.
This means a fund will have a varying percentage of funds invested in stocks+ETFs, commodities+futures, cash in hand, real estate assets, IP assets, and greenfield opportunities.
Essentially, you are dealing with dozens of different financial instruments, and while you may have an above average understanding of how all these work, you won't have the resources, staffing, or ability to optimize returns on all these instruments.
This is why Funds end up having VC firms make VC investment decisions, PE firms (itself a loaded term because PEs specialize in different markets and sectors) making equity investment decisions, etc.
If you are able to specialize in one specific sector (aka have both the domain experience and the network of founders, operators, and managers) then at that point you may as well open your own firm and manage investments on the behalf of other institutional investors.
It's all about specialization.
Also, fund operating costs cannot exceed more that 2%. This means you can only really charge AT MOST 2% YoY on the entire value of the fund. That 2% will have to cover your entire expenses (salary, insurance, office space). This means most operations have to be extremely lean as there isn't much money to spread around.
And what do they accomplish with all that complexity and the absurdly large up-to-2% expense ratio? Any evidence that these funds deliver better than index returns after fees? Or is it just a jobs program for the spreadsheet set?
Some of the sovereign wealth funds like the Norwegian one and the Middle Eastern ones aim for a 10% annual return. They are extremely stringent about which funds they invest with, and in most cases they go for direct investments rather than passive ones. The funds from those are literally used to fund various welfare programmes for their citizens. They also hire some of the brightest, most talented traders and not some PE-rejects.
Just sucks that Western pension funds hire mostly second-tier folks with the right connections, with a few exceptions here and there, or some stupid union bosses, at least from my experience in PE.
Pension funds are investors in PE, they're not the debtors. In other words, if PE firms do well, their investors (pension funds) do well. They're also not stupid
This whole conversation about PE is non-sensical. It's all based on this naive notion that PE firms borrow money to buy investments and use that money to pay themselves, more often than not bankrupting the original company, and since it was borrowed money, they can come out unscathed.
But no one can answer, why would anyone lend PE firms money if it's a bad investment? Debt normally doesn't have an upside. Best case scenario is you get paid back what you're owed plus interest.
A lot of online criticism can't even get the relevant players right and relies on naive tropes like "they're greedy" or "corruption", as a hand-wavy way to explain complicated dynamics. And then they throw out theories that could be dispelled by reading the first few paragraphs on investopedia regarding PE firms. Why is the discourse in this particular field so poor on hacker news? Low quality conversations regarding technical topics would not fly on this forum. If someone mentioned Y2K and you made a low quality comment like "greedy corporations wanted to save money by not storing more than 2 digits for the year", you would get downvoted to hell. So why does this topic have such poor comments?
> But no one can answer, why would anyone lend PE firms money if it's a bad investment?
Remember the housing crisis? As long as you can align the debt with an appropriate tranche, institutional investors like diversification and risk (in that part of the portfolio).
Also, these types of debt can make money in the short term. My father in law bought a beach house with a KMart bond trade. After they emerged from bankruptcy, everything was great! (Lol)
I’m sure this won’t be a popular opinion, but I believe it’s basically class warfare at work. You have, here, a lot of upper middle class engineers whose egos are protected if they believe that the richer class is greedy and unethical.
I believe this to be the case also. In the UK we have lots of cases cropping up of PE being the bad guys, but the current owners being to blame for buying these companies in unstable positions and allowing the sellers to make fortunes. It does often seem like it is Pension funds making these poor investments. I am also really happy to see this line of questioning on HN, as it has been lacking in previous discussions.
Wrong. PE investments today make a small portion of the overall portfolio of a pension fund (varies from state to state). In widely swinging markets a PE form that does not speculate in the market but buys and flips with a lot of expertise a private company, and often generates higher and more sustainable returns. This is a reason why PE investments by pension funds are increasing, but they still make a small portion of the pie. In addition, pension funds are not funded through tax money but through portions of ones wage. And not all pension funds are from the state (e.g. CalPERS), most of them are run by pension fund specialized corporations or if big enough by the employer itself.
Regarding 2, the still requires you to believe that either Banks or Pension funds are fine with hemorrhaging millions or billions of dollars buying PE debt and haven't figured it out over the course of a half century.
I think the real answer is more unsettling for some. PE debt has volatility but is on net a profitable investment. You can smooth out volatility with volume and by spreading it around.
This is the only explanation that doesn't depend on a source of dumb money that can never learn buying this debt.
I'd be willing to change my opinion I came across data showing that PE debt has net losses over a multi-decade time scale.
That's certainly a possibility, but I wouldn't put it at the top of the list without ruling out the possibility that they actually make money.
Where does the claim that PE debt is a loser come from?
According to one of the top links on google, state pension returns from PE investments is almost twice that of their stock investments if you look at 2000-2021 (11%/yr vs 6.9%/yr)
Those returns are completely different. Private equity assets cannot be easily sold. Try realizing that 11% return and you will quickly see it does it not exist. You need to take a substantial haircut to sell.
> This is the only explanation that doesn't depend on a source of dumb money that can never learn buying this debt.
No it isn't. A simpler explanation is that the people making the decision aren't the ones paying for the failure. I see this all the time at the executive level in finance -- people will knowingly make bad deals if it gets them their bonus.
> the M&A people will talk someone in the lending department into doing the deal.
According to the standard narrative, lenders have been repeatedly duped into throwing billions into bad PE investments for decades.
If you had a friend who asked for a thousand dollars every month, always promised to pay you back and never did, how long would you continue to give him a thousand dollars each month?
If "talking" alone can accomplish this, I think we need to start considering the intervention of supernatural forces in these deals.
It's the agency that causes the issue. And a little bit of financial engineering.
Say you have a friend who often can't pay back his debts. But he can pay 80% of them.
You have another friend who wants to lend to safe debtors. Why not get that safe tranche, the bottom 80%? He needs to show he's safe so he can take more risk. He loves going out to dinner with you.
Another guy wants to take some risk. You give him the 20%, but you also let him into some other deals that you have, so that he doesn't always lose. In fact, it turns out this guy isn't paid on the returns, he's paid on assets managed. And he's not even going to be around that long, he'll be onto the next role long before the bond is up. And they're in a bag of other stuff anyway.
Turns out you're not even the guy lending the money. You work on a transaction basis. Your next job might be as one of the friends. Or on the PE side.
So you and your buddies keep skimming a bit of the money off each year, well mixed with other stuff that you are managing.
Everyone knows fraud exists, yet fraudsters continue to flourish; they are good at leveraging new technology and tropes to rebrand themselves.
Consider the frequent complaints about scammers marketing substandard products on Amazon; the issue is well understood, the markers of scammers are well identified, but Amazon does nothing about it because the lesses from disgruntled customers are less than the revenue from shapeshifting scammers.
1. Connections talk, but money talks even louder. The companies they buy are also trying to sell for top dollar and rarely court just one buyer.
2. CLOs are definitely problematic, but the current rate of default is vastly overstated. If private credit defaults at the rate people seem to think it does, we'd be looking at a GFC-type situation. I can't say if there's systematic risk in CLOs a la MBS, but any possible risk hasn't materialized yet. The biggest PE firms today rarely default. Blow-ups such as Toys-R-Us are newsworthy for a reason.
See my comment below for more information. I'm not in PE, but I am very familiar with how the sausage is made.
1.) PE is enabled by easy money. If you look at the PE industry, the entire sector was enabled initially through the rise of junk bonds in the 80s, bonds so "worthless" but cheap issued by high risk companies (everyone was issuing bonds back then) with high reward for the winners - kinda like VC as an investment. In recent history, it was the ZIRP and of late money-printing. Easy money with high returns always pulls out money from more conservative investments like government bonds or blue chip stocks, and into more risk-tolerant sectors like PE and VC.
2.) Underwriting banks issue the debt for the PEs. They get paid handily, both from the constant debt payments PE firms take out of cash flow and from repeat underwriting business as investment bankers for future deals. Banks have their own ways of disposing junk debt that fails, but usually PE debt doesn't fail - the only ones being shafted are the company employees and the company itself. The management of the company, the owners and shareholders of the company, and the PE firm itself all make out of it like bandits.
Nowadays, the traditional bread and butter of PE, such as leveraged buyouts, are mostly gone, with most of the returns coming from other avenues such as Real Estate (like buying up homes in Western cities), Emerging Markets and more passive investments in family/practitioner-owned businesses, like the Healthcare space.
So emerging market investing is quite different from normal developed market investing, simply because each dollar goes for a lot more in an emerging market.
To give an example, the RJR Nabisco takeover cost KKR north of $30B in the 80s. Massively leveraged takeover that ended up flopping so hard because of the amount of debt that KKR loaded up Nabisco with. But if a PE firm were to seek a similar Emerging Market equivalent opportunity, say Ulker Biskuvi in Turkey, it would only cost it $500 million. The PE firm does not need to load the company with debt - they can simply cut costs in the company, increase cash flow and make pay from that, eventually listing/selling off the asset on the local market (on the other hand, a Nabisco relisting would have been a nightmare for banks).
A similar thing is happening in India currently - Blackstone is buying up commercial real estate by the boatload in India. Expensive for local PE firms, but relatively much cheaper for Blackstone compared to buying stuff in Europe for instance.
Full disclosure, I don't work in finance, so I may be getting a bunch of this wrong.
> Why is private equity ending up with all these resources?
Because they have cash, mostly from pension funds and insurance companies.
> Who is selling to them and why?
The doctors running the practices, more generally they're rolling up companies in relatively dispersed industries where they believe they can make money.
In the best case, this is because replicating administration across many SMEs is much less efficient than centralising it. In the worst case, it's a way to buy them companies with the cash flows of the company themselves, and pay out fat dividends while gutting the actual business.
Why didn't this happen before?
Really low interest rates super-charged the amount of money that PE could borrow , and helped them raise money because insurance and persion funds needed to get above premium returns which were hard to find because of said really low interest rates.
Additionally, banks became much less likely to lend money since the 2008 crash (because of requirements around capital buffers) so PE was basically the only game in town.
Honestly though, I think the good times are over for PE, as most of the industry (and finance in general) has been cushioned by a low interest rate world, and as debt starts to cost real money we're gonna see a _lot_ of these bets unwind.
> When PE loads up a firm with supposedly unsustainable billions of debt, someone is on the other side of that transaction, lending the billions.
Banks. Again, these loans are assets, and assuming that the business continues as normal and interest rates don't rise, these were OK(ish) risks. More importantly they built a bunch of relationships with the PE people, so it wasn't about any one individual loan, but rather the constant amount of deal flow.
On the last point, interest rates aren't the only thing that matters to loans. The default rate also matters. If I borrow a billion dollars from you to pay myself and I have no good plan to pay you back, it doesn't matter how low interest rates are, you'll still be out a billion dollars.
> If I borrow a billion dollars from you to pay myself and I have no good plan to pay you back, it doesn't matter how low interest rates are, you'll still be out a billion dollars.
In a hypothetical zero interest rate world I can keep paying you the $0 "interest" to not have to pay back the billion. Only when the interest rate goes up do we find out who actually had any intention to ever pay back the original.
If the business is still viable with the debt load, the bank continues to get paid on the loan but whoever owns the company doesn't get much profit. There are plenty of businesses or there that exist but don't thrive or grow, the PE sucking of vitality just moves businesses that might have thrived into that category.
> Honestly though, I think the good times are over for PE, as most of the industry (and finance in general) has been cushioned by a low interest rate world, and as debt starts to cost real money we're gonna see a _lot_ of these bets unwind.
Maybe the current bets will unwind, but I'm not sure that means there won't be a good time era of another round of bets. After all, interest rates were very high in the 80s, and that was a heyday for PE, right?
Sure, but that the first day of PE, they had loads of massive conglomerates to strip. Those are all gone now, and the current management structures (except in tech) are hostile to insourcing so there's not as much fat to cut.
Like, definitely some PE firms will survive, but I'm willing to bet (not short though ;) ) that an awful lot of them will go belly-up/be unable to raise more funds in the next 5-10 years.
Big PE firms are now setting up new investment vehicles that specialize in funding big investments of other PE firms. PE firms are starting to invest more and more into equity with their own investors money, thus amount of investments shrink - get more expensive - and the capital needed rises. But I am not sure that this causes more PE firms to close shop on a large scale, but more likely resulting in less transactions being done overall.
> Why is private equity ending up with all these resources?
Most of the cash (50-90% - changed through time to time) comes from the banks - leverage, the investing commitments to the PE firm by e.g. pension funds and private invetors, take only a small portion of the equity. The leverage enables the high returns of PE funds, the high debt burden on the company incentivizes the PE firm additionally to make the bough company more efficient and profitable. But this has changed through the last few years. PE firms are starting investing more of their investors money, due to lack of banks providing big loans for big transactions.
This is where discussions break down because there's broad disagreements on what is and is not considered "voluntary" - there are ethical/moral traditions that claim nothing is voluntary, while others that claim everything is.
We can gain clarity by defining the opposite then: Involuntary
So, what set of circumstances would be required to declare that someone is doing labor "Involuntarily?" and thus there is no "free market" for labor.
For example, would you say that the person who is manually sorting trash out of recycling for <$40,000/yr [1] is doing so voluntarily?
Maybe someone really loves that and wants to do it and would do it for free. That's possible but unlikely. Maybe someone made decisions such that this is the only job that they can get without moving or some other major life decision. Is that still voluntary simply because they are in that position? Assuming they aren't disabled, they can always put their things in a bag and walk to some place with more options. What of people that are disabled then? How much of what they do is voluntary? You get the point
The challenge then is asking, given that there is no OBJECTIVE answer to the question of what is voluntary (Extreme example: You should be constantly trying to break out of prison, otherwise you doing what the guards tell you to is "voluntary") then "voluntary" shouldn't be a discriminator on whether society has something to say about a transaction between people.
Extreme (unreasonably IMO) freemarketeers view individuals as atomic complete units and that's the end of the story. So irrespective of starting or current positions EVERYTHING is voluntary and the world is all-v-all pvp no hold barred competition. That's who is in PE and finance, so that's what you're up against.
Volanturelly, in my mind, means that you can decide how to employ your resources as you wish (e.g., time education, capital, skills). If your resources allow you only ever a few options, like sorting garbage, you are still doing it voluntarily. If you have many resources (not necessarily material, e.g., education) this will give you more options.
Your abilities are teaded agains all other ppl's abilities in a free market.
There are complications to this view, but the example with sorting garbage, in my mind, is actually an easy case. Yes it is definitely voluntary.
>You can decide how to employ your resources as you wish
Thank you. So would you say the following is a correct interpretation of your argument:
"Any action or set of actions is voluntary, provided there are at least two choices"
Follow up question which I do not mean sarcastically or anything other than explicit:
Do you consider "Die/cease to function" a persistent choice? That is to say, if there are only the following options: [x, die] then because die is an option, anything for x is always voluntary?
“Do this or die” does not imply meaningful choice. It doesn’t matter if that death is from murder or starvation. For all of us who are not independently wealthy “work” is involuntary, but choice of jobs often (but not always) is voluntary.
> “Do this or die” does not imply meaningful choice.
You are upset that the person does not have good options. But that does change anything - deciding to accept a job offer does not make the work involuntary.
You are focusing out the outcome, but outcomes are not the question here, choices are. The employer is not responsible for the way the universe exists, and they are not forcing the person to live in it.
You're suggesting a different definition of "voluntary" which is:
>the person giving you the choice is not the one creating the choices
Who is creating the choices if not the people who are offering the jobs?
>So your choice is "work", or "starve and die"
So then you've answered my second question above, which is, if there is a persistent acceptable choice of "die" then any alternative must be voluntary.
My question is, from your perspective unless someone is physically restrained then anything they do is purely voluntary?
> Who is creating the choices if not the people who are offering the jobs?
Is that a real question? The universe create the choices. This person offered a job - they are not God, they do not have control over the person. They simply offered a job. I guess you would rather they didn't offer the job?
> My question is, from your perspective unless someone is physically restrained then anything they do is purely voluntary?
Obviously. Although there are other kinds of restraints, threats for example.
I mean, any other definition leads to contradictions and ridiculous situations where employers are blamed for offering jobs to low value occupations.
I can't find it right now, but someone wrote an essay that basically boiled down to how when people help others, instead of getting credit for what they did do, they get blamed for what they could have done.
That's what you are trying to do. In such a world no one is willing to help anyone.
Rephrasing: As long as there are two independent people making offers, your choice between the two offers is voluntary. (Do not forget the 3rd option: accept neither offer.)
You clearly didn't read what I wrote, because your options do not match the situation I wrote.
I mean you wrote two basically the same companies, while I clearly said "independent", and you wrote "Would you like to starve", i.e. these companies are telling him work for us or don't work at all, while I clearly wrote that the person giving the choice must NOT create the choice.
And in Sophie's Choice the camp Dr setup both options.
I have to ask: If you are going to ignore what people say to you, why do you even bother replying? If you just want to tell people your opinion post it as a top level comment, not a low effort reply.
> Rephrasing: As long as there are two independent people making offers, your choice between the two offers is voluntary. (Do not forget the 3rd option: accept neither offer.)
I then make a very obvious example where there are two independent companies offering similar crappy jobs. Plus your 3rd option.
There's no one person giving the choice, there are two companies and your third option. Perfectly conforming to what you say:
> clearly wrote that the person giving the choice must NOT create the choice
Ok? So there is a situation, a very obvious one, that arises from the conditions that you're claiming making something voluntary. You have two different companies offering substantially the same thing. Now it is voluntary when the outcome is no different from if there were just one company offering the (only) choice.
That is clearly something you will have to explain. I know you can't see how many upvotes a comment has, but I can tell you it doesn't seem like I am the only person who has spotted this.
> And in Sophie's Choice the camp Dr setup both options.
But it is also a term that means "an undesirable decision that has to be made".
Before you accuse other people of not reading, I think it's worthwhile to have a scan for irony.
> ... someone is on the other side of that transaction, lending the billions. Who does that and why? Are they perpetual suckers, unaware of the decades of experience we have doing this?
I listened to a podcast interview with a financial professional who advises public pension fund boards. What he said in all but words was that, yes, the political appointees who actually vote on decisions are perpetual suckers.
Pensions are very rarely lenders. They may invest in lenders but tend to look at historical performance.
Political appointees are not the ones making investment decisions. At most they are setting very broad themes. For example, political appointees are the ones that say all investments must be carbon-neutral.
1 - why didnt this happen before? Thwre was never this much of money created in the system, and Capital was never this cheap.
2 - its usually employees, and sometimes even customers, who are non equity shareholders but long term beneficiaries of the health of the company. Workers usually are not organized well enough to repel a a saavy PE firm. But careful, in some cases, PE may be liberating a firm being sucked dry from low-productivity workers or richly paid pensioners. Its hard to know which is which unless you are diving into the details.
PE is not wrong, just like unions are not wrong, but what matters is what is their management style. Parasite, or builder?
> Why is private equity ending up with all these resources? Who is selling to them and why? Why didn't this happen before? It's not like PE is new.
PE as an investment strategy was pioneered by KKR in the 60's, beginning with the acquisition of family-owned businesses facing succession issues. The strategy exists because there's really poor liquidity for private companies. If you're a founder who wants to sell your stake, you either:
1. Sell to a strategic buyer
2. Sell to an individual
3. IPO
4. Sell to PE
The first three options may not be always viable at a given point in time (aka illiquidity). Strategic buyers aren't always looking to buy, an individual may not have enough capital, and IPOs place a huge amount of reporting burden on a company. PE is the only reasonable exit option for a huge swath of private companies. Take a hypothetical family-owned supermarket chain with 10 locations across 3 cities in the midwest. All the kids are terrible successors. Who's going to buy it?
1. A strategic buyer, such as Walmart, may not be interested right now.
2. An individual probably doesn't have enough enough money to buy the whole thing
3. An IPO saddles the business with reporting requirements that simply don't make sense for a supermarket with only 10 locations
People sell to PE because it's often the only way to exit. Almost all bootstrapped companies belong in this category. At the end of the day, PE funds are simply groups of professional investors that specialize in buying out companies. If they are poor investors or poor operators, they will tank the company. If they are good investors and good operators, they will sell the firm for a profit in the future.
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> When PE loads up a firm with supposedly unsustainable billions of debt, someone is on the other side of that transaction, lending the billions. Who does that and why? Are they perpetual suckers, unaware of the decades of experience we have doing this?
Many people offer debt, from private credit funds such as Golub Capital to bank syndicates. The best lenders are not suckers and the best PE funds almost never default. Oftentimes, the PE fund itself is collateral. PE funds that regularly default will have a difficult time finding a lender.
People also misunderstand the purpose of debt. It's simple math:
You want to buy a company for $100M. You can buy the entire thing with cash and sell it again after it doubles in 5 years, netting yourself $100M, giving you a 1x return.
Alternatively, you can pay $20M down and borrow $80M at a 10% interest rate (simple interest for ease of calculation). When you sell it for $200M in 5 years, you net $200M - $20M - $80M * 1.5 = $60M, giving you a 3x return.
Obviously, you've also increased the risk - your business must be capable of paying off an extra $8M a year in interest.
Ready for a fun conspiracy theory? Guess where most PE guys start (i.e., where their base professional network is developed, where their expertise is, etc.). If you correctly guessed "Ivy League undergrad and business schools" and "investment banking", you can probably tell where I'm going with this. The gameplan is simple: lend your buddy the money to buy the business. Now you have a line to the person who has the most access to data about, if not control over, the direction of the business. Wherever it happens to go, you can be ahead of the market. Long if it's going to survive and grow; short if it's doomed. He's happy because the decision to be lenient or aggressive about repayment lies with his own contact - you.
How do you get businesses to agree to your terms? Well, they hired consultants at some point. Oh, those guys are your buddies, too. You have acquaintances on the BoD, too.
Why go through all the trouble? Besides the fact that you're becoming filthy rich, you also have the opportunity to remove rivals and consolidate markets under an n-opoly. More money. More control.
>"Unpleasant things are happening, we need some sort of regulation" doesn't seem like a sufficient basis for socially beneficial action.
How about fraud and insider trading?
I realize that this is a simplistic and somewhat paranoid take on the matter, but in a society with a broad and continuous history (distant and recent) of corruption at elite levels, maybe securities violations and revolving door employment aren't just for our politicians. I wonder if we're dealing with Occam's Razor: how are PE firms achieving phenomenal profits while the businesses they use to do so die? Easy: they're cheating.
> The gameplan is simple: lend your buddy the money to buy the business. Now you have a line to the person who has the most access to data about, if not control over, the direction of the business. Wherever it happens to go, you can be ahead of the market. Long if it's going to survive and grow; short if it's doomed. He's happy because the decision to be lenient or aggressive about repayment lies with his own contact - you.
But if the business is privately held (because the borrower used the loan to buy the business), then what market is the lender going long/short against in this hypothetical conspiracy? Other (public) businesses in the market? Potential investors when the PE firm sells and takes the business public?
That. Or, you have been shorting the company for some time, because you know it has been targeted for demolition. A PE takeover is the signal that you no longer need to hedge those shorts; the company, loaded with the debt used to purchase it, will soon go bankrupt, and you will be absolved of closing your short positions, for all practical purposes.
This may not apply to the subject of the article (PE firms buying medical establishments), but it may speak to the character of their new strategy. Perhaps they won't kill this goose because they payer has endlessly deep pockets.
> A PE takeover is the signal that you no longer need to hedge those shorts; the company, loaded with the debt used to purchase it, will soon go bankrupt, and you will be absolved of closing your short positions, for all practical purposes.
I think it's just the opposite: you'll be forced to close your short position when the PE company buys. When PE firms "take over" a public firm, they generally take it private, and the takeover involves buying all outstanding shares, typically at a premium over current share prices.
I don't know if that's necessarily the case, in practice. Aside from the cases where a PE firm does keep the company public, there's at least one case where short-sellers weren't made to close out their positions when a company was taken private (Next Bridge Hydrocarbons, if you're curious).
How did that work? The company became privately owned, but somehow someone was still betting on the price of some public shares in that company? How's that possible?
IIRC, public trading was halted several days early due to an "extraordinary event." It was never restarted, CUSIP was removed a few days later. Short positions weren't closed and long positions are sitting in brokerage accounts.
The victims never consent to the sale. They have no say in the transactions that victimize them. You're looking at two parties making a transaction and assume that those are the only two parties that are part of the transaction.
This can be true of any corporate sale though. How do we distinguish sales that must be stopped because there are victims who must be protected from other sales?
It’s extremely rare for a forced sale. Usually it’s a public company and shares are purchased on public exchanges, or for privately held companies the board and shareholders approve the sale.
It’s not that these are the only people impacted by the sale, but it’s the best method possible to govern sales.
I think the idea here is that the "victims" are people needing or wanting medical treatment, and find it's made impossible for them to get it. Yes, they're not really involved in the transaction but still have something taken away from them.
You could argue that it's the government, medicaid and medicare especially that are taking away from them ... but that doesn't make as good a scapegoat as banks and pension funds. Sorry, not pension funds, I mean evil private equity investors ...
> When PE loads up a firm with supposedly unsustainable billions of debt, someone is on the other side of that transaction, lending the billions. Who does that and why? Are they perpetual suckers, unaware of the decades of experience we have doing this?
In at least some of the cases, the answer is absolute corruption with PE paying the other party “on the side” to sign off on a deal only a sucker would agree to.
See for example this piece of investigative journalism into Medical Properties Trust and just how many red flags and obvious bribes were involved (not to mention potential murder to cover up their misdeeds!!): https://prospect.org/health/2023-05-23-quackonomics-medical-...
Wrong. Banks who provided billions in loans to PE firms for decades, are now getting more cautious. But not because they fear of a failed investment, but certain investors of the bank do and that means problem for the bank. The Banks actually don't care what happens to the company being bought. An investment bank which provides a loan never sits on its debt. They are bundled into financial products like CDO, CLO etc and sold to institutional and wealthy private investors. This bought the rise to a new ''era'' recently, where PE firms set up special investment funds to fund big acquisitions of other PE firms. The reason being the current situation of the financial markets and the general negative mood in the markets.
I wasn’t referring to the banks but the owners (or rather, the controllers) of the businesses that can obtain cash against the value of their property/assets or from the value of their business. These aren’t always individual loans in the hundreds of millions of dollars; the debt can be accrued piecemeal.
(I’m also not talking in general but rather about certain specific cases/forms.)
In a high interest rate and pessimistic market environment, raising funds for a stumbling business is not easy at all. PE firms are specialized in such risky investments, thus the option of a buyout from a PE firm is the best thing that can happen to an owner. Its the owners own free will to sell or getting the hard way and try to save his business.
The comment above completely fails to address the parent's claim. The parent claimed outright corruption in some cases, and cited an article which extensively documents such outright corruption.
"Wrong" is applicable to this reply rather than the original post.
Again, wrong. The original post completely fails in its argumentation. As I stated above the investment banks providing the loans are not 'perpetual suckers'. They know what they are doing. If PE financing were such a bad game nobody would provide loans in the first place. An industry achieving good returns for decades does simply not need to bribe capital providers. Bribing high ranking decision making bankers is the most ridiculous thing I've ever heard, this is not an governmental official. Claiming overall corruption as a fact and linking to one article (which isn't even about the capital providers for PE firms - the overall point of the original post) is simply irrelevant.
> Why is private equity ending up with all these resources? Who is selling to them and why? Why didn't this happen before? It's not like PE is new.
Exploiting financial loopholes is like hacking. We see more hacking these days because more people depend on these systems, and more exploits are found.
Note: "hacking" can be defined as using a system in a way it was not intended to be used. Hacking is also punishable by law. PE firms and the like should not get away simply because they are following the law, as they are abusing the law in the same way as hackers abuse computer systems.
>1. Why is private equity ending up with all these resources? Who is selling to them and why? Why didn't this happen before? It's not like PE is new.
Centrally planned benchmark interest rates below market equilibrium took capital away from activities that produced value today and handed it to people who promised unrealistically optimistic future growth. Central planning doesn't work.
People have gone from criticising the FOMC to openly mocking it. Google 'transitory meme'.
2) Older doctors, stomatologists etc... Running an individual practice is a challenge, requires constant investment and learning and at some point in life there is an incentive of larger cash out.
And why? Because as West deindustrialized potenial for profit lays in high-value services. Instead of an aluminium smelter you purchase 100 of orthodontist practices. After purchase you cut on costs, raise prices and the investment pays out rather quickly....
> someone is on the other side of that transaction, lending the billions. Who does that and why? Are they perpetual suckers, unaware of the decades of experience we have doing this?
The lenders in a PE buyout are securing that loan on the assets of the purchased company. Real estate, brand names, IP, capital equipment. Their worst case scenario is that stuff all gets sold off and they get paid back from the firesale proceeds.
The losers are the customers and employees of the company. When we talk about company efficiency, we generally mean ROI. But an inefficient company may be inefficient because it's providing surplus value to either its employees or its customers. When such a company is bought by PE and sold for parts, customers/employers are forced to deal with more "efficient" companies that are better at "capturing value".
If you zoom out a bit stuff like this is, I think, why modern products tend towards increasing monetization, selling of data, rental instead of ownership, etc. You either treat your customer like garbage, or you get bought by PE and replaced by someone who does.
For #2 - I'm not a PE insider, but I'm pretty aware of a lot of corporate dynamics in big tech, which increasingly seems like it's indistinguishable from any other corporate sector. I think we have a habit of thinking of companies/firms as individual actors deciding what's in their best interest, when in reality it's basically an oligarchy of either C-suite execs or boards of directors determining what's going to happen to the rest of the company. If these people want to get rich quick, and I'm guessing they do, since this is probably the end game for 99% of them, then private equity is their answer. They likely don't really care about the employees or the future of the company as an end in itself, just a means to enrich themselves, and so if PE presents this opportunity without those strings attached (i.e. by splitting the dividend recapitalization or the real estate leasebacks with the execs in the form of 'bonuses') the execs/boards will likely take it.
TL;DR - PE can't exist in its current form without extreme power/ownership imbalances within the firms they take over and run into the ground. This has probably been increasing over time, hence why PE has been getting worse over time.
> To me it seems like PE has simply discovered a loophole in the system.
The fundamental loophole is that "the free market" is practically a religion in the United States (the so-called Invisible Hand taking the role of a god doling out rewards and punishments), and a significant portion of the population is vehemently opposed to any regulation of capital. You can even see this attitude in some of the comments here, where commenters are claiming that the problem is too much regulation rather than too little.
Moreover, political campaigns are financed by private "donations" (i.e., legal bribes), so the lawmakers themselves are practically indebted to wealthy interests who don't want to be regulated.
In the US, the problem is too much regulation but that regulation comes from different levels like insurance companies, medicare, medicaid, etc.
I know somebody who owns a therapy business. Medicaid rates have not increased in 15 years and increasingly make it harder and harder to do your job. The level of stress and pressure it creates is intense.
What do you think is going to happen when private equity comes around and offers an exit?
I can't speak for the pressures on doctors as confidently, but I can assume there are similar issues.
So what you end up with is regulatory pressure that is forcing the market to a certain position, which makes private equity seem like the only realistic escape. In a true free market, this wouldn't happen or it would be significantly more expensive for the PE firms to make acquisitions. The businesses would either fail quickly or become successful enough to increase their rates and thus the compensation for their employees and owners, which removes incentives to sell.
I was at a sporting event earlier this year where I overheard an exec from an insurance company (I was a guest of somebody with pricey tickets). He was complaining about how a hospital was forcing them to increase rates after being willing to drop them as an insurance provider, because the insurance company would lose all business in the area of the hospital wasn't on board. It's a microcosm of the stuff happening behind the scenes.
> In the US, the problem is too much regulation but that regulation comes from different levels like insurance companies, medicare, medicaid, etc.
If only there were a single payer. ;-)
Seriously, there should be single-payer health care. Also, there's the fundamental question of whether you view health care as a political right or as a personal privilege. The free market is very good at serving the privileged, not so great at serving everyone universally, equally. If you're ok with millions of people having little or no health care, that's definitely what you'll get with a totally free market for health care.
The problem is not single payer health care, it's that the single payer that does exist (both medicare and medicaid are single payer) has decided not to increase the amount of money available, not even inflation adjustments, for 15 years.
How good would you feel about your job, even if well-paid initially, after 15 years of no raise. Not even inflation or cost-of-living adjustments.
And would you sell if someone came and offered you money for your customers, knowing they'd get screwed sooner or later?
> it's that the single payer that does exist (both medicare and medicaid are single payer) has decided not to increase the amount of money available
Excuse my ignorance as a non-American, but I don't understand how Medicare and Medicaid can be called "single-payer", even if we bunch both of them together for the sake of the argument. Are certain healthcare providers restricted so as to only accept Medicare and/or Medicaid patients, and cannot by law accept those who are privately insured or would like to pay out of pocket? That is the only context in which I can imagine Medicare/Medicaid being called "single payer".
Single-payer as in the government pays. We have Medicare, Medicaid, and veterans all covered by the government. If a provider wants to serve those markets (old, poor, vets) they have to accept the rates offered by the government.
Single payer in the US simply means the patient doesn't front any money. The doctor/hospital/... just gets the money for medical services rendered directly from insurance (and insurance collects things like a deductible from the patient, not the doctor. Essentially, insurance guarantees payment to the medical provider and deals with all patient financial matters). Medicare and medicaid are single payer.
Things aren't called the same thing everywhere. For example, "single payer" is called "third payer" in Northwest Europe.
Expensive (e.g. expat) insurance tends to be single payer/third payer even though it is 100% private insurance. You just go to a doctor, they help, other than your insurance card, no questions asked.
> Single payer in the US simply means the patient doesn't front any money.
No, that's not what it means.
> The doctor/hospital/... just gets the money for medical services rendered directly from insurance (and insurance collects things like a deductible from the patient, not the doctor. Essentially, insurance guarantees payment to the medical provider and deals with all patient financial matters).
You seem to be describing medical insurance in general, not single payer health care.
Uh, that’s pretty much the definition of single-payer, at least as commonly used.
From Wikipedia:
Single-payer healthcare is a type of universal healthcare in which the costs of essential healthcare for all residents are covered by a single public system (hence "single-payer").
The difference here being the US has a fractured system, with several government systems (but from the same government). Medicare for All would be try single payer.
Large purchasers dictate pricing or discounts on suppliers everywhere. Walmart is famous for it. I can certainly understand the frustration, but the flipside is most people on Medicaid couldn't afford market-rate services anyway. Since we don't have a single-payer health care system in the US, unless your friend is legally required to accept Medicaid, I'm not sure this a regulation issue.
I want a political cartoon that shows "The Free Market Ideal" with a bustling market full of wooden stands with fruit and produce, handmade goods, handmade signs, lots of people making choices and talking with the merchants one-on-one, haggling over prices, etc.
The next cartoon pane shows "The Free Market Reality", and it's a bunch of tired looking people standing in line for one of two automated computer terminals.
The truths portrayed would be: Those selling in the market have automated processes, there is no talking with the merchant, no haggling over prices, and there are not dozens of carts to choose from, in many markets there's 2 or maybe 3, or sometimes only 1.
For what it’s worth, I don’t like a lot of government meddling. Not because the free market is so great but because the meddling works out poorly and is subject to worse kinds of corruption and power games.
Political discourse too often talks about "capitalism", "socialism", or "communism", and half the people using those words don't know the difference, only that capitalism is the good American one. I'd like it if we instead focused on more understandable clichés, like "consumer choice is good", "market competition is good", etc. When considering a new regulation it's hard to discuss whether it's socialist or not; it's easier to discuss whether it will increase consumer choice, or make entering and competing in markets easier for new companies.
We get one group talking about capitalism and what they like about it is consumer choice and free market competition between several companies. The next group likes capitalism because of wealth concentration and their ability to warp society with their money. Both groups talk and agree capitalism is great, without realizing they have very different things in mind.
“…it's easier to discuss whether it will increase consumer choice, or make entering and competing in markets easier for new companies.“
But then you also need to discuss the government power structures you need to put in place to create and implement that regulation. And when you look out ten, twenty years how that power structure will be twisted and abused.
Government always offers the same deal: grant government more power and they will solve problem X. But over time the people wielding that power change from people interested in problem X into people interested in the power. And the power is never contained to problem X.
For me and my friends free market is not a religion, it is thoroughly thought out concept that proved it self over and over again.
I this your count misrepresent the reality.
In my mind, people who oppose free market capitalism usually don't understand how it works.
The good thing is that reality is what settles the debate. What happens is that people vote with their feet --- and millions of ambisious people from countries where there is less free market economy are desperately trying to come to US to realize their full potential, but not the other way around.
> millions of ambisious people from countries where there is less free market economy are desperately trying to come to US to realize their full potential, but not the other way around.
I'd like to see your statistics on immigration and emigration. Most people coming to America are coming from Mexico or the Caribbean, which I would consider to be free market capitalist societies, just poorer ones. How is the free market more restrained there than in the US?
(Note, for the purposes of the statistics I looked at, both Venezuela and Cuba are not generalized to "Caribbean" but have their own categories)
Is Mexico more business friendly than the US? Certainly the US is more business friendly than Brazil from which many immigrate. Though being business friendly goes beyond free markets. Other factors help: the dollar standard, American culture, US geography. But I think you're right immigrants are looking for better opportunies rather than political reasons and culture is a main reason why some emigrate back.
> Why not actually suggest a solution rather than just throwing your hand up at the whole thing?
A solution to which problem?
The solution to the problem of private equity running the medical system is government-run health care, like in most other nations, who spend less on health care per person than the US but whose populations are nonetheless healthier.
Or are you talking about the problem of the severe ideological divide? Or some other problem?
> The solution to the problem of private equity running the medical system is government-run health care
A super majority of the medical R&D is funded by the US system. The gov run systems pay for a minimum of it. Of the U.S. adopts a system like other gov run countries where does the medical R&D get financed?
It shows the U.S. spending 2.4x that of Europe on pharma expenditure as a % of GDP, and 3.2x that of Europe on government R&D health budgets as a % of GDP.
60 Billion a year (if I've read you charts correctly) is a drop in the bucket of US annual medical spending (4 Trillion/year.)
You could pick the next most expensive country's plan, triple US R&D expenditures, and still spend way less. The GP's point about it not being outsized is correct.
You're attempting to introduce a tangential point to cloud the issue, a typical Red Herring fallacy. Bowyakka was 100% incorrect. It is indisputable that U.S. medical R&D spending makes European spending appear insignificant.
US americans are already spending the money that funds that R&D. One possible solution that occurs to me just now (and is therefore very half baked) is that there must be a way they could continue to spend that money to fund research, while also having a functioning medical safety net
1. In Europe and UK, bribery (Let's not sugercoat it as "lobbying". We all know what it is.) is illegal. So people will just do it secretly. In other words, legislation doesn't prevent bad things, in this case, bribery, from happening.
2. In the US, bribery is legal, but hiding the records is illegal. So people will make it public. In other words, legislation does prvent bad things, in this case, covert bribery, from happening.
I guess legislation is just so much more effective in the US.
IMO both are the same. They will take bribes when they can get away with it. In Brazil lobbying is illegal but prevalent and politicians hardly goes to jail and if they go is only because they where being incovenient to their peers. And voters most of the time are clueless and only care about corruption when the other side is doing it. Government main business is expropriating others wealth and redistributing among themselves and their friends.
I think the world is so complex that a politician - especially the sort democracies typically elect - cannot be expected to be an expert in all subjects and things they are supposed to vote on and make rules for. Lacking perfect knowledge, they must rely on outside advice, directly from those affected or indirectly from their assistants and technocrats who advise them. At all points it’s possible to manipulate the outcome.
Given that influence and manipulation is impossible to stamp out, and then realizing that some of those that want to influence are some of the richest and most powerful entities on earth, I would personally rather allow lobbying and donations to be legal, but require all of it to be public. That way you can tell who is taking money from who.
Otherwise, it’s just the mafia and insiders games all the way up the chain.
> Lacking perfect knowledge, they must rely on outside advice, directly from those affected or indirectly from their assistants and technocrats who advise them.
There is a huge dufference between “subject matter expert advises lawmaker to vote some way” and “business tycoon hands a bag of money to lawmaker to vote some way.” Somehow, America has equated the two, and considers them equally acceptable.
Citizens united makes it easy to donate any amount of money to political causes. But there’s still some limited visibility into who is funding the PACs.
People often see the United States as the ultimate free market, but compared to other countries it can be seen as pretty heavily regulated.
According to the Heritage Foundation's Economic Freedom ranking, it ranks 25th, well below "socialist" states like Denmark (in 9th place) and Sweden (in 10th place).
That's a political propaganda piece by a notorious right-wing think tank.
"The Heritage Foundation (abbreviated to Heritage) is an American conservative think tank based in Washington, D.C. The foundation took a leading role in the conservative movement during the presidency of Ronald Reagan, whose policies were taken from Heritage's policy study Mandate for Leadership." https://en.wikipedia.org/wiki/The_Heritage_Foundation
I know they are a right-wing think tank, that is why I referenced them when it comes to rank "market economy" factors that people who believe in and want to have "free markets" care about.
In what way is it a political propaganda piece? From what I can tell it's a pretty transparent ranking of countries by factors that the organisation cares about.
While the Scandinavian countries have high taxes and regulated labour markets, they have deregulated markets, strong property protections and are very simple to do business in.
One of their policy goals is deregulation in the United States. Thus, they have a vested interest in showing that the United States has too many regulations.
And they don't even define what their categories mean. I'm willing to bet that "labor freedom" to them means "right-to-work" and no minimum wage, for example. In any case, without proper measurable definitions, they can easily manipulate their index to say whatever they want.
I think that pages 403-415 provides pretty good definitions[0]
But that's not my point. My point is only that there are aspects of a typical free market economy (by American right wing definitions) that are better represented in countries other than the US.
If you believe this, you should find it pretty easy to indemnify me for the hospital I am starting where I will operate and practice medicine. Be aware that I have no degree in medicine and have majored in Mathematics. Since the free market is a true religion, there must be no regulation preventing this. My hospital is able to compete on pure outcomes.
Of course, I don't actually think you believe this bit about the free market. I think you've been trained to rant here because this community rewards views like that.
You scoff, but read some of the other comments here:
"More like running many kinds of businesses has become more hassle than its worth. Medical malpractice premiums are very high"
"This is the kind of economic distortion that should be expected when onerous government-imposed regulation of practitioners, medication, and medical devices creates barriers to entry that reduce competition. While such regulation may have been imposed to try to increase safety, quality, and consistency, for example, it also ends up interfering with the incentives of the participants."
> Of course, I don't actually think you believe this bit about the free market.
I do believe it. What I said was "a significant portion of the population is vehemently opposed to any regulation of capital", which is not to say that the entire population is opposed. In fact, the population is very divided over this. There's more than one religion. :-)
In any case, the problem as I see it is that capital is very creative and inventive and coming up with new and terrible ways to extract profit, and regulation of these new terrible things comes far too slowly, if ever, precisely because the public is so divided, creating legal gridlock.
You're talking about old regulation. Of course long ago we've established regulations for the provision of medical care. Whereas private equity taking over everything is a relatively new phenomenon.
> I think you've been trained to rant here because this community rewards views like that.
As long as you call it "alternative" medicine, you should actually have a lot of latitude to do so. If you get to the point where you actually kill someone after cutting them open and rooting around, or poisoning them too much, then you might run into some regulation. But if you can avoid that, I suspect you'll be fine.
Yep, just like other "religions", alternative medicine is protected in the US and allowed to operate with near-impunity. The US loves religious freedom, and extends that to almost anything that resembles a religion.
More like running many kinds of businesses has become more hassle than its worth.
Medical malpractice premiums are very high, insurance payouts are stingier, and medicine has become more capital intensive than ever as newer medicines and diagnostics increasingly dominate, along with an aging population that needs more intensive care.
Doctors report being more burnt out than ever. It's an attractive proposition to outsource the hard and messy stuff to a firm that knows the business angle well so that they can keep their sanity and focus on what got them interested in medicine in the first place while still getting a great salary.
I don't love the situation, but let's not pretend it happened in a vacuum.
> Doctors report being more burnt out than ever. It's an attractive proposition to outsource the hard and messy stuff to a firm that knows the business angle well so that they can keep their sanity and focus on what got them interested in medicine in the first place while still getting a great salary.
The corporatization of medicine is one of the major causes of burnout, not an escape from it. I am not aware of any physician who enjoys things like things like "all hands" meetings with the CEO and CMO to talk about the "new vision" for the group. Or doing several different annual/biannual compliance trainings for meaningless BS. Or having to go through several layers of internal bureacracy if they want to buy a new piece of equipment. Or having zero say in the hiring process for the ancillary staff that they work with. Or having very little say in how many patients they see during the day, or during which hours, or which types of diagnoses, or how the clinic staff does intake and rooming.
The docs who are selling their practices to PE are doing so to cash out right as they go into retirement, not to outsource their admin work. Admin work is already outsourced in the private practice model. The practice hires ancillary staff for clerical work and contracts an accounting firm for help with the financials.
No, you've completely misdiagnosed why PE is involved.
It is involved because there is slack on the system in the form of downtime, and it figured out that if it just buys up all the doctor's offices, makes the doctors rush through the cases, and keeps them busy seeing patients every working minute, the practice and it's owners will make way more money.
Quality of care will decline, but unless the doctor is actively doing surgery, or something else risky, whatever money they lose due to the decline in quality will be more than offset by grinding through patients quicker.
It's almost impossible to sue a doctor for malpractice in Texas, yet the exact same problem with PE is happening there, too.
Vets are another example where this is happening - and again, it's not because of frequent $XYZ,000 malpractice settlements. Anything that's not billable hours seeing patients is considered to be damage by the system, and capitalism tries to route around it.
>It is involved because there is slack on the system in the form of downtime, and it figured out that if it just buys up all the doctor's offices, makes the doctors rush through the cases, and keeps them busy seeing patients every working minute, the practice and it's owners will make way more money.
This doesn't explain why doctors are selling though. Why aren't doctors just not selling their practices and taking a more relaxing job running things themselves? Why are they choosing the option that requires them to "rush through the cases, and [keep] busy seeing patients every working minute"? Surely if that was something they enjoyed doing, they could do that and capture all the "slack" for themselves? So why sell your office to someone else to capture all that slack while your own work load increases?
> This doesn't explain why doctors are selling though
Retiring doctors are selling because this lets them cash out their practice for way more than they'd otherwise get for closing it and auctioning off the equipment.
> Why aren't doctors just not selling their practices and taking a more relaxing job running things themselves?
The ones that are selling are the ones exiting the rat race, the downsides aren't affecting them.
So why aren't new doctors opening their own practices? What has changed in the last 20/30/40 years that are leading up and coming doctors to choose working for someone else instead of opening their own practice?
Because the ROI dropped precipitously. Governments were paying much better, insurance companies were paying much better, liability was a lot less, documentation and paperwork was a lot less.
The 80s to 00s doctor years were very good. Now the power is in the hands of the government and huge insurance companies, and to compete with them, you need to be part of a large healthcare provider group, which ends up happening as an employee.
Plus medical school debt and increasing years to become fully practicing like having to do longer residencies and fellowships.
I think they will over time if PE deals start to implode or reveal themselves to be as bad as people claim. But the reaction will take a while to happen.
With partnership-based models, it's not necessarily the case that most of the doctors who owned their practices were necessarily that entrepreneurial. Many probably joined the practice and then became partners after a few years with buy-in and sweat equity. There's some risk and business management involved, but not the same as really doing your own thing. The path was laid out. (Kind of like lawyers at big law firms.)
The real entrepreneurs were the ones who initially founded a practice from scratch. But for some specialties where PE has taken hold, you need a group of people with enough capital to do that, negotiate contracts with hospitals for admitting privileges, wait-out a non-compete from a prior practice, etc. That takes time, and meanwhile, the net share of PE held firms may still increase for a while as other firms continue to sell out.
> So why aren't new doctors opening their own practices?
For the same reason that nobody builds out a second set of power lines to compete with an incumbent power utility.
It's capital-intensive, the size of the medical market for the area is fixed, and you'll just be fighting the established practice for it in a zero-sum game.
You can win, but it's going to be way more work for less reward than just finding a PE practice that's hiring/a traditional practice with spare space that's looking for a partner.
This would be a good argument if it were only medical practices where PE was active and having a malign effect. But that's most definitely not the case.
That just means for numerous professions, running a business is more hassle than it is worth. Accounting, dentistry, massage, etc. all come to mind. Those people want to all practice their field, not deal with licenses, paperwork, insurance, and tax. Everything from burnout to higher required investment to increased regulatory hassle applies to other fields as well.
That doesn't mean that. That is what one might infer if one believed the conclusion were true. But that's only persuasive to those predisposed to believe it. Which I am not.
Regardless, running a business has always been more hassle than it's worth for people who would just rather have a job. But it has been worth it for those who prefer independence. If you wanted to claim that things were radically worse, you could take a swing at it. But given the rise in communications, computers, SaaS, and service outsourcing, there's a strong case to be made that it's much easier to run a professional service business.
And I think the just-want-to-do-the-work thing is a bit of a red herring. I was recently talking with an optometrist whose joint practice was sold to a PE firm. His precise complaint was that PE was interfering with just doing the work, which he saw as helping patients.
It is frustrating to me when I respond in detail to somebody's querulous points and they just abandon everything discussed to hare off in some new direction. It certainly doesn't motivate me to write a quality reply.
> Those people want to all practice their field, not deal with licenses, paperwork, insurance, and tax.
This problem has been solved for a century, in the form of the practice which employs support staff, sometimes a multi-practitioner practice which shares those staff.
PE rolling into it has been a very recent phenomena.
Regarding burnout I know individuals in the medical field who wish they could control their schedules by reducing the number of clients per day, but they simply are not allowed to because leadership expects them to turn certain levels of profit.
Very well put. And this has been going on for a while. A decade ago the NYT had a great article on how private equity destroyed Simmons Mattress: https://archive.is/uGYrT
And you're right that the effects are obscured. I happened to be talking with an optometrist earlier this year. He and his partners sold their practice to a PE firm on the promise of making everything better. But he had started to moonlight at somebody else's non-PE practice because the PE overlords kept making things both worse and more expensive for the patients, and less and less satisfying for the doctors. And all of this was explained in a hush-hush tone, presumably because there were NDAs involved.
> You may have saddled the target with a huge debt
I’m not sure that’s the model PE is using in healthcare. My impression is that they’re buying hospitals and medical practices, then obscuring the cost of actually providing care, so they can charge insurance companies not something reasonable like cost+20% but rather the maximum amount they think they can get out of the insurance company. Their financial modelers figure out after each procedure the max they can charge based on the procedure, the insurance company and plan, patient’s finances, etc.
The net effect is to drive up medical insurance costs across the country, impoverishing and bankrupting many people while a small number of PE folks get rich. It’s an entirely extractive business model, not wealth-creating or innovation-producing.
Laws that simply require total transparency in medical care pricing and pre-publication of prices for all procedures and drugs would probably go a long way toward fixing this, and in a capitalism-compatible way. We require transparency among publicly traded companies, SEC has extensive rules about that, but less so for private ones like hospitals and medical practices. That’s the loophole PE is exploiting.
You are actually right, I focused too much on the financial angle and not the operational.
I myself was "affected" if buying a shitty burger qualifies as a form of victimization. Ed's Easy Diner here in the UK totally changed their burger after getting acquired, to something inedible.
This PE-driven enshittification is actually the more important thing about it: every damn thing in society is made a little bit worse for the consumer (and the employees) due to people buying up the businesses and quite directly making everything about the service worse.
Many arguments for sketchy business moves like ticket scalping or PE / market making is that they "create liquidity"
Who is to say that a business should be liquid? Why? What is the value in making it easy to bail on your responsibilities, and why should we encourage people to quickly build a complicated and powerful system and make it easy for them to recuse themselves of that duty?
I see your point, but otherwise you'd be punishing people for pursuing essential lines of work. A software engineer at a FAANG gets to enjoy liquidity without scrutiny even if they're just facilitating the sale of ads. Why shouldn't a doctor who saves lives get to do the same?
The value of your actions is not just the immediate work you do. It's the long term effect of the sum of your choices.
If you save lives only to put your system that you've built in the hands of a price extracting PE firm, it's arguable you are violating the Hippocratic oath. One of the other commenters mentioned a study that measured a 10% increase in mortality after PE acquisition on average.
You really nailed the problem with the financialization of everything.
I’m busy figuring out how we got here, and how to get out of it but you’ve perfectly described how the incentives are flipped.
I’d further add that regulatory capture means that financialization is a ratchet process, so undoing it is multiples more difficult than putting it into place.
I live in Canada, where we have socialized medicine. Our survival rates for major cancers are on par the US and our infant mortality rate is lower, though we spend far less. We certainly have problems related to physician pay and cost of living crisis, but we are dealing with them. A lot of the problems we have here are the same as in the US: not enough nurses due to burnout, retiring physicians, etc.
I have never once in my life thought "I sure wish there was somebody in the middle extracting value from this whole situation." Contributes absolutely nothing. Doctors are plenty efficient (pathologically so) and no MBA is going to speed things up. Long term outcomes are ideologically opposed to short-term capitalism. You cannot relate a reduction in type 2 diabetes or stroke cases 20 years later to a quarterly report. It's insanity to have them involved at all.
> I live in Canada, where we have socialized medicine. Our survival rates for major cancers are on par the US
That's not really true. Cancer is one area that has been extensively studied over multiple rounds of years-long comparative studies, and while Canada is not as far behind the US in survival rates for cancers as other developed countries are, it's still decisively behind the US.
You're correct that the middlemen here serve no purpose and are effectively leeches upon the system (with patients paying the price in the end, with both their wallets and their health). However, cancer is not the example that proves this point - it's one are where the US system does quite well, by the numbers.
For breast cancer, we're talking 88.6% vs 85.8%. It's very much on par. We generally do better with lower socioeconomic status people as well. Another thing to consider is that we treat everyone. You don't have to consider of it's going to bankrupt your family before you engage in treatment. So we often treat people who are sicker and poorer because we don't have affluence as a selection mechanism for our patient population.
> For breast cancer, we're talking 88.6% vs 85.8%.
Sure, you can cherry-pick one family of cancers to make a point, but again: there's a whole series of studies that have been conducted on this exact question for the last 30+ years, tracking all common cancers, and which have consistently shown the same results: while Canada does not perform as badly (with respect to the US) on cancer survival rates as many other OECD countries do, Canada does still fall behind the US.
> Another thing to consider is that we treat everyone. You don't have to consider of it's going to bankrupt your family before you engage in treatment. So we often treat people who are sicker and poorer because we don't have affluence as a selection mechanism for our patient population.
Yes, and that actually works against your point: even though there people in the US who can't get treated because of cost barriers, the survival rates are still better in the US.
There are a lot of things to criticize about the US healthcare system. The survival rates of cancers are not one of them.
It's not cherry picking, I just didn't add a whole chart. It's on par, considering our different populations, climate (most of the country is frozen for half the year), and the extent of our coverage. I'm not saying it's worse, it's as on par as you can get given the variation in such a thing.
The uninsured don't count towards cancer rates if they don't receive a diagnosis. If you're uninsured and losing weight, anemic, night sweats, and your doctor says it could be serious so you walk away because you won't be able to afford it, you don't count as a cancer diagnosis. Assuming you went to the doctor at all. That does no count against my point.
> It's not cherry picking, I just didn't add a whole chart.
It is cherry-picking. As I said, there are multiple, decades-long peer-reviewed studies on this topic (which is not what you linked). Raw numbers don't mean a whole lot for comparative studies, because confounding variables such as basic demographic differences will always swamp whatever effects you're trying to observe. Peer reviewed studies measure and account for these; a news site reporting raw statistics does not.
> climate (most of the country is frozen for half the year)
I have no idea how you're concluding that this affects survival rates for cancer.
> The uninsured don't count towards cancer rates if they don't receive a diagnosis. If you're uninsured and losing weight, anemic, night sweats, and your doctor says it could be serious so you walk away because you won't be able to afford it, you don't count as a cancer diagnosis. Assuming you went to the doctor at all. That does no count against my point.
Late diagnoses mean inferior care, and higher mortality rates. It's very rare for people to die of cancer that is neither diagnosed nor detected at any point, including upon death. This isn't speculative; it's a topic that is extensively studied in public health. Again, this is addressed in the studies conducted by professionals tasked with answering this exact question about cancer survival rates.
It can be tempting to start from a prior ("the US healthcare system is less affordable than Canada's systems") and then find explanations that fit that prior ("people don't get diagnosed with cancer because they can't afford it"), or search for data which supports that prior. Unfortunately, that's a logical fallacy, and it often leads to conclusions that are contradicted by the hard evidence at hand - which is what researchers have found.
On that note, you may be surprised to learn that healthcare in Canada is not, in fact, universal. An estimated half a million people in Canada do not have access to healthcare. That's actually slightly higher than the uninsured rate for the elderly in the US (which is the cohort for which the overwhelming majority of cancer diagnoses occur).
Okay, I assumed some kind of charitable interpretation, but that isn't happening.
There are plenty of criticisms of studies like CONCORD. Survival rates lacking context are not the end-all of comparison studies. A significant portion of this is around diagnosed and undiagnosed, which is a really critical distinction when you're talking about survival rates.
If you have no coverage or you are worried about cost, you are less likely to present and ever be diagnosed with cancer. Silent deaths are a real thing. People will die rather than burden their families. There is no cost to being diagnosed in Canada and other countries with some kind of socialized medicine, so people tend to just get diagnosed. So already your starting sample is different.
Who does get diagnosed, and at what stage, also skews the results. If you have gold-tier coverage and you live in a place where billing for tests is incentivized through profit, you get a sample of very early stage cancers with a very high cure rate, or more importantly for your stats, you get a better 5-year survival rate, which is the what the survival studies measure. This is due to "starting the timer" when you find microscopic evidence of cancer, so you are in effect pumping your stats, because of course people are more likely to survive for more than 5 years if you find the cancer earlier. What happens after 5 years is called mortality and is a statistic of its own that diverges from survival. This is well known:
But catching cancer earlier is surely a good idea, isn't it? The problem is that morbidity is also part of this picture. Cervical cancer screening (the pap smear) is a great test that catches a lot of precancerous and early stage cancer cells. So many, in fact, that it's actually too good. Because we ended up doing LEEP on a bunch of cancers or precancerous cervixes that in fact would have just gone away on their own, and we left a bunch of women with "incompetent cervix" who are more prone to pregnancy loss for the first year. Big deal, the first year? The thing about being a doctor is that your patients are humans, and it really fucking sucks to have one of your patients go through losing a pregnancy, and sometimes, especially with patients in the 30-40 age range who are more likely to have abnormal cells, every year counts in terms of their remaining fertility. So you can't just shrug this off as unimportant. We changed recommendations around screening in part due to the efficacy of the HPV vaccine, and in large part because we overtreated. Much of those cancers simply go away on their own, with far less morbidity than if we treat every single one. Are we going to make the same mistake with HrHPV? Oh, probably. It takes time to find the sweet spot between effective diagnosis and overtreating.
Colorectal cancer is in a similar boat. Great cure rates and prevention with precancerous polyp removal for your healthiest and wealthiest. Every stage 1 that you get counts towards your 5-year survival rate. Unfortunately all this screening also result in a lot of surgery to remove non-malignant polyps, and that surgery has a mortality rate near 1% with significant morbidity. These people did not have cancer, but might have at some point in the future. Or they might not have! Because only about 5% of adenomas progress, and even if they do progress, you might be dead before you really feel like you have cancer. So again it's pumping stats without necessarily improving outcomes.
Beyond that, we do have different populations, partly because of latitude, which is what I meant by "frozen half the year":
Vitamin D via sun exposure seems pretty strongly correlated with lower rates of colorectal cancer. We simply do not get the same amount of UV rays at this latitude. We are also an MS hotspot, possibly for the same reason. Both conditions can be more frequent and potentially worse because of this.
Our populations are different, our testing is different, our access is different due to our geography. In spite of all this, our survival rates are comparable to the extent that you can compare them, and a difference of 2-3% is really not that great, especially given the different in testing.
As for half a million not having access, you will have to give some details on that. Yes, that geography problem exists, and it can be bad especially for first nations and other remote communities, but this is different than not being able to go do a doctor because you have not paid, which is not a thing that happens here.
This is all just with cancer. Consider also as I said in the original post, our infant mortality is lower. Consider also that our life expectancy is about 4 years longer. All this, for not just slightly less money than the US, but less than half what the US spends per capita on healthcare. We are currently expanding it to dental, and medications are on the list as well.
Personally having practiced in the system in Canada, there are things I love about it, and things I would change. We do not fight with insurers here, that is not a thing. Never. We don't have to preauth with any company before we order a test, nor do we get paid extra for additional tests. We order them when they are needed, if they are needed. Nobody's going bankrupt up here from hospital bills. More private imaging would be great, for CTs and MRIs, still paid by the public system with private capital paying the startup cost.
But if you prefer a system that gets 2-3% on a gamed stat, be my guest.
I think its more of a systematized rentiership rather than fraud. There's no difference between local ownership and private equity except for the level of systematization.
With that said, I do agree that we've rewarded this form of rentiership and also enhanced the barriers to entry for other forms of private ownership (like a partner owned firm). This is in place of value created as a source of wealth, which the tax system has entirely devalued
The whole practice of a LBO does seem like a fraud almost. I dont understand how a buyer can "lend" to the purchased firm without bearing actual risk perhaps I don't understand the mechanics there fully
On top of this, most of it is leveraged capital at a fraction of the actual cost, so the risk is almost vacant for the firms. Corrupt banking leads to infinite leverage for the super-wealthy to buy up / control it all. They do not need to care because they risk little and still profit even if it crashes because the tangible assets have shifted to their side of the gap.
Is it leveraged? Or is it often times money from underfunded government employee pension funds and whatnot, seeking higher returns to make up for the underfunding from previous decades?
The funds snapped up a record 786 makers of food and beverages worth $32 billion in 2021, using bundles of debt to pay for their purchases, according to data from S&P Global Market Intelligence.
No, they are underfunded because it is easier to win elections by shortchanging the pension plans and keeping taxes low now, counting on future taxpayers to make up the deficit.
Nothing stopping them from playing it conservatively and investing in high grade bonds and whatnot, but they want to hit those 8% annual returns (not including the underfunding in the first place), and so it drives them to riskier and riskier assets.
And of course corruption of someone on the board of the pension plan investing in their friend’s nephew’s investments and so on.
Think the economic reality is that the days of a doctor hiring a couple employees and hanging their shingle are over. The capital requirements are too high and the counter parties too big for individuals to thrive anymore. PE is one of the ways to consolidate and get some economies of scale. Plus I think most doctors prefer doctoring to running a business.
But there's nothing to stop all the doctors in an area from forming a cooperative. That would also be private equity, but not in the sense described in the article.
The PE in the article is firms with other values than what traditional medical professionals have, and those values are conflicting.
There's some anti-trust complications with loose cooperatives negotiating as a collective. Fine line between collective bargaining power and price fixing.
Organizations more like employee owned businesses exist but those come with their own sets of problems.
It seems that way if you only look at the PE part of the transaction. When a firm takes on debt, someone is backing that debt and loses out if the firm fails. If it's a the same PE firm or a bank making the loan, they would lose in the case of a bankruptcy.
In theory, there's nothing wrong with companies trying new things and sometimes failing. The only problem is when barriers are too high and it is difficult to replace failed companies.
> The risk is entirely on all the other interested parties: employees and customers.
How is PE increasing their risk in any way?
Maybe you are right that PE are getting more wealth than they create value but unless you want PE to be banned because of jealousy, you haven't pointed on any negative consequence due to them.
There is a lot of survivorship bias in reporting. Buying companies and trying to make money at it is an incredibly competitive game to be in. Yeah, the winners make billions, but so does Lebron.
> To me it seems like PE has simply discovered a loophole in the system
Serving private equity literally is the focus of the system in capitalism; it hasn’t found a loophole, it is the thing around which the system is engineered.
> For PE however, they've found a way around it, using the machinery available in the economy.
No, the effect you describe is literally what several centuries were spent engineering the machinery of the economy to create, its not an unintended pathway recently discovered that that machinery can be bent toward.
Its what “capitalism” was named, by its critics, for.
Reminds me of "Does Private Equity Investment in Healthcare Benefit Patients?" [1].
> Our estimates show that PE ownership increases the short-term mortality of Medicare patients by 10%, implying 20,150 lives lost due to PE ownership over our twelve-year sample period. This is accompanied by declines in other measures of patient well-being, such as lower mobility, while taxpayer spending per patient episode increases by 11%. We observe operational changes that help to explain these effects, including declines in nursing staff and compliance with standards.
Another good article in this space is the New Yorker's report on Hahneman Hospital [1], which was acquired by a private equity firm and dissolved a few years later.
> As they acknowledge, this factor is extremely difficult to isolate from demographics, geography, religion, etc.
No? They used "a within-facility differences-in-differences design to address nonrandom targeting of facilities" so they're measuring the change in outcomes at the same facility before & after takeover.
If your standard for "conclusive" is "study must fork the universe to compare the same business with different timeline" then you may be waiting a while.
Regardless, in this case, where the ongoing harm could be very large, we have to at some point go with the best evidence available.
> If your standard for "conclusive" is "study must fork the universe to compare the same business with different timeline" then you may be waiting a while.
My standard is authors (and random internet commenters) to have an inkling of the progress in causal analysis and related progress in the last two decades.
I'm quite familiar with causal analysis [1]. What are your qualifications in the field?
The paper performs half a dozen standard robustness checks [2]. Which exactly do you believe are missing? Be specific, and include reasons why we should reasonably expect the opposite outcome.
[1] Senior ML Researcher @ Google, top 3 PhD, etc.
[2] Placebo analysis, instrumental variables, MTE analysis,
breaking down the effect into plausible mechanisms such as reduction in front-line staffing, limiting results to nursing homes owned by the same chain, etc
edit: Instead of linking random surveys on causal inference, please make a specific claim, such as "the authors should have used propensity scoring", or "causal inference studies should all be ignored." Otherwise, there's no way to have a debate.
> I'm quite familiar with causal analysis [1]. What are your qualifications in the field?
That is nonsense.
This is not a pissing contest about qualifications, or a contest cherry picking research.
It is a rolling catastrophe - decades in the making - for USA people. In general it is that money is being transferred in industrial quantities from everybody to the very rich. Specifically money is getting sucked out of the health system for the benefit of a few at the cost of the many.
FFS socialise your medical system. Spread the cost like sane people and drive out the greed heads
You should have read back up the thread, and see who turned it into a pissing contest and ended up distracting from the moral and ethical arguments by vague quibbling about the methodology.
That's nice of you to list where you work. On HN there are many qualified and intelligent people, so we generally prefer to talk about the issues directly.
> half a dozen standard robustness checks
My original comment isn't arguing they used tools improperly, it's an epistemology argument. It's about the limitations of what information could even be gathered from this kind of study.
I think it's hilarious that somebody who has been here for all of 11 days wants to tell somebody who is coming up on their 10-year HNiversary what "we generally prefer".
Oh, I did. I figure it means you're the kind of person who knows he's going to be a dick but wants to do it under a disposable identity to as not to harm his score. So you're not just a jerk, but a calculated jerk.
I mean... people who go to cancer clinic have cancer at a higher rate than those who don't. Cancer clinics cause cancer. And therapists create mentally unstable people, etc.
You wouldn't have to fork the universe. I think a randomly distributed trial would work, and could be reasonably made to work. Not sure though.
FWIW, I think we should prevent private equity in lots of places, especially hospitals.
I think doing a randomly distributed trial would be very challenging. How do you imagine funding it? How do you imagine getting PE to agree to buy random things rather than strategic things? Do you expect them to turn down 50% of almost-closed deals to keep it closer to random? How would you keep things being distorted by the money you'd be giving to PE to get them to change their behavior?
And what additional knowledge do you hope to gain versus a study design like this one that would be justified by the much larger expense?
> study must fork the universe to compare the same business with different timeline
Unfortunately, that might be what's necessary to know. I am not knocking the research quality, but there are limits on what we can conclude, and obviously other important factors have not been sufficiently isolated.
Those studies aren't similar in methodology or subject at all. Can you acknowledge there are unmeasured social factors at play in this simple survey analysis, or not?
If so, I'm happy to speculate about the epistemology of tobacco studies.
I mean... people who go to cancer clinic have cancer at a higher rate than those who don't. Cancer clinics cause cancer. And therapists create mentally unstable people, etc.
You wouldn't have to fork the universe. I think a randomly distributed trial would work, and could be reasonably made to work (woth Gov. help). Not sure though.
FWIW, I think we should prevent private equity in lots of places, especially hospitals.
But it is not difficult to isolate from common sense. No one should profit from denying someone healthcare. All systems have ration care but it is immoral for someone to profit by denying care. Profit motive does not make for a good healthcare system.
Nobody should profit from healthcare at all. I don't care if doctors and nurses and board members and janitors all make fuck you money, or if hospitals reinvest tons of money to perpetually have state of the art facilities. But the profit dynamic is too much.
Honestly I've had this happen multiple times recently, where people don't understand revenue vs profit. Profit is what you put in the business bank account after you pay operating costs which includes salaries. You can make fuck you money by making idk $2MM per year. That doesn't come out of profits. Profits are commonly paid out to owners/investors in the form of dividends.
That's sophistry. Yes, accountingwise, revenue and profit aren't the same thing, but if healthcare is going to be raking in so much money that the hospitals are throwing fuck you money at the janitors, it's clearly highly profitable for a lot of people, and they want "nobody to profit from healthcare".
You are both correct in that salaries are net counted as profit of a company, but that a person who receives pay (salary or otherwise) may be, or be seen as, profiting.
"Nobody profiting" might reasonably seem to mean that even employees have little or no net gain from their involvement. Perhaps "no company profiting" fits the intended meaning better?
"Making fuck-you money" might cause somebody to assume "making more money than is acceptable, and uncaringly taking advantage of others", which would seem at odds with not profiting.
The claim of "sophistry" seems unfair and provocative, given lack of agreement on definitions. I am tempted to regard the ensuing reaction to the claim as "a shocked and puzzled look".
You are now engaging in sophistry. Doctors in England can be paid more in their system than they make now without putting in profit motives. In a publicly funded system one can pay lots of money to workers without profit in the system.
It’s as if Americans don’t understand that government can provide services and not be profit driven.
This is a nonsensical response. You know what is meant by “profit” in the context of this discussion. You argue in bad faith particularly since you deliberately left off the motive part of my statement.
Obviously what is being discussed is that non-workers should not reap monetary rewards from denying care or otherwise siphoning out money from the healthcare system. You may nitpick each word and be as pedantic as possible but none of that will demonstrate that having PE firms in charge of hospitals would be better than a government or nonprofit entity running things.
Are we in agreement then that it’s best for PE not to be able to buy hospitals? Do we agree that nonprofit (as that term is applied colloquially) entities should run healthcare? I hope we are in agreement on this. If not then I hope your view does not gain support.
What? Sophistry? Are you insane? I've factually described the difference between revenue and profit, and you're saying I'm deliberately trying to deceive someone?
The same way how some non-profits and endowment funds operate. They are designed to produce a constant, predictable supply of money for their cause, and not try to maximize their profit and take over the world. Think about the way the Nobel Prize is funded, for instance.
A large majority of people going into scientific research do so for a love of the subject and not to become rich. They just want to make enough money to live a decent life and pursue knowledge.
The following is sarcasm. If only one could think of a mechanism by which an entity controlled by people elected by the voting public could fund such things.
Some people like fixing problems for their own sake and giving away the fruits of their labor to maximize the overall benefit. The notion that the profit motive is the only reason anyone gets up in the morning is false.
An interviewer once inquired about the ownership of the polio vaccine patent, to which Salk famously answered, “Well, the people, I would say. There is no patent. Could you patent the sun?”
On January 23rd, 1923 Banting, Best, and Collip were awarded the American patents for insulin. They sold the patent to the University of Toronto for $1 each. Banting notably said: “Insulin does not belong to me, it belongs to the world.” His desire was for everyone who needed access to it to have it.
Individuals often respond to social status incentives more than cash. Undoubtedly this invention helped Salk's financial and personal outlook in other ways.
Also the models of development of these is just completely different from what modern medicines often requires. Specifically, operateing large research labs (which are heavily regulated) and then pursuing the marathon that is FDA approval. Individuals will still tinker, but those industrial scale developments are not going to happen without funding.
I dunno, the reason that we have such long patent periods is supposedly to pay for all the losses in Phase 1/2/3. However, if we merely let scientists do clinical research, as per usual, and license the right to conduct these studies to contract research labs, and then license the production rights for the successful trials to contract manufacturers, we could probably cut out a huge amount of the waste and marketing spend by Pfizer/Novartis et al and still achieve the better goals.
In fact, because the people in this chain would be less incentivised to focus on diseases of rich people, then humanity might overall be better off.
Like, definitely there's costs associated with Phase 1/2/3 etc, but right now the actors in the chain have absolutely no incentives to limit these costs, as they help to justify the huge profits gained from the temporary monopoly of patents.
Also, it's worth noting that all the big Pharma companies spend much, much more on marketing than they do on research.
What's the right age for us to start decrying someone's continued existence? Is it wrong for people with chronic health conditions to seek treatment rather than just dying?
>What's the right age for us to start decrying someone's continued existence?
Either 22 or 30. There was a great movie about this, based on a novel. In the movie, it was 30, but in the novel the age was 22. When your lifespan is up, you go to a show called "Carousel" where all your friends watch you being killed.
Anyway, I think the OP, plus almost everyone here on HN, is overdue for Carousel.
> What's the right age for us to start decrying someone's continued existence?
It's not about age, it's about the cost of living vs the quality of life. These "miracle treatments" are often anything but. In many cases, they are a million-dollar ticket to a tortured existence.
If I live 60+ years, I've had a good run... if I need a $1MM treatment, my body is likely in a very bad state. My quality of life can't be very good at that point.
So when I think of my options:
- Extend my medical-torture hell for another 2 years
- Buy a home for both of my children
- Do a LOT of cocaine for 3 months
I'm really not inclined to go with the medical-torture hell.
I'm not afraid of death, we are all going to die, and in a finite universe, I consider it morally wrong to use limited resources on a project with awful diminishing returns. Especially when the project doesn't even make me feel good.
So what does it get me? 2 more years of talking to my children? If I've lived 60 years, I've taught them enough. My life is enough, and enough is enough. No need to be greedy about it when your life is already good.
> Is it wrong for people with chronic health conditions to seek treatment rather than just dying?
I don't think so, personally. The same arguments do not apply, this is a completely different situation.
That's using the theme of the study to support what you already believe, without examining what the study actually shows. I don't disagree that your reasoning sounds plausible, but that's irrelevant of the study's quality.
We live in an imperfect information world. We do studies and try our best to determine cause/effect. Rarely can such a study be a proof. This is where common sense comes in. Sometimes it is wrong too.
I didn’t make claims about how PE hospitals make a profit. I just said that no one should profit from denying care. I can think of a situation in which a hospital’s owners want to make sure their return on their investment exceeds x% per year and the hospital administrators deny care based on this consideration (otherwise they might get fired for not generating enough profit). This isn’t the scenario I had in mind when I wrote that no one should profit from denying care. WhenI wrote that I was thinking of insurance companies and wanted to convey a sense that profit driven motives in health care can have bad consequences. Some things ought not be profit driven.
Is this a serious question? You can’t think of a scenario in which a company in America profits from denying care? You should research insurance companies and understand how it is they make a profit.
Medical insurance in the US has strict limits on profits. If they deny a little care, they can hit their cap, but if they deny too much, they have to send premium refunds. Really, the way to increase costs is to increase spending on care --- then they have more profit available, if they also increase premiums.
The CEO of United Healthcare makes around $50 million a year. The Medicare administrator makes around $400,000 a year. Administrative costs for Medicare are around 10%. Healthcare companies balked at being held to the same standard. Health insurers have their profits regulated but not lab services and whatnot. There are ways around the limits.
What is your overall point though? Do you think it’s a good idea to have profit motives governing healthcare? Do you believe PE owned hospitals are good? Do you disagree that there are instances of companies profiting from denying care?
When possible, I prefer people who work for me to have incentives that are aligned with mine. PE-owned medical practices and even many private practices throw that out the window, with financial incentives to do procedures or run tests.
I was talking to my wife’s obstetrician about this last week and he also feels strongly about it. He’s paid a flat salary and gets no financial benefit for a c-section vs. an induction vs. a conventional delivery. I’d like to keep it that way.
That seems infinitely better than the status quo. Having unnecessary procedures is much worse. With the former you can go to another doctor, with the latter they'll just run up your bill until you're broke or dead unless you're one of the exceedingly rare few who gets medical advice from multiple doctors (most can't afford that or do not have alternative in-network doctors).
Financializers and engineers so often miss the human factor, or try to design around it. At some point in this process involving care for humans, you have to rely on people simply choosing to do the right thing, even if it's hard. This has been medicine's tradition for a long time. The fewer layers between doctor and patient the easier it is to do this. You also have to provide enough resources for them and some kind of work/life/pay balance.
In Canada we have fee for service, with incentives to care for specific populations (remote or chronic conditions etc.) Doctors (or their clerk) do their own billing direct to provincial health services. It works. We rely on individual morality and they generally do the right thing. Our outcomes are good.
Doesn't this apply to all jobs? You're sort of suggesting that salaried employment can't work, because employees will be incentivized to do the easiest or least work. Clearly it does work in practice though, despite this alleged fundamental flaw.
Yeah. Doctors will be incentivized to do the easiest procedure. So what? As long as it treats me, the easiest procedure is probably the best one because it's so simple that it's harder to get wrong. There are scenarios in which the best patient care would involve complex procedures but in that case, the doctor is incentivized to do those because the complications that might arise from a simple procedure are much harder to deal with than doing the better, albeit harder procedure first.
I think there’s more nuance than that. I’m guessing you work in a job like tech where incentivizes are typically more carrot-based.
IMO the effectiveness of carrot (variable bonuses/pay, a many-tiered level structure with promos between as “carrots”, being disciplined or fired as “sticks”) incentive structures depends on how easy it is to evaluate good vs bad work at a job. In tech it can be hard to distinguish mediocre vs bad work which is why we don’t have a lot of stick incentivizes; good work is a lot easier to recognize so instead we have carrot incentives.
While for some medical jobs like being a surgeon good work is easier to recognize vs mediocre work, it’s a lot easier to identify bad work: bad medical outcomes, low patient satisfaction, less patients seen per hour. So as a result you don’t need as many carrot incentivizes as in tech and can probably get by with more stick incentives. Fwiw I think carrot incentives often have a lot of drawbacks as people optimize for the carrot directly rather than “doing a good job”. With sticks you optimize against sticks, but when you have signals like patient satisfaction to account for, you have a very strong stick signal.
Incentives are unavoidable. So best to try to identify them whether you want to change them or not. “Highly motivated” in a way means even more driven by incentives, just a particular set of them.
Traditional American fee-for-service medicine has been absolutely shown to (a) drive practitioners to do unnecessarily risky and expensive things and (b) fail to produce better outcomes than salaried physician facilities.
Am I a Pollyanna for believing all other things being equal, doctors want to do the ethical thing and that direct financial incentive to do otherwise is an obstacle they have to overcome.
A bonus based on risk-adjusted outcomes would put pay in alignment with patient care. This would require much better outcome analysis and reporting though (also a good thing).
I agree that incentives are frequently and perhaps typically exploited, especially when crafted carelessly or not iterated upon, as most incentives seem to be.
I would be eager to contemplate a clinical outcome based incentive scheme.
Came here looking for this angle. Seeing doctors now feels like talking to someone who has memorized an actuary-like table for the doctor's risk/reward versus patients benefit/outcome as in the past.
Have a torn meniscus and given age is dumped into "excise meniscus tear" bucket. While Dr knows that shortens the path to knee replacement (which he no less pointed out on several occasions).
Going to Dr. Now seems like you are a walking revenue center vs. patient in need.
(ps. Many current accredited studies suggest repair attempt vs. removal)
I work in a private practice firm that’s been bought by private equity. There is truth to everyone’s comments here on both sides to some extent.
Young child - I have trained in mostly adults with some pediatric experience. Can I do a simple procedure on a teen? Probably. If something goes wrong I’m afraid I’ll be punished for not referring them to a pediatric center that specializes in these things. Of course if I’m at my main hospital where they do these often, I feel more comfortable doing pediatric procedures to an extent.
Mental health not really in scope of radiology
Obese back pain - I do a lot of procedures for these and certainly there are some surgeons that will operate on anything but I’d say 80-90% of spine surgeons will refer out to rule out every last cause before operating.
We are kind of incentivized to do procedures right now in American healthcare but I will say all my partners are cautious about just doing stuff.
Physicians are absolutely reimbursed per procedure, per surgery, per test, etc. OB specifically has a higher concentration of employed doctors, but the hospitals are still reimbursed the same way, and these numbers are 100% taken into account when determining things like bonuses and promotions. But other specialties (like family med) are still dominated by private practices where physicians directly earn more by doing more.
The balancing act of this is that oversight is (typically) by qualified medical professionals who can judge whether a given procedure, test, surgery, etc. was medically indicated or not.
> 100% taken into account when determining things like bonuses and promotions
Eh, there's some truth to what you said but it's a bit of a stretch.
For bonuses, it depends on specialty and practice. In my current job I have zero incentive structure, period. If by some miracle, zero patients showed up on my shifts over the course of an entire year, I would make exactly the same as if I averaged 20 patients per day. I also don't get any reimbursed for any of the procedures I do -- 100% of that goes to the hospital. This is an increasingly common compensation model in pretty much every nonsurgical speciality and even in a small number of surgical ones (Ob/Gyn, as you mentioned).
As for promotions, I don't
think that's true at all. First, physicians tend to have a very flat hierarchy outside of academics. (At many hospitals, you're either CMO, a department chief, or just some guy.) What this means, in my personal experience, is that promotion is such a remote possibility that it's something that 80 to 85% of physicians don't spend any time thinking about. Second, productivity is not a principle criterion for promotion. When a hospital or clinic promotes a physician, they take a large chunk of that physician's clinical time and replace it with administrative work. If you're trying to maximize revenue, your most clinically productive person is precisely the last person you want to do that with.
> But other specialties (like family med) are still dominated by private practices
Family medicine is definitely not dominated by private practices, at least for new grads. Private practice is quickly going extinct everywhere except for those specialties that have a high proportion of out-of-pocket payors (plastic surgery, dermatology, orthopedics) or those specialties where the demand is high but the supply is so thin that hospitals can find themselves battling with each other to sign contracts with the one of the few practices in their area (neurosurgery, otolaryngology, CT surgery in some parts of the country).
I don't think that's typical anywhere. The incentives they face are less concrete. It may be more inconvenient or uncomfortable for the doctor. If something goes wrong and there is a legal risk, it's difficult to retroactively justify not immediately changing strategies.
In the US, C-sections reimburse higher than vaginal deliveries across the board. What's changed over the years is who gets the extra money from the C-section. It used to be the physician, but nowadays it is increasingly the hospital. The incentive to do C-sections over vaginal deliveries is still there, but it's transforming into a population level incentive (i.e. is the hospital structuring staffing and workflow in a way that favors C-sections) rather than an individual one (i.e. is a particular physician very trigger happy with C-sections).
> PE-owned medical practices and even many private practices throw that out the window, with financial incentives to do procedures or run tests.
Quite the opposite. They tend to be under capitated contracts with insurers, which means they are responsible for the costs of services they provide, but receive a flat amount for reimbursements. This explicitly encourages underutilization of care.
This is the kind of economic distortion that should be expected when onerous government-imposed regulation of practitioners, medication, and medical devices creates barriers to entry that reduce competition.
While such regulation may have been imposed to try to increase safety, quality, and consistency, for example, it also ends up interfering with the incentives of the participants.
The lack of real competition, combined with the introduction of significant unnecessary costs and other overhead, encourage and enable the participants to act in ways that may not be beneficial to the patients.
The truly unfortunate part is that such regulation often takes options and choices away from the patients, preventing them from accessing alternatives that may help mitigate or avoid the perverse incentives introduced by regulation.
Alternatively, this is the kind of economic distortion that occurs when excessive de-regulation removes the floor of a market, allows local monopolies to flourish, and allows a system in which the most profitable action is to let people die.
While such deregulation may have been imposed to increase competition, it also interferes with the incentives of the participants.
The lack of real oversight, combined with the introduction of unnecessary profit margins and shareholder returns, encourage and enable the participants to act in ways that are harmful to patients.
The truly unfortunate part is that deregulation often takes options and choices away from patients, as an unregulated market’s tendency toward monopoly prevents them from accessing alternatives that may help mitigate or avoid the perverse incentives introduced by quarterly performance targets.
Strongly disagree with this comment. The most powerful monopoly one can hold is one entrenched by the will of the government. Every time the people have asked the government to step in and regulate healthcare, corporate lobbyists have crafted the laws in such a way to weigh down any potential competitors.
In the US, the more regulated a market is, the more likely people are to demand further regulation, because they incorrectly blame the free market when the market is anything but free.
The unnecessary deaths in US healthcare are largely attributable to waste and incentive mis-alignment; the person paying for healthcare isn't the one receiving it, so it is no wonder patients receive poor care.
> the person paying for healthcare isn't the one receiving it, so it is no wonder patients receive poor care.
This works fine in fields like the restaurant business or the haircutting business, where people can decide for themselves what they want to eat or how they want their hair, and they can decide for themselves whether their food or their haircut is satisfying.
The sector where it is least applicable is healthcare. You don't know what disease you've got, you don't know what can be done, and you don't know what the incentives of the people who do know are. This makes it hard to take advantage of the feedback loop from the other industries mentioned.
I don't completely disagree, but that's the edge cases of mystery diseases or rare cancers that make for good headlines.
The vast majority of healthcare is basic screenings (physicals, x-rays, bloodwork) and chronic disease management (birth control, blood pressure). These services are more or less understood and interchangeable, and absolutely can compete on service, quality, and price.
The problem is regulatory capture. Regulating an industry that can easily kill people is probably smart government. The problem is this creates a system that allows companies like Pfizer and Moderna, or Siemens, or GE or capture many or all of a given market sector.
I would actually argue regulatory capture is a worse outcome than de-regulation in almost any industry. It's a delicate balance. In our industry we can see this with last mile internet. We can see this with taxes in America where regulatory capture has permitted Intuit to have a license to print money. No different than providers, insurance companies, and medical device manufacturers.
Here's one example. If we took some regulation away from health insurance providers, allowing them to make bigger risk pools through cross-state service, the patients would by and large see better and more consistent outcomes. In fact, this is so scary there are untold billions being pumped into congress to stop it. Instead, we got the abortion of a solution known as the ACA. Sometimes properly applied deregulation creates the environment needed to make an industry better by removing regulatory capture. Competition is a good thing at all levels. Any effort to completely stamp out the competitive nature of human beings always results in worse outcomes for everyone. Imagine if doctors had to compete for patients! The life of a doctor right now couldnt be easier. Make friend with insurance and the wallets-with-pulses are sent directly to you!
Patient options and choices such as "go to the doctor" vs "go into crippling debt while trying to navigate a labyrinthine billing nightmare"?
Just as an alternative point of view - you describe these regulations as "government-imposed". Would it not be equally (if not more) likely that these regulations are being created and supported by the industry players themselves?
This lack of real competition that you mention sounds like a dream if you have few scruples and a captive market. And telling someone that they'll die unless they pay for your services seems to be about as captive of a market as you can get.
I think choices was meant to mean things like being able to choose between competing healthcare providers.
Created and supported by big industry players that get them turned into law (and thus "government-imposed" - classic regulatory capture.
On the Mexican side of the border there are clusters of doctors, dentists, etc., offering lower cost treatment. I imagine that a large part of the decreased cost is due to reduced regulations that make it easier for small, independent providers to offer their services, which in turn results in substantial competition between the many providers to offer the lowest cost for the standard of treatment that patients want.
That's describing two different services, preventative care, and reactive care.
Your only choice for reactive care is generally only the closest place, and you may not even get a choice on the provider because you were unconscious when it was chosen.
Once you're there hooked up to a machine, how are you changing provider now that you know their services aren't right for you?
I’m the furthest thing from having any knowledge here, but it feels like it should kind of be like how law firms can only have lawyers be owners with the idea that owners need to be aligned with codes of professional conduct/ethical obligations to clients etc
The business lobbies freaked out when that was proposed, in spite of it being fairly moderate. It was one of the reasons for the character assassination extravaganza (anti semitism, "terrorist friends", etc).
The veterinarian world is doomed. Increasingly PE is taking over entire neighborhoods when it come to vet hospitals. This is led to increased wait times, lower standards of care, higher cost to consumers and higher pet mortality rates. That can very well translate to human healthcare.
No. My late father started his own solo vet practice in 1983, in that less capital intensive environment, and he still required a substantial amount of seed capital to procure and retrofit the building to meet regulations and have enough in the tank to keep it going through the initial lean business years. (There were other complications related to the specific property and title liens not relevant here.) In these days it's not much different than a solo medical practice in terms of startup costs.
Later VCA and Banfield asked him every year to sell out and he never did, but he was an already established practice by then. I can see why new vets are much less likely to embark on it.
Not sure what your point is. I'm not saying you can open a vet for free. All businesses require capital. But, as evidenced by your father, opening a new vet practice is not some totally new thing no one has ever done before. People have done it and people will continue to do it.
> opening a new vet practice is not some totally new thing no one has ever done before.
No one claimed no one had ever opened a vet practice. What they are claiming is that it is expensive. Nobody is accusing you of saying that someone can open a vet practice for free. What they are claiming is that it is expensive.
> People have done it and people will continue to do it.
Everyone knows this that independent vet practices have been opened in the past, and that some are likely to be opened in the future.
It seems like a vet would be about as expensive as opening a restaurant, maybe 1-3x as much. That doesn't seem like the most capital intensive thing ever.
It is more expensive to open a clinic than a restaurant, with the costs being anywhere from $500k-$1M. The main difference between the two is that the vet clinic has higher running costs aka salaries in the early years before the practice takes off. For restaurants, it’s relatively lower (staff salaries and produce) if the demand is lower.
500K-1M seems about 1-3x a typical restaurant. I'd also be surprised to learn that running a vet is more expensive than a restaurant. The margins are seem like they'd be way lower in a restaurant.
That model works well for professional services (eg. lawyers, accountants, consultants) because require very little capital. Everything from the office they work in, to the computers they type on can be leased. The same can't be said for hospitals, which cost hundreds of millions to build and equip. How are you going to raise all that capital from only the doctors? They're rich, but not that rich. Moreover, the payback on said investment is on the order of decades. A doctor late in their career has the most to invest, but they're also nearing retirement. What are you going to do with their shares? Sell them to newly graduated doctors who are hundreds of thousands in debt? Let them keep them, at which point they turn into quasi-investors?
There were a number of physician owned hospitals. Here's one compiled list [0] circa 2013. ACA seems to have limited growth of these hospitals [1]. My view with a local flavor of this in Indianapolis (St.V Heart Center) was pretty positive and matches with the WSJ articles assertion. When doctors feel in control and view the hospital as a reflection of their own community - holistically the entire operation embodies and reflects that from the doctors to the nurses to the staff themselves. Similar to how a small-town practice reflects the values of the doctor who runs it and depends on its reputation. Some of these hospitals have been sold off and I've heard nurses and doctors lament of the better times when they felt more autonomy when the doctors made the decisions based on shaping a hospital that they'd like to be admitted to rather than the vision from an MBA.
"Specialty physician-owned hospitals focused on cardiology and cardiac surgery were found to deliver higher-quality care than nonprofit hospitals, with lower rates of hospital readmission or mortality for high-risk surgery. Physician-owned specialty hospitals for orthopedic procedures, such as hip and knee replacements, offered lower costs and higher quality than nonprofit counterparts."
That’s not true. There was a doctor owned clinic in Seattle (The Polyclinic) with multiple locations across the city. A few years ago it was purchased by Optum (United Healthcare), and the standard of care has fallen through the floor.
…and sadly the doctors have been fleeing too, all my doctors have left. Their replacements aren’t bad, but not to the same top notch level of care. The Polyclinic was honestly off the charts excellent, and now it’s just “fine”. In a few more years who knows. The alternatives are unfortunately not better.
1) There is a big difference between a hospital and medical practice, 2) this is a solved problem as it relates to other professional service firm (law firms, investment banks (back in the day)).
When people are invited to become partners, usually they needed to write a check, but also buy-in over a number of years using a percentage of their earnings, as well as the firm potentially providing financing to buy their partnership interest. On retirement, partners were bought out (in many cases, getting paid out over a time until they were fully bought out)
>When people are invited to become partners, usually they needed to write a check, but also buy-in over a number of years using a percentage of their earnings, as well as the firm potentially providing financing to buy their partnership interest
This doesn't address any of the main problem I brought up, which is that hospitals are capital intensive. "Writing a check" is easy to do when there isn't much capital tied up in the business in the first place, but what do you do when the hospital costs $100M to build and there are 100 doctors? I can't see how the numbers would work out using the methods you described.
See my point 1) medical practices <> hospitals 2) there aren’t many de novo hospitals, so the start from scratch example is not that relevant, but for fun, in your example you borrow $50m and and 25 of the doctors (the partners) pony up $2m (not a crazy amount given that average doctor pay is $300-$500k and these 25 would systems only be in the top quartile and later career
america, unsatisfied with spending vastly more privately on healthcare than the rest of the world, while also spending more publicly on healthcare than the rest of the world, continues to find ways to make healthcare yet more expensive and ruinous for its citizens.
That is more a function of the size of the US medical system than its overall quality. The average American is going to whatever hospital is closest when they have an emergency, but if you’re healthy and wealthy enough to go anywhere then you can pick and choose extreme outliers. Large countries simply have more extreme outliers in both directions.
More US citizens seek treatment outside the US than foreign nationals seek treatment inside the US. But, people have specific diseases and sometimes the best treatment is inside the US, though more often it isn’t.
I don't think it's true. In fact, I'm pretty sure each year 14 millions Americans are going to Canada for medical treatment, and richer American are going to Singapore/Uk.
Metabolic health is responsible for at least 3/5 of healthcare costs. 4/5 of SNAP recipients have at least one underlying metabolic health issue. Big food wins. Big medicine wins. Big pharma wins.
"Costs attributable to overweight and obesity in Canada were $6.0 billion in 2006, with 66% attributable to obesity. This corresponds to 4.1% of the total health expenditures in Canada in 2006. https://onlinelibrary.wiley.com/doi/abs/10.1111/j.1467-789X....
This is a notoriously difficult thing to estimate, and highly influenced by exact definitions of any given study, so some variance is to be expected. But going from around 6% to >60% seems like quite a jump.
Sure, but even that cherry looks a whole lot more like the rest of the numbers I've found than the one grandparent comment offered.
The study you cite only examines the costs for cardiometabolic disease, not all healthcare costs. And then says that suboptimal diet is responsible for 18% of that specific category.
"18% of the costs of the one category most closely linked" and "5-10% of all healthcare costs" seem like plausibly compatible measures. Whereas the grandparent comment's claim remains out of synch with those by an order of magnitude.
Yes, 20% of the cost "from heart disease, stroke, and diabetes", which is significantly less than 20% of the total. (The press release has less ambiguous wording: "18 percent of all heart disease, stroke and type 2 diabetes costs in the country").
Does this data even include the costs associated with private EMS transporting tens of thousands of type 2 diabetes/dialysis patients every morning from their private residences and skilled nursing facilities to chop shops like Davita?
PE bought your hospital? More like, "some guys" bought your hospital.
Ask why "some guys" bought it instead of using their money in the market, or why your hospital sold in the first place. As anyone who's company has been purchased by private equity knows, it's probably because your hospital wasn't doing so hot to begin with and "some guys" were willing to gamble that they could turn it around and make some money before it blew up. This will mean turning the screws on the customers and employees and creating a sucky environment. But this is just accelerating what was likely already an inevitable decline.
As with any risky investment, there's a solid chance the PE firm will lose money on the gamble.
Hospitals, in many cases, are not good businesses. Especially in places where doctors, nurses, and other staff can demand a premium based on their local market's dearth of professionals. PE firms in my opinion are part of the slow death of these failing businesses - the last attempts of "some guys" desperate for returns trying to squeeze blood from a rock that everyone else was avoiding.
See, what I fundamentally disagree with is the notion that hospitals should be "good business." Why are "some guys" allowed to try to make a profit here at the expense of patient care? Healthcare (or government) should not be run like a business, and instead be provided as a service using the taxes we already pay for, much like how roads are built. The health of the public is our most vital infrastructure, and public infrastructure requires investment that you really can't make money on without defeating the whole purpose of public service.
By this argument why does anything cost money? I need shelter if I am to contribute to society. It should be free!
My own healthcare is extremely valuable to me and I should be allowed to spend money on that. Someone else may decide they'd rather have a new pair of sneakers. Who am I to say they're wrong, that they are not permitted to allocate their capital in this way?
> I need shelter if I am to contribute to society. It should be free!
You do need shelter, and those without housing should be provided somewhere to live. If you'd like to live somewhere nicer/bigger, then you can pay for that, but in a just society I don't see why there should be people starving on the streets. Economically, there are multiple studies that show providing housing to the homeless is at least net-neutral, and results in quite positive outcomes for participants [1,2,3]. Although the research is still in early stages and not deployed on a large scale, I think it at least illustrates the point that giving people who need it housing is not the straw-man that your comment implies it to be.
> My own healthcare is extremely valuable to me and I should be allowed to spend money on that. Someone else may decide they'd rather have a new pair of sneakers. Who am I to say they're wrong, that they are not permitted to allocate their capital in this way?
Sure, for some procedures, it may be viable to shop around or neglect them entirely. But for basic or emergency healthcare, there really isn't an open market. I don't think anyone would choose to "allocate their capital" to a new pair of sneakers when they're bleeding out in the street. For many people, even routine healthcare procedures are out of their financial reach, or at least or prohibitively expensive. Frankly, attempting to compare medical procedures to common goods is not really a fair comparison at all.
> PE can be replaced with "Some guys". PE bought your hospital? More like, "some guys" bought your hospital.
The article is about how PE funds are large, and can thus buy enough businesses to reduce competition. Your "some guys" analogy doesn't hold here, right?
Nah the grift is that insurers are price-takers in a local area (if you want to provide insurance to businesses in Seattle, you need to cover e.g. cardiology in Seattle), so PE buys up all the cardiology practices in Seattle and charges more.
It's so frustrating that such a basic, non-intelligent move is the go-to by the biggest players that can afford such a strategy. It's completely counter to the presumption that wealthier players are more suited to allocate resources for efficient outcomes.
Having recently spent too much time at too many medical offices, I've been able to ask doctors about how thier businesses work. So far only one has said they own their practice, and he's of the opinion most doctors cannot pull off ownership becuase they exit med school bound by debt, and never end up with enough capital to hang their own shingle, much less to buy an existing practice when competing with PE. Of course this is 3rd hand anecdota.
My former dermatologist practice had several offices in this region staffed by good, trained physicians. It was a pleasant place to visit for the every so often check-up. During the first months of the pandemic I cancelled a regular appointment because our area was hot with COVID.
Late last year I finally decided to reschedule that appointment. The whole practice had sold out to PE. It had been renamed with a name that has religious connotations though all the doctors were still there.
I'm always suspicious of mixing religion with health care but in this area, north Texas, it isn't unusual to see that type of branding in business names any more. It seems that everyone from your yard person to your doctor wants you to know how patriotic or pious they are so they stick it in their business name or logo. Pretty disgusting to me and I dodge those outfits almost as a rule because they tend to be full of hypocritical assholes who smell the extra income that can flow their way if they just add a little Jesus or veteran reference somewhere.
The markets decided a long time ago to use the tools that actually worked and that's why we have trained physicians doing the health care instead of preachers.
Anyway, after that appointment I have decided that I will not return and if I ever need to visit another dermatologist I will look for one that is still independent. That old practice has allied with a sketchy compounding pharmacy and they encourage you to use that pharmacy instead of using Walgreens, CVS, etc. probably because there is some level of kick-back in action from referrals.
It all seems so broken and filled with greed. It reminds me of the software world where everyone wants you to subscribe and pay perpetually for apps that in most cases offer no long term value and which will inevitably be abandonware when the coder moves on to the next big grift. SaaS is a huge scam infecting the business world. Everyone should offer the option to pay based on actual usage or to buy a perpetual license to use a single version with the option to buy upgrades as they are available, based on the individual's own needs.
Must admit I find hn comments on PE anything quite strange. VC good, PE evil when in many cases it’s just different stage of life of the same company & what the means for funding sources
So VC is Bhrama and PE is Shiva. One monetized building and another the deconstruction. If you're mad at just the destroying entity you're missing the point. The rot of PE stems from the same incentives of VC from where I sit and see.
PE conceptually is fine and if it worked the way you describe then nobody (respectable) would be complaining. But in practice you see it turn healthy or struggling but fixable companies into a shell to hold onto debt.
Its a twisted way of using the financial structure to siphon money without creating value (I would argue it destroys value instead).
Helps to build what exactly? Airbnb, which makes housing less affordable? When has VC created something that approximates a public good, such as a hospital?
Stripe is great and is just a massive boost to the entire industry. Shopify is also great, Apple makes great products, Google search is fantastic. I could go on.
I don't know the full history of each of these companies, but it wasn't my impression that Google or Apple really started with a lot of VC funding. Sure there had to be some kind of private investment to kick start them, but they became profitable on their own pretty quickly. "VC" to me is associated with finding an outside source of cash to fund your money losing business until you can drive competitors under. If revenue picks up the company can IPO, success! Then once it's public the stock price flatlines or drops (otherwise the venture capitalist left value on the table).
PE firms often control boardrooms without taking seats. Maybe they have the right to appoint a director but don't take it up, but come to board meetings anyway. The legal phrase for someone with control, but not registered as a director is 'shadow director'. Shadow directors are supposed to have the same responsibilities legally as real directors. In practice they get the real directors to risk sanction for insolvency and don't risk themselves. This needs tightening up massively.
I'd noticed some strange changes at our veterinary office, where they'd usually give my dog a full round of shots once a year, suddenly they decided to break it up into multiple different rounds, meaning I'd pay 3 times instead of the one. After a little research I'd found that they'd been bought by a private equity firm, and on further inspection had found a lot (NYC) of practices had changed hands the last few years.
There's been some antitrust cases, but the FTC clearly can't block many. The changes are clearly costing everyone more money for no reason, but can anyone really block this?
The thing about PE that confuses me, in fact it's about all finance.
Why is it that a business can be bought by a PE firm, that uses the existing cash flow of the business to fund the loan repayments, but the business itself cannot get a loan to invest in new capital / buy the CEO a yacht etc?
There feels like there is a missing market. There is the super safe regulated world of public corporations, where you loan MSFT your cash and they will spend it on marketing O365 or something. And there is the highly specialised one of a kind "selling it for parts" M&A.
But where is the middle market where a PE firm makes an offer and the next day the business itself puts up a prospectus and is able to find enough semi-liquid capital to take the self same bet?
> that uses the existing cash flow of the business to fund the loan repayments, but the business itself cannot get a loan to invest in new capital / buy the CEO a yacht etc
Loan repayment to banks and other financial institutions is the first and highest priority. During this process the company is constantly turned more efficient and profitable. If it adds value, jobs and capital in form of machines etc. is added, therefore PE firms do not only reduce employment. The goal is also to sell irrelevant jets / yachts and eliminate other expensive non-business related expenses from which often a few benefit. The goal is not to buy new yachts. In fact a PE firm is committed by contract and by incentives through own investments, to not use the company to fund lavish lifestyles. After on average 5 years the company is sold for a multiple.
> But where is the middle market where a PE firm makes an offer and the next day the business itself puts up a prospectus and is able to find enough semi-liquid capital to take the self same bet?
Why is it so hard to raise funds?
I think I don't really get your point here. There is no infrastructure which provides businesses this option, because it does not make sense. Private businesses are often sold through investment banks, and if the desire to sell comes from the owner, then there is often a form of auction involved. Companies with a solid business are getting a very good price this way. But raising funds for an existing business and selling a business are two completely different things. You don't accept a PE firms invitation to a call, and then turn the other way to get funding and keep ownership.
It's (also) this I don't get. if shareholders own enough of the company to be able to sell to PE then they own enough to be able to replace the damn management with better. That's basically the point of (active) shareholders.
It seems this is an expensive way to get passive shareholders replaced with activist shareholders. it feels there is a better way.
I think if we can get more health data access then we can slowly automate out general practice type doctors.
Only doctors around will be those who are highly specialized in orthopedics, neurology, etc.
For everyone else who needs a Z pack or headache pills, they can just get their care from a AI doctor in their pocket. Why do I need to wait days or weeks to see a general practice doctor? That doesn’t sound fair.
Cuts costs heavily. Most people live long with just eating healthy and moving around. I’m sure it will be fine for most people.
I personally don’t see a doctor each year. I exercise, eat whole non processed foods (cheaper than whatever packaged crap), and I get my lab work done regularly. The only times I’ve gone in are when I broke something or was heavily bleeding from an injury.
I’ll bet if most people put down the Diet Coke in favor of a water, we would save billions of dollars right off the bat.
Never said I was. Just a victim of never getting an appointment when it’s most necessary. And it’s factually true that Diet Coke isn’t necessary for the health of the body.
I do not use doctors who are beholden to corporate bosses, insurance companies or shareholders.
COVID-19 has accelerated the parallel economy of Direct Primary (and Specialist) Care. It was a fork in the road, a bifurcation point, and many have decided which way they are going.
There are people who value medical freedom and the doctor-patient relationship, and there are some who value collective concerns "for the greater good" at the expense of individual liberty.
It is a free market, about 30% of all hospitals and doctor offices in the US are a for profit private corporation, thus they can be acquired as any other business by anyone. Like with pharma, most people have the very big misconception that just because its about health, that hospitals are excluded from free market and capitalistic principles. When someone offers hospital services or starts developing a new drug, he can charge whatever price he wants, and he will do it as long as profits are maximized and don't start to plunge due to too large price hikes (+ conflicts with insurance companies etc.). Hospitals in countries like Switzerland are known for the best medical treatment because they are almost 100% for profit - private / investor owned. Running a hospital is a business as any other + 95% of the US population has a healthcare insurance anyway. At topics like healthcare, most people are simply too much Hollywood educated and debate with irrelevant individual experiences.
The Swiss system isn't quite lassiez-faire capitalist:
> "The Swiss government... does keep down overall spending by regulating drug prices and fees for lab tests and medical devices
> Swiss insurance companies [must] offer the mandatory basic plan on a not-for-profit basis, although they are permitted to earn a profit on supplemental plans.
It does seem like a promising approach that's (largely) market-driven.
PE is essentially buying all needs of a first world human. Medicine, homes, essential services, farmland, in an attempt to extract margin from the last possible places they can.
It feels like we’ve re entered the 80s again but worse where now we have 100 billionaires buying up farmland under the guise of it being better that they own it rather than the farmers for… reasons.
I think this is essentially late stage capitalism, where there is little left to offer the general population for margin, but much that can be taken away. I’d hazard a guess this is where capitalism turns on us and becomes a regressive force for America as margin stops fueling opportunities and starts fueling general decline for marginal returns. Im not pro socialist and I don’t have a solution — but I think we should recognize this and think hard on how to pull up out of this.
>It feels like we’ve re entered the 80s again but worse where now we have 100 billionaires buying up farmland under the guise of it being better that they own it rather than the farmers for… reasons.
I don't get it. Are the billionaires buying the land from the farmers at gunpoint? If it's so disastrous for the farmers to sell, why did they sell in the first place?
It’s more a tragedy of the commons. People can act 100% rational at 100 ft. but at the same time be selling their souls collectively at 1000 ft. So the question becomes, “should society work to mitigate the tragedy”?
Blackrock buys all the land. What do we do? Doesn't matter if they did it at gunpoint or not, the outcome is not desirable, and we write and enforce the laws.
Public co-ops do not get free FED money. Gap inducing inflation has been forced upon us, certain players get to use the leverage to buy up everything, the rest are left arguing over scraps.
This is a side-effect of a central banking system without proper checks and balances.
I see that now, I was 24 when that policy started and I’m 38 now. And I feel like the entire world was bought out from under me with free money to those with capital leverage.
The graph really makes it seem like the small practices are getting screwed on reimbursement rates, but once PE takes over, they are in a better negotiating position to get higher reimbursement rates from insurance companies.
This seems just part of corporatization of nearly all jobs. It isn't just doctors, its restaurants, pharmacies, taxi firms, clothing stores, law firms, home builders. We used to have lots of small independent firms doing this, now people just work for bigger and bigger companies.
In my space (Veterinary) there has been a ton of this. To people who are used to the way things were, it's been very disruptive. Lots of boomers are retiring and a young vet would only be able to pay a 5x multiple, perhaps, but PE is swooping in at 12-15x. They usually lose a bunch of staff at the transition so they have to hire quickly. It's good for workers in the short term, as wages and salaries are much higher. It's hard for clients, prices are up to compensate for the high wage and to increase/juice returns. Sometimes the purchases flop spectacularly, but they must be winning on average.
At the same time, suppliers have consolidated and there's barely any competition. They're also vertically integrating.
10 years ago we were worried there were going to be too many veterinarians. Actually there were, but the wave of age 60+ vets retiring has flipped that around. Now there aren't enough vets or licensed technicians.
I am concerned that the future will have another big swing in the downward direction, while multiple PE firms try to find bag holders at the same time. But maybe there industry will just grow and grow. Who knows?
"Private equity" refers to large investment funds that typically buy & restructure businesses to increase profitability. It's not simply a generic term for "a business."
I still remember when my dentist sold his practice to a larger group. Suddenly they found things that needed to be fixed immediately during every teeth cleaning. After two years I went I another dentist and suddenly my teeth were healthy again.
I think private equity will break capitalism. Instead of people being interested in something and also making profits, with PR you have people that only care about profit and have no passion for the product.
For PE however, they've found a way around it, using the machinery available in the economy. For instance, once you are able to pay out a dividend that covers your cost of purchase, whatever comes next doesn't matter a whole lot from an investment point of view. You may have saddled the target with a huge debt, but that's a heads-I-win-tails-you-lose situation. If the firm does ok, PE actually win more. If it goes bankrupt, oh well. PE firm is still doing fine.
The risk is entirely on all the other interested parties: employees and customers.
But because we only have one side of the "created value" balance, all we can really see is some PE guys get paid. We don't see the other side, which is pretty hard to untangle. You can make an argument that everyone is better off with society organized this way, but you can't really ignore that many people seem to think they're worse off in this world.