Not really. Monopolies are an invitation to competition: Your margin is my opportunity, as it were. They are therefore hard to maintain absent some kind of external force to support it: Regulations (regulatory capture), licensing, explicit grant from the government, intellectual property laws, or some kind of collusion or market manipulation (more leading to oligopolies rather than monopolies).

This is how industrial barons of the early-mid 20th century operated, as an example, with collusion and price fixing type things. Or hospitals and medical facilities today with certificate-of-need laws enforced by the government.

Reagan and other racists succeeded in turning government benefits into a synonym for POC stealing from White Americans.

It’s fine for a military defense contractor to go a few billion over budget for a weapons platform that barely works, but if a single mother uses food stamps to buy cake ingredients and then sells a few pieces of cake that’s a travesty.

Millions of Americans, not just white, but plenty of Hispanics, Blacks and Asians too, voted to take away their own medical insurance.

Because they know that they’re just temporarily embarrassed millionaires. Not the type of people who need handouts.

I'm not sure anyone has solved the problem, though.

"For profit" isn't really the problem, fee for service is.

Value based arrangements and capitated payment structures are real improvements.

When you don't have any market forces constraining utilization, you get massive access problems.

Genuine Q: Are they buying failing businesses because they see potential and want to get those on the right track, or are they buying them because their forecast tells them they can still make money, before shutting them down for eternity?

If PE buys something that doesn't have a moat then they can't enshittify it because the customers would immediately switch to alternatives.

They often still buy those things, e.g. when there is a failing company in a competitive market that could do better with new management, but then no one complains about it because they're not making the product worse (and can't because there is actual competition).

> But why should an owner of a practice sell to their junior staff when PE is there offering 2, 3, 5x as much?

The better question is, why does a medical practice have a moat? What exactly is the PE firm buying? When the senior doctor retires, what stops the junior one(s) from renting their own offices and taking their patients with them?

The answer is presumably something like, non-compete agreements, or vendor lock-in from EMR systems, or some kind of insurance or regulatory bureaucracy. So then we need to identify what it actually is and do away with it so the next generation's juniors don't have to outbid Wall St to acquire it.

These PE-owned companies create market demand by being shitty. Somehow they are able to keep their margins and their market so that their business model makes sense. That's a puzzle, right?

There is no shortage of investment looking for great returns. A market with huge demand not being met adequately is a dream to investors. Even more when you know the competition must continue to fuck their customers because they paid above market rates for the purchase and the business is saddled with debt obligations it must meet (Leveraged buyouts do that).

What could stop new competition from beating them out?

It's not capital.

> To put humans through this kind of misaligned system is the stuff of nightmares.

And also the natural market equilibrium, apparently.

I love this idea but I think the PE angle also means suppliers and vendors will charge them far less for bulk order and those suppliers/vendors themselves may be a horrible little mix of MBA-brained owner practices that actively upcharges small businesses who have far less negotiating leverage

I think the only way to do it is to have your neighborhood actively being okay with seeking local services something that a lot of neighborhood groups I frequent seem to be a big fan of (farmer's markets are an indication of this - if there's strong and regular FMs being hosted, there's people willing to burn a little extra disposable income for better, more reliable products)

I’be been similarly interested and long ruminating about whether it would be possible to achieve something similar to this in the restaurant industry. For example to have a non profit operating a franchise of a fast food location and instead of having thw 20% corporate tax rate and profit going towards retained earnings and dividends to instead be reinvested in the mission which would be better, more nutritious ingredients to better healthily feed your local customers and two to provide the staff a livable wage. Like you, I keep turning it over in my head and contemplating it rather passively as it’s way outside of my lane of Data Engineering, but I’d like to think that the market would eventually identify this as viable if it at all would be. With the ever looming fear of layoffs and future of future employment in writing software I keep thinking about that scene of the firing in “Up In The Air” where the guy they let go had always dreamt of being a chef and was finally able to pursue it after getting laid off from his high paying job that he had come to hate. Typed on my phone with my cat on my lap ; so plz excuse any run on sentences or imperfections.

Good luck to you and I sincerely hope that you succeed. It's not a dumb idea.

But on the human side many health systems are non-profit, and they generally aren't any cheaper or better quality than their for-profit competition. The real problem is local market power and lack of anti-trust enforcement.

If you start your own veterinary practice, and eventually build up a steady stream of happy customers, then sooner or later the PE firms will come knocking on your door, too.

Imagine you're drowning in student debt and worrying about keeping your business afloat, when someone offers you $5M, and says you'll still get to work with animals, which you love, while they take care of the financial and business side, which you didn't enjoy. It's a no brainer for most people.

* Most small brick & motor businesses do not turn a profit in their first 2 years. So you’ll need a significant amount of runway, in a business where raising capital isn’t guaranteed.

* There’s probably more cost in medical supply, equipment, and certification than you’d expect. There’s standards for security of the medications.

* Most veterinary clinics have staff. That’s payroll expenses.

* Any new business will need marketing. You’ll probably want a large sign/billboard, a decent website, and social media.

* Just leasing office space and furnishing it is surprisingly expensive.

Dogs use the same x-ray machines that people do.

I don’t have a problem with privately owned clinics, but I do think it should have to be majority owned by the operators. What percentage of that 45% is just doctors that run their own office vs. investment firms.

I agree there is still a long way to go. I hope this case shows that there is political will and ability to push back against private equity rot. Many of the commenters here treat these forces as inevitable and unstoppable - but it is possible to take ground back against them. It's unfortunate it took the death of a child for this to happen.

You have to start somewhere.

Very strange comment. I would encourage you to read the specifics of the actual case. The hospital was severely under resourced resulting in a simple case being neglected and the child dying. The child could have received basic treatment and they would have survived.

Underresourcing the hospital was a deliberate decision by Brookfield to push for a government bail-out. Anyone who made money off this should be in jail.

Absolutely no idea what the rest of your comment is about. Our hospitals should have the resources to treat a sick child. Some might say that's the entire point of society.

A stronger steelman is that it results in resources getting allocated in smarter/healthier ways across society.

If there's some business that's getting by but the land it's on is more valuable (e.g. for housing) than the business, some investors buy the business, sell the land, make the business account for the land value, wind the business down if it can't, and there are apartments there a few years later.

Berkshire Hathaway is in some sense also PE (though done by a public company that you can invest in) and Warren Buffett's culture is to find great companies run by great managers and let them cook. That long-term view is the exception and not the rule though.

It is a broad term. VC is a subset of PE.

In medicine, it's a solution for someone who wants liquidity (buy kids new home, help local dog shelter, add a new mistress) and doesn't want to retire, yet.

The problem is that the terms are custom and YMMV as an existing patient of said practice.

>If I build a business I get to decide what to do with it.

I don't think that follows necessarily, especially not categorically.

> The steelman argument is that private equity is just property rights. If I build a business I get to decide what to do with it.

You're gonna need to steelman that again, because in and of itself that is also not something I see as desirable.

Lots of other efficiencies to look at. Tons of them are directly bad for the patient (capturing more of the surplus is an efficiency that businesses generally go hard at).

Ultimately, I think the issue is when people making decisions are able to treat the impact as an abstraction.

A structure to run business efficiently using practiced methods is always a good thing. However from what little I have understood, the goal of Private Equity is to maximize the dollar value on their investment. Somehow they have settled with the playbook that running a business even profitably isn't the best idea. Instead its much more profitable to take over the struggling business at good price, squeeze everything possible from the assets (thats where PE seem to be investing their expertise unfortunately) over duration of time. Update the books in a manner that it saves money on taxes and carry forwards the loss, making money in the process.

>> Maybe they find a buyer in a doctor, maybe they don't, but PE provides them an exit that keeps the practice operating in the community.

If the practice is to continue, there must still be practitioners working there. Id prefer they buy out the one retiring, but the retiree can sell to whoever they want.

> Many people don't really run businesses efficiently.

In many cases that's a good thing, depending on what we mean by efficient. Lots of people run businesses in ways that make less money than they could, and often that's good.

> I don't know how these tradeoffs interact with patient care, but I wouldn't inherently expect PE to be worse at this than any other operating model.

Doesn't the evidence suggest it is indeed often worse?

> and lowering prices in the long run.

My sweet summer child...

Why do you need to sell a private practice? There’s no brand to sell, it’s just you and that will be gone.

PE is scourge in this space. They’ve probably taken over every dental office already and now they push unnecessary procedures and whatever your insurance will bear just because.

The business itself need not be a sellable thing.

Sell the assets maybe, potentially to somebody who wants to use them to run the same kind of business in the same kind of location with the same employees.

It's hostile to the consumer to call it the same business. A name change gives them the opportunity to decide for themselves whether the new owner is worth supporting. It's similarly hostile to the employees to assume that their loyalties can be bought and sold. Let the new owner of the assets re-hire them for the same position in the same location if he wants to, but lets not have them be for sale.

May be categorizing the different private equities can be helpful here. A PE interested and invested for growth is always the best outcome. A PE only looking to salvage and squeeze is that gives the bad branding to PE.

Except they always strip mine the business. Cut the quality and push unnecessary shit. But, hey, you can fill out your forms on an iPad instead of pen and paper. Very cool.

> So, what happens if person A is prohibited from selling their business?

I actually made that thought experiment. Disallow selling businesses. Disallow selling shares. Disallow stock market. Disallow mergers. The only way to acquire a business is to found it or to inherit it. The only way to quit a business is to shut it all down, with all assets liquidated, all liabilities settled, and all contracts terminated.

The main downside is that it's harder for to make money. Otherwise... I only see positives. And no, it wouldn't kill innovation. The investors would just have to invest the old fashioned way - by founding companies or expanding their existing businesses. As for job security, we already don't have it in the current system.

My controversial opinion: chains/large businesses are more convenient, cheaper, better (and more consistent) service, and the big one: you can complain up the chain when a local branch/franchise fucks up vs dealing with a sole proprietor. There's plenty of small businesses I do value (thrift stores, bodegas, etc), but for services? The choice is obvious.

In human med, it's a pretty standard practice to offer a management company 10% ownership for them to handle the business shit.

I'm not arguing with you; I'm legitimately curious what happened to that model and why PE has swooped in as more attractive to doctors. Maybe it's the payout and/or the fact that they don't have to handle business owner decisions at _all_ anymore?

Improving efficiency and optimizing profit are two overlapping segments on the road to crap. It’s not easy to stop the car once you put the bean counters in the driver's seat. If a company is able to do so, it’s usually because there’s a strong leader or culture to resist the slide. But otherwise it’s a thousand small decisions that all seem reasonable on their own.

  Should they be outlawed from selling to certain classes of investor? Which?

It should be more about making certain levels of consolidation and deep erosion of local ownership illegal.

We have run this country on an assumption that we must give businesses a high amount of freedom. An argument can be made that businesses have been given too much freedom in our system. We’ve allowed Amazon and Ticketmaster and Walmart to exist and they shouldn’t exist in their present form.

Healthcare practices that provide necessary care shouldn’t even really be allowed to be for-profit entities if you ask me. The incentives become too perverse as a result.

If the business is a hospital?

Yes.

What does it mean in this context to be more intelligent and shrewd than the existing owners? Delivering better profit margins?

What shows that they are more intelligent? They might be better at extracting value from enterprise, but is that generally “more intelligent?”

Remove “more intelligent” here and I’ll give you some benefit.

The problem with healthcare “economics” is that providing high quality care is likely not as profitable as middling care, or sub-standard care.

You say that economics is meant to deliver cheap quality goods, but in reality here economics for PE is value extraction and has nothing to do with consumer good at all - unless of course there’s more profit there. Most of the time, there isn’t.

We know how to make MRI cheaper. Put it in a can. MRI suites are built with copper shielding in the walls, and the machines are really heavy, which creates huge capital costs. (Capex is a big problem for medicine.) There's an easy solution: you can just put an MRI machine in a standard tractor-trailer container and bring the patients in. Nothing has to be constructed or installed.

None of the private equity chains with the sans-serif fonts, simplified logos and trisyllabic names are doing this, though. It's bad marketing. Patients don't want to walk outside to an MRI machine in the parking lot. It feels sketchy. Never mind that they score just as well on the ACR image quality tests as the in-room machines. Who the hell knows what that is?

In reality, it's the county hospitals and big universities that use them! Places that have in-house physicists who can argue for what really makes sense in practice. A major problem with healthcare as a business is that the customer does not usually understand the product, but they still need to buy it, and there are time constraints.

Hard disagree about "more intelligent". They are playing a financial game using a combination of leverage and reptilian ruthlessness to EBITDA hack.

They buy one (or more) companies, often with only the slimmest understanding of what those companies do, slash opex by gutting the company with layoffs (yay EBITDA), maybe staple a few such companies together with leveraged buy-outs, then resell the whole bundle for more than they paid.

From experience, they don't give a single crap whether the resulting mess still functions. They care about selling the company for more than they bought it for. That prospect is only tenuously and at best accidentally related to whether the company still functions.

The private equity companies I've had to deal with were full of braindead MBA spreadsheet monkeys and used car salesmen. Their chief differentiator was that they worked 80 hours a week and were enthusiastic about laying people off without much deliberation.

Thinking private equity is "more intelligent" than business owners is like thinking house flippers are "more intelligent" than home owners. No. They know how to rip out carpet and replace it with laminate on the cheap. They know how to cut corners and hide it. They know buyers will over value a fresh veneer of paint. They don't give a shit about the long-term health or value of the house. They are not better stewards of houses. They specialize in short-term profit maximization and that is literally it.

> increasingly productive jobs.

This needs to be defined a little bit better.

If I own a hospital that makes infinite money and every patient that comes to it dies the economy measures this is infinite productivity. This is contrived, but really matches some of what we see in real life.

This is why making a measurement a target can be horrifically destructive and contrary to the actual goal society wants.

The west doesn't seem to believe in the idea of social stability over increased profits which can lead to things like corporations being the social structure that is optimized for rather than the wellbeing of the individuals it contains. Left to run out of control the society can collapse.

The thing is, we're now learning that efficient resource allocation in the short run is not necessarily what we want in the long run.

That's a silly suggestion. The lenders buying that debt know what they're getting into. Those are sophisticated investors. If lenders want to limit what borrowers are allowed to do then there's nothing stopping them from imposing debt covenants on the deal. No need for the government to ban anything.

> One specific practise I’d like to see banned is private equity buying companies with debt the company then assumes. It staggers me that it’s legal.

What alternative are you imagining?

I’ve literally never seen that happen. what does always happen is cutting ‘non essentials’ that are essential until the company implodes.

> PE exists because a lot of companies are poorly managed.

This is a non-sequitur. The existence of private equity has an effect on how companies are run, not the other way around. Many well-run companies are targeted by PE exactly because they're well-run and have carved out a sizable captive audience for themselves. And when PE takes over, said company usually ceases to be well-run on all metrics except one.

PE exists because of the non-linear relationship between money accumulation and power. This effect means that it is more beneficial for any company to hoard capital as much as it can rather than "waste" it on the wider economy; after accumulating enough capital, the company can pivot away from whatever market it was in before and focus solely on asset management. PE mostly results from too low taxation on inert wealth compounded by zero-interest rate monetary policies.

> It's better for your local hospital to be taken over by a PE firm than to go out of business.

It's a false choice. The healthcare system has long dealt with and deal with that situation without private equity.

I don't think I agree with this, most of the regulation I see is for patient protection. Stark, AKS, HIPPA, etc... are all strong regulation aimed at protecting individuals.

From fee-splitting prohibitions to FDA regulated medical devices, almost all of the day to day regulations I've dealt with in healthcare are squarely aimed at ensuring safety, protecting privacy, preventing fraud and controlling costs.

I don’t think that’s true though in all cases. Sometimes PE just offers more money passing the debt into the company they acquire. But smaller players would still take control.

You are forgetting that if PE weren't there to buy out local dentist offices at a premium, then these offices would sell at far lower price, making them affordable to the next generation.

That's not a demographic cliff, that's a financial power cliff, and it's caused exactly by too much money being tied up in PE companies and offshore accounts. All that money taken out of the local economy is leaving each generation with an increasingly smaller size of the pie, even when the pie itself has been consistently growing. You even admit yourself that the problem is that the next generation "can't afford" to maintain the outgoing generation's standard of wealth.

It sounds like there's too much money in PE and not enough in the hands of young people. I'm told there is a secret ancient technique for rectifying such a situation.

That's one model of private equity, but PE has also been buying up very successful local businesses in areas like veterinary care. The PE firm keeps the name and branding of the local vet because people have traditionally wanted to take their pet to a trusted local vet, not a big chain.

That's just not true. Distressed and turnaround investing represent less than 20% of PE acquisitions [0].

[0] https://www.ey.com/en_us/insights/private-equity/pulse

They don't have to have an in-depth understanding of leveraged finance to get pissed off when their doctors start doubling prices or their own employment conditions get worse or their parents get treated badly in care homes because the staff are now overworked etc. they're mad at the outcomes they're overwhelmingly not actually trying to debate the merits of it from an exit liquidity perspective.

Can you cite - antidotally the only doctors I know that would rather be an employee work for big hospital chains or already sold their practice for a pile and are happy with less responsibility.

Most doctors don't want to be business owners.

Then they should work for the doctors who do.

Also, I don't think they're particularly opposed to owning their practice. I can understand them not wanting to manage a business. But for that problem, they can hire professional managers. Which is basically how hospitals work; if the doctors all want the CEO replaced, he gets fired. There's a physicians board and the trustees tend to listen to it.

yes. It's completely insane that health insurance A) does all price discovery B) is tied to your employer.

Ask an American hospital how much something costs - you will get a completely fake price back, this is a sign of a totally broken market.

As opposed to the many famous cases of unicameral American legislation?

Optimization of medical care in usa is mostly limited by regulation and fear of lawsuits. Neither of which is going away. You can always get cheaper care in other parts of the world.

Vets see animals, not humans.

The cap is generous. If an insurance company is hitting it, competition is failing to keep them in check and lifting the cap would just let them gouge deeper. Of course, that doesn't keep them from constantly yapping this talking point, as if it wasn't that way before, as if we don't have evidence that it wouldn't work. "Just lift our profit cap" is self-serving baloney.

"Private equity" also includes venture capital here. It means all private direct investment. The thing you are imagining is one small corner of what private equity actually is.

I'm sorry, compared to what? We're not talking about a routine doctor's office for healthy people. Advanced care is extremely technologically intensive and your local surgeon is not personally buying the $20M in infrastructure required for many modern advanced treatments. Venture capital has been essential for progress in medicine, and many advanced therapies are going to be increasingly delivered vertically integrated for the widest accessibility and best outcomes.