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.

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.

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 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.

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?

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.

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.

And of course nobody has sympathy for doctors with student loan debt, but the debt may still have important effects on the economy down the line.

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.

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.

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.

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?

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.

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.

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.

It is a lot of debt/leverage at this point -- https://www.wsj.com/articles/private-equitys-food-binge-goes...

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.

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.

So why not call it a scam or a fraud? I know there's likely a solid legal argument for not classifying it as such, but laws can be changed.

This is its own thing that operates on another level.

The only thing they have in common is that people aren't getting the value they thought.

The PE in the article is firms with other values than what traditional medical professionals have, and those values are conflicting.

Organizations more like employee owned businesses exist but those come with their own sets of problems.

https://www.cms.gov/Medicare/Fraud-and-Abuse/PhysicianSelfRe...

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.

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.

Basically until pension funds aren’t bailed out by the government this will continue.

No. You heat the leech with a match and it falls off.

Fire is the cure

We have so many layers of agency in our economic system, and it isn't really a good thing.

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.

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.

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?

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.

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 think the real answer is more unsettling for some. PE that 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.

The managers of those funds make money based on deals and they move on before the deal goes south. Principal agent problem.

EDIT: lordnacho explains better: https://news.ycombinator.com/item?id=36751012

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)

https://caia.org/blog/2022/07/20/long-term-private-equity-pe...

We're talking about private Equity debt so I would think the 11% would be cash Returns on loans.

If you make 11% per year return on your lending portfolio over multiple decades, how is that not comparable to your stock market gains?

Sure, resell of loans might be harder, but they're paying cash interest.

You're also starting from the assumption that the deals are bad. Why is that?

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.

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.

Well smeared poop.

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.

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.

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 >$30,000/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.

[1] https://www.talent.com/view?id=685b4384e8d6

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.

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?

So your choice is "work", or "starve and die" - the person offering the job is not creating the "starve and die" choice, therefor it is voluntary.

Your choice is "work", "I will beat you" - this in involuntary.

Your choice is "work for $1,000,000", or "work for a bar of gold" - this is involuntary because the person offering the choices created the choices.

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.)

Would you like to work for the American Garbage Collection Company?

Would you like to starve?

Aha, you've volunteered to work as a garbage collector.

I think this isn't what people think of as voluntary. Sophie's Choice is a better description.

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.

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.

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.

>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?

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.

Don't do that, it leads to a horrible world.

"The Copenhagen Interpretation of Ethics says that when you observe or interact with a problem in any way, you can be blamed for it."

[0] https://forum.effectivealtruism.org/posts/QXpxioWSQcNuNnNTy/...

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.

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 ...

>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?

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. 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?

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.

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.

> 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.

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.

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?

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.

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.

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 what does that even mean? do you mean that they are doing traditional LBOs in emerging markets?

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.

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....

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.

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.

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.

Political appointees are making investment decisions by choosing the people who make investment decisions.

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

    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

--------

> 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 rarely 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 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 * 0.1 * 5 = $140M, giving you a 7x return.

Obviously, you've also increased the risk - your business must be capable of paying off an extra $8M a year in interest.

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.

That's just a group of people buying a company and selling it off the assets for a profit.

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.

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?

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-...

Example with a retailer from the UK, which turned costly for the investment bank: https://www.youtube.com/watch?v=DKYKT4pvYYA&pp=ygUTZnQuY29tI...

(I’m also not talking in general but rather about certain specific cases/forms.)

"Wrong" is applicable to this reply rather than the original post.

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'.

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.

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.

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.

At least in the US we (try) and make donations public. The places where it’s “banned” are black holes.

That is definitely an interesting take. So, is your ideal society one where anybody is allowed to give and take bribes as long as it is public?

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.

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.

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.

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.

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.

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?

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".

Those aren't the same things.

The government paying for services in a private market is not 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.

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.

> Medicare and medicaid are single payer.

No, they're not. "Medicare for All" would be single payer. https://en.wikipedia.org/wiki/Single-payer_healthcare

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.

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.

"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.

Oh, I've been ranting for decades.

Blaming something for being practically a religion is about as empty a piece of reasoning as it's possible to make.

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?

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?

https://data.oecd.org/rd/gross-domestic-spending-on-r-d.htm

You can find the health R&D expenditure data here: https://www.oecd-ilibrary.org/sites/health_glance-2017-72-en...

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.

Edit: somewhat newer data is here https://www.oecd-ilibrary.org/sites/fc8b43f4-en/index.html?i...

It shows that the R&D pharma spending gap has actually increased even further to 3.5x.

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.

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.

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)

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.

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.

After all, what could be more efficient for shareholders than having no competition?

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).

https://www.heritage.org/index/ranking

"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

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.

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.

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.

[0] https://www.heritage.org/index/pdf/2023/book/2023_IndexOfEco...

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.

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.

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 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).

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:

https://pubmed.ncbi.nlm.nih.gov/10865276/

The last line says it all.

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":

https://i.imgur.com/DNwkkAj.png

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.

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.

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.

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.

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

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.