Comment by metadat | Hacker News Reader

Comment by metadat | Hacker News Reader

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Private equity is akin to toxic poison for everyone who isn't one of the (very few) general partners who bask in obscene amounts of scrooge-mcduck money. Think of making a cool $30 million+ a quarter, per partner -- thanks real estate (and apparently, emergency medical services) "investments"! This is a direct funnel to syphon money from the workers to the ruling class. That's even more cash than the top brass at FAAGs make.

How can this phenomenon be reigned in and sorted in the medium to long-term?

It's a loss for everyone (99.9999%) except the miniscule quantity of winners (0.0001%, yes, that's 1 in 1,000,000 - there aren't that many large-scale P/E firms). Housing owned by P/E couldn't be more soul sucking. Scratch that, this applies to every case I'm aware of where P/E firms own a thing.

Anecdote: Last month my dear old dog was suddenly very ill and I spent $12k on emergency surgery to save his sweet life. No regrets, I'm grateful he was fixable. But in the waiting room I did the conservative math for what the SAGE Emergency Veterinary Hospital in Redwood City, CA makes in a year (before the comparatively small overhead, tax-deductible expenses) and they are pulling in at least $30 million in this single location. That's.. a lot, for many 20 total staff. Also they charged me $500 for each follow-up visit, which is way more than my real life surgeon charged me earlier this year! (Even including insurance, he didn't charge much for the follow-ups to make sure I survived.) Damn.

For the dog lovers out there: Doggo is alive and well, can maybe last another year or two we hope.

Btw, who owns SAGE? NVA, a P/E firm.

https://todaysveterinarybusiness.com/sage-veterinary-centers...

https://www.crunchbase.com/organization/national-veterinary-...

Ideally you'd expect the market to deal with it how it normally does, which is to have people open up competing practices to undercut them. I think the problem is that VC has correctly identified this as not only a field where people are willing to pay a lot based on emotion, but it's also regulated enough that their strategy of buying out existing practices leaves them fairly safe from a lot of competition. I wouldn't be surprised if non-competes factor heavily into their strategy either.

In that case I would hope the government could at least step in to combat anti-competitive behavior (which I think this definitely is), but that always seems to lag a decade after it's first needed.

Locally, the answer was that the folks who could open up a competing practice were under non-compete agreements if they left the PE-owned place. (We had a local legislator step in to help void them.)

https://news.vin.com/default.aspx?pid=210&catId=3115&Id=1186...

> Marion said early efforts to enlist former VSES doctors or others in the community to start an ER were discouraging. Some VSES doctors had already left the area, some had signed contracts for new jobs locally, most were worried about the constraints of noncompete agreements they signed with Thrive, and "no one seemed eager to take on the tremendous responsibility of owning, managing and running an emergency hospital even with the help and support of the local veterinary community."

Good thing non-competes are now illegal.

https://www.ftc.gov/news-events/news/press-releases/2024/04/...

Maybe. After the inevitable judge shopping (I'd predict northern Texas; https://www.cnn.com/2024/04/01/politics/judge-shopping-north...) leading to a national injunction goes up to SCOTUS, we'll see.

hahahaha. Imagine if SCOTUS decides said law banning non-competes is unconstitutional. Could they do it in such a way to kill the "non-competes are unenforceable" law in CA? that would suck.

No, it's the FTC doesn't have the authority - this is an easy thing to do federally, just convince congress to ban them... most things should not be decided by the executive.

The FTC has had authority to regulate unfair trade practices since 1914.

https://en.wikipedia.org/wiki/Federal_Trade_Commission_Act_o...

> Under this Act, the Commission is empowered, among other things, to (a) prevent unfair methods of competition, and unfair or deceptive acts or practices in or affecting commerce; (b) seek monetary redress and other relief for conduct injurious to consumers; (c) prescribe trade regulation rules defining with specificity acts or practices that are unfair or deceptive, and establishing requirements designed to prevent such acts or practices; (d) conduct investigations relating to the organization, business, practices, and management of entities engaged in commerce; and (e) make reports and legislative recommendations to Congress.

It's hard to see non-competes as anything other than an "unfair method of competition", and it's shameful it has taken this long to act.

And then conveniently load the congress up with conservatives that would never ever deprive a business of their profits. because profits are sacred.

Ferengi Rules of Acquisition Number Ten

My only concern in this context is that this is in relationship to employee relationships. If said vets had an ownership stake in a sold practice, could they be restricted by virtue of this different context?

Will be interesting to see how the recent FTC non compete ban plays out in this space. It seems like a prime candidate to promote competition as the key licensing is held by the individual (the vet) as opposed to the company.

Yes, I'm hoping that holds up in SCOTUS.

I hope you’re planning on voting in November.

Of course, but ask Obama if that guarantees anything as far as SCOTUS goes.

It doesn't guarantee anything, especially given the Republican super-majority already ensconced in SCOTUS, but there's only one small-d democratic way out of this situation...

I don't it's a blatant power grab by a federal agency that doesn't have the authority.

That being said I hope Congress takes up the issue and actually passes a law banning it.

Congress already passed a law granting the ftc the authority to prevent unfair methods of competition and unfair practices affecting commerce.

>always seems to lag a decade after it's first needed

Not always. Back when the US enforced antitrust there was no decade wait for results. However these days all you can expect from the government are low corporate tax rates, high interest rates, and a thumbs up saying the economy is strong. There is no antitrust enforcement coming. The only thing there is an appetite for is to loot the younger generations.

The other problem is private equity can burn money in the short term to undercut new competitors at their most vulnerable times and return to profit gathering soon after.

I don’t think it’s regulated much at all. It’s nothing like human medicine.

Their moat is that there aren’t many veterinarian schools.

Requiring a degree or certification (at a legal leval) is a form of regulation. That it's costly and time consuming just makes that regulation a larger barrier. If you can somehow remove much of those people that already have the means to satisfy that regulation from the market, you've successfully controlled the supply for at least the amount of time it takes the pipeline to produce more of them.

Now I'm wondering if the VC firms took steps to disrupt that pipeline as well in some way. That would be pretty overt, but I've never gotten the impression that these people feel the need to be at all subtle.

I mean, it’s always been regulated if you count that.

I think what’s really happened is pet ownership (and the amount of care per pet) has simply grown at a higher pace than vet schools.

Most (all?) states in the U.S. require state licenses to practice, and you can't get much more regulatory than that, so yes, I count that.

There have been a few different reports put out about the current situation and how vets are being bought out. The article here is one of them. Is your theory that they aren't actually buying vets, or that they aren't raising prices, or that what they're doing is irrelevant to the current problems?

I know in my town and from my personal experience over the last two years dealing with five different vet practices, one of which is a local VCA branch and also one associated withe the local humane society, all the reports ring startingly true. VCA is extremely expensive compared to all other vets, but is also the only emergency location in the area. If we go in and it's not an emergency it's about 40% more than other vets. If it is an emergency it's much more, but at least there's a plausible reason in that case.

That said, there are more pets. Our local humane society is at well over double capacity for animals that are mostly aged suspiciously close to the beginning of covid. Multiple things can be happening at the same time though. Why do you think VC decided now to get into animal health care?

pet insurance has expanded the demand

Yes. That must be true because every vet office I go to advertises it heavily. The way car dealers push warranties.

And also, some theorize low birth rate is causing people to treat their pets like children thus necessitating more care. Think how many people call themselves a dog mon. Also, it’s really only been a couple decades since Frontline caught on and people largely let their animals live inside.

Vet schools are largely for-profit, often in other countries. I have a good friend who does admissions for one in St Kitts, they turn down a lot of people. I bet they all do.

Demand grows faster than supply, prices go up. Prices go up enough, PE firms start buying them.

> you'd expect the market to deal with it how it normally does

I expect it to work just like it did with human health care. People happened before pets.

https://www.healthaffairs.org/content/forefront/burgeoning-r...

The short term effect of VCs managing budgets might mean more support for public health initiatives (which the AMA has historically opposed) because they lower costs. So maybe we'll all be a little less sick or even a little less fat. Assuming they can focus on timespans longer than 3 months.

I'm concerned about what MBAs can do to us all after that honeymoon period because there are less benevolent ways to cut expenses, too.

There won't ever be enough vets to create a functioning market. And most have to go into agriculture anyways.

>> And most have to go into agriculture anyways.

This is patently false. There has never been money in cow doctoring like small animals, and the growth in new vets is almost universally for fur babies.

I was going to say, if you've ever heard the devops analogy about cattle vs pets, the cattle don't get treated very well since the goal is that they're fully replaceable.

> How can this phenomenon be reigned in and sorted in the medium to long-term?

Most dentists, veterinarians and such don’t want to deal with administering their businesses. Particularly in heavily-regulated states. Simplifying paperwork and making it easier for juniors to open their own practices (e.g. nullifying non-competed and making commercial leasing smoother) would negate this effect.

Private equity, in these situations, is a symptom of an unworkable bureaucratic overhead for small business. It’s not the poison, it’s the ulcer.

In human med, bringing in an org to handle administration for your clinic is something like 15% equity.

In PE that claims to not be PE for vet med, they want 65%. And for you to front 35% of the opening costs, naturally. For which they'll give you a loan for.

So I disagree. PE is a cancer.

Also: Shouldn't "handling administration" just be a job for some employees? Why does it require a different ownership structure? Why can't Dr. Jones just hire some business school graduates to do the boring business administration and regulatory compliance stuff while he keeps ownership of his practice?

Because then Jones also needs to hire an office manager and HR unless they also want to do those things too.

Yeah now they just have to deal with the boundless joy of being managed by a purely profit driven management layer - sounds great.

Seems like there's a market for innovating in the business management sector. Maybe some PE company can buy up all of the back office productivity software and rent it to these suffering small business owners to spare them the bureaucracy.

> now they just have to deal with the boundless joy of being managed

I did a start-up. I’ve worked for companies big and small. There is no single equilibrium here. Being able to cash in your paycheque and not give a fuck come 5PM is a luxury in itself.

There are literally dozens of companies selling practice management software for vets/doctors/dentists/etc, including many options that can be rented through a SaaS model. Y Combinator has even funded a few. That's not the main problem (although software licenses and training can be expensive).

What is a problem are compliance costs driven by overlapping layers of local, state, and federal rules. Plus if they take insurance payments then they have to deal with myriad different coverage policies and billing requirements. Some of this can be outsourced, but only to a limited extent and at a high cost.

Insurance is a minor issue for vets, essentially none of the population has animal insurance. It's also not a super big deal for dentists, as I understand it, though I don't know as much about the back-end of dental practices (wife is pharmacist, sister-in-law is a vet tech, so I know those businesses pretty well). Insurance reimbursement from the monopoly PBM's (three of them control 80% of the drug insurance market) are what is killing independent pharmacies- you have to be one of the national chains to have the scale to effectively negotiate against the PBM's, otherwise reimbursement rates are routinely below your wholesale price.

From talking to my wife it's not really compliance and government regulation in the pharmacy space (which is far more regulated than the vet space, naturally) that has forced consolidation. For the most part the regulations haven't changed that much in decades. What's changed is heavily reduced insurance reimbursement rates from those monopoly PBM's plus one other factor: educational debt. The idea that our intrepid young vets/pharmacists/dentists/doctors graduate with a huge pile of educational debt (200k or more), then have to take out massively more debt to start up a new business(1), at the same time they are also in prime child-bearing/rearing/caring age, that's a really hard sell for most. That's why being an employee is such an attractive thing.

1: And those loans have to be much bigger than before, because drugs are more expensive so your inventory costs are higher, people want nicer places offering more amenities, etc. They also need to be able to pay off those software licenses, which may not be individually expensive but are another new cost that wasn't present 30 years ago that has to be paid on the reduced reimbursement rates from the PBMs.

Agree here, having worked in health IT.

Indeed.

The headline doesn't even make sense. "Vets fret"? It's the vets selling their businesses to the private equity.

Pretty much all economic "problems" are symptoms of some greater social and/or regulatory issues. The bigger problem is that the "we must do something" response tends to have coinflip odds at least of making things worse, a la the cobra effect.

Not to mention the government regulations of vet training which keeps vet worker supply low.

It never ceases to amaze me how no matter how clearly and obviously this is just one of those issues that is directly caused by free markets, there is inevitably someone ready to find some damn regulation by the government and blame that instead.

Markets have their place. They are not and should not be treated as the default, sole option.

Seems like vet care is clearly one of those places where markets have a place. I don't think the people will accept socializing the cost of back surgery for someone's dog.

I absolutely blame regulation. When my cat was dying I couldn't even by kidney friendly cat food without an prescription from a licensed professional.

My sincere condolences about your cat. I also had a cat with kidney disease, and the veterinary system was not very helpful about treatment. I had to learn most of it on my own. The "prescription" pet food situation is an example of free market entities subverting regulatory agencies.

"Prescription" pet foods exist only through a selective lack of enforcement by the FDA. The manufacturers make claims that the food treats specific medical conditions. That's a drug claim. By law they would be required to test for efficacy and have it approved as a drug. But the FDA chooses to allow manufacturers to sell pet food that makes drug claims without testing or approval so long as they contract with veterinarians to only sell it under "prescription." It's not a prescription (it's not a drug!), it's a way to skirt regulation.

For kidney disease you want foods high in moisture, moderate in protein and low in phosphorous. You can buy foods that meet these requirements at your pet food store. There are options that are much higher quality than said "prescription" foods hawked by Hills, Royal Canin and the like. They're just not advertised as treating kidney disease because they don't make inappropriate drug claims!

Thanks for the pointer about simply looking for low phosphorous foods, that makes a lot of sense.

I don't see this as a failure of a free market, but failure of policy makers and regulators. Consumer hostile over-regulation regulation the problem to be fixed, not the market entities. Even without businesses, you still have self-interested parties like veterinarians associations pushing for bad regulations.

I also think there is significant contingent of the population and government that is extremely risk adverse, but cost insensitive or ignorant. These are the people who argue that barbers really do need 1500 hours of training to ensure public safety.

How can this phenomenon be reigned in and sorted in the medium to long-term?

I'm not trying to make a political statement. But in my experience, we need to elect the right leaders to ensure we can try to minimize corruption through lobbyists and government officials to get regulation right. And also hold corrupted officials responsible. It's not gonna solve everything, but it does help.

The P/E orgs are generally working within the confines of all federal and local laws, they never had to lobby or corrupt anything. It's more of a wide open exploit.

Lobbying is frequently aimed at preventing new laws that would close such exploits.

Sure, but I have friends who work for these delightful folks and am confident they're not spending much energy on lobbying, mostly focused on new deals.

I'd like to have a few G6 jets, too, please.

Sure. You hire a lobbyist for that part.

Not really, no. Why bother if you don't need to.

They need to, they do, and they’re quite successful with it. https://www.wsj.com/articles/how-the-private-equity-lobby-wo...

You vote, but they pay for their politicians. It is called lobbying, and it is the legalized corruption that maintains both parties in power. Voting won't change that.

Lobbyist are not immune to breaking the law. In this specific case, shady companies backed by shady pe firms bribed lobbyists and politicians and was a mess until newly elected officials blew the whole thing up. This is just one familiar example…

https://apnews.com/article/michigan-marijuana-board-bribery-...

Every social rule has an exception, and you found one. But breaking the law is easy when you have politicians that will create new laws for you.

There are a lot of different PE firms that do a lot of different things, but I usually think they get the blame for systems that were broken long before they got there.

They only own a small percentage of the real estate market (like sub 2%) but I see ten articles about them buying homes for every one about the real issues that are leading to the housing crisis, such as NIMBYism, other abusive local regulatory schemes, lack of tradespeople, etc. The people who are fucking up the system want you to worry about the PE firms instead.

The way to get it sorted is to fix the market dynamics that have lead to ridiculous housing price increases. They’ll move on to greener pastures when homes in good markets aren’t appreciating at high rates.

Vet care is increasing in cost pretty rapidly due to lack of supply, so the answer is more vet schools, perhaps government backed loans for people who want to open clinics, etc.

Don’t fight the symptom (you can’t) fight the disease.

How can this phenomenon be reigned in and sorted in the medium to long-term?

Far more aggressive progressive taxation.

> Far more aggressive progressive taxation

At least in veterinary care, a major way to buy practices on the cheap is in finding vets who are behind on state taxes.

I'm pretty sure they're advocating better taxing the PE firms looting billions, not the vets making $150k/year.

> pretty sure they're advocating better taxing the PE firms looting billions, not the vets making $150k/year

My point is this isn’t a symptom of closing the carried-interest loophole. It’s fundamental to the business. The fixed costs of administering a veterinary clinic demand scale, and scale thirsts for capital.

If this was about administering practices more efficiently at scale, we’d see acquired practices lowering their prices and competing more aggressively due to their better cost structure. If this was about rent seeking by buying up a limited supply of regulated businesses, we’d see prices surge upward. In most of the purchased practices we’re seeing the latter.

> we’d see acquired practices lowering their prices and competing more aggressively due to their better cost structure

Introducing a new fixed cost into a market should not be expected to increase competitiveness. It almost always reduces it. The trade-off with regulation is that trade-off is worth it.

Put another way: if you are a $50mm practice, and it suddenly becomes infeasible to run anything smaller than $40mm, your market power increases. You have less competition.

Right, come hard at the vultures.

> Far more aggressive progressive taxation.

Why would increasing taxes lower costs for anything? If anything they’d have to raise prices further to compensate for additional tax payments.

Genuinely progressive taxation would aim to reduce the tax burden on small independent and non-profit vet practices, and increase it dramatically on the profits the big PE firms are taking.

It increases the risk of turning a profit due to consolidation and lack of competition. Oh you made $20 million off that vet clinic? You owe $19 million in taxes. Makes it harder to gouge people because buying "all the things" becomes far more risky and natural competition has a better chance of doing it's thing.

> Oh you made $20 million off that vet clinic? You owe $19 million in taxes.

This type of myopic thinking is how you get asinine policy like the ACA “cap on profits”. Instead of incentivizing an efficient operation, we’ll have some other accounting shenanigans to pass on profits as some other form of income.

It's an exaggeration of what progressive taxes do. I'm not suggestion 95% of profits should be lost to taxes at 20 mil.

Isn't the libertarian view on progressive income tax that it reduces the marginal returns on additional labor, thus removing the incentive for people to work harder and being more productive? Why would the reverse be true for people who work in private equity?

In the 80’s you had corporate raiders disassembling companies when their hard assets were worth more at auction than the purchase price of the company. It was violent and people didn’t like it.

PE is a slower, less obvious strategy, working on a larger pool of companies.

But I strongly suspect the same kind of human worked for both company types.

Housing being owned by private equity is only feasible because most localities work really hard to ensure that private equity gets good return on investment. They call it "neighbourhood character" and stuff like that.

Private equity per se isn't a problem. Business owners have to be able to sell their equity, and PE firms provide a source of liquidity. Most deals work out well for the seller; it's not just the GPs who benefit.

In cases where PE portfolio companies fail it's usually because the business was no longer viable, or they shifted the capital structure too much away from equity and towards debt. The former is just a regular part of the business cycle. I can't imagine how you would reign in the latter. Companies are allowed to issue bonds.

Some financial companies are looking to open PE up to more people. I think the floor is still high - around $1M up front and $4M in liquid assets for additional funding (or something like that). I think there are some regulator restrictions on accredited investors. I would bet there's a legal loophole where you could group people into a mutual fund type structure but for private equity using some sort of legal entity.

The restriction is one of: $1 million net worth (excluding primary residence), or $250k/yr income. You meet that floor, you can buy private shares on secondary markets. I don't think it's a loophole to pool accredited investors into a company, it's called a private equity firm :)

The loophole is that regular people can become "accredited investors" by simply lying. In most cases no one actually checks the numbers they write down for assets and income. I am not recommending committing fraud here, but this is extremely common.

That's why you either die the hero or live long enough to become the villain: villain tactics *work* - that's why they do them!

My sister is an emergency vet at a hospital like this. She’s on call, usually sleeping in one of their little sleeping rooms above the hospital floor. She makes a ridiculous amount of money doing random surgeries like pulling pine needles out of dogs stomachs at 3am because the owner didn’t realize the dog ate half the Christmas tree before going to bed.

There's the general legal principle that everything not explicitly forbidden in writing is allowed.

And often even laws already on the books are half-heartedly enforced.

https://en.wikipedia.org/wiki/Everything_which_is_not_forbid...

This was actually just discussed/linked on HN this past weekend.

https://news.ycombinator.com/item?id=40242783

I work for a PE-owned company in another industry. My wife is a veterinarian, and I wrote my thoughts on those who complain about veterinary costs in another comment. You can't possibly accurately estimate how much SAGE is pulling in at that location. Not even other vets can do this. There are too many variables.

As far as PE goes, thank fucking God PE is cleaning up my company and industry. This has been a good ol' boy network, full off incompetence, favoritism, and nepotism. PE are buying players and it's crashing down. Long time execs who haven't have an original thought in 20 years are being forced to retire. A female VP in my company left because a consultant called her "too emotional" recently, and the idiot CEO listened. He's close to getting canned, too. We're losing customers left and right because his old school, "feed 'em hookers and blow" playbook (dead serious) doesn't work any more.

Until a few months ago, I worked at a company that was uneventfully owned by various PE firms for the last fifteen years or so. I was shitcanned after the PE owners of my company got their arm twisted into selling my company to a strategic buyer that had previously bought another division of my company and then played dirty under my employer's name. When the buyer was served the inevitable lawsuit, they played even dirtier and effectively goaded the judge into hearing out the weak case made by my employer. After that development, the buyer just threw in a massive offer (likely 4-5x the realistic value, but I wasn't privy to any details), bought us, dropped the suit, terminated any employee that testified against them, terminated any employee that didn't keep the lights on, and have been leaving the business to languish while they sort out multiple other lawsuit-riddled acquisitions they've made in the last year. Whenever an employee of the buyer shows up to a facility that belongs to my previous company, they come with a bodyguard/security, if you need any hints regarding their moral character. Most players in the industry refuse to deal with that buyer, so they just attempt to deceive acquired customers when making an acquisition, and throw a bunch of money and crook lawyers at the (many) lawsuits that pop up.

This type of behavior is not strictly limited to private equity. The real issue is that people who pull stunts like the above will never get their teeth punched out for it, and they're a wolf in a henhouse when dealing with a legal system that's largely powerless to say "I know it when I see it". The punishment for being a piece of human dogshit in this manner is effectively nothing, and nearly infinitely less than the reward. I haven't thought of an answer that doesn't give discomforting power to those evaluating these cases, but as long as repeat offenders can paper over every bad-faith action by claiming they're following the letter of (some interpretation of) the law and never get punished for it, it will never stop.

This needs to be talked about more.

> How can this phenomenon be reigned in and sorted in the medium to long-term?

This is a valid question, but one that has a historical and clear answer already: Guillotines. Pretending this behaviour is anything short of deserving of immediate execution is frankly doing yourself and everyone around you a huge disservice.

These are people that exploit others at scale. They know what they're doing isn't right and is extremely exploitative, but they'll keep doing it anyway because it lets them live like modern kings and queens. They're the worst of what humanity has to offer and they should summarily be fired into the sun.

I had no idea how expensive owning a dog was. Vet and dog food prices have all shot up.

Before I used to say you should get a pet, now I don’t.

Same with kids. It’s insanely expensive to have kids.

You wanna stick it to P/E and capitalism? Reduce spending.

Live like you’re making half the income.

Shame.

Id rather try regulation.

Funnily enough, heavily regulated industries are where PE and large conglomerates shines because they can centralize dealing with all the regulations and paper work. No private vet or dentist is gonna have a legal or accounting department to deal with that, nor do they want to deal with it themselves. It’s easier to outsource that to the major conglomerate that’s handling that for everyone else in the state or country.

every contraction cycle the PE ghouls swoop in with a large war chest of money and buy up more homes/businesses/anything not tied down. it's a vicious cycle that eventually ends with them holding everything and everyone else is just sent out to pasture. no good way to fix it other than curbing the accumulation of wealth at the very top. it's unsustainable as a society imo.

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