Who employs your doctor? Increasingly, a private equity firm • Hacker News Board

Re: Who employs your doctor? Increasingly, a private equity firm

#201

Post by throw9away6 » Sun, Jul 16, 2023, 6:43 PM UTC

sgregnt wrote: post #179

lapcat wrote: post #114

Earlier quoted context omitted.

> To me it seems like PE has simply discovered a loophole in the system. The fundamental loophole is that "the free market" is practically a religion in the United States (the so-called Invisible Hand taking the role of a god doling out rewards and punishments), and a significant portion of the population is vehemently opposed to any regulation of capital. You can even see this attitude in some of the comments here,…

For me and my friends free market is not a religion, it is thoroughly thought out concept that proved it self over and over again. I this your count misrepresent the reality. In my mind, people who oppose free market capitalism usually don't understand how it works. The good thing is that reality is what settles the debate. What happens is that people vote with their feet --- and millions of ambisious people from cou…

When does this free market capitalism exist?

Re: Who employs your doctor? Increasingly, a private equity firm

#202

Post by lordnacho » Sun, Jul 16, 2023, 6:46 PM UTC

YPCrumble wrote: post #188

lordnacho wrote: post #136

Earlier quoted context omitted.

My current working theory. Happy to hear from any of the actual PE people who are reading this. 1. As you can imagine, not everyone has the wherewithal to launch a PE firm. Only people who are well connected in the financial world will get access to the funds. People who have friends in the investment sector for instance. There's plenty of stories about how VC (which isn't the same thing) investment is hard to get a…

It feels like most answers to “who is at the losing end of any transaction” is pension funds, which are guaranteed by the government. So by your theory PE firms are sucking in taxpayer money by fleecing pension funds run by financiers who aren’t smart enough to get into PE. Basically until pension funds aren’t bailed out by the government this will continue.

That's more or less correct.

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

Re: Who employs your doctor? Increasingly, a private equity firm

#203

Post by gruez » Sun, Jul 16, 2023, 6:47 PM UTC

balderdash wrote: post #95

gruez wrote: post #21

Earlier quoted context omitted.

That model works well for professional services (eg. lawyers, accountants, consultants) because require very little capital. Everything from the office they work in, to the computers they type on can be leased. The same can't be said for hospitals, which cost hundreds of millions to build and equip. How are you going to raise all that capital from only the doctors? They're rich, but not that rich. Moreover, the payba…

1) There is a big difference between a hospital and medical practice, 2) this is a solved problem as it relates to other professional service firm (law firms, investment banks (back in the day)).

> 2) this is a solved problem as it relates to other professional service firm (law firms, investment banks (back in the day)).

How was it solved?

Re: Who employs your doctor? Increasingly, a private equity firm

#204

Post by disgruntledphd2 » Sun, Jul 16, 2023, 6:48 PM UTC

starcraft2wol wrote: post #118

callmeal wrote: post #106

Earlier quoted context omitted.

> How would vaccines and new drugs be invented without any profit incentive? The same way they were invented before. https://www.ncbi.nlm.nih.gov/pmc/articles/PMC6351694/ An interviewer once inquired about the ownership of the polio vaccine patent, to which Salk famously answered, “Well, the people, I would say. There is no patent. Could you patent the sun?” https://www.t1international.com/100years/ On January 23rd,…

Individuals often respond to social status incentives more than cash. Undoubtedly this invention helped Salk's financial and personal outlook in other ways. Also the models of development of these is just completely different from what modern medicines often requires. Specifically, operateing large research labs (which are heavily regulated) and then pursuing the marathon that is FDA approval. Individuals will still…

I dunno, the reason that we have such long patent periods is supposedly to pay for all the losses in Phase 1/2/3. However, if we merely let scientists do clinical research, as per usual, and license the right to conduct these studies to contract research labs, and then license the production rights for the successful trials to contract manufacturers, we could probably cut out a huge amount of the waste and marketing spend by Pfizer/Novartis et al and still achieve the better goals.

In fact, because the people in this chain would be less incentivised to focus on diseases of rich people, then humanity might overall be better off.

Re: Who employs your doctor? Increasingly, a private equity firm

#205

Post by alephnerd » Sun, Jul 16, 2023, 6:49 PM UTC

YPCrumble wrote: post #188

lordnacho wrote: post #136

Earlier quoted context omitted.

My current working theory. Happy to hear from any of the actual PE people who are reading this. 1. As you can imagine, not everyone has the wherewithal to launch a PE firm. Only people who are well connected in the financial world will get access to the funds. People who have friends in the investment sector for instance. There's plenty of stories about how VC (which isn't the same thing) investment is hard to get a…

It feels like most answers to “who is at the losing end of any transaction” is pension funds, which are guaranteed by the government. So by your theory PE firms are sucking in taxpayer money by fleecing pension funds run by financiers who aren’t smart enough to get into PE. Basically until pension funds aren’t bailed out by the government this will continue.

I'm adjacent to the space and I'd disagree with this statement: "fleecing pension funds run by financiers who aren’t smart enough to get into PE."

Institutional Investment Funds (pensions, endowments, sovereign funds, etc) need returns well beyond inflation to ensure long term stability.

To do this, they will mix and match various different investment vehicles to minimize risk.

This means a fund will have a varying percentage of funds invested in stocks+ETFs, commodities+futures, cash in hand, real estate assets, IP assets, and greenfield opportunities.

Essentially, you are dealing with dozens of different financial instruments, and while you may have an above average understanding of how all these work, you won't have the resources, staffing, or ability to optimize returns on all these instruments.

This is why Funds end up having VC firms make VC investment decisions, PE firms (itself a loaded term because PEs specialize in different markets and sectors) making equity investment decisions, etc.

If you are able to specialize in one specific sector (aka have both the domain experience and the network of founders, operators, and managers) then at that point you may as well open your own firm and manage investments on the behalf of other institutional investors.

It's all about specialization.

Also, fund operating costs cannot exceed more that 2%. This means you can only really charge AT MOST 2% YoY on the entire value of the fund. That 2% will have to cover your entire expenses (salary, insurance, office space). This means most operations have to be extremely lean as there isn't much money to spread around.

Re: Who employs your doctor? Increasingly, a private equity firm

#206

Post by disgruntledphd2 » Sun, Jul 16, 2023, 6:50 PM UTC

kjghkjghkjgh wrote: post #120

callmeal wrote: post #106

Earlier quoted context omitted.

> How would vaccines and new drugs be invented without any profit incentive? The same way they were invented before. https://www.ncbi.nlm.nih.gov/pmc/articles/PMC6351694/ An interviewer once inquired about the ownership of the polio vaccine patent, to which Salk famously answered, “Well, the people, I would say. There is no patent. Could you patent the sun?” https://www.t1international.com/100years/ On January 23rd,…

Modern vaccines and new drugs are vastly more expensive. It costs for example over $1 billion to fund a new drug.

Yeah, but does it have to be?

Like, definitely there's costs associated with Phase 1/2/3 etc, but right now the actors in the chain have absolutely no incentives to limit these costs, as they help to justify the huge profits gained from the temporary monopoly of patents.

Also, it's worth noting that all the big Pharma companies spend much, much more on marketing than they do on research.

Re: Who employs your doctor? Increasingly, a private equity firm

#207

Post by lordnacho » Sun, Jul 16, 2023, 6:52 PM UTC

oatmeal1 wrote: post #90

MereInterest wrote: post #54

Earlier quoted context omitted.

Alternatively, this is the kind of economic distortion that occurs when excessive de-regulation removes the floor of a market, allows local monopolies to flourish, and allows a system in which the most profitable action is to let people die. While such deregulation may have been imposed to increase competition, it also interferes with the incentives of the participants. The lack of real oversight, combined with the i…

Strongly disagree with this comment. The most powerful monopoly one can hold is one entrenched by the will of the government. Every time the people have asked the government to step in and regulate healthcare, corporate lobbyists have crafted the laws in such a way to weigh down any potential competitors. In the US, the more regulated a market is, the more likely people are to demand further regulation, because they…

> the person paying for healthcare isn't the one receiving it, so it is no wonder patients receive poor care.

This works fine in fields like the restaurant business or the haircutting business, where people can decide for themselves what they want to eat or how they want their hair, and they can decide for themselves whether their food or their haircut is satisfying.

The sector where it is least applicable is healthcare. You don't know what disease you've got, you don't know what can be done, and you don't know what the incentives of the people who do know are. This makes it hard to take advantage of the feedback loop from the other industries mentioned.

Re: Who employs your doctor? Increasingly, a private equity firm

#208

Post by fiprofessor » Sun, Jul 16, 2023, 6:52 PM UTC

underlipton wrote: post #146

civilized wrote: post #109

Earlier quoted context omitted.

I think it should be illuminating to balance narratives like this with simple questions along classical economic lines: 1. Why is private equity ending up with all these resources? Who is selling to them and why? Why didn't this happen before? It's not like PE is new. 2. When PE loads up a firm with supposedly unsustainable billions of debt, someone is on the other side of that transaction, lending the billions. Who…

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 m…

> The gameplan is simple: lend your buddy the money to buy the business. Now you have a line to the person who has the most access to data about, if not control over, the direction of the business. Wherever it happens to go, you can be ahead of the market. Long if it's going to survive and grow; short if it's doomed. He's happy because the decision to be lenient or aggressive about repayment lies with his own contact - you.

But if the business is privately held (because the borrower used the loan to buy the business), then what market is the lender going long/short against in this hypothetical conspiracy? Other (public) businesses in the market? Potential investors when the PE firm sells and takes the business public?

Re: Who employs your doctor? Increasingly, a private equity firm

#209

Post by civilized » Sun, Jul 16, 2023, 6:53 PM UTC

disgruntledphd2 wrote: post #172

civilized wrote: post #109

Earlier quoted context omitted.

I think it should be illuminating to balance narratives like this with simple questions along classical economic lines: 1. Why is private equity ending up with all these resources? Who is selling to them and why? Why didn't this happen before? It's not like PE is new. 2. When PE loads up a firm with supposedly unsustainable billions of debt, someone is on the other side of that transaction, lending the billions. Who…

Full disclosure, I don't work in finance, so I may be getting a bunch of this wrong. > Why is private equity ending up with all these resources? Because they have cash, mostly from pension funds and insurance companies. > Who is selling to them and why? The doctors running the practices, more generally they're rolling up companies in relatively dispersed industries where they believe they can make money. In the best…

On the last point, interest rates aren't the only thing that matters to loans. The default rate also matters. If I borrow a billion dollars from you to pay myself and I have no good plan to pay you back, it doesn't matter how low interest rates are, you'll still be out a billion dollars.

Re: Who employs your doctor? Increasingly, a private equity firm

#210

Post by coastermug » Sun, Jul 16, 2023, 6:54 PM UTC

YPCrumble wrote: post #188

lordnacho wrote: post #136

Earlier quoted context omitted.

My current working theory. Happy to hear from any of the actual PE people who are reading this. 1. As you can imagine, not everyone has the wherewithal to launch a PE firm. Only people who are well connected in the financial world will get access to the funds. People who have friends in the investment sector for instance. There's plenty of stories about how VC (which isn't the same thing) investment is hard to get a…

It feels like most answers to “who is at the losing end of any transaction” is pension funds, which are guaranteed by the government. So by your theory PE firms are sucking in taxpayer money by fleecing pension funds run by financiers who aren’t smart enough to get into PE. Basically until pension funds aren’t bailed out by the government this will continue.

I believe this to be the case also. In the UK we have lots of cases cropping up of PE being the bad guys, but the current owners being to blame for buying these companies in unstable positions and allowing the sellers to make fortunes. It does often seem like it is Pension funds making these poor investments. I am also really happy to see this line of questioning on HN, as it has been lacking in previous discussions.