The article tries to paint a naive example where private equity buys everything and jacks up the prices. But why doesn't this happen to restaurants, or super markets or car mechanics?
You have to ask yourself what makes healthcare unique to nearly every other well functioning market in the US. The bigger issue is there is third party paying for things. Try to ask your doctor how much something costs and they'll stare at you like you have two heads. Imagine getting your car fixed without knowing how much it's going to cost
The other problem is the regulation and groups like AMA. Why don't new cardiologists enter the field? Because there is a cap of graduates that the AMA controls. Why doesn't a new hospital open up? Because there is often a "certificate of need" to open a new health care facility and other health care providers in the vicinity get to determine who is allowed in.
What would happen to restaurants if new waiters had to go to school for 8 years and there was a cap on how many can graduate and you need to go to a board of neighboring restaurants to decide if you can open yours, and diners are forced to sign up for some company to pay for all the meals.
> But why doesn't this happen to restaurants, or super markets or car mechanics?
Because you do not have to go to those places.
Years ago, when I was a kid, I heard my parents, uncles and aunts have a big discussion while I was in bed.
They were talking about the trend of For Profit Health Care, the outcome they came up with was prices will eventually raise up to extortion levels, why, because that is what everyone needs.
So here we are, being extorted by insurance and equity firms. And many Doctors are in the same boat with us, they are being squeezed with insurance costs and bureaucracy. My Dr has to have 3 people working in the office just to deal with health Insurance.
As a kid, it use to be 1 nurse and the nurse would deal wit paper work and help the Dr when needed. Plus their insurance costs were low compared to now.
My parents are dentists and most of the memories from when I was a kid (pre 2013) of my dad working was him dialing up and arguing with insurance providers.
They’d send checks 6months late and often miss them.
They also forced certain prices for him to stay “in-network”
For dental insurance, those insurance companies force healthcare providers to keep artificially high prices, even for out of network patients.
For example, with my parent’s independent office, people would come in without insurance and unable to pay the high fees for say a filling or a crown.
My parents were technically able to charge much lower prices (more than half off in the case of normal cleanings,) but were unable to because of the contract they had with their insurance network.
Moreover, the listed price mandated by the insurance was not the same as the payout my parents received after filling the claim. (The payout was always less. Sometimes much less than the mandated price)
I don’t see who benefits in this situation besides the insurance company.
Even if my employer pays for my insurance, I still need to meet some premium most of the time. And what I pay is inflated because of the in-network contracts
Consider also that, in the states at least, dental insurance is separate from medical.
Restaurants, yes. But supermarkets and car mechanics? Everyone has to eat, and everyone who has a car has to get it fixed sometimes. In fact, people need to eat much more often than they need health care--yet supermarkets are somehow able to provide a wide selection of food at reasonable prices. The same could be done for health care if it were a competitive free market instead of being regulated so heavily.
A similar example that's more closely related to healthcare is laser eye surgery. For years it was largely an elective procedure, insurance wouldn't pay for it. Clinics would open up in strip malls everywhere. The cost of the procedure inflation adjusted has gone down over the decades.
> Everyone has to eat, and everyone who has a car has to get it fixed sometimes.
I realize this isn't what you meant, but some people have gardens to supplement their food supply and some people repair their own car. I'm not a car owner, but I do repair my own bike and the reason for it is that the required parts and tools are usually much less expensive than a one-time repair (with the biggest expense, tools, being spread across multiple repairs).
As for the regulation of health care, it exists for a reason. Some of those reasons are for the public good. You only need to look at alternative medicine to understand that there are a lot of snake oils salesmen out there. Letting people portray themselves as legitimate doctors would only muddy the water. Then there are factors such as competence. It is difficult enough to deal with in a regulated system, never mind an unregulated one.
> As for the regulation of health care, it exists for a reason.
One can argue that there are valid reasons to regulate health care. But, as I pointed out elsewhere in this discussion, similar reasons exist to regulate food, and we do regulate food for those reasons, but that doesn't prevent us from having free market competition in food suppliers.
> some people have gardens to supplement their food supply and some people repair their own car.
Basically no one in the First World grows enough calories in their garden to make a significant difference, and repairing your own car nowadays generally requires buying lots of expen$ive test equipment. The days of the shade tree mechanic are sadly long over.
Food is an extreme need, and while there are many types of businesses that provide food, we can wrap those up into one larger class of food provider businesses and ask why they aren't being captured and squeezed. Sure, some are to hunt or garden, but that number is far too small when you think of places with the highest concentrations of people. Food even has regulations, but it manages to not lead to monopolies that can charge whatever they want because if the price goes too high, other players can jump through the hoops to enter the market. The regulation on healthcare has reached the point of a stranglehold.
The point is that when you need food, you can go to any number of places to get it. So going to any one specific place is not a requirement.
Compare that to healthcare. I get in an accident or call an ambulance. I don't get a choice where I go or who I see. I just go to wherever is nearest or has availability and hope that it's either not bad enough to justify me needing to go somewhere else or that I have the ability to be transferred to the location of my choice (at great cost).
A more mild example are diseases like cancer. You'll have some more freedom on which place you go to but oncology is extremely diverse and specialised. Unless you get really lucky, odds are there's only a specific handful of doctors within a several hours drive of you that actually have a good idea of how to treat your specific cancer under the specific conditions you have it. So you go to whichever one of them can see you in a reasonable amount of time because otherwise you die. The same goes for many of the complex diseases people spend months or years diagnosing because they are so hard to pin down.
And that's discussing situations where time is of the essence and you get very little choice in your options. And those tend to be the most expensive.
There's plenty of other aspects of healthcare that are far cheaper of course and could be likened to the grocery store examples but drawing the regulatory line between the two is near impossible given the fuzzy nature of healthcare and medical science.
It's much easier to switch to different options with food than it is with healthcare. For example, if cartel forms around tropical fruits, people can switch to apples. This makes it much more difficult for someone to exert market power over the food market than over the medical market.
Medical care also often involves crisis situations where you absolutely need care right now so you don't have much leverage. On the other hand, most of the time people have some flexibility in how much they eat, when they eat, and what they eat.
If a cartel forms around tropical fruits… that strikes me as a strange and unreal example. Private equity buys supermarket chains in the real world.
There are about six supermarket chaions in the city where I live. Most people will struggle to guess which ones are owned by private equity (one isn't), but almost everyone can name at least a couple of hospitals that aren't.
The history of Central America is essentially the history of these companies. Looking into it will give you more "understanding of the world" than you probably think.
Healthcare prices aren't only high for emergency care, so it shows that the emergency nature of the work isn't the issue. I'm sure doing a statistical regression would show roughly what percentage of the issue is due to it, but I would expect it to be very low given the prices of things like medication needed on an ongoing basis where one could shop around, if it was legal to do so. One can also look at elective or non-emergency surgeries, especially those where people use medical tourism to find cheaper options. That is an extreme form of shopping around, which they have to do because more local forms of shopping around are legally banned.
> It's much easier to switch to different options with food than it is with healthcare.
It wouldn't be if the supply of health care were not artificially restricted by regulation.
> Medical care also often involves crisis situations
No, medical care sometimes involves crisis situations. But much more often it doesn't. A sane health care system would treat these two cases very differently. Care for crisis situations would be handled by insurance because that's what insurance is for: unexpected situations that you can't pay for out of pocket. But routine care would not. However, our system is not sane, and insists on bundling these two things together when that makes no sense.
They are. Maybe not by PE, but capitalism finds a way. This isn't the first time either the two big grocery chains in Canada have a long history of exploiting market dominance to screw over people who want to eat.
Lots of people don't go to the doctor when they probably should. Most spending isn't emergency room visits. I imagine prob half is connected to obesity and smoking. Just lose weight and you don't have to go.
The health insurance profit margin is around 3.3%. Maybe they're just bad at extortion
There are certain topics people feel very strongly about with no insight or experience, they say things that are demonstrably false and refuse to look at it objectively. Unfortunately US healthcare is one of those
A long time ago I worked for a company that had a "cost plus" contract to build and operate a thing. I took a management class while I was there and one of the people in the class was a consultant who had been hired to map the division's revenue flow. Almost everyone there was a manager and all of them were on the edge of their seats while he explained.
Basically, you mark up the little stuff that everything is built on ($1/page for copies, for example) so the margins look smaller when you get to anything substantial. So 3.3% is a meaningless number until it has been audited all the way down to the smallest purchases.
Well if the market price for something is X and your margins are small but X is big you do well. But someone can innovate and do it for half X and now his margins are 50% so he makes more money.
The question is why can't I provide insurance at the market price and just bring in efficiencies to get my cost down and margin up?
The reason is that it's not a real market through onerous regulations. People are forced to buy it, new entrants aren't allowed and there is an implicit threat that if margins get big politicians will come after you. So were stuck in this crappy system
I don’t think they’re claiming that people don’t need to eat. People have the choice between many grocery stores, farmers markets, butchers, restaurants, etc. There’s more places to get food than anything else.
You do not need to go to a specific grocery store that is the only one available within X miles from you. For me, I have 2 walkable stores, 4-5 bikeable stores, and 10+ via Instacart.
Generally, no I don't. I have basically two hospital systems to choose from. All specialists I require seeing are only available in these two hospital systems if I want to be covered by my insurance. I can see a variety of primary care physicians, but I cannot see e.g. a rheumatologist outside specific hospital conglomerates.
But insurance networks aren't a requirement of free markets. So your argument that in today's system (only one form of a free market for healthcare) proves free markets don't work is ignoring alternatives.
It sounds like you actually would have plenty of physicians to choose from, just like when you buy food.
You don't need to go to college either but prices for that have gone up more than 10x. If anything, I can skip going to the doctor for a very long time because of cost (and people do unfortunately).
> They were talking about the trend of For Profit Health Care, the outcome they came up with was prices will eventually raise up to extortion levels, why, because that is what everyone needs.
The reason college costs have gone up is because the government decided to make it so anyone could get college loans and they couldn't discharge them through bankruptcy. Then the public education system told everyone that if you don't go to college you'll be a poor loser. So while you don't have to go to college in the strictest sense, you have the same effect. Everyone does because they are told they must. And the schools know they are guaranteed those sweet federal loans which have strings on the naïve 17 year olds but none on the colleges. Why not raise prices? Why not build unnecessary ego projects? The incentive is to lower standards, enroll as many students as possible and raise tuition. Even state universities do this.
That explanation neatly leaves out governments no longer subsidizing education like they used to or state universities being forced to be "for profit" to survive.
I can only speak for what's happened in the US and have no experience with colleges elsewhere.
It's a case of well-intentioned (in their context) people from each political side that made this mess collectively.
It should be noted that "told they must" is not simply bad Boomer advice, but a reflection of the reality that the vast majority of white-collar work (even work that must mostly be trained on-the-job, due to the particular policies and protocols of any given business) requires a Bachelor's degree be on your resume if you don't want your application binned immediately.
Excellent point. I work in IT and for years there weren't IT specific degrees from state universities. My degree is completely unrelated and it never was really a factor in hiring because a BS in IT wasn't a thing. Until the last few years it is now. And every young aspiring IT professional with one of those degrees I've spoken to or worked with had a similar experience. Its a useless degree that doesn't prepare you for the industry. I was expecting they would walk out with a good, broad foundation and some good industry certs to match but that's not the case. Its all theory, little to no application and huge knowledge gaps. They were scammed. I feel like my history degree is more applicable. At least it taught me how to write decently. Why do these IT BS's exist? It must be just to sell kids another piece of paper. Tech got big enough that the education cartel decided they needed to gatekeep it.
If lots of people had a need for specific food, and access to that food were locked behind a system where it must be prescribed by a licensed chef and dispensed by a licensed server, then you might be on to something here.
You can get food without going to a restaurant. You cannot get healthcare without going to a doctor.
No, they are saying medicine is necessary unlike restaurants.
But further, medicine has extremely low competition at all levels. There are few companies producing penicillin, you likely don't have a lot of options for hospital care (especially if you need a specialist), and your insurance was likely not something you picked.
Compare that to food, where you can get it from multiple grocery stores, gas stations, or even order it online. If you are in a place with 1 restaurant it's highly likely there are 10 competing restaurants. Heck, if you have some land you can even grow your own food in a garden.
Medicine is a necessity with few providers which makes it a particularly bad fit for capitalism. It can't be made cheaper or more available by cutting regulations. They are necessary to keep the industry from killing people.
> they are saying medicine is necessary unlike restaurants.
But not unlike supermarkets, which were also mentioned.
> Medicine is a necessity with few providers which makes it a particularly bad fit for capitalism
Medicine does not have few providers because of "capitalism". It has few providers because of regulation that artificially limits the supply of providers. In a free market, the market would provide whatever supply of providers is needed to meet people's health care needs in the most efficient way. But regulation prevents that from happening.
> They are necessary to keep the industry from killing people.
Yet somehow we manage to have regulations to prevent food from killing people, without restricting the supply of supermarkets, and without impairing competition among them. We could do the same for health care.
Supermarkets is exactly what I had in mind, but perhaps it was stupid.
The cost of health care is kind of… a×b+c×d, except more complicated, where a is the hourly cost of a physician, b is the number of times you get an hour's care, c is the cost of a pill and d is the number of pills you get. Want the total sum to decrease? Then pick which one of a, b, c and d you want to decrease, and look at whether competition can help. A lot of this thread sounds like just "private equity is evil and therefore guilty", nothing to do with goal-directed efficacy.
> Then pick which one of a, b, c and d you want to decrease, and look at whether competition can help.
We already know the answer to this: competition can help decrease a and c, and even b and d might be fair game since competition in preventive care and preventive information can increase its effectiveness, which in turn reduces people's overall need for health care.
> Medicine does not have few providers because of "capitalism". It has few providers because of regulation that artificially limits the supply of providers. In a free market, the market would provide whatever supply of providers is needed to meet people's health care needs in the most efficient way. But regulation prevents that from happening.
I would say medicine has few providers because of -
1. economies of scale for medication - meaning a Bayer selling 10 million motrin/ibuprofen can undercut LocalPharma if they tried to comptete - and 1
2. because of more complex factors for docs/nurses, possibly regulations but also difficult and poorly structured studies/residencies & poor market structure.
> Yet somehow we manage to have regulations to prevent food from killing people, without restricting the supply of supermarkets, and without impairing competition among them. We could do the same for health care.
It is probably possible for a half-competent person to run a mom and pop store with just a few thousand dollars of revenue, and maybe 2-3 months (maybe less if you have your own farm). Even a small medical setup like a dentist's clinic or a doctor's office needs years more of expensive education plus possibly trained staff (technicians/nurses etc).
The entry of barrier to healthcare is extremely high. However unlike how you can just go to a different store if you don't like the prices in one place, in medicine if a drug is made by 1 company and it costs $$$ you don't have many options. You can substitute tomatoes for potatoes but can't with meds.
There are a lot of fields where free markets with minimal/no regulations are very helpful, but medicine is not one of them.
But those are vastly more flexible. You can pick which clothes to buy from which store/vendor, you can buy second hand, you can get clothes donated. You can buy cheap filling food, in bulk, get by on rice and potatoes, etc.
You can't get get a second hand operation or medicine.
They are more flexible because they are less regulated. Restaurants don't have a certificate of need to stop competitors from showing up. You can buy food internationally and have it shipped in if you can't find it locally for a reasonable price, but try to do the same with medication and you'll have a bad time.
You can even look at less regulated medication, like pet meds, and see how much cheaper some are. We don't need to go that far, just like how people food is more regulated than pet food, but without being as regulated as our current market for healthcare.
They don't need to be as highly regulated as medicine needs to be. Even children can learn most of the important elements of food safety (cook to a certain temperature, don't cross contaminate utensils, wash your hands, etc.).
Much of medicine is vastly more complex than something like food safety or clothing safety.
The funny thing is in Australia, pet medication always generates sticker shock because it's a lot more expensive for the consumer then PBS subsidized pharmaceuticals.
> They are more flexible because they are less regulated
No, because when your tooth hurts now, or you're bleeding now, or you need to get vaccinated to avoid you getting hepatitis, there's very little choice in the matter.
Healthcare is a fundamentally inelastic good. A dangerous one too, because bad quality healthcare can literally kill people. Inaccessibility of healthcare kills people too.
Look, there is no need to reinvent the wheel here. The US can look into any other developed country on the planet for inspiration. Every single one of them has a better, more accessible, cheaper for everyone involved, usually more or at least differently regulated, with better outcomes, model.
> No Way to Prevent This,' Says Only Nation Where This Regularly Happens
There’s a lot to say about the structure of health care, but the classic “Now” lecture isn’t it. Most people make key decisions about provisioning and paying for their health insurance months before they actually need it, and likewise establish relationships with a primary care physician or dentist at a quite ordinary level of urgency.
The vaccines are also a particular bad example. (The typical Now-lecture example is of emergency room care).
The feeling we have about changing food prices comes from price sensitivity, not some kind of food cartel secretly jacking up the price of grapes. You can choose to get the cheap grapes or buy bananas instead. There’s no menu to pick the cheap hip replacement from.
Demand isn’t quite infinite. It’s ~350 million people but supply is quite limited.
Same with housing. Demand is increasing faster than supply hence price increases.
Price increases make housing a great financial instrument due to ease of getting mortgage loans.
Also why we need to have a sane immigration strategy. Can’t bring in too many people too fast (like Canada)
Private equity is playing cards on the arbitrage that any asset that increases in demand much faster than supply, and can be loan leveraged is a great investment.
No, it isn't. People make all kinds of tradeoffs that place a finite value on their lives.
What skews the health care market is that people do not see the actual cost of what they are getting; they only see a small fraction of that cost. So their demand is way out of proportion to the actual supply of health care. Further, because they can't see the actual costs, patients have no idea whether the health care they are getting is actually worth what they cost. (The lack of transparency about the actual effectiveness of health care doesn't help either.)
> Healthcare doesn't really work in a capitalistic marketplace
No, health care doesn't really work in a regulated marketplace where people are not given the information they need to make accurate judgments about what health care is worth its cost.
You can see the actual costs of healthcare. You can go look up the costs right now and calculate it all ahead of time. I've done so before.
The problem is, you cannot calculate costs for unknowns. You go to a doctor for a small thing, which blows up into a big thing. Those big things are the majority of the cost. Or you go to a hospital for a small issue, which ended up being a critical unknown. No matter how much people wax poetic about healthcare and regulations, it's ultimately a system where you cannot predict costs accurately. People want to treat it like planning a flight, when it's more like your car breaking down or your phone dying suddenly.
> people make all kinds of tradeoffs that place a finite value on their lives.
anyone who has resources and is rational will use those resources above everything else to stay alive.
it's our biological imperative.
people have addictions and mental disorders but theres very few things someone rational would trade their life for.
that's the Crux of your argument so I don't find the rest of your argument compelling.
especially looking at data comparing healthcare cost and outcomes in first world countries.
79
Now you might be right about regulation because from what I've read most of that increase cost in comparison to other countries is from administration which implies regulation.
but another solution to that is socialized healthcare.
It's not just information either, it's cost sharing with no incentive to keep costs down.
If you have to split a dinner bill with a million people no matter if or what you order, people will gravitate to the surf and turff. It's the simple answer to the prisoner's dilemma when you have a million players.
PS, demand is infinite in an abstract sense but is still sensitive to price
Mortgages are quite old. The rapid relative unaffordability of houses relative to median household income is fairly new. I suspect other factors are at play.
Yeah, I think there are a lot of complex factors that’s causing the housing problems.
Private equity, sure, but also the inflated cost of construction materials, realtor and land lord collusion, automated rent fixing, incentives for landlords to keep empty units rather than budge on rent.
Well in theory the inflated prices should then encourage more supply of these things; more housing/cars/healthcare would be good. Unnecessary limits on the supply and barriers to competition let the prices inflate away from equilibrium.
If you put you in a time machine to 1860 ago you would be a fool to go to your local doctor (this was before doctors got scientific, or did basic things like wash their hands - as a result people who went to the doctor had worse results than people who didn't). Now that we have quality medical care people who go to the doctor have better results than people who do not and so that creates demand of people who want a better life. The people in 1860 (and before) would love to have access to the type of medical care we have today.
>Housing? Yep mortgages, people can rarely afford a house without a large mortgage
Bad example, mortgages keep jumping because property values keep increasing. Property values keep increasing because demand is exceeding supply. As more people can access mortgages due to lower rates, the demand shoots up and so does the property value which leads to a race to the top (bottom). Lol
>Cars? Yep, most cars are bought on finance, people couldn’t buy new cars without the finance.
Yea here we don't have a real lack of car supply. People are financing based on _wants_ rather than needs.
>Property values keep increasing because demand is exceeding supply.
Not quite. Property values keep increasing because the monetary supply keeps increasing, one effect of which is that large property owners can corner markets by buying up properties and warehousing them until they see the prices they want to sell for. This appears as a lack of supply (not enough houses) when it's really a lack of market forces forcing sales (not enough houses on the market). The remedies to these two situations are very different.
A mortgage and car loan is credit (borrow money). Overall it's a net good for consuners IMO because I can't afford to buy a house cash and rates are artificially low for mortgages bc most are guaranteed by Fannie Freddie. Even private mortgages are competitive. You can borrow money for 30 years, non recourse, no prepayment penalty and get 4:1 leverage and the rate you pay is a few points higher than the government pays? Insanely good value.
What credit do insurance companies provide? You pay them and they pay the doctor based on some negotiated rate. They don't front you the money and you have to pay them back.
I don't mind people not understanding how the finance industry has fucked up housing all over the Western world. It's complicated.
But the immediate illiterate defenses in the short time this comment has been posted are wild, if sadly expected.
Yes, for the love of all that's holy: private equity has fucked up housing across the planet. Learn about it a little before insisting otherwise!
This isn't simple supply and demand, nor is it all a big mystery. It's certainly not a 'bad example' of the finance industry fucking up a life essential to profit off it at our expense; it's a core, fundamental example.
People have done huge amounts of work exposing these shenanigans. All the information needed to educate yourselves is a few clicks away. Here's some titles to get you started:
"Homewreckers: How a Gang of Wall Street Kingpins, Hedge Fund Magnates, Crooked Banks, and Vulture Capitalists Suckered Millions Out of Their Homes and Demolished the American Dream" by Aaron Glantz
"Private Equity at Work: When Wall Street Manages Main Street" by Eileen Appelbaum and Rosemary Batt
"The New Urban Crisis: How Our Cities Are Increasing Inequality, Deepening Segregation, and Failing the Middle Class – and What We Can Do About It" by Richard Florida
Stop letting the industry off the hook for the unimaginable damage they've inflicted on the heart of society. Step one: gtfo out of denial.
Eh, don’t think this is the strongest argument. If you plot housing, healthcare, and cars on a chart in real term dollars since, say 1980, cars are going show way way less real growth.
The New Commanding Heights are education and health care, which are rapidly expanding sectors where credentials and regulation are important sources of rents.
Demand for living and having somewhere to live are inelastic. As a result, these markets are especially prone to distortionary effects caused by monopolies, price fixing, and price non-transparency.
In many areas, all landlords use one of two or three management companies, which use the same pricing software. I do think prices are usually pretty transparent though.
I think I get what you mean with this, but I'm not sure I follow it completely.
Banks are able to extend large amounts of credit that are backed by a small percentage of the credit offered. People are generally bad with money and will take what the bank offers them if they think they can afford the monthly figure. The bank and it's lending practices therefore seem to have an (indirect?) influence on how much money someone has to pay for a house, and therefore what houses sell for in the market. Whether all this does is reveal a houses true value in the market, as opposed to artificially increasing it, I'm not sure.
I probably agree with most of this, and definitely with your thoughtful last sentence, but the context is that the existence of mortgages has driven up house prices. I think this is a silly claim, because while almost no one being able to buy a house would lower house prices, it would do so in a net negative one.
It sounds like there's two separate dimensions to this, price, and positive / negative outcome.
It seems like it's possible for a banks mortgage lending practices to both positively increase access to mortgages while at the same time making houses more expensive. At first I think this is counter intuitive, but I think there's a logic to it. Whether this is a good tradeoff, is separate to whether the loaning itself increases house prices.
> Prices are a function of supply and demand, not of access to capital.
If a buyer cannot access capital (money), then no amount of demand will facilitate the exchange and the seller might supply a different buyer who has capital for a lower price.
So in context of mortgages being bad, you're saying that house prices would be lower if only people who have the money saved up or inherited to buy them are bidding on houses? Wouldn't that make supply much lower?
If the mortgage did not exist, and a significant portion of buyers (or the sellers) did not have access to same/similar amounts of capital, many people would probably restructure their financial lives in order to facilitate house buying without a mortgage. The same/similar number of people need housing and move, upsize or downsize, so the nature of the supply might change but probably not supply in general.
If the mortgage were to suddenly disappear I would expect the housing market to have a similar contraction as in the recent recession when poorly understood risks from mortgage backed securities caused a decrease in mortgage availability.
But how much would it contract when you can rent the properties out? Rental and purchase prices are linked - the price floor of a house is related to how much you can rent it out for if you sold it to a landlord (or kept it yourself to rent to people). People would stop buying houses and start renting. The demand for renting would go up, and for buying would go down.
I think the main point to take from OP is that houses have gotten much more expensive because builders presuppose the existence of a pool of people who can afford them given mortgages. If mortgages weren't a thing a lot of building code wouldn't exist and houses would be built smaller and simpler because otherwise they wouldn't sell.
> Prices are a function of supply and demand, not of access to capital.
And easy access to debt massively shifts the equilibrium point on the supply/demand curves.
Cars, houses, college, even cell phones or furniture can have far higher market prices when people switch from paying full-price in cash at time of purchase to making payments over months or years.
> Prices are a function of supply and demand, not of access to capital.
That is simply wrong.
The demand curve is the relationship between quantity bought and price. It definitely shifts with how much money people have, so in the case of houses depends entirely on access to capital.
> But why doesn't this happen to restaurants, or super markets or car mechanics?
I think the word you're missing is yet. Private equity hasn't bought everything and jacked up the prices yet because they have plenty of targets generating reliable profits for them, and they don't have the funds to buy out the entire restaurant industry while also doing everything they're already doing. They would also still have to compete with major national players (McDonald's et al.) who are impossible to buy out, which is something the healthcare industry didn't really have when private equity came knocking.
And notably, it is starting to happen to car mechanics - particularly those who are contracted by insurance companies. It's not hard to imagine a future where they move on to smaller independent car mechanics who are gradually bought out by megacorps and/or private equity, the industry consolidates heavily, and everything gets worse.
> You have to ask yourself what makes healthcare unique to nearly every other well functioning market in the US. The bigger issue is there is third party paying for things. Try to ask your doctor how much something costs and they'll stare at you like you have two heads. Imagine getting your car fixed without knowing how much it's going to cost
Are other markets well functioning in the US? I'd argue Private Equity is ruining a lot of them.
Also, you're missing one big fundamental issue. Healthcare is not a good candidate for a "free market", because it's an inelastic "good". You can't choose when to get sick or have health issues. You can't change the fact that prevention saves lives and money. So, healthcare cannot ever be a free market and function properly. The only way to make it function is either by centralisation or heavy regulation. Curiously the US is practically the only country that managed to screw up and have a bad mix of both options while also having a broken market.
> But why doesn't this happen to restaurants, or super markets or car mechanics?
There's plenty of examples against your case already in the comments against other points but the reason medical care is so damn expensive is the same reason your internet bill is so expensive (for poor quality): lack of choice.
You don't really have an option to haggle or shop around for the best plan when you broke a leg and are being rushed to the nearest hospital.
You made the choice on plan half year ago when you were healthy and you're in no state to have a calm discussion with the ambulance about what has the best price per value with your tibia jutting out of where your calf should be.
Important to note that this is still pretty true for non-urgent care. My city has three somnologists' offices. If I have a sleep issue, I may have options, but there are very few of them. It's much more plausible for someone to buy up the three somnologists than to buy up, say, all the pizza restaurants in the city, and it's harder for someone else to start up a new somnologist than to start up a new pizza restaurant.
And to supermarkets - like Morrisons in the UK. And department stores - like Debenhams in the UK.
They join a long list of viable businesses that were/are vampirised by PE for quick returns.
Medicine in the US is just the most perfect platonic example of a PE chokehold on a critical market sector which has drastically negative effects on the rest of the economy, and on individuals who have to deal with it.
There is no reason for the richest profession in the nation to require taxpayer funding for their graduate education.
Most people pay for college.
Why are we using taxes to pay for rich people's college?
EDIT: Rate limited and replying to 'FAANG Workers make the same as doctors':
"You didn't include any numbers.
You also decided to choose the most elite workers living in a high cost of living area to compare to.
Not fair! Not fair! There is a bit of malice to do such an unequal and unfair comparison.
If we look at reality, you are never going to have the moral high ground. The wages are not-market rates, its due to lobbying/artificial scarcity that benefit the members only. The majority lose and the richest profession gets richer.
I hope people can see past the pretty paint you were able to place over reality. "
Probably close to half of doctors make less money than the average person working at FAANG.
Medical school is outrageously expensive.
If you think people are going to put up with the misery of being a doctor, delay any wages until 34, basically live a lower middle class life until 50 while paying of medical school debts, and then barely be in the top 10% after that - you're gonna have a really bad pool of people signing up to be a doctor.
We absolutely do not need to be making medical school EVEN MORE expensive.
> Probably close to half of doctors make less money than the average person working at FAANG.
I feel like comparing doctors as a whole to the subset of software engineers who are at FAANG is not really apt.
> delay any wages until 34
What?
Out of HS at 18, BS at 22, MD at 26.... then what? At least 2 years of residency (PGY1, 2) and you're 28. And then what are you doing for the next SIX years before you're earning wages? Uhhh.
> lower middle class life until 50 while paying of medical school debts
I work as a paramedic, and have multiple provider friends, from family practice, to EM to anesthesiology. While the anesthesiologist is 40 and already owns a book store, and multiple homes, none of the others are wallowing in the "lower middle class". You can pay a lot of student loans at the $300-350K EM residents make in this area.
> barely be in the top 10% after that
I think you're exaggerating on top of exaggeration.
The top 10% line would be at $86K/year.
Let's be more real. Public Health pays the lowest physician salary, averaging at $249K/year. That already puts you in the 2%.
Cruise on up the ladder and Gastro, Cardio, Ortho and Plastics all are north of $500K.
Yes, there is malpractice insurance, and it's not negligible (and some networks will provide allowances to providers for this). But it's also fairly linear to specialty and income, and often not as much as assumed. Obstetrics, as expected, is the highest, at ~$42K (with average salaries of $390K), family practice averages around $10K, and even my anesthesiologist friend is only paying around $13-15K/year.
> It does not put you in the top 2% if you have a tax rate of ~45%
The top 2% pays tax, too. They're still in the top 2% of income, by definition. And that tax rate is more like 35%, less if married.
After that student loan you're still taking home ~$11K/month.
Other professions with higher pay also have student loans, you don't get to say "doctors are different and aren't in the income bracket you think they are because loans".
Length of residency depends on specialty, but is generally at least 3 years and can be 7+. Some physicians also have to complete an additional fellowship before they can really practice independently.
There is a real shortage of residency program slots. Every year some students graduate from medical school with an MD but are unable to practice medicine because they don't get matched (some of those do get matched the following year). The most effective thing we could do to increase the supply of physicians (and reduce their wages) would be to get Congress to allocate more Medicare funding to expanding residency programs.
That comment represents a fundamental misunderstanding of graduate medical education (residency). It is not college. Residents have already graduated from medical school with an MD/DO degree. They paid for medical school in the same ways as any other students (sometimes including tax funding). Many of them have >$200K in student debt by the time they graduate.
Residents are employees of teaching hospitals. They aren't really students. They're more like post-docs in academia. Even though hospitals can recoup some of the expenses of their residency programs by charging patients for care delivered by residents, overall residency programs operate at a financial loss. The funding has to come from somewhere. Lowering already low wages for residents to close the gap and thus forcing them to take on even more debt is no solution. We all benefit from having more physicians so I fail to understand the objection to subsidizing residency programs with taxes.
As an aside, I’ve always wondered - residencies famously overwork newly minted doctors - they’re allowed to work up to 80 works, and for incredibly low salaries considering the education level required.
Given that they have this valuable resource for an incredibly low wage - where is all the money for residency going? Why do hospitals require such a large subsidy to fill the gap?
This isn’t an accusation that hospitals are misusing the money - I genuinely do not understand the costs that go into residency here.
That's a complex question with no clear answer. It varies between hospitals and by medical specialty. In my previous comment I oversimplified things a bit because whether a particular program operates at a profit or loss depends largely on cost accounting. How do the accountants allocate overhead and other indirect costs besides resident wages? There are some general accounting guidelines on cost allocation but ultimately it's open to interpretation.
You seem confused about how medical education works. The link I posted above is relevant in that it has some good general information about the costs of residency programs. You might want to read it as a starting point for correcting your misunderstandings.
Most teaching hospitals are non-profits, often owned by educational institutions or state/local governments. They don't "write off" expenses from an income tax perspective because they aren't subject to income tax in the first place. Cost accounting as a discipline is only loosely related to financial accounting or tax accounting.
As for corruption, there are probably ways the current system could be improved. But you haven't presented any evidence of widespread illegal activity.
I genuinely can't tell if you are malicious, or easy to convince. The line about the non profit was mindboggling. You know that is just a business structure? It has nothing to do with profits weirdly enough.
>But you haven't presented any evidence of widespread illegal activity.
Its an immoral activity to corner a market, take tax dollars, lower quality for consumers, and raise prices. Its not illegal.
> residencies famously overwork newly minted doctors - they’re allowed to work up to 80 works
Wait til you learn about EMTs and paramedics. EMTs can be making as low as $11/hr. And at the last ambulance service I worked at there was no upper cap on hours. The only restriction was you had to be off-duty for 8 hours after every SIXTY on-duty.
If these "industries" seem unaffected to you, it's probably then simply a matter of time.
Who knew veterinarian clinics would be the next to fall to VC? And I am hearing that independent senior living is being raided by VC, perhaps cemeteries as well....
VC and PE are distinct. You can't just interchange the terms.
VCs invest with the hope the investee will grow quickly. PE firms do not have that hope. This distinction has a large effect on the strategies available to the investor. A PE firm for example will usually be averse to investing if they will not end up with managerial control over the investee, but a VC fund routinely makes such investments.
In my area I live near a Fred Meyers, a QFC and a Safeway. Soon enough, those are all likely to be owned under the same umbrella, so what real choice do I have if they're all under the same ownership?
Similar things have been happening to mechanics as well.
Right, and that's exactly the problem we run into that causes comment sections to go endlessly in circles.
If and when I ever write my Highly Opinionated Guide To Comment Section Ettiquette, my #1 rule would be about Dennett's Principle of Charity, but #2 would probably relate to the thing you've identified here. Namely, to the extent possible, try not to resort one-off examples to represent systematic processes.
Are your specific shops PE backed? There are lower barriers to entry so your local restaurant, super market or car mechanic can still exist alongside PE-backed chains. One can't just on a whim decide to become a doctor.
I'm pretty Libertarian myself... the issue, to me, comes from treating companies/corporations as "people" in terms of political speech, etc. I don't think collective groups should be able to donate to political campaigns or non-profits unless they have open books and only take contributions from individuals or orgs that likewise have open books.
I also think that politicians should have to pre-declare by a day or more any financial trades.
Corporations are allowed to exist in a state beyond what an individual can, and as a balance should be very limited in execution and through the past century in particular are anything but. Their power is a grant of govt, and should also be limited. In the end, that's where I stand on it. I'm all for maximizing personal liberty, and even small business allowances. Major companies should be focused on stability with growth or divestment. Foreign owned companies should be more limited even. That just isn't the case today, and it's a shame.
I agree with you but it's maybe worth pointing out it's even worse than your example.
It's as if not only was there a cap on the number of waiters, there were strict regulations about how you got your food, and that there couldn't be restaurants where you serve yourself, have buffets, or even that you could feed yourself cooked meals at home without going to a restaurant. All the menus have to be approved by a national food association etc etc etc.
There's so many factors involved in healthcare problems in the US it's impossible to pin it on just one thing or even a couple of things. I also feel like the public discourse seems to be largely out of sync with just how much change is needed to how things are done.
I kind of thought the pandemic might have created an emergency situation that would have leveled the status quo and allowed for a restructuring of things along the lines that's needed, but its seemed like it just barely held on and then went back to things as usual.
To me, it was the biggest example of why we need at least partial (say 50%) domestic production and to require at least dual sourcing (which would require licensing). Which would have the side effect of at least some competition. I'm also less than convinced the term for Patents is appropriate for a lot of industries today in general.
Not to mention restrictions on negotiated rates by medicare and other agencies. I'd personally like to see all Govt employees, Veterans and Medicare replaced by a non-profit insurance corp, that is able to negotiate and establish baseline care, without eliminating private coverage, but anyone can buy the public plan (employers etc) as a way of leveling (some) competition.
As it is, the recent South Park special does a relatively good job of demonstrating how messed up the system is.
It isn't because of that alone. In PH and Korea, senior doctors are expected to oversee junior or trainee doctors. These senior doctors are already overloaded with both giving care and training junior doctors.
Adding more MDs won't change anything because the residency/training bottleneck still exists and there is no way to change that.
This is why my SO left Vietnam for the US - getting paid $1-2k a year to train 6 juniors and work 60 hour shifts providing care is hellish.
The same is happening in Korea as well, with senior doctors leaving for Japan and the US now.
So the solution is to get more doctors who can then unload the burden. If you look at the cap on medical school enrollment in the US, it’s very much an artificial supply restriction to keep wages high.
There must be short term pain - in 15 years you can have a lot more doctors, but we have to get them through school and residency first, and everyone already in the industry needs to work even harder to do that.
Demand for healthcare is super high and supply of doctors is low. And you're arguing _against_ increasing the supply? The status quo isn't a valid answer -- if doctors are already at the point of burnout, something has to be done to fix the long-term problem that has brought us to this point.
Interesting! I didn't know this ... however, getting an MD is necessary to make someone ready to be a practising physician. In Ireland we seem to be drastically undersupplied with doctors - I had a couple of years recently where I was in my local ER quite a lot, and there were typically 2 doctors on duty, covering a catchment area of half a million people. Training more MDs seems like an important first step in increasing the supply
Residency programs are hot bullshit, it's just more gatekeeping. There's no reason that a recent medical grad couldn't do the same shit they're having nurse practitioners do instead of doctors at 95% of all care facilities now. Currently we cram the entirety of someone's medical training in 5 really awful years, then call them "finished" and let them do whatever the fuck they want with limited oversight in a lot of cases. If other trades ran like that, the world would be literally falling apart.
Residences are crucial for actual clinical learning, it's more developmental than medical school which is a broad base for understanding physiology. Most doctors at teaching programs will tell you: even 3rd-year med students barely know a thing. Could they likely do the same tasks as first-year NPs who went straight from RN to NP school without any clinical experience? Yes, probably, but they almost certainly would have the same vulnerability NPs do: they don't have anywhere close to the same understanding of the physiology critical for decision-making outside of typical cases or considering interactions of different indicators.
That said, I do think there's probably more of a role for some graduating med students than we use now. I don't think they need a 3-year residency to enable them for many general practitioner duties particularly in rural settings where the patient load is less, the pay is likely less, but the cases are more homogenous.
If 1 person trains 6, then in a few years you now have 7 trained doctors who could either train 42 more or, if given half the workload, could train 21 more.
If the training doctors are always oversubscribed then there's a deeper problem in the system that's creating this bottleneck.
If you have skills getting a VISA is much easier - not all of them are random lotteries.
Plus SO often implies OP was a citizen and then SO comes in on a priority VISA program. They do check to ensure you really are romantically involved. There are a number of poor who decide nearly any American is a better life than they could have at home and so will sign up for a blind marriage to anyone. A doctor likely has means to do some verification of a potential mate before committing, but if they find life bad enough back home they can have low standards. (from what I can tell it mostly works out for those doing this - some get abused, but most seem to have a good life)
The bit about romantically involved was part of my point. If that person was a man, forget it, he will be staying home with low wages.
Also, we are definitely missing a large part of the story. There are very few medical schools outside US that will qualify you to practice is the US. Getting recertified in the US is extremely difficult, especially from a developing country with much worse healthcare standards.
It's a two-fold problem. Think of health insurance like "the mob" it gives you leverage if your employer has a lot of employees vs if you work for a small company. They can say "oh we're taking you out of our network since your pricing is insane" and actually holds a lot more weight than a small fish company trying the same.
Then you have the fact that not everyone pays, so they subsidize the cost. Think of all the homeless people who got treated.
Never take a loan unless you're literally battling something life threatening and that's your only option available. Otherwise, always haggle the billing department down.
It's all a messy cost because its all subsidized.
I got this information from a former hospital billing manager who I used to report to at a former software job. I don't know what can fix all of this, but it feels like the college issue of throwing more money at it just gives them free reign to raise prices at ridiculous rates.
> less prone to "whatever price it is, I'll spend it".
not all medical needs are like that. Only in emergency care.
For things like a regular checkup, a flu shot, or obesity etc, you have time to shop around.
So not unlike the car services. Except that the provider of healthcare is paid highly, and has been limited in supply like the parent poster's comment.
Why are doctors cheaper in cuber? They cure the same diseases after all, and likely learn off the same knowledge.
You'd be surprised how much "emergency care" covers. A lot of people just end up going to the emergency room for colds, mild flu, persistent mild pains, etc.
When Jimbob goes to the emergency room at his local hospital because he has a cough that just will not go away, he's probably going to walk out of there with a script for some cough syrup or antibiotics and not a lung cancer diagnosis. Either way, he's there, it's made him miserable enough to get up and go somewhere, and he's very unlikely to want to leave without some sort of proposed solution to his problem. So he'll pay what the provider puts on the paper without shopping around.
Should he go to an urgent care center or make an appointment with a PCP? Absolutely. But he didn't. And there's millions of Jimbobs.
And that's before getting into the "frequent fliers" who are on the fringes of society and see a visit to the emergency room as a guaranteed way to experience at least some human compassion.
I don't understand this idea that there's no demand elasticity for healthcare.
If you need to go to a doctor you have choices. Most healthcare isn't emergency room visits. And the whole "health is priceless" is laughable considering obesity and smoking. You're paying money to be less healthy and now you tell me "for my health, whatever the price is I'll spend it".
> I don't understand this idea that there's no demand elasticity for healthcare.
There is demand elasticity, but health is weird.
Lots of people skip or avoid medical visits due to the cost. That’s demand elasticity.
For some things, that’s fine! A condition ends up going away in its own, or doesn’t go away but remains a minor annoyance that the person bears. Demand elasticity.
But for some conditions, that’s actually a much worse outcome. The condition worsens to the point where it becomes a major impact to someone and must be resolved (or they will die, be unable to work, etc). Often, these kinds of conditions are much much more expensive to treat when they are severe. Consider a bacterial infection. Discovered and treated early, it might be staved off with a cheap form of antibiotics. Left to fester, the treatment required might be much more costly: amputations, major surgeries, intensive care for a week, etc. In these cases, the “demand elasticity” didn’t work out. What appeared as elasticity actually ended up costing society much much more.
> You're paying money to be less healthy and now you tell me "for my health, whatever the price is I'll spend it".
Most people aren’t saying this about marginal medical care. Many many many people in the US regularly avoid interacting with the healthcare system due to the price.
This kind of saying applies to critical and life saving care. Like: “we’ve discovered you have cancer. We can manage it, and you have a 90% chance of survival, but the treatment will cost $500,000. Do you want that?”
You're ignoring the time element of healthcare. If you get hit by a bus, you aren't in a position to shop around or negotiate for care. You can even be incapacitated and unable to respond to questions before your treatment starts.
Imagine you get knocked out cold and wake up seated at a restaurant with an empty plate of food. You were fed the food but you have no memory of it. The bill comes and it's $5,999. Would you feel like this is fair?
Meaningful ones? My area has two major hospitals, and two major insurers. Each hospital has bought up the vast majority of primary care practices in the area and slapped their logos on them; each insurer has a preferred hospital they steer you towards. Within that hospital's network of practices there's no meaningful competition. Most people can't pick between the two insurers; work decides.
> And the whole "health is priceless" is laughable considering obesity and smoking.
It's priceless when acutely at risk. People are horrible about preventative care, but they'll shell out virtually anything not to die next week.
I think the choices are between care options, and are absolutely meaningful. Few would choose to spend 250k on end of life care if that was coming from their grandkids college fund. Few would try a 50k implant or surgery before physical therapy if they had to pay.
> But why doesn't this happen to restaurants, or super markets or car mechanics?
Not sure, but the counterpoint is the housing crisis. So painting it as something exclusive to healthcare suggests that there's no possibility of it being a systemic problem with Private Equity.
One of the other comments raised said "because you don't have to go to those places," and it intuitively feels correct that basic needs are ripe for price gouging when supply is limited. But I'm out of my depth. Happy to hear other comments.
> why doesn't this happen to restaurants, or super markets or car mechanics
They get bought out by PEs as well.
> The other problem is the regulation and groups like AMA
My SO is a Doctor, and most of her overhead is from paperwork, billing, and IT.
Managing a HRM, your clinic's IT, your clinic's medical devices, your clinic's digitized patient records, the paper trail needed to get paid, etc is hard.
Most older practitioners have sold their clinics to PEs for that reason - they don't want to spend an additional 20-30 hours a week dealing with the issues above.
This is why they sell off their practices to consolidated groups, because they will unify these services but give the Doctor a paycheck.
I don't think PE is the problem here. We love to hear the negative stories but there are also lots of success stories.
From the healthcare industry, I believe the primary care model is broken. There is a nationwide shortage of primary care doctors, usually the ones wanting to get in primary care enjoy the touch on patients. The problem is what you outlined, to run a primary care practice you need to employ a number of people that creates overhead that now requires you to be very rigid in the practice to ensure you can both cover your expenses and still make a salary yourself.
The shortage of PCPs is a money problem, not a symptom of a broken model.
People smart enough to go to med school are (generally) also smart enough to do an ROI analysis. If I can make $500k/yr as an oncologist and pay off my student loans in 10 years vs. getting paid $150k/yr as a PCP and pay off my student loans in 30 years, which route am I going to choose? People that want to be PCPs are making the choice to go into higher-paying specialties just because it is expensive to become a doctor in the first place.
Obviously it is possible to change the economic incentives to increase the supply of PCPs. One simple way would be to just create full-ride scholarships for those that want to be PCPs to dramatically increase the ROI for being a PCP.
I don't believe its entirely a money problem. Certainly there is a factor but that oncologist is also spending a few more years in Residency typically. The trade-off is that as a PCP you are working predictable hours in generally a low stress environment.
So I agree money is a factor but I also think the current insurance model makes its incredible difficult to run a PC office. You have to bring on significant overhead which you then need to cover my making strict quotas on seeing patients. I don't believe this aligns with what PCP enjoy doing.
>My SO is a Doctor, and most of her overhead is from paperwork, billing, and IT.
We own a clinic too.
You either are lying because labor is over 60% of the overhead, or you don't have labor.
Anyway, there is not much to complain about. We can be terrible business owners and overhire, and we still are profitable. The margins are insane on private healthcare and breakeven on medicaid.
The losers are patients, especially private paid patients. Medicaid patients often end up with significantly more treatment since its free.
It is also happening to restaurants and HVAC installers and plumbing businesses. They just got around to buying those up a little more recently. We should expect the price and service consequences to start showing up in the next 5-10 years.
Sears is an odd example because Eddie Lambert didn't want to treat it as private equity investment and he wanted to take operations in his own hands. He thought he was the next Warren Buffett, but he wasn't, so Sears hemorrhaged money and had to sell off their own parts. Nobody besides Lambert's own hedge fund thought it was a good idea to buy mall real estate, which is how it all ended up there. This didn't work out for the hedge fund either, and together with the Sears bankruptcy is why his net worth nearly dropped in half while all his billionaire buddies were enjoying the longest bull market in history.
It does happen to restaurants: red lobster is the most recent example. PE raised the rent on the ground leases to where it was no longer sustainable for the operators of the eatery.
> When a private-equity firm bought the iconic seafood chain in 2014, it sold the real estate under the restaurants for $1.5 billion. Then the restaurants struggled to pay the rents.
> In recent years, private-equity firms have invested heavily in all areas of industry, including retailers, restaurants, media and health care. Some 12 million workers are employed by private equity-backed firms, or 7% of the workforce. Companies bought out and indebted by private equity go bankrupt 10 times more often than companies not purchased by these firms, academic research shows. In a report this month, Moody’s Ratings said leveraged buyouts like those pursued by many private-equity firms drive corporate defaults higher and reduce the amounts investors recover when the companies are restructured.
TLDR Corporate strip mining and dumping the enterprise carcass on bag holders.
> But why doesn't this happen to restaurants, or super markets or car mechanics?
Restaurants too have slowly been gobbled up in my area of NY suburbs into larger groups. I think the Main St here with 20 or so restaurants is owned by just 3 groups.
Supermarkets are an incredibly low margin business and they would have to compete with existing players on those thin margins including titans like Walmart. There's not much more blood to extract there.
Independent mechanic shops have been dwindling naturally because it's too expensive for newbies to get into the field, especially between rent and needing all their own tools. End of day, formally "car shop" areas here are being bulldozed for luxury rental apartments.
Margins is half the story. You get 1% on a loaf of bread, that's reported as 1% margin. BUT you turn that loaf around every day for a year, that's 365% margin, annualized.
Shoe stores, now they have a problem. They don't turn the inventory over but monthly or worse.
But McD's? They sell that hamburger a thousand times a day.
> You get 1% on a loaf of bread, that's reported as 1% margin. BUT you turn that loaf around every day for a year, that's 365% margin, annualized.
I don't think that is how margins work. Let's say you sell a unit of bread for $100, but you spent $99 the make the bread that's a 1% margin. If you sell a single bread per day for 365 days you earned $36500 and spent $36135 to make those bread. That is still a 1% margin.
Hmmm. Interesting idea. So this is how I should be thinking about the process: On day one I invest $99 dollar into stuff and get a bread. I sell it on the same day for $100. (Turns out spherical cows in vacuum eat very expensive bread.) Then on the second day I take the $100 thus earned and spend $99 out of it on stuff to bake a bread. I have a bread and $1 dollar in the business. I sell the bread for $100 and I have $101 at the end of the day. And so on and so on. 365 days later at the end of the day I have $464. (I might be off by one there.)
If I look at that business in a year had $464 revenue and $99 cost. Investopedia defines gross margin as "(Revenue − Cost of goods sold) / Revenue" So that would be (464-99)/464=0.79. So that is a 79% margin. Below the 365%. Where I'm going wrong?
Mixing annualized numbers with transaction ones.
Margin is a single sale. That's 1%
Look, I'm just making the point that comparing margins on a sale is a crappy way to compare business. It ignores the value you get for each investment dollar. Correct that by annualizing return per dollar. Then you see the relative value of business models e.g. McD's vs grocer store vs shoe store.
>But why doesn't this happen to restaurants, or super markets or car mechanics?
It DOES happen with car mechanics. Leonard Green LP owns Caliber Collision, Carlyle Group owns Service King, and Icahn Enterprises owns AAMCO, Pep Boys, and Precision Tune Auto Care.
While I don't have a specific example in my head about restaurants and grocery stores, I have to think that there are steps in the value chain that are absolutely owned and influenced by PE. Logistics? Real Estate?
Real Estate is a great example: most commercial real estate is held inside PE portfolios via Real Estate Investment Trusts, and lease rents are an extremely non-trivial portion of business costs for EVERYBODY, espcially grocery stores and restaurants.
But I agree about the many social and regulatory complexities regarding health care specifically. Often that complexity is what makes industries like health care such a lucrative investment for PE as it can be easier to hide incentive structures.
Food and cars are things you can touch. Health isn't. Markets work well for things you can touch, and poorly for things you can't.
It's just the natural limits to our concept of property at play. Maybe everybody knows what you mean if you say that you're going to go down the street and buy yourself a surgery, but nobody thinks it's a natural way to talk about that sort of thing.
Whatever the US does, it needs to realize that the artificially constricted supply of healthcare needs to be loosened. If we throw more money at consumers for healthcare while keeping the tight supply of doctors and hospitals constant, then you just end up paying more money for the same services. Prices go up, doctors, hospitals and insurers get richer, nobody else is better off.
I think it depends heavily on what the motivations are for that third party. I live in Ontario, Canada, and OHIP pays for any hospital visits I need— but they're not a for-profit entity, they set the prices based on what's fair in collaboration with providers.
Notably, OHIP does not cover optical, dental, physio, massage, psychotherapy, or prescription drugs, so those are all paid for by conventional insurance, typically tied to your employer, with predictable results— it's all more expensive than it should be, pricing is often vague and hard to predict (especially with dental), and people defer care, making what should be simple problems into more complicated ones.
Wife just went into surgery literally 5 minutes ago. While waiting we had several doctors and nurses check in and ask basically the same questions. While this was happening I was thinking about how we're at the mercy of the hospital and doctors to use providers that our insurance will actually cover. We have NO (very little if any) control over those. What if between scheduling the surgery several months ago and now our insurance and the providers no longer have contracts with each other? What if the surgeon only uses anesthesiologist and nurse anesthetists that don't belong to our insurance providers network?
Thankfully reversed, but took a lot more effort than it should...
I had a kidney stone, and had to be transferred from Hospital A to Hospital B for a procedure, as A didn't have a urologist available.
I was transported by ambulance.
At the destination hospital, a transporter (person with a gurney) was waiting at the ambulance bay and I was moved from ambulance gurney to hospital gurney and wheeled into surgery. I did not go through registration or admission in the ER. I did not speak to a provider in the ER. I was not put in a room, nor was a room allocated for me. But because the physical transfer happened (in the -hallway-, mind you) of the ER, they tried to bill my insurance for a $3,800 ER incident, on top of the OR and procedure costs.
And I won't know how much I'll have to pay out of pocket for this for a least 6 months... I won't be able to recall or have the knowledge if they billed for things not provided too.
Just like housing there's ultimately a cartel that limits supply.
In medicine some of that limit is justified by preventing the whole field from degenerating into gimcrack quackery, but the limits aren't just around certifications or credentials or experience. They are, as you state, hard limits in many cases designed to jack up prices.
With housing the cartels are more decentralized to the neighborhood but the effect is the same. PE gets blamed there too when they're simply taking advantage of the situation to extract some of that rent.
There are other factors as well. For example,if a single restaurant or supermarket increases its prices, you can just go somewhere else. But switching doctors is much harder to do. And is made more difficult by insurance networks. And if you don't like your insurance, you can't really switch, without changing jobs or paying a lot more to get individual insurance instead of using discounted insurance from your employer and effectively giving up compensation.
Healthcare is an inelastic market. People will pay wathever the cost of a product is, because it is literally a matter of life or death. Ask yourself why your country provides the least cost-efficient system of healthcare in the West, when it is arguably the most liberal of them all.
Most healthcare is not that life and death. A few years ago I needed surgery - it was scheduled for 2 months later (originally 1 month but then the surgeon got COVID so rescheduled), if I had any incentive to I could have found plenty of other surgeons in different hospitals who could have done the same surgery - but I have no incentive to.
My in-laws lived near the Mexico border (until they died) and their church around the country regularly sent members to them when someone poor needed surgery to arrange with a much cheaper hospital in Mexico to take care of them. Mexico doesn't have the same standards as the US (or didn't 30 years ago), but it isn't hard to figure out which doctors are just as good as anyone else in the US if you research.
> But why doesn't this happen to restaurants, or super markets or car mechanics?
It does? How did you miss all of the recent news around Red Lobsters acquisition by PE. Where they bought it, saddled it with debt, sold the land under each restaurant, pocketed the money and then left?
Exactly. Its failure was a self-fulfilling prophecy imposed by PE (and other malicious financial actors). Like Toys R Us and many others, it was a stable but unremarkable business that might have been in dire straits at some point in the future if changes weren't made to update its approach. It was not, as others allege, "failing" - at least, not until PE came along and forced it into an untenable position. But that's what they do.
Don't forget that Red Lobster was already a failing business. The PE that did this is also running several other restaurants that so far are successful. They know what they are doing, and they also know where nothing can save the restaurant and so made the decision to get their losses.
They didn't make the decision to salvage their losses.
Like you said, it was a failing business.
PE didn't come in with the goal to turn Red Lobster around. EVERYTHING the parent poster described was things PE didn't do to save Red Lobster, it was "How can we suck this thing dry before it dies".
The most charitable thing that you could say is that PE was putting Red Lobster out of its misery. While making bank on doing so.
What they did is akin to saying Grandma can stay with me, but she's dying so I'm going to sell her wheelchair. Then I send her to stay with my sister and make them rent the wheelchair back, so other care can't be afforded and her health suffers and she dies.
Then you come along and say, "She was already dying".
Wait til you learn about colleges offering "accelerated RN" to "accelerated RN-BSN" to ARNP pipelines that can have you functioning as a fully independent provider 6-7 years out of high school...
That, and the barriers to entry of the practice of medicine. I'm not implying that credentialing is bad, but we need to be honest about the constraints on the supply side of the market.
I mean, fifteen years of Tory rule does that. Looks like it'll finally come to an end soon.
The UK has slightly higher life expectancy than the US, at less than half the cost (and yes, that's including taxes; https://data.oecd.org/healthres/health-spending.htm). People die waiting here, too; they're just bankrupt as a bonus.
It's so far from being the solution that the majority of the Western world implements it as a solution to the problem, and the citizens of those nations live longer and spend less, cumulatively, on healthcare than the United States.
I mean... do you even knowledge? Words? Logic? Think?
Counterpoint number one: transit.
Counterpoint number two: utilities.
Counterpoint number three: healthcare.
In all three of those natural monopoly, little elasticity, high upfront costs, "goods", we have plenty of examples of countries and localities with "socialised" (centrally managed by a public entity, subsidised to cover some to most of the costs) and with "private" ones. Unquestionably "socialised" ones in similarly developed countries perform much better - lower cost in total and to consumers, better coverage, better outcomes.
You can have all things that make sense be managed centrally, and everything else left to a free (ish) market. It's not a binary choice all or nothing.
The UK is a perfect example because they privatised transit and utilities, and the result is a steep decline in quality with increasing costs, and that's not even counting externalities like water utilities dumping sewage in rivers and the sea.
But also, the free market is not the solution either, for inelastic goods dealing with life/death.
See, price of insulin.
OR, at least make a free market for real. Make insurance companies compete across state lines, make charges transparent not a surprise gatcha after the fact.
Nobody would take their car to get fixed and accept something like "I know you came in for oil change, but we decided to replace the break rotors, here is a bill, you have to pay or we don't give the car back".
Sadly, all the 'free market' politicians, are in the pocket of the industry and work to prevent a 'free market'.
"The article tries to paint a naive example where private equity buys everything and jacks up the prices. But why doesn't this happen to restaurants, or super markets or car mechanics?"
Seriously? Look around. It does.
Eg, ticketmaster? OK not PE, but the same deal, they buy/merge with competition and you get a monopoly, and then abuse. Try Matt Stoller's BIG newsletter for all the gore.
Private equity is also going on a tear buying up plumbers, electricians, HVAC contractors, etc. Their strategy is monopolization, but also "optimization" of the business. For example, sending out commissioned salesmen instead of technicians on service calls so that the homeowner gets a new furnace instead of a $20 repair part.
Some similar dynamics apply in that market in that if it's winter and your heater is broken, you want it fixed fast, that you have less knowledge/information than the tech/salesman. Also, you rarely hire these contractors, so they're much slower to get a bad reputation in a homeowner's mind.
A lot of PE enshitification really just amounts to monetizing dishonesty. It used to be that an independent plumbing company would have an owner in the community who had to see his neighbors every Sunday in church, whose kids were on the little league team, etc, and he cared about his reputation in the community. The PE guys swoop in from out of town, and all of this stuff is just a number in a spreadsheet that they want to go up. They then just rewire the incentives in the company so that the workers have to be dishonest in order to make a living, and the number goes up.
>But why doesn't this happen to restaurants, or super markets or car mechanics?
This is a bafflingly underinformed rhetorical given the previous sentence. It happens all the time with the exact counter-examples you list. I'm honestly shocked you mentioned restaurants when articles were floating around HN less than a week ago about the death of Red Lobster by way of private equity:
> Why don't new cardiologists enter the field? Because there is a cap of graduates that the AMA controls.
The AMA doesn't have the authority to cap anything, and I encourage you to devote more research to your premises before relying so heavily on them. The cap on new doctors arises from a complex set of competing laws, policies, and blended public/private billing models for how doctors get trained and paid during residencies, which itself is downstream of how hospitals are funded and operated. There is no singular "do this -> get more doctors" solution; it is enormously complicated, often by both design and necessity, and is not easily untangled with the naive techie "just make a pull request" mentality that pervades the HN comments section. You also seem to misunderstand what the AMA does and have miscast it as some sort of central licensing authority when most of what they due is effete lobbying and begging physicians for donations/dues. They're annoying and probably a net negative for public health at this point, but they're not some boogeyman holding back the libertarian fantasy of an unregulated healthcare market.
>Try to ask your doctor how much something costs and they'll stare at you like you have two heads. Imagine getting your car fixed without knowing how much it's going to cost
I can't help but notice that you didn't mention the role of private health insurance when that undergirds much of the grousing. Doctors can't give you an answer on what your procedure will cost because they have to play a multi-stage game of Price is Right with a cartel of investor-driven private health insurers with the express business model of avoiding paying for those services whenever possible. The fact that everyone BUT the investors suffer from this arrangement is the actual, literal point of the article - it's even in the byline!
But private equity objectively does jack up the prices on those things. It just doesn’t own those businesses. The whole point is that it’s unsustainable to run a business that way. Look at these absurd restaurants prices, it’s private equity jacking up the prices on food and labeling it as “inflation”.
Correct. The industries with shortages (housing, healthcare, education) are ALSO the ones with Soviet-tier central planning. Honestly, we shouldn’t be surprised!
Was just about to comment on the AMA when I read this. Not only do they do caps on total number. They also do ridiculous race quotas, so you’ll see good students skipped for subpar students. On its face, you may think that’s going to improve equity… but in reality, subpar doctors increase malpractice insurance (~1/3 of the doctors fees go to insurance) and increase prices on everyone. So you end up with the entire population, especially the poor, feeling the brunt of the medical cost.
I worked in medical billing for years and my suggestion (and all the people in billing agree that I talk to) is to make direct insurance payments illegal. It’s fine to have insurance reimburse you, the payer. But don’t have them negotiate or talk to the medical staff. Then everyone pays less because the hospital don’t know what you can pay.
Great example I had recently, I had a bill of $75 for a regular medicine. Insurance covered $35 and I paid $40. I then went off instance when switching for a month. It was $40 off insurance. The same price, the pharmacy was just pocketing the extra $35. They know what you can pay already, so there’s no negotiating or downward pressure on price.
The insurance industry in the USA is so screwed. A few years ago I had to go to the emergency room (turns out it was my gall bladder) and afterwards I got separate bills from the hospital, the anesthesiologist, and the mri. It was one hospital but it turns out it was 3 separate companies.
Of course I didn't get the bills right away. No I got them for months afterwards.
I got the main bill, I called up the hospital to pay and they said they would give me a discount for paying all at once. What? it didn't say that anywhere on the bill. So if I had paid it online I would have paid the full amount and not the discounted price which was a couple hundred less?
Another time I got a bill from the hospital and I didn't know what it was for so I called them and they said "ok. We'll resubmit it to your insurance." and I never heard about it again. If I hadn't called I would have paid a bill for over a thousand dollars.
I got one bill for $20 a year after. The address was in another city so I was skeptical. I went to their website and put in the account number and it said I didn't owe anything. Was it a scam? Who knows.
Another time I had an mri scheduled for something else and I get a call from the insurance company asking if I would be willing to reschedule to another hospital 90 minutes away because it was cheaper.
I can't imagine how terrible it would be if I had some serious or long term illness. Imagine if any other industry was this sloppy and confusing in their billing.
One of the steps that seems symbolic, but is important is that we need to recognize that health insurance only bears a passing resemblance to insurance.
What it really is: A "savings" account, or amortized payments for expected expenses. The value-add is that these companies will negotiate volume discounts (sometimes, when things don't actually cost more than they would on the street) for some providers and interventions.
You/your employer pay a premium.
Then you have a deductible.
Then your "insurance" company has the unmitigated gall to also include "co-pays" (which are on top of your deductible, as well as after meeting it), AND "co-insurance" (even if you've already met your deductible)...
AND then they'll refer to it as "your contribution to your healthcare costs". I suppose that is somewhat accurate but still...
Imagine your car gets totaled. Your insurer says "Hey, we're going to pay out $25K for your vehicle. So you have a $1,000 deductible, so that's $24,000, and then your copay for a total loss is $2,000, and for total losses, your coinsurance as your contributions for your vehicle coverage is 20% which is $5,000 so here's a check for $19,000."
I know it exists in certain very limited contexts, but if it weren't for all the regulatory capture, I could easily see companies that say "We'll negotiate bulk discounts with these providers. Everything else is on you. Pay for what you use."
> Imagine your car gets totaled. Your insurer says "Hey, we're going to pay out $25K for your vehicle. So you have a $1,000 deductible, so that's $24,000, and then your copay for a total loss is $2,000, and for total losses, your coinsurance as your contributions for your vehicle coverage is 20% which is $5,000 so here's a check for $19,000."
At the end of last year my doctor prescribed a list of blood tests, some of them rather esoteric and cutting edge. As a precaution, I wanted to see if they would all be covered and how much my out of pocket cost would be for these if not (or if partially covered).
It took _a week_, composed of two different lab visits and about 4 hours of phone time between the doctor, the lab, and my insurance to figure it out. And in the end, the values ultimately provided to me weren't even correct.
Like what the fuck is going on behind the scenes here?
Two giant companies, trying to fuck each other as hard as possible, while not violating the law so egregiously they are made to stop. Healthcare is an incidental byproduct.
Insurance companies have negotiated rates with individual doctors, hospitals, and even individual procedures.
Depending on facility, negotiated rate between insurance and facility, and “in network” vs “out of network”. the amount “billed” can change dramatically.
Even different plans within the same insurance company can often change the cost to patient.
In the USA, there is at least some degree of transparency from hospitals to list their cash prices. But it’s most inaccessible to the common person.
Some of the lists are massive and it’s often ordered by cryptic ICD codes. Some third parties have tried to standardize it and make it easily searchable, but I honestly haven’t followed up on it.
The whole system is rife with widespread, unreportable fraud. I’m on hour 8 of trying to get a 46 dollar charge for my annual preventative bloodwork reversed since its literally the only benefit of my plan that should be covered, but because the mysterious incantation of CPT and diagnostic codes are wrong, my previous provider is still sending me a bill once a month.
This is what worked for me. (In my case the insurance company and provider were the same - Kaiser - so YMMV.)
Write a letter to your insurance company to dispute the explanation of benefits. Follow the instructions for the dispute process. Cite and attach relevant information, like what annual preventative labwork is mandated to be covered by insurance for people your age due to the affordable care act (I believe this is on healthcare.gov). Note that the labwork was preventative and NOT diagnostic. Then wait for them to process it.
Providers submit my explanation of benefits wrong (in their favor) almost every time I go into a clinic or hospital or lab. And it boils my blood to know they get away with it because 90% of the people just pay it.
Edit: if it's the provider's mistake, then you got to start with the provider.
Yeah there needs to be a better solution to this. Either some sort of expedient arbitration by a 3rd party, or ability to get reimbursed for your time.
What always amazes me is that they can get away with constant mistakes, overcharging and unjustified denials without any real consequences. The worst that can happen is that they have to correct the mistake and do what they should have done anyways. And this only after the patient has spent enormous amounts of time, energy and money. I don’t think any other business would get away with this.
$46/8 hours = $5.75/hour. Would you take a job that paid that wage? Perhaps it's better to concede that they've ripped you off, write a check and move on. Not a hill worth dying on.
But it does not change the fact that you have already wasted a day of your life on this quixotic effort. Along with the months of agitation and aggravation and irritation and anger as this issue percolates 24/7 in the background.
That’s the infuriating thing about it. I suspect the fear of these unexpected parasitic charges in US healthcare is a contributing reason to men’s life expectancy only being 73.5 years.
"Document and report": There's another half hour of your life done and dusted with your time and effort disappearing into a never to be responded to black hole.
I am a big fan of direct primary care doctors now, these are doctors that don't accept insurance. As a family of 3 we pay $200 a month to have unlimited access (person, phone, text, email) to our doctor. We pair this with a high deductible plan from work and it works out really well. It might not be the answer for everyone but it makes sense at the primary care level. As I have gotten slightly older I have appreciated having continuity of care (not One Medical) and also not have strict timelimits to discuss my health. When I see the specialist I am fine with it, give me my allotted time, I probably only have a very specific need to discuss.
No catch. This is in the US, you can easily look it up. Its becoming a model that more primary care docs are adopting because there is immense overhead if you work with insurance companies. It ranges from the low end to the "concierge" doctor level where I have seen some charging in the thousands per month.
We still pay for consumables out of pocket including Rx medications. We still have a high deductible plan on top of this to cover emergencies/major illness. But I prefer this model as we get higher quality of care for roughly the same price as a non-high deductible plan.
I'm struggling to see how this works well for a family. You're basically uninsured. If you have sudden large expenses, like very expensive medication, it's not clear how you can make that work without hemorrhaging money. The high deductible isn't going to help you if it doesn't cover prescriptions.
Sorry I did not fully explain it. I am probably skipping some assortment of plans but the way I see it, you have PPO, HMO and HDHP. PPO is like a la carte to me, you generally have a wide network of doctors to pick from at your choosing, more flexibility with seeing specialists etc. HMO requires you to follow a funnel, with a single Primary Care doctor. HDHP is most similar to a PPO but you have a high deductible alongside it, while the deductible is higher than the PPO, the noticable difference is usually that you are paying for the majority of costs until hitting that deductible. So when seeing a primary care doc I would be paying for close to the full cost of that visit. The trade off is the monthly premium is significantly lower AND I get access to a health savings plan.
So when looking at it from a total annual loss perspective, the HDHP in the worst case would cost a few thousand more $3-5k than the equivalent PPO. There is nuance between plans but it can work well even if the individual as chronic conditions. Financially it makes sense and also I have strong beliefs that primary care is better served outside of insurance schemes.
High deductible might cover prescriptions but have a deductible amount. If you're in a position with enough savings, hsa or the like, you can hold enough per year to cover those deductibles. It will also shape the level of service you get. I'm paying for a PPO plan with a decently big deductible and max out of pocket so I can keep seeing one of the Mayo specialists I've been seeing for a few years now.
It's not the easiest option if I were making half as much with young children though.
I've been sticking to a PPO insurance for similar reasons. First, it's the only way to handle some of my medical needs. Second, it seems to be the only way to get decent care overall. I've thought about adding the same type of general care doctor back into the mix, as I don't like the current setup.
I have to see my regular doctor and 3 different specialists every quarter year... so, my needs go beyond what out of pocket is reasonable, given insurance negotiated rates. That said, the whole system is a bit of a mess, and insurance and pharma are large parts of the problem to begin with.
I don't want socialized medicine, but wouldn't mind replacing medicare/aid, govt employee and veteran coverage with a non-profit govt backed insurance corporation that allows anyone to buy into that coverage as an option. At least something resembling a baseline to compete with.
My suggestion is much less fascist/communist oriented. By socialized medicine, I mean fully socialized as in "the only option"... where medical establishments and corporations themselves are effectively govt run, not just regulated.
A state option for "insurance" that covers govt employees, but operates without a profit motive, while having the same negotiating standpoint of any general insurance provider is far different than what one would see in a fully socialized environment.
Edit: It's also from the PoV of continuing to offer coverage at all to those already covered by Federal spending, while avoiding increased costs. Basically better utilizing spend to expand competition, as opposed to limiting it.
Many countries have single payer healthcare systems and that has nothing to do with fascism or communism.
Healthcare is rife with asymmetric information by its nature. Doctors and nurses understand the medical services they offer much better than most patients. And privatizing insurance makes this worse. Now not only is the service itself opaque to patients but even the fees that they will need to pay for it.
But I also appreciate your point of view and it is good that PPO works decently well for you.
The catch is it doesn't cover anything outside of primary care.
If you're healthy and have a catastrophic plan as a backup if you get cancer, it can work. If you've got chronic issues, expensive medications, etc. it doesn't.
as a direct care doc, it can help with things 'outside' of primary care. Online doctor to doctor specialists consults, meds, labs, imaging, pathology, dme. Skin cancers can be biopsied and managed for no additional cost (procedure free, cost of pathology $70, meds) by family docs. Or we've helped get wholesale chemotherapy medications to make care affordable in coordination with specialists.
While I agree that the % of DPC docs compared to insurance PC docs is small. It has been growing quickly over the past decade and it is not "only in a few places", that you are wrong about.
Small world. I had actually thought about using your practice. Great job being both a spokesperson and providing the necessary software for DPC practices.
You have to ask yourself what makes healthcare unique to nearly every other well functioning market in the US. The bigger issue is there is third party paying for things. Try to ask your doctor how much something costs and they'll stare at you like you have two heads. Imagine getting your car fixed without knowing how much it's going to cost
The other problem is the regulation and groups like AMA. Why don't new cardiologists enter the field? Because there is a cap of graduates that the AMA controls. Why doesn't a new hospital open up? Because there is often a "certificate of need" to open a new health care facility and other health care providers in the vicinity get to determine who is allowed in.
What would happen to restaurants if new waiters had to go to school for 8 years and there was a cap on how many can graduate and you need to go to a board of neighboring restaurants to decide if you can open yours, and diners are forced to sign up for some company to pay for all the meals.
https://www.ncsl.org/health/certificate-of-need-state-laws