This week, Griffin speaks with Laura Olson, long-time political science professor at Lehigh University and author, about what private equity has done to other healthcare sectors, and what Olson believes it has the potential to do to the fertility space. Should it be banned, or is it the key to correcting the supply vs. demand struggle in fertility care accessibility.
Listen to the full episode to hear:.
Laura Olson’s take on the private equity playbook.
How private equity has negatively impacted other areas of healthcare, and what that might mean for fertility care’s future.
Why new docs and retiring docs make the decision to get into bed with private equity- or not.
Griffin push back on the lack of data to praise or condemn private equity controlled networks
Laura Olson’s Information:
Linkedin: https://www.linkedin.com/in/laura-katz-olson-a7706034/
Website: https://wordpress.lehigh.edu/ethicallychallenged
Transcript
[00:01:01] Griffin Jones: Which side are you on which side are you on in private equity and healthcare, or I don't know. That's why I keep having guests on either side of the position on the show today. I have an author for you. I brought an author named Dr. Laura Katz Olson. She is a professor of political science at Lehigh university.
She's been there since 1974, and she has a book called “Ethically Challenged; Private Equity Storms US Healthcare”. And she, even at the end of the show, she mentioned, and she says, it sounds like you're not sure. Well, you probably heard me say that on the show of what is the categorical net benefit of outside money in our field buying practices.
And I have people from different perspectives on the show. I don't know guys, like I told you, I'm a communication. Major bachelor graduate from Oswego, NY in upstate New York. I'm not the scientist, but I do appreciate scientific thinking and what I'm still lacking. What I still haven't gotten from other side is.
Really good data to help me say what I think is category categorically better or categorically worse one. I don't even totally know which metric that I would judge on. Would it be patient satisfaction? Would it be clinical success rates? Even if it were like how many other variables take that.
But I suspect you'd probably have three to six key performance indicators. Right? Because if you just had one, you can always maximize one outcome and it could be at the detriment of other things. So you'd probably want various KPIs to balance each other out to say, okay, is this, is this having a net benefit or a net negative?
And I haven't heard that yet. So I asked a little bit for it in the. Interview, it may be in the book and I still haven't gotten my copy yet, so I hope to be able to dig more in but I haven't totally heard it from the, the network groups either. I just hear a bunch of case studies on either side and I seek case studies on either side manifesting themselves in real life of-this is an example where we've improved efficiency and raise the standard of care.
This is an example where we're reducing costs and reduce the standard of care. And so I would love to hear about how we would really measure this. If we're seeking the truth, I'm seeking the truth guys. I own a privately held business development and creative firm. That's my normal pay grade. And I'm punching up to give you more education and information, as it relates to building your businesses, starting your careers, advancing in your careers. And I would love your thoughts on how we would pursue private equity and venture capital who have both very different impact in healthcare, specifically the fertility field.
But today, I let Dr. Olson give her perspective. She wrote a book about it. She feels very strongly about it, and she does have really good examples to include in her arguments. So you let me know which side do you fall on this, but in the meantime, enjoy today's Inside Reproductive Health with Dr. Laura Katz Olson.
Dr. Olson, Laura, welcome to Inside Reproductive Health.
[00:04:24] Dr. Laura Olson: My pleasure to be here.
[00:04:26] Griffin Jones: You are coming from an area that is a little bit broader than just reproductive health, justice assisted reproductive technology.
You've recently written a book about private equity in healthcare, and it's called ethically challenged. So there might be an angle where we're pursuing in today's combo is it's called “Ethically Challenged: Private Equity Storms US Healthcare.” Why this book Laura?
[00:04:52] Dr. Laura Olson: Well, I've been studying actually aging and healthcare now for about 50 years.
And private equity just kept cropping up by when I was looking at nursing homes on healthcare. But I couldn't find anything about it. And then when I was looking at comparisons between let's say, a home health care that's commercially owned and those that are non-profit, they never differentiate the commercially owned from regular commercial to private equity.
And I found that very strange. So I started looking into it. I went to a private equity and one of the reasons I've discovered is because of the secrecy. They, private equity firms have what they call a pension for secrecy. I bought a private equity data from PitchBook, which cost I had a razor for my university, but a plus 22 thousand dollarspacks a year.
And I went to a couple of private equity conferences. One of the incidences that I discovered, which was really a kind of interesting is there were about 350 people at this conference, one of them, and at every session they reminded us that everything that went on there was confidential. And of course, as my father once taught me when I was a young girl and more than one people, one person knows about something it's not confidential.
So the secrecy thing really got to me and got me really more and more curious, and I dug deeper and deeper into how it affected health care and eventually decided this is a story that has to be told.
[00:06:33] Griffin Jones: So, when did you start noticing it? You said you started noticing it in senior care and other areas of medicine more or less.
What ballpark of years did you start seeing this trend happen?
[00:06:46] Dr. Laura Olson: I started noticing it in the late 1990s with nursing homes. And then it kept cropping up later on, I would say, oh, about 20 10, 20, 15, a lot of the niches, especially fertility didn't really take off, take off until about 2015.
So the earliest ones that I noticed were the nursing homes and then more and more of the niches, it started coming.
[00:07:19] Griffin Jones: Okay. Do you have any idea why that 2015 mark is, is happens to be that because we've noticed that in fertility, that it was about 2015, it wasn't to say that there was no one before 2015, but really that's when you started seeing.
[00:07:36] Dr. Laura Olson: I think that was the first 1, 20 15, if I'm correct.
[00:07:39] Griffin Jones: Well, so there was IntegraMed , which had gone public and they did own equity of practices and they were, they were early. My listeners will correct me, but I want to say that started in the late nineties. And then they went public at some point in the two thousands, if I'm correct, when my timeline and then were bought off of the market listings by a private equity firm called Sagar Holdings.
But, and that may have been in 2012, I'm making up the year. So I'm hoping one of my, at least one of my listeners will send me an email and, and correct me on it but.
[00:08:14] Dr. Laura Olson: So Ovation Fertility was clearly one of the first in 2015, which was bought by Windrose.
[00:08:22] Griffin Jones: And so why is that? Does your book uncover some of this of why halfway through the last decade, did we start seeing this in our niche and others?
[00:08:32] Dr. Laura Olson: Well, I think that there's a number of reasons. And each niche really has its own reasons. There's a general number of reasons that a private equity firm would be interested in a sector. And as these reasons come to the forefront, the private equity go into, for example with fertility, which obviously came later than some of the others.
You get the idea that there's more and more children, people are having babies later. So there's more need for fertility treatment. You have about 15 states now mandate that insurance companies include fertility in their package of offerings more employers are offering a fertility treatment.
The veterans administration now pays for fertility treatments and it's big money. One of the things that I found that was interesting is I spoke to a number of owners of fertility, people who sold to well private equity. They were the most generous with their willingness to talk to me, fertility treatment the owners was interesting.
[00:09:47] Griffin Jones: On or off the record?
[00:09:49] Dr. Laura Olson: On the record. And I had the trouble getting anybody else to do them, but they seem to be the most willing.
[00:09:55] Griffin Jones: What did they tell you?
[00:09:56] Dr. Laura Olson: Well, let me just give some of the reasons, you have rising single parenthood, but even more important. That I think is we should know is that there's a growing amount of dry powder in private equity.
What that means is they have more and more money this year. They made a record in 2021, a record of something like $330 billion. And they have to spend it somewhere.
[00:10:23] Griffin Jones: This is just in healthcare is private equity healthcare who made.
[00:10:26] Dr. Laura Olson: No, this is just private equity money to spend, to buy, buyout funds, to buy.
And they're running out of Toys R Us places, retail places, and they had to find something and healthcare, but particularly fertility care is very lucrative. One of the people I talked to told me that after they put it together and they were ready to sell. He got offers from 40 private equity firms.
So fertility is a hot market right now.
[00:11:00] Griffin Jones: That makes sense to me. And 40 of those 40 it's like how many of them were good, but sure I bet, people are kicking tires all the time. Some to often people think, oh, I got a call from such and such a firm. Maybe I got a call from Canar or somebody.
And it's often a junior account executive whose job it is just to touch up with everybody and keep your name accurate and in the file. But sure, there are also a number of people that are already within fertility networks that, that are a part of this. So I'm writing down my questions that I have for you, as you say, things that I want to go deeper into, one of which was the $300 billion. And you said that that's a record that was a record in 2021 that private equity firms have to spend. Do we have it? I suspect some of that is just because when inflation goes up, stop people, buy stocks and equities. And so high net worth individuals are putting more of their money into behind these private equity firms.
But did you, do you have any more of the research of where the money is coming from causing the surge?
[00:12:06] Dr. Laura Olson: No a huge, huge percentage of the funding for private equity acquisitions comes from pension funds. It comes from a state and local pension funds and they of course have been underfunded for decades.
And so they see private equity is a way to get a quick book and make up for the. Pension deficiencies. So most items have the statistics right in front of me, but most of them have increased their private equity investments 2% over the last several years. And they intend to increase it even more, so more and more of their money is not going into the stock market, but it's going into private equity, even though private equity is risky.
[00:12:58] Griffin Jones: Why did you say that?
[00:13:00] Dr. Laura Olson: Well, that's why they have to make outsize profits because the money you put into, first of all, they keep him money for a long period of time. It's not liquid. And you can go bankrupt. There's all kinds of risk in private equity that you don't. That's a, of course you have risk in the stock market, but that's a far less.
[00:13:21] Griffin Jones: It's not the S and P 500 that's for you. You're not looking for an average 8% return.
[00:13:27] Dr. Laura Olson: No, you're looking for what they call outsized profits. And they don't really care what they invest in. They can invest in hospice. They can invest in infertility. They can invest in Roto-Rooter. It doesn't matter to them.
They're only like Willie Sutton looking for where the money is, you know, who Willie Sutton is right.
[00:13:50] Griffin Jones: You're going to have to refresh me.
[00:13:52] Dr. Laura Olson: He's a bank robber. And when they asked Willie Sutton boy, he robbed banks, he said.
[00:13:59] Griffin Jones: Oh, that's where the money is.
[00:14:00] Dr. Laura Olson: That is where the money is.
[00:14:01] Griffin Jones: So that's who gets that quote. I should know that I really liked field.
I don't know if it was he the Deringer, Bonnie and Clyde era or prior to that.
[00:14:09] Dr. Laura Olson: Probably around there. I think it's later.
[00:14:12] Griffin Jones: Well, I'll have to watch something on him and Babyface Nelson and the others and get reacquainted with my old timey bank robbers sounds like a good theme for the show, but so you're talking to fertility practice owners as you're writing the book.
And I'm curious did anything stand out to you as being distinct within the fertility and within the field of fertility? You mentioned that it was a private equity firms are seeking outside profits. They could be talking to plumbers. They can be talking to electricians and, or dry cleaners or anyone and they do.
But did anything stick out to you as different?? What's happening in the fertility field then in other areas or even other areas healthcare?
[00:14:56] Dr. Laura Olson: Actually, the private equity playbook is pretty static. And one of the differences I think with fertility is that it's new. And as with all the new niches, the relatively the argument that I hear from a lot of physicians and a lot of people in the government and and so on is it's too early to tell.
And if you understand the private equity playbook, and if you understand the history, it's inevitable that certain issues and problems are gonna come up. As far as I can tell, you have to be a magician. I don't know how much your listeners know anything about the private equity playbook.
[00:15:44] Griffin Jones: Tell us a little bit.
[00:15:45] Dr. Laura Olson: Okay. The private equity playbook begins with the idea that you have to get outsized profits. And again, you can't just make ordinary profits. Well, people will put the money in the stock market, so you really have to give them a lot more than that. They take these profits and buy a flourishing company.
Let's say a flourishing fertility company. They don't want a distressed company. They want something, one that's really well-established and one that's doing really well. And the reason is because they're buying the company with borrowed money today over 60% of all the money is borrowed. Your private equity firm puts in about 2% in equity and they're limited partners.
Usually the pension funds put in about 38%. So you have to pay off this debt. And in addition to the debt, you have to pay off enormous fees. For example, they have transaction fees, monitoring fees, management fees, advisory fees, servicing fees. And I just discovered the other day, there's an other, that's now becoming very contentious and that's the food and travel of the PE manages.
Then you have the dividend recaps, which is where the private equity firm borrows more money from the lays, the debt on the company and pockets it. And these are being bought with what they call junk funds, junk rated loans.
And this has increased enormously this year, also that at 330 billion. So they're pocketing more and more of this money. So what I say, you need enormous cash flow to pay off this debt, to pay these fees, to pay these dividend recaps. And how do you get enormous revenue increased revenue. And that has to come from the operating costs and shrinking operating costs.
And I have an analogy. I see the private equity firms, like the old time doctors in the 18 hundreds. Remember they used to bleed patients and the patient either got really weak or died and that's what they do. And they used to use the 18 hundreds. Sometimes they use leeches, which I think is an ophthalmology for the private equity firm.
So the way I see it, you have to be a magician to be able to pay off all those debts, pay off all those views and keep quality of care. So that's the general outline of private equity and healthcare.
[00:18:44] Griffin Jones: So you mentioned that part of the private equity playbook is buying a flourishing company.
And very often when we see a new network coming to the field, usually they're starting with, they're saying, can I grab at least one big center, , a group that has. At least 10 docs and is in a pretty sizable market and then use that to use them as the flagship of the new partnership or network.
And and then use that to be able to court other perspective practices to, to sell into my network. So when you say buying a flourishing company, is it, is it, is it that is it just for that, that flagship group or. And then the rest of the portfolio, they're okay with having a distressed asset in here or there, if they can get a good deal on it, or these are all really, really profitable companies that they generally want.
[00:19:36] Dr. Laura Olson: Well, in healthcare, in the old days, they used to buy a conglomerates and then break them up and sell them because the parts were worth more than the hole now with healthcare and fertility centers, but other health care what they do is they buy this platform that you were talking about, but then they add onto it because the idea is to get a local, a regional, or even a national monopoly.
And then they only have four or five years and they have to sell. They generally don't keep it more than four or five years. And it seems to me that it's been lowering the average today is four point, I think it's 4.5 years, but many of them are being flipped in two years. So three years, and then the next private equity adds more and makes bigger.
And so what this does is it makes one prices higher for treatments because they're the only game in town. Once they get a monopoly and choice for consumers is far less. So it has that effect as well.
[00:20:40] Griffin Jones: So why then are we still seeing more new network backed private equity firms come in as opposed to the current ones being able to consolidate more?
So if everybody has, if they're on this timeline of three to five years, we're still seeing, I think now this. Six to 12 months, we saw three new networks come into the field and there's already a handful here. Then each of those networks are backed by different private equity firms. And so what's going on with this timeline?
Why aren't we starting to see some of the folks that have been around since 2015 or 2017 sell? Well, I guess we have, we have somewhat but why wouldn't you, why wouldn't these new private equity firms be trying to like buy into these firms, buy into these networks or these networks trying to, why haven't they been successful in gobbling up the clinics that these new networks who who've only been here a year or less have been able to do?
[00:21:44] Dr. Laura Olson: I'm not sure they're not successful. I mean, it takes time. And we're talking about very recently. So what would I see for the future is these new networks, increasing in different areas, like, immediate immediately jumped to a national, a monopoly. They spot in cities, they start in different cities.
So you'll have one start. I don't know about, about fertility, but I have seen the history of these. They start in a certain area in Florida or a certain area in Kansas and they slowly build themselves up until four or five years and they sell and then the next one comes in and build itself up. So you have simultaneous in hospice and home care and all these other natures, you have simultaneous platforms building each other up, building up.
They're usually from what I can remember, they usually start in different areas. Somewhere in the south may aim for the south. Some in the Northeast, they aim for them with these. They don't immediately jump in volume, like every year they might buy three and they have to integrate them, which is, which is a big problem.
[00:22:57] Griffin Jones: The integration is a big problem and we can probably, I'm making a note of that. So we can talk a little bit about that. As far as the timeline goes, are there other categories that are more mature? You said that in a lot of the niches that started in 2015 or so, and as you mentioned, relative to other fields of healthcare and other fields of business, fertility is still pretty new. Are there other areas, especially areas of healthcare that are more mature where we've seen it become a, a two horse race or, two companies control everything and other areas of, of healthcare. What's that like in more mature sub-segments?
[00:23:36] Dr. Laura Olson: Scene where it's become a two person race. But certainly you have one of the early ones is dermatology.
And you see a number of the dermatology companies that have grown and is still throwing themselves off to the next one and not, and not looking to become they're not like a regular corporation. They're only looking to build the value for four or five years, and then they take their money and they run and they either put it up for an IPO.
But more likely these days they're selling to each other. So it's very different than a corporation. So you don't see two major corporations running against each other, but dentistry has had a long history. Dermatology has had a long history. Ophthalmology has had a relatively long history. And what we see is disaster both in terms of the patient care, the quality of care and in terms of bankruptcy.
[00:24:46] Griffin Jones: So I want to talk about the bankruptcy part because that's less self-evident. If, if people are continuing to come in and. why are they doing that? If they're risking being the one, holding the hot potato at the end, and I don't know enough about the IntegreMed deal, but it could have been the case.
That's the guard was holding the hot potato at that point that they had something that they were losing money. And then whoever bought what those properties came into, perhaps got got a better deal on it. But so if it's leading to bankruptcy, what is the incentive for firms to continue doing it?
It's not my job to tell you what you should do. Should you sell the private equity? Should you fight as an independent practice owner and independent fertility business owner forever. That isn't my job. You started a business or a practice for your reasons. My job is to help you, get to where you want to go, whether it's selling to them or competing against them that's what my firm does. We help you pull out competitive advantages and we are not operations consultants. I will never promise you true operational efficiency as a deliverable. That's not us, but all of those areas where sales and marketing overlap with operations to help for a better patient experience.
Those are the things that we help with. So as you're recruiting staff and you're recruiting doctors and you need the messaging, the brand and the customer service systems that allow you to be relevant. That's what Fertility Bridge helps with. And the only thing that I really ever try to sell people is that initial diagnostic that we do because it's less than $600.
It's $597 to have a consult with us, to have my team do a snapshot and tell you what you need at a high level and go through that with you through the patient journey and then recap everything in a 30 minute follow up it's $597 to get you some of these answers that you're thinking about now, as you think about the future of your group at a high level, go to fertilitybridge.com, sign up for the gold diagnostic.
And I look forward to doing it with you.
But so if it's leading to bankruptcy, what is the incentive for firms to continue doing it?
[00:27:06] Dr. Laura Olson: Well, a number of reasons, I'll just give you one example, and then I'll tell you some of the reasons U S dermatology partners, which is the third largest dermatology organization in the United States. And I remember when it first started and when I wrote my book, it was still going strong. And then I read in 2020, they defaulted on their loan and wanting to the third largest dermatology company in the country went into the hands of its creditors. So what I would argue is that it probably over stepped itself in terms of loans. if you very greedy, like Bain Capital was with Toys R Us they took dividend recap after dividend recap, and each time that they put these millions and millions into their pockets, they got loans and they can overstep in terms of they get just too many loans.
They can buy too many companies too fast. Which leads to, as you said, integration problems, but also they couldn't pay the loans that just too high. There's all kinds of reasons that at one point they may go into a default and bankruptcy. But one thing I want to make clear is that the private equity companies take out a lot of money before they go bankrupt.
And many of them lose nothing. They also don't have a lot at stake because they've only put 2% equity. So it's not like the private equity firms are going bankrupt. It's the company.
[00:28:43] Griffin Jones: Well, the very least they have to make good for their LPs. Don't they, even if the firm itself put in a minimal amount, they have to, they have to at least cover their LPs.
[00:28:54] Dr. Laura Olson: Well, they don't have to make up for a bankruptcy, but you gotta be, they have about they have a fund. The LP are really putting money into this fund. Let's say fund number five, they number their funds and fund number five has 12 to 13 companies. And if one goes bankrupt, it doesn't mean that the LPs are losing money because the other 14 or 12 firms could be just doing fine.
I mean, the only real loss is to that one company, its workers and the communities in which they live.
[00:29:33] Griffin Jones: Hence the risk.
[00:29:34] Dr. Laura Olson: I've never seen a private equity firm suffer because one of their firms went bankrupt
[00:29:39] Griffin Jones: Do you have any data on the number of healthcare networks funded by private equity that have gone bankrupt between years, whatever, and between years three and 10 or whatever it might be?
[00:29:57] Dr. Laura Olson: No, no I've seen some data. I just don't have it at hand.
[00:30:01] Griffin Jones: Because I'm curious where I think we're all curious as to is that as to how frequently the IntegreMed situation happens.
And there is a intermediary here, which is the network themselves. Right. And so you have a US Dermatology Partners, I'm assuming was not the private equity firm. They were the operating network. Am I right in that? Sometimes they call themselves a partnership, but let's just use the word.
[00:30:27] Dr. Laura Olson: No, no, no. The US Dermatology Partners was the conglomerate or not the conglomerate, the platform and the ad-ons. And I forget how many locations they had something like 40, 50 locations and across 30 states, something like that. So the private equity firm was the owner of the whole.
[00:30:49] Griffin Jones: Sure. But where, and within the US Dermatology Partners where they were each of the practices called something different. Dr. Patel's dermatology here, San Diego Dermatology etc.
[00:31:01] Dr. Laura Olson: Well, that's a very good question. I'm not sure for us dermatology, but a number of private equity firms that buy these companies and build them up into huge state or national monopolies, use something that one of my personally had interviewed, he calls it stealth branding.
What it means is that when you go to the company, it has John's Dermatology, as opposed to a US Partner's Dermatology. So you don't really know that you go into a private equity firm. So some of them do that. Some of them use the name of the US Dermatology and others. Each practice will have a different name.
[00:31:43] Griffin Jones: The reason that I ask is because in our field, we were still one degree removed from the actual private equity firm in many cases, which means that we're then two degrees at that position from of separation from the limited partner. So IntegraMed was the network. It was the conglomerate, as you say, and then behind them was the safeguard.
And that's the case for most of the networks are doing the purchasing. And so again, sometimes they call them partnerships, but then there's a private equity firm behind that funds that conglomerate to that, that network. And so and, and so I think an important distinction for people is that you still might want to find out who's behind those folks.
[00:32:26] Dr. Laura Olson: Yeah, but I want to, I'm going to make clear that regardless of what the private equity firms say, And the mantra to the doctors is that we're going to take the back office burdens off of you. We're going to let you practice medicine. We're going to do regardless. They get from control. All you have to do is look at the board of directors.
Talk to people, see what goes on, but they maintain from control. So the doctors can't just go out and buy anything. They want the fertility places that I write, talk to the owners who sold them, said this strict control. Even one who was, felt positive about it said, I can't just replace some material anymore.
I can't upgrade my equipment. We get rid of nurses and taken less trained people. We do less training all kinds of, I guess, less benefits to our personnel. There was like a list of, from the three or four people I spoke to of negative things that have happened, the patient care and the practice.
So it's not like it just goes on as if nothing had happened, they have to squeeze.
[00:33:44] Griffin Jones: Well, then that brings us to the title of your book, which is which is ethically challenged. And so let's talk a little bit about this and then maybe I'll steal-man, their arguments at some points. But it seems like you feel that they're not creating the efficiency they have to squeeze. And so what are the ethical implement implications that led you to this conclusion that this is a. Ethically negative thing happening in healthcare?
[00:34:11] Dr. Laura Olson: Well, because it's affecting quality of care. If you go through the niches where there's some sectors that have a longer history not fertility or some of the newer ones, but if you go through the LP dentistry, if you go through some of the others, there's a long, long history of private equity taking over companies.
And what you see is neglect, you see abuse you see poor quality care in 2012, the. The US Senate did a whole investigation on dentistry and they found that they were putting children on a, what they call papoose boards, so they could extract teeth and do things faster.
They found amazing amounts of abuse. Even today you'll get some, not even today. Yes. Including today you get places like Aspen dental which has a long, long history of abuse, poor treatments. If you look on the any kind of a place that shows what clients and staff think of these places, they'll get a one out of five and a whole bunch of really terrible criticism on.
And you get places like the what's the other one, I just picked out some forefront, dermatology, great expectations, which in 2019, the better business bureau said that they get an F in terms of quality of care. But you can go through all of them.
I picked out some from various niche.
[00:35:39] Griffin Jones: Well, that's my concern, Laura, is that people are picking out on either side. And I want to know how do we measure these things categorically, because the private equity firms are picking out cases of look at this for this practice that they couldn't invest because the doctor was overworked and, and halfway out the door and didn't have an operations infrastructure.
Didn't have a business background, whatever it might've been. And I see poor rate ratings from, practices sometimes I also see really poor ratings from independently owned practices that talk about how they have such a good standard of care. I see both a lot. I see you're using the camp, the example of dental.
I think I went to, inspire dental, one of those similar ones. And I liked it. I go in, they all know my name. They have a great infrastructure. They've got a great booking system. Just hang my coat up. I'm not, I'm barely seen by the dentist. The dental hygienist does what a dentist is probably doing it.
Many other practices where the dentist comes in at the end and checks and say, okay, this is good. And it's a very easy experience for me. It's lower cost than, or at least equal cost is, is an independent dental firm. And so everyone's pointing including myself, which is why I can't make a categorical judgment on how positive or negative this is for the field.
Because people are pointing to these examples here and those examples there, how do we judge this? What measures can we use categorically across the board?
[00:37:06] Dr. Laura Olson: Well, first of all, I picked out cases because I couldn't go through all of them. It's not like I picked out the worst cases. I just picked out two out of a hundred kind of thing.
Second of all, yes, I agree with you. One of the reasons I studied nursing homes for many, many years, and one of the reasons I didn't put nursing homes in my book is because nursing homes tend to have very poor care. Every government study will tell you that to differentiate between private equity and normal profit-making companies is really difficult.
But I think when you look at some of these niches like dentistry and fertility well, not fertility. I mean, ones that have been there a long time and talk to experts in the field, they will say that this is not good before the healthcare system, because it has to affect negatively quality of care.
Now, I suspect that you have pretty good teeth.
[00:38:10] Griffin Jones: Invested a lot in those over the years, braces, twice surgery on my upper maxillary.
[00:38:17] Dr. Laura Olson: But you haven't, experienced what happens if you have some real serious issue. Is that going to be done by a nurse practitioner or is it going to be done by a surgeon? I mean, and I don't want to comment on one place.
All I know is that if you truly understand the private equity playbook took me a long time to figure it out. If I truly understand it, it is impossible to have high quality. And take out all that money to pay off debt, all that money to pay private equity. Well, there's nothing left for quality care. And as I said, the few fertility doctors and people that I talked to pretty a scan at what has gone on in the few places that they have seen.
[00:39:03] Griffin Jones: So you're making a case of why it has to be why it has to affect quality of care negatively because of the debt what's required to service the debt because of what's required to return the investment to the limited partners, especially if the, they went bankrupt on something else, then the burden of returning a multiple.
An outsized profit is even more necessary for the limited partners. So you're making a case of why this is part of inherent in the model. Why have they failed it at delivering on, on the economies of scale that they shoot, that they're promising in your view. And so if they're telling the doctors, look, you can just focus on medicine, let us take care of the EMR and the payroll and marketing and construction and everything else.
Why are they failing on delivering a benefit to economies of scale that as opposed to them just having to take out they're improving efficiencies.
Why have private equity firms failed to be able to deliver on the promise of improving economies of scale?
[00:40:07] Dr. Laura Olson: They can definitely do economies of scale. But the problem is that affects the quality of care. No, this is like, if you have, for example one of the fertility doctors that I talked to say that private equity owned places look to get more and more patients and they do it on an assembly line.
So they don't give the same kind of care to each patient. They just sort of go through them fast, that efficient, but that's not necessarily quality care. So efficiency and efficiency in retail may hurt. So the number of workers you may go into a store and somebody doesn't jump at you today.
You find what you're looking for? It's annoying, but in healthcare, efficiency can mean less care, faster care. And certainly less quality.
[00:40:58] Griffin Jones: W w what if it means, , a center that has been on paper charts in, yes, there are still a couple that are on paper charts, even in the year 20, 22. And for whatever reason, they didn't switch to any, they didn't want to go through the costs.
They didn't want to, take team members off. And a network comes in and says, well, we have a, a cheaper per provider license or whatever per unit licenses is for the EMR. So we can introduce that, that economy of scale, we can bring in our team to train your team. So that won't be an additional expense.
Oh, you. You can't treat enough patients because you don't have any embryologists. We have a team of per diem embryologists, and we can send them to your clinic on the weeks where we're not batching at other or whatever it might be. Why does it, why does it always have to lead to a poor quality of care instead of in those examples, those are the arguments they make.
It seems to me like it would improve quality of care.
[00:41:58] Dr. Laura Olson: Well, first of all, what I have seen in many of the niches is that they use lessquality materials. Many of the people I talked to said that they got rid of the regular suppliers and they get cheaper suppliers, but that has come with cheaper materials.
They stint on the use of materials, according to what I have heard they Don't train their people as much as they should. They often get rid of physicians to put in less trained physician extenders. If you look at dialysis, for example, model only is it egregious conditions in the owned by dialysis, but the studies show that more people die than anywhere in the world. In, in our dialysis centers they try to keep their patients rather than put them on a transplant list.
Studies have shown there's all kinds of things that they can do to affect the quality of care. Now they're not looking to have negative quality of care. They're just looking to squeeze operations. So they could have as much money coming out and they can hand themselves of dividends. So I, I think in certain places where you can get real efficient it's not good for healthcare.
[00:43:20] Griffin Jones: What about, what does this mean for the younger doctors in the field that they haven't built equity into their own practices yet. They're now buying in or want to possibly buy in. What have you seen from other fields, of the path that this creates for younger doctors?
[00:43:40] Dr. Laura Olson: A lot of physicians are worried about this. They think that private equity is changing the whole nature of opportunities, certainly younger doctors who have huge. Greater than ever can't afford to buy the practices of retiring doctors. So they end up working for places, whether it's private equity or healthcare systems.
So I think the whole nature of being a physician has changed. And I think that what do we have today over 50% of all physicians are now employees and that's increasing and they're going to be working under the, if they work under the conditions of the private equity, they will be basically told what they can and can't do to try to we as operations, they can say, for example, one of the fertility doctors told me that what he likes to do is have flexibility and he decided he would never go into private equity because he really needs this flexibility.
One of the flexibilities that he likes is that if a woman needs another, a second round of fertility treatment for her, , what is it, the in-vitro fertilization IVF, if she needs another round of that he'll give a re a really reduced amount and even more reduced, does she need to third amount?
And he said private equity would not allow that. So there's also a lot less, he argued, there was so much less flexibility to do what you think is right and you practice.
[00:45:16] Griffin Jones: I do hear many physicians say that many physicians do do that. They're just nice people. They have a relationship with a patient and they want to help out in some way.
I've imagined private private equity backed partnership group might say well, but that's well, that's ad hoc. It's dependent on the doctor, his relationship with this individual. And they're doing that because they don't have a financing program in, in place. It's more equitable and scalable across the board.
I could see that being something where they say, well, that's an example of one of the inefficiencies of private practice that we're able to scale across by having more providers and more resources.
[00:45:59] Dr. Laura Olson: Is that a question?
[00:46:00] Griffin Jones: I guess it wasn't a question. It's just what they say. I find myself on either side. I constantly Laura and I was recently on the other side of asking the younger physician question to an REI who I really respect that I've done business with, know the person who and believe this person to be a very genuine person who feels that it actually benefits the younger physician more.
And I can't really get my head around it. And because well, one is what you're, when you're cashing out, you're cashing out on future earnings. And so I would want to be more in control. Of my future earnings, I suppose. That's the argument. And for those of you taking that side of the argument, you can tell me if I'm not doing it justice, but you're saying if the, if the private equity firm backed from the network is able to create something that is worth more than then I'm, I'm getting the chance to buy in to something that's going to be work worth a lot more.
But the way I see it as if, when you're selling you're cashing out on you're exchanging that sale price for future earnings and I'd like to be able to affect that if I'm a younger doc and two is the multiple is often dependent on what you've been able , to build up, like the multiple is coming from your sweat equity.
And if you don't have a chance to build that up. So somebody can tell me where I'm wrong, but that that's where I go back and forth. Laura's I'm looking for I guess we don't have those case studies yet for, for younger versus older docs, but it seems to me that many of the older docs, that it seems to me that many people are doing this for an exit that they can't sell it to the new REI fellow, because that REI fellow has $400,000 of debt.
And because the price has gone up and all right, well, now I'm able to sell this for 6, 10, 12, whatever the, the there's trapped equity, at least it's trapped to the potential partner doc. They can't, they can't buy it at that price. And so private equity comes in and so how much. What did you come across with this being an exit strategy for older doctors?
[00:48:13] Dr. Laura Olson: Well, I think, one of the things we're talking about was the quality of care for patients and clients and the conditions for working conditions for physicians. When it comes to finances, doctors make money on this. What they do is they get a piece of the equity. They get lower salary, usually they lower the salary, but they get a piece of the equity when it's sold. They get a piece of the sell price. And when they buy, they stay with the firm and they sell it to a new private equity, they can get yet another piece of the sell price. So for young doctors, it could be financially. But the price they're paying is losing their freedom to be a doctor and do the two the procedures, the way they want use the equipment that they want get updated equipment to have trained personnel have long relationships with clients.
I mean, they pay a price for that, but I never said it wasn't lucrative. They could make good money. As far as the older physicians, they will tell me, this is the only exit strategy I have, because as you said, the young doctors can't afford to buy my practice. Now they could also sell in some niches to a hospital health systems.
I'm not sure my guess would be, and this is purely educated guests that they make more money in private equity, but they have more control, but the health systems. So I guess what physicians have to do is make decisions about whether they want long-term gain from selling at the price of losing their freedom, to be a physician the way they want.
[00:50:05] Griffin Jones: Well, how would hospitals be any different? The hospitals is having every bit, a little as free freedom as a oh, there's two questions that I have with hospitals is one is I see them as having every bit of little as freedom as not being in private practice, because you're not the boss you have, you've got a division chief and then a dean of a department.
And then there's folks above that that are tied and they have procurement and purchase orders. And so a lot of decisions are, are made ahead of time. So I see one hospitals having even less freedom or perhaps the same as, as a potential and two, we're starting to see hospitals sell off the IVF centers of their REI divisions to private equity-backed networks as well.
So wouldn't you just be back in square one?
[00:50:56] Dr. Laura Olson: Yeah. And that case you would be something I, I grappled with I talked to people about Ithought, a lot of that. One I lament the demise of the independent physician. I think it's a really negative thing for this country that we have lost, we're losing that at a steady rate.
But at least in a hospital system, it is headed by a medical personnel in private equity. It's headed by finances and I find it more troubling to have healthcare, like the whole corporate control of medicine which is basically not allowed. But here you have Financiers, the people that I talked to in fertility, for example they were two friends, one that met in the Wharton school.
One went into private equity and the other decided the buyer fertility fertility com company, and they got together and put together a fertility company. There was no medical personnel involved in that. And I find that with hospitals systems, at least, and I could be wrong on this. And the doctors that I've talked to that belong to a hospital systems don't seem as unhappy as the ones that are controlled by private equity, but at least they have medical experience.
They care about the health care, even with all the bureaucracy, all the problems and.
I can say, it's great thing that the hospital system, excuse me, a buying of docs. But at least they're in medicine that care about health care.
[00:52:32] Griffin Jones: I also worry about just consolidation in general, limiting competition, limiting. I think that's w that's one thing that's really good about a free society and free markets in a society is that you have on one end democracy bends towards chaos.
We give everybody a voice and everybody ends up voting in their self interest and everything is diluted. And on the other end authority bends toward tyranny and the point of having a system where different people can compete. Is that okay? They're all tiny little authorities and the ones with the better ideas and better systems are able to grow and advance. But if they do that to the point where they're just consolidating and introducing financial systems that aren't necessarily aligned with the rewards for productivity in that system, then they bend too far the other way.
So I'm going to let you conclude how you want Laura, if you want to conclude the way, the same way you concluded the, the book or if there's something else that you feel you didn't get a chance to, to cover in this conversation that you feel is really important. How do you want to conclude about this topic of private equity consolidating and purchasing more of the provider groups in healthcare?
[00:53:52] Dr. Laura Olson: Well, I go a little further. I work with a lot of groups that are interested in this issue. They're very excited about the new Chair of the SEC, where the he's trying to put more accountability to the private equity firms. Warren's Stop Wall Street Looting Act, I think is an important piece of legislation that also tries to give workers account accountability for workers that tries to get more transparency.
Clearly the secrecy has to stop. Because not even the limited partners with their public, pension funds know what's going on. But I go even further. And this is not in my book. This is something that I came to a year and a half later after spending more and more time on looking at the health care niches and what's going on.
I think that the private equity should be prohibited from health care. I don't think it's a place given their playbook and what they need to do these are billionaires. These are people who have really sucked down from our healthcare system. One of the big problems that we have in healthcare overall is it's 21% of our GDP.
I teach healthcare in class and the last time I looked at was 19% about a year or two ago when I decided to update and I was shocked, it's now 21%. So private equity is increasing the cost of healthcare by the monopolies that you were talking about. I would eliminate all the advantages that they have, the financial advantages such as a carried interest loophole,their ability to take off the taxes the interest on the step and things like that.
I would strongly limit any debt that they can have at least on healthcare. I don't think they should be allowed to have 67%, 80% of dead owner fertility clinic. Oh, and I would also, one of the things they're hungering after is 401k money, billions and billions of dollars in of savings which looks like they may have access to more and more.
I would have prohibit that. And I also gets one of the things you were talking about. I would prohibit stealth branding that when I go into a dentist, I should know it's a private equity owned dental practice. So those are the kinds of things that I think are really necessary, at least in the healthcare area.
Because you, you seem, like you're not sure, and I'll tell you, there's so many people that I deal with that are not sure. But the more and more I study what has gone on and what continues to go on I've concluded that private equity is just detrimental to health.
[00:56:38] Griffin Jones: Her name is Dr. Laura Katz Olson.
She's the author of Ethically Challenged Private Equity Storms US Healthcare. We will link to the book in the show notes, Dr. Olson, Laura, thanks for coming on the show.
[00:56:49] Dr. Laura Olson: Must it been a pleasure and thanks for having me.