4 ms·

PE staff are more intelligent and more shrewd than the people running the businesses they buy. Being a good doctor doesn't make you a good businessman. I'm not

by mhh__ 13d ago

PE staff are more intelligent and more shrewd than the people running the businesses they buy. Being a good doctor doesn't make you a good businessman. I'm not a huge fan of PE but the point of economics to deliver cheap and quality goods to consumers not keep people in a job. In healthcare in US in particular I think the main thing that capital should be (if regulators allow) boutique / specialists that e.g. are the best in the biz at doing MRI scans, in some states my understanding is that it's literally illegal to start a business aiming to make one small part of the process better.

cool_dude85 13d ago
What does it mean in this context to be more intelligent and shrewd than the existing owners? Delivering better profit margins?
- SoftTalker 13d ago
  I mean, losing money is not sustainable. If a doctor or physician group isn't business savvy and can't earn a profit they will eventually go under. That's not good for the patient.
  - cool_dude85 13d ago
    OK, but making money, though it may be less than a PE company would, is. Where do most doctor's offices fall?
    - csa 13d ago
      Most doctors make good money, but most who are good doctors could make much more. Simple example pitch that many general practitioners might consider using (based on local laws, of course): “Insurance covers C, Y, and Z. I can offer these additional services for A, B, and C that are not covered by insurance.” Where I live, you get a lot of this via “concierge doctors”, but that system can go far beyond basic concierge service, and people are willing to pay for top quality care.
- csa 13d ago
  > What does it mean in this context to be more intelligent and shrewd than the existing owners? Streamlining everything. Sometimes this is done in a bad faith way, but it’s often not difficult to do it in a good faith way. Some simple examples: - right-sizing staff (can be reducing, increasing, or changing roles) - improving marketing (e.g., simple things like customer reactivation, packaging the product/service better, or just plain, ol’ getting the word out better via stuff like before/after pics or success stories) - improving operations (e.g., better organization, better processes, better communication, better training, better logistics, etc.) > Delivering better profit margins? Improved profit margins are a byproduct of the things listed above.
  - tavavex 13d ago
    You're putting the cart in front of the horse. Their incentive and their job isn't about 'streamlining' anything, let alone in a good-faith way, and that just so happens to deliver some extra cash on the side in a pleasant surprise. Their sole purpose is the profit, and they will try absolutely anything to get it. Sometimes it may accidentally produce good outcomes, but in general there's no rule or incentive to ensure that happens. They can do anything, and if there's anything to go off of, every entity I see desperately chase profit over all turns utterly evil. Being evil just deepens your toolbox for getting the only thing that matters in the world - money - so of course they tend to win out over anyone who still actually cares about the underlying business or customers.
  - BrenBarn 13d ago
    In theory this is true, but in practice I am skeptical that it's generally possible to do this with generic "business" intelligence that is not accompanied by specific understanding of and genuine care for the actual substance of what the business does. That is, no matter how good you are at "business", you're not going to have a good hamburger stand unless you care about making good hamburgers. It's true that the importance of this varies from one business to another, but I don't see any particular tendency for PE to gravitate towards industries where it matters less. (Medicine is an example of an area where it would matter most.)
- ChickeNES 13d ago
  There's more than one form of intelligence, and being good at fixing people doesn't necessarily correlate with managing a business. As silly as it sounds, watching Shark Tank will really demonstrate that someone can have a legitimately great idea, but if they aren't business minded, it wont matter.
throwaway20222 13d ago
What shows that they are more intelligent? They might be better at extracting value from enterprise, but is that generally “more intelligent?”
- mhh__ 13d ago
  Well they're considerably better paid and in a business that allows economies of scale. It's a steelman argument to be clear I'm not entirely convinced by it.
- gruez 13d ago
  >but is that generally “more intelligent?” Contrary to popular belief, being intelligent in one thing does correlate with being intelligent at other things[1]. For doctors, the comparison with private equity (MBAs?) might be close, but it's not hard to imagine the targets of other PE rollups have owners that are more average in intelligence, think plumbing or roofing. [1] https://en.wikipedia.org/wiki/G_factor_(psychometrics) https://en.wikipedia.org/wiki/G_factor_(psychometrics)
  - tbrownaw 13d ago
    DISREGARD THIS, I CAN'T READ TODAY > Contrary to popular belief, being intelligent in one thing does correlate with being intelligent at other things[1]. > [1] https://en.wikipedia.org/wiki/G_factor_(psychometrics) https://en.wikipedia.org/wiki/G_factor_(psychometrics) Which section of that very long article are you claiming supports your assertion? Here's a bit from the start of the "Concept" section: >> In a famous research paper published in 1904,[8] English psychologist Charles Spearman observed that children's performance measures across seemingly unrelated school subjects were positively correlated. The consistent finding of universally positive correlation matrices of mental test results (or the "positive manifold"), despite large differences in tests' contents, has been described as "arguably the most replicated result in all psychology".[9] That explicitly contradicts your assertion.
    - gruez 13d ago
      >being intelligent in one thing does correlate with being intelligent at other things vs >The consistent finding of universally positive correlation matrices of mental test results (or the "positive manifold"), despite large differences in tests' contents, has been described as "arguably the most replicated result in all psychology".[9] How are they contradictory? Did the first part of my comment make you think there was a negation?
jknoepfler 13d ago
Hard disagree about "more intelligent". They are playing a financial game using a combination of leverage and reptilian ruthlessness to EBITDA hack. They buy one (or more) companies, often with only the slimmest understanding of what those companies do, slash opex by gutting the company with layoffs (yay EBITDA), maybe staple a few such companies together with leveraged buy-outs, then resell the whole bundle for more than they paid. From experience, they don't give a single crap whether the resulting mess still functions. They care about selling the company for more than they bought it for. That prospect is only tenuously and at best accidentally related to whether the company still functions. The private equity companies I've had to deal with were full of braindead MBA spreadsheet monkeys and used car salesmen. Their chief differentiator was that they worked 80 hours a week and were enthusiastic about laying people off without much deliberation. Thinking private equity is "more intelligent" than business owners is like thinking house flippers are "more intelligent" than home owners. No. They know how to rip out carpet and replace it with laminate on the cheap. They know how to cut corners and hide it. They know buyers will over value a fresh veneer of paint. They don't give a shit about the long-term health or value of the house. They are not better stewards of houses. They specialize in short-term profit maximization and that is literally it.
sailfast 13d ago
Remove “more intelligent” here and I’ll give you some benefit. The problem with healthcare “economics” is that providing high quality care is likely not as profitable as middling care, or sub-standard care. You say that economics is meant to deliver cheap quality goods, but in reality here economics for PE is value extraction and has nothing to do with consumer good at all - unless of course there’s more profit there. Most of the time, there isn’t.
- mhh__ 13d ago
  Is Apple Inc run for consumer good or value extraction?
  - macintux 13d ago
    Apple has, for most of its existence, been a distant second choice, because IBM and Microsoft captured the enterprise, which trickled down into consumer buying habits. It survived, then thrived, by making its products so appealing that customers would buy them anyway. So, effectively, both.
  - sailfast 12d ago
    Apple is not a PE firm. They are a public consumer goods company with a ton of different business lines. Their duty is shareholder value and making good products that sell is one way to do that. Value extraction is a short term play. It’s usable by most companies in a pinch, but normally only happens before their death or slow decay into zombie-dom. At least, that’s what my anecdata tells me.
- nradov 13d ago
  That's really not true. Studies have shown that there's little correlation between care quality and profitability. In some cases non-profit health systems charge high prices and deliver terrible care quality. The reality is that most provider organizations are run by incompetent managers. People used to working in modern tech companies would be shocked to see the waste, inefficiency, and missed opportunities. PE acquisitions may cause some problems but the new managers do at least bring a basic level of discipline and operational competence that was often missing before.
scythe 13d ago
We know how to make MRI cheaper. Put it in a can. MRI suites are built with copper shielding in the walls, and the machines are really heavy, which creates huge capital costs. (Capex is a big problem for medicine.) There's an easy solution: you can just put an MRI machine in a standard tractor-trailer container and bring the patients in. Nothing has to be constructed or installed. None of the private equity chains with the sans-serif fonts, simplified logos and trisyllabic names are doing this, though. It's bad marketing. Patients don't want to walk outside to an MRI machine in the parking lot. It feels sketchy. Never mind that they score just as well on the ACR image quality tests as the in-room machines. Who the hell knows what that is? In reality, it's the county hospitals and big universities that use them! Places that have in-house physicists who can argue for what really makes sense in practice. A major problem with healthcare as a business is that the customer does not usually understand the product, but they still need to buy it, and there are time constraints.
- toast0 13d ago
  > Patients don't want to walk outside to an MRI machine in the parking lot. It feels sketchy. Seems like you could build a hallway around the trailer; if you do it right, nobody knows it's a trailer in the middle of the building. If you do it really well, you can still pull the trailer out.

by mhh__ 13d ago

cool_dude85 13d ago

What does it mean in this context to be more intelligent and shrewd than the existing owners? Delivering better profit margins?

SoftTalker 13d ago
I mean, losing money is not sustainable. If a doctor or physician group isn't business savvy and can't earn a profit they will eventually go under. That's not good for the patient.
- cool_dude85 13d ago
  OK, but making money, though it may be less than a PE company would, is. Where do most doctor's offices fall?
  - csa 13d ago
    Most doctors make good money, but most who are good doctors could make much more. Simple example pitch that many general practitioners might consider using (based on local laws, of course): “Insurance covers C, Y, and Z. I can offer these additional services for A, B, and C that are not covered by insurance.” Where I live, you get a lot of this via “concierge doctors”, but that system can go far beyond basic concierge service, and people are willing to pay for top quality care.
csa 13d ago
> What does it mean in this context to be more intelligent and shrewd than the existing owners? Streamlining everything. Sometimes this is done in a bad faith way, but it’s often not difficult to do it in a good faith way. Some simple examples: - right-sizing staff (can be reducing, increasing, or changing roles) - improving marketing (e.g., simple things like customer reactivation, packaging the product/service better, or just plain, ol’ getting the word out better via stuff like before/after pics or success stories) - improving operations (e.g., better organization, better processes, better communication, better training, better logistics, etc.) > Delivering better profit margins? Improved profit margins are a byproduct of the things listed above.
- tavavex 13d ago
  You're putting the cart in front of the horse. Their incentive and their job isn't about 'streamlining' anything, let alone in a good-faith way, and that just so happens to deliver some extra cash on the side in a pleasant surprise. Their sole purpose is the profit, and they will try absolutely anything to get it. Sometimes it may accidentally produce good outcomes, but in general there's no rule or incentive to ensure that happens. They can do anything, and if there's anything to go off of, every entity I see desperately chase profit over all turns utterly evil. Being evil just deepens your toolbox for getting the only thing that matters in the world - money - so of course they tend to win out over anyone who still actually cares about the underlying business or customers.
- BrenBarn 13d ago
  In theory this is true, but in practice I am skeptical that it's generally possible to do this with generic "business" intelligence that is not accompanied by specific understanding of and genuine care for the actual substance of what the business does. That is, no matter how good you are at "business", you're not going to have a good hamburger stand unless you care about making good hamburgers. It's true that the importance of this varies from one business to another, but I don't see any particular tendency for PE to gravitate towards industries where it matters less. (Medicine is an example of an area where it would matter most.)
ChickeNES 13d ago
There's more than one form of intelligence, and being good at fixing people doesn't necessarily correlate with managing a business. As silly as it sounds, watching Shark Tank will really demonstrate that someone can have a legitimately great idea, but if they aren't business minded, it wont matter.

throwaway20222 13d ago

What shows that they are more intelligent? They might be better at extracting value from enterprise, but is that generally “more intelligent?”

mhh__ 13d ago
Well they're considerably better paid and in a business that allows economies of scale. It's a steelman argument to be clear I'm not entirely convinced by it.
gruez 13d ago
>but is that generally “more intelligent?” Contrary to popular belief, being intelligent in one thing does correlate with being intelligent at other things[1]. For doctors, the comparison with private equity (MBAs?) might be close, but it's not hard to imagine the targets of other PE rollups have owners that are more average in intelligence, think plumbing or roofing. [1] https://en.wikipedia.org/wiki/G_factor_(psychometrics) https://en.wikipedia.org/wiki/G_factor_(psychometrics)
- tbrownaw 13d ago
  DISREGARD THIS, I CAN'T READ TODAY > Contrary to popular belief, being intelligent in one thing does correlate with being intelligent at other things[1]. > [1] https://en.wikipedia.org/wiki/G_factor_(psychometrics) https://en.wikipedia.org/wiki/G_factor_(psychometrics) Which section of that very long article are you claiming supports your assertion? Here's a bit from the start of the "Concept" section: >> In a famous research paper published in 1904,[8] English psychologist Charles Spearman observed that children's performance measures across seemingly unrelated school subjects were positively correlated. The consistent finding of universally positive correlation matrices of mental test results (or the "positive manifold"), despite large differences in tests' contents, has been described as "arguably the most replicated result in all psychology".[9] That explicitly contradicts your assertion.
  - gruez 13d ago
    >being intelligent in one thing does correlate with being intelligent at other things vs >The consistent finding of universally positive correlation matrices of mental test results (or the "positive manifold"), despite large differences in tests' contents, has been described as "arguably the most replicated result in all psychology".[9] How are they contradictory? Did the first part of my comment make you think there was a negation?

jknoepfler 13d ago

Hard disagree about "more intelligent". They are playing a financial game using a combination of leverage and reptilian ruthlessness to EBITDA hack. They buy one (or more) companies, often with only the slimmest understanding of what those companies do, slash opex by gutting the company with layoffs (yay EBITDA), maybe staple a few such companies together with leveraged buy-outs, then resell the whole bundle for more than they paid. From experience, they don't give a single crap whether the resulting mess still functions. They care about selling the company for more than they bought it for. That prospect is only tenuously and at best accidentally related to whether the company still functions. The private equity companies I've had to deal with were full of braindead MBA spreadsheet monkeys and used car salesmen. Their chief differentiator was that they worked 80 hours a week and were enthusiastic about laying people off without much deliberation. Thinking private equity is "more intelligent" than business owners is like thinking house flippers are "more intelligent" than home owners. No. They know how to rip out carpet and replace it with laminate on the cheap. They know how to cut corners and hide it. They know buyers will over value a fresh veneer of paint. They don't give a shit about the long-term health or value of the house. They are not better stewards of houses. They specialize in short-term profit maximization and that is literally it.

sailfast 13d ago

Remove “more intelligent” here and I’ll give you some benefit. The problem with healthcare “economics” is that providing high quality care is likely not as profitable as middling care, or sub-standard care. You say that economics is meant to deliver cheap quality goods, but in reality here economics for PE is value extraction and has nothing to do with consumer good at all - unless of course there’s more profit there. Most of the time, there isn’t.

mhh__ 13d ago
Is Apple Inc run for consumer good or value extraction?
- macintux 13d ago
  Apple has, for most of its existence, been a distant second choice, because IBM and Microsoft captured the enterprise, which trickled down into consumer buying habits. It survived, then thrived, by making its products so appealing that customers would buy them anyway. So, effectively, both.
- sailfast 12d ago
  Apple is not a PE firm. They are a public consumer goods company with a ton of different business lines. Their duty is shareholder value and making good products that sell is one way to do that. Value extraction is a short term play. It’s usable by most companies in a pinch, but normally only happens before their death or slow decay into zombie-dom. At least, that’s what my anecdata tells me.
nradov 13d ago
That's really not true. Studies have shown that there's little correlation between care quality and profitability. In some cases non-profit health systems charge high prices and deliver terrible care quality. The reality is that most provider organizations are run by incompetent managers. People used to working in modern tech companies would be shocked to see the waste, inefficiency, and missed opportunities. PE acquisitions may cause some problems but the new managers do at least bring a basic level of discipline and operational competence that was often missing before.

scythe 13d ago

We know how to make MRI cheaper. Put it in a can. MRI suites are built with copper shielding in the walls, and the machines are really heavy, which creates huge capital costs. (Capex is a big problem for medicine.) There's an easy solution: you can just put an MRI machine in a standard tractor-trailer container and bring the patients in. Nothing has to be constructed or installed. None of the private equity chains with the sans-serif fonts, simplified logos and trisyllabic names are doing this, though. It's bad marketing. Patients don't want to walk outside to an MRI machine in the parking lot. It feels sketchy. Never mind that they score just as well on the ACR image quality tests as the in-room machines. Who the hell knows what that is? In reality, it's the county hospitals and big universities that use them! Places that have in-house physicists who can argue for what really makes sense in practice. A major problem with healthcare as a business is that the customer does not usually understand the product, but they still need to buy it, and there are time constraints.

toast0 13d ago
> Patients don't want to walk outside to an MRI machine in the parking lot. It feels sketchy. Seems like you could build a hallway around the trailer; if you do it right, nobody knows it's a trailer in the middle of the building. If you do it really well, you can still pull the trailer out.