Rewind: How private equity kills companies and communities

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25:18Nilay Patel:Welcome back. I'm talking to the journalist and author Megan Greenwell. Right before the break, we were speaking about private equity broadly and her interest in it after her parent company got bought by a firm that was less than interested in the success of the websites it owned. And that led us directly into talking about her book. That brings us, I think, directly into the book. You have structured the book in a series of four stories, four characters in retail and healthcare and media and housing. Those are all industries that have been just completely upended by private equity in ways that I think normal people can just feel, right?

25:51Nilay Patel:Your experience as a consumer at a retail store is shaped by private equity in ways you can just feel. Certainly in healthcare, which I want to talk about at length. Lots of people have talked about it in housing. We can just see the wreckage of the media economy around us, particularly newspapers. The pro case for private equity that I've heard on the show is these industries were failing or would have failed on their own. The PE companies come in. They apply a ruthless operations model to some businesses that we're going to go under. They extract the profits. Sure, maybe they cut some deals on the side to improve their own financial welfare.

26:29Nilay Patel:But then you have these like lean, mean operating companies that can go off and do things. Has that played out? Do you see those success stories? I can think of one. I don't want to give it away. But have you seen other success stories? Sure. There are certainly success stories. I do not want to say that private equity deals always end badly. That is certainly not the case. The private equity's main lobbying group loves to cite the statistic. I forget the exact number, but the majority of private equity deals are actually for small family-run companies. And that is A, true, as best I can tell, and B, it is also true that more of those deals are successful than is true for the biggest companies, right?

27:13And I do focus on the more disastrous stories in my book. While it is true that most deals are for small companies, most of the money is for the big companies, right? And so the larger leveraged buyouts just have much greater effects on the number of workers, our society at large, all of those things. And those deals tend to have the worst outcomes, right? So 10 times as many businesses acquired by private equity declare bankruptcy as other types of businesses. So that is just a statistic that is hard to argue with. It's not that private equity never works. It's that when the ethos is you get bigger and bigger and bigger at all costs and you devour bigger and bigger and bigger things, then you start to end up with a problem where more people are negatively affected and the results tend to be a lot worse.

28:16Nilay Patel:Let's talk about healthcare in that context. You have a line in the book that has really stuck with me that communities need businesses, right? There's some enormous value that just having commerce in your community provides, right? It makes the community vibrant. It makes people feel like they belong together. There's a relationship people might have between the businesses in their community and themselves, the people who run those businesses. Healthcare is part of that community in like a huge way. commodifying that and making that an industrial product that's a systematic change that private equity scale has brought to america right and that that's the money you're talking about you need a lot of money to just wholesale change the nature of health care in america that money arrived we can feel it i think people can really feel it right now but there's no market pressure to make it better but that's the thing that like kills me about it is everyone knows it's bad And the idea that you could provide a better service in ultra-capitalist America and make more money by providing the better service is just short-circuited.

29:23Nilay Patel:Why do you think that is? Part of the reason that a ton of private equity money flowed into health care in particular was the Affordable Care Act. The Affordable Care Act obviously had all sorts of positive benefits for society, especially for people who couldn't get insurance otherwise. It also meant, again, that there was a new source of guaranteed money for private equity firms. Because all of a sudden, you know, worst case scenario, like the government's going to pay a lot more people are insured than previously were. And so the problem of healthcare, which is not a problem that private equity created, is that everybody needs it.

30:04Many people can't pay for it. the government reimburses terribly for it. And so it really is a broken business model in a way that will require, you know, if anybody ever gets serious about fixing it, will require tearing it down to the studs and starting over. And that's a very difficult thing to do. And so private equity, you know, understandably, to some extent, kind of came in and said, well, you know, this is real broken, but we see a way for it to work for us. And working for them generally did mean kind of the stripping it for parts model. You sell off the real estate, you cut back the services.

30:50And so all of a sudden, you know, I focus on rural hospitals in the book where people genuinely don't have other options. And that when you take away more and more and more of the services they do have at their local hospital, yeah, that's great for the private equity firm, right? That's just cutting costs. And then you kind of ruthlessly consolidate to cut more costs. And then, you know, if people don't have a place to deliver their baby anymore, okay, that's unfortunate. But here we are. Did that actually answer your question?

31:26Nilay Patel:It did. You know, my parents were small-time doctors in Wisconsin in the 80s. My sister's a doctor now. The reason that I focused on communities and businesses is the hospitals they worked at in small town Wisconsin in the 80s were just part of the community. Yeah. Right? Everyone was born in my town at one of the two hospitals, St. Mary's or St. Luke's, and people talked about it. And I don't know why that was a rivalry, but it was a rivalry. Like in the way that small towns just create rivalries. And then all of those things are merged into giant corporate entities now. And that has been the experience of my parents' career.

31:59Nilay Patel:My sister, her practice was bought by a PE company. Every time we do an episode about PE, we get emails from doctors saying you don't understand how bad it is. Yeah. Right? We have operationalized and added efficiency to medicine in a way that has actually made the practice of medicine almost untenable. Like people do not like doing it. And you describe it very clearly in the book in a way that I don't think I've seen anybody just straight up describe it. you say people don't think of doctors as workers and private equity has made them workers. They still have the status and they're still doctors, but PE has made them workers.

32:37Nilay Patel:Talk about that a little bit. Does that seem tenable? Because it's really hard to be a doctor and then to be a doctor and then to feel like an employee of a machine. It's destabilizing just from the experiences I've had with my own family and from the people that write in every time we do a PE episode. The doctor I focus on in the book, who is in small town Wyoming, he wanted to go into community medicine because his beloved uncle, who was his role model, was a community doctor. And his uncle was a community doctor in like, you know, the 30s, 40s, 50s, at a time when being a community doctor meant you just worked for yourself, right?

33:17You could set whatever prices you wanted. If the market would bear them, the market would bear them. If not, deal with it. You could barter, you know, you could treat people who couldn't afford to pay, whatever choices you wanted to make. And then as medicine in the U.S. professionalized, everybody got pulled into the kind of hospital and clinic system. And then when private equity came in, you know, it was just game over for doctors having any autonomy to themselves. And one thing that I think is really interesting is that it's not actually just private equity, right? So academic medicine, my husband works in academic medicine, uses that same philosophy of ruthless consolidation as well.

34:02There's a story in the book about Yale, which just bought up everything across Connecticut. And what you saw was patient satisfaction went way down and the costs patients pay went way up. That's Yale, right? That's in some sense the opposite of a private equity-run hospital, but it's all the same problems. The doctors at Harvard's hospitals, the internists are unionizing right now because they're so overworked, they don't have any autonomy, and they're just sick of it. And so, though private equity didn't create these problems, it certainly took advantage and made doctors into a cog in the machine in the same way that they had for years treated retail workers, for example, as cogs in the machine.

34:52And so, yeah, doctors are furious. They're the most common group of people I hear from, too. There are all these groups of doctors wanting to organize against private equity. And what's interesting to me is like, these are not all leftist doctors. These are a lot of folks who think that, you know, unions are exactly the wrong answer for doctors, for example. But there is this current of, we may not all agree on the solutions, but we are completely unanimous that private equity is the enemy, whatever our individual politics.

35:27Nilay Patel:That dynamic is super interesting to me that you have this class of ultra-educated, pretty wealthy people, wildly divergent political views, and they can see the problem. And the thing that gets me is there are supposed to be systemic and market correctives to the problem. Like there aren't enough doctors. That alone should solve the problem, right? Like the market should be receptive to the needs of the scarce labor and that is short-circuited. And I kind of don't know why. Like I can see it in tech. If you're an AI engineer, like you get a boat. The market is ultra receptive to recruiting and retaining that talent because it's scarce.

36:16Nilay Patel:And in the healthcare market, it feels almost as though it's the opposite. it. And there's not some big supply of new doctors that's going to show up. We're certainly not going to immigrate them like they did with my parents in the 70s and 80s. Why do you think that's been so short-circuited in healthcare? Yeah, I mean, there are a couple of reasons. One is that there's an imposed limit on how many doctors there can be because there is an imposed limit literally imposed by the federal government on the number of residency slots, right? So there is a shortage of doctors, but it is also true that you have everybody fighting for this number of residency slots.

36:53But the other thing is, healthcare is an industry that breaks what we think of as the rules of free market capitalism in so many ways, because there's more government involvement than in a lot of industries, but also because there's this book that is like the definitive history of American medicine as a business. It's called The Social Transformation of American Medicine. It's by this Princeton professor named Paul Starr, and it came out in the 80s. I picked it up in like 2022, expecting it to feel incredibly dated. And in fact, it felt so prescient because it traced exactly step by step how we went from this system of doctors treating their own communities to, okay, now we're starting to get professional hospitals.

37:46That's great. We're able to save more lives, but also now we're putting doctors into this system without really thinking about how do we design a system that makes sense. And so from the very beginning, it was super broken, right? There was never a time where this system worked well and we could just say, like, let's go back to that. It's a tricky one to me because I don't think private equity is a good system for American medicine. And also, I truly don't know what the solve is without, like I say, ripping it down to the studs and starting over.

38:27Nilay Patel:That's a political solution, a regulatory solution. There are many podcasts about healthcare policy that people can go listen to. But it feels like for this show in this context in 2025, we have to talk about the other relief valve that appears to exist, which is Brian Thompson, the CEO of UnitedHealthcare, was shot on the street in New York City. Luigi Mangione is in prison awaiting his trial for what appears to be that murder. That is a very bad outcome. You don't want what feels like political violence to correct the excesses of the private equity market in healthcare or really anywhere else.

39:06Nilay Patel:Has the industry seen, oh, we've squeezed it so hard that there are shootings in the street? That feels like, okay, it's time to pull the ripcord and maybe actually think about the outcomes here. It's such an interesting question. What I understand to have been the main reaction in healthcare circles to that shooting was, you know, let's get more security. Let's make sure these people are better protected, not maybe we need to change the system so the anger isn't so palpable. I also think talking about private equity specifically, and Brian Thompson, not a private equity guy, health insurance guy, those folks get to feel a little safer because of the knowledge that few people understand their influence, right?

39:59So most people do not know if their local hospital is run by a private equity company. Most of the workers I talked to, you know, a couple hundred people didn't know that their company was owned by private equity, even if they had worked there for years. And so private equity loves to operate in the shadows. And when you start to think about like, yeah, is the anger so intense that it's going to result in political violence? Maybe until December, health insurance executives felt like they were in that group. But I think that private equity executives probably still feel like they're in that group, even after the Brian Thompson shooting.

40:43Because, like, you know, who can name a private equity executive, right? Well, anyone.

40:48Nilay Patel:You just walk around New York. Their names are on all the buildings. That's true. I mean, yes, if you're paying enough attention to who's on the board of any art museum or who the children's hospital is named after or whatever, yes. But, you know, I don't think most people, if told, you know, see the Kravis Children's Hospital over there, could tell you who Henry Kravis is and why he matters, right? There's like this interesting divide between like our perception of private equity guys as philanthropists, benefactors of cultural institutions, all of that, and private equity guys as private equity guys.

41:25And so if you don't know, I think this is a real fundamental problem with private equity is that nobody understands who they are or how they work. And that probably does give them a little bit of a better sense of security in the age of Luigi Mangione. But also, you know, it's the negative outcomes there are pretty bad, too.

41:52Nilay Patel:I will say that the CEOs who show up on Decoder, increasing amounts of security when they show up in person. That is very much a trend that we have seen. But I just feel like our customers hate us so much that some of them have started shooting us. Is the last market corrective? Right? Like something has to happen there that at least changes the valence of the conversation. And you're saying for PE, that pressure still isn't felt. I don't think it's felt, no. because I just don't think, I think private equity guys know that they are not yet being super closely looked at. And even if you know that American healthcare is super broken, you just have to kind of understand a lot to understand which part of that you can attribute to private equity people.

42:45A health insurance CEO, everybody hates their health insurance, right? So, I'm trying to think of how to say this without sounding terrible, but like, it is less surprising on some level to me that somebody would go after a health insurance executive as terrible as that is than if somebody were to look up, okay, so this fund owns my local hospital. This fund is run by XPE company. This PE company is run by X people. This is exactly what decisions they took. There is a level of shell companies and funds and all of this stuff that ends up disguising it a little bit from people who don't put in the work to, you know, really dig and who would, you know, unless they're crazy, nosy journalists like us.

43:44This is not to say, like, there have been doctor shootings too, right? Because somebody's surgery gets messed up and somebody goes and shoots their doctor. But that feels so much more visceral, I think, as does a health insurance CEO than, like, this fund three levels above even the parent company of your hospital does.

44:09Nilay Patel:To me, what's really interesting is that the conditions that create the health insurance market that we have today are three levels above. It is consolidation. It is cost control. It is profit extraction. And that seems to be coming more apparent, right? I think more and more people are aware that PE shows up and then these effects follow. I think more and more people are aware that Toys R Us was a company that existed and no longer exists. Or like Red Lobster, they're trying to blame a very obvious thing on Endless Shrimp and actually it's the PE company showed up. Yeah, the crafters man mad about Joanne Fabrics.

44:49I hear from the crafters so often.

44:53Nilay Patel:Doctors and crafters. Yeah, exactly. Those folks are mad. We have to take another quick break. We'll be back in just a minute.

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48:34Nilay Patel:Welcome back. I'm talking to Megan Greenwell about her book, Bad Company, Private Equity, and the Death of the American Dream. Before the break, we were talking about what happened to the industries and companies and people she followed in her book before and during private equity takeovers. But the stories don't just stop there. Every person in Megan's book pushes back on the influence of P.E. in some way. So I wanted to ask, how? That's the last bit of the book. It's the after section. You talk about ways forward. The vignettes in your book, the main characters have all fought against P.E. in some way.

49:07Nilay Patel:How do you see that playing out? So I felt strongly that I didn't want to end the book on like, well, this system sucks. I'm out, you know? And the most natural way to do that, in that I also didn't want to do something prescriptive because I'm not an activist, the most natural way to do that felt like it was to look at people who were doing something after the fact. Where I ultimately came to is if we are serious about changing this system, it's going to have to be so multifaceted an approach. So the four characters in my book are, you know, quote unquote, fighting back in several ways. The woman who worked at Toys R Us, like, flew around the entire country for the first time in her life, speaking in front of these pension boards, trying to convince pension funds no longer to invest in private equity, or at least to exert more pressure on the private equity funds they do invest in.

50:04The media example in the book to me is really interesting because that's not something where, like, there's no regulatory situation that is going to get private equity out of local newspapers. That's just that you have to rebuild the business model from scratch. And so the person I focus on works for a local nonprofit startup of which there is, you know, a big wave right now. And that is not itself a silver bullet to anything, but is like an interesting experiment. And the fact that there are people making these experiments is, I think, a useful thing to shine some light on. There are also court cases and there are proposed bills.

50:51You know, I don't think in our current political climate, there's going to be a lot of regulation of private equity on the federal level. But there are lots of interesting things happening in various states right now, especially in health care, because after big private equity disasters in Massachusetts and Pennsylvania, those states, you know, both blue states, real quick got very serious about doing some regulation. And so I didn't come away from the book feeling totally hopeless about the chances of clawing a little bit back from private equity. I don't think the system is going to disappear anytime soon, nor do I feel particularly strongly that it needs to.

51:37But I think after several years of reporting, I certainly came away thinking this system is very broken and that here are some people doing some interesting things that seem to be gaining some momentum to do something about it.

51:53Nilay Patel:It feels to me like the big solve is somehow connecting the inputs and the outputs once again. Right? We talked to billionaires on the show. There's a part of me that says, you know, fair play. If you actually run Google and Google exists and your goal is to operate Google and win in a market where Google has competitors, like, fine, right? Like, at least I can connect the input and the output there. A lot of people like Google. You're motivated to make Google pretty good. Great. PE is all about disconnecting the inputs and the outputs. If you could wave a magic wand and just solve that problem, how would you do it?

52:31I mean, I'm just going to essentially plagiarize Elizabeth Warren here. She, for several years now, has introduced this Stop Wall Street Looting Act, which would regulate P.E. All told, would probably regulate P.E. basically out of existence. But the part of that that I find...

52:50Nilay Patel:The magic wand is making it go away, just to be clear. I mean, yes, but the single part of that bill that I find the most... I find the case for it the most compelling is actually pretty simple. So the basis of leveraged buyouts is you borrow all this money, and you as a private equity firm are not responsible for paying the money back, only the portfolio company itself is. And so what ends up happening is you bury your own portfolio company under this mountain of debt. and one component of her bill is you can't do that anymore. You have to have skin in the game. And again, you know, going back to my distinction between private equity and venture capital, nobody would ever think that if you're a VC and you invest money in a company, that you don't have something on the line there.

53:48But if you're a PE firm, you really don't have much on the line. There's a limit to how much you will make if you drive the company out of business. But it's also pretty hard to lose money because you're just not responsible for those loans. And so I think if there were one policy change I would make, I would just say, great, okay, you are legally responsible for the loans that your portfolio company takes out.

54:15Nilay Patel:I feel like you definitely have to write your next book on the venture capital industry and the the market conditions it has created. Yeah. That is a really interesting contrast that you're making there. Yeah. No, VC is fascinating to me. And it's like, now I'm probably too rosy on VC because I just see such a distinction. And because I have such a knee-jerk reaction to people conflating the two. So if there's like a negative story that happens in VC world, all of these people will tag me in it and be like, see, see, that's private equity. And I'm like, no, okay, different thing. But I am very interested in the VC system because I don't know enough about it.

54:55Nilay Patel:Yeah. Well, Megan, you have to come back when you write your VC book. For now, the book is Bad Company, Private Equity, and the Death of the American Dream. I highly recommend it. Like I said, it's a fun read. It will make you very mad, but it's a fun read, and I really enjoyed it. Thanks for being on, Megan. Thank you, Neelay.

55:13Nilay Patel:The book is Bad Company, Private Equity, and the Death of the American Dream, and it's out on June 10th. to order from wherever you like to buy your books. I'd like to thank Megan for taking the time to join me on Decoder today, and thank you for listening. I hope you enjoyed it. If you'd like to let us know what you thought about this episode, or really anything else at all, drop us a line. You can email us at decoderatheverge.com. We really do read all the emails. Or you can hit me up directly on Threads or Blue Sky. We also have a TikTok and an Instagram. Check them out. They're at decoderpod.

55:38Nilay Patel:If you like Decoder, please share it with your friends and subscribe wherever you hear podcasts. Decoder is a production of The Verge and part of the Vox Media Podcast Network. Our producers are Kate Cox and Nick Stat. Our editor is Ursa Wright. The Decoder of Music is by Breakmaster Cylinder. We'll see you next time.

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