I’ve known for years that it takes money (and often a lot of it) for good health care. Insurance may get you to the door but not necessarily through it. I’m not writing this week about our troubling odyssey through the American health system however. Instead, I’ve been thinking back over the past six months, taking Wally to his vet and then on to a veterinary specialist as he’s returned to something that feels like his former self.
His veterinary care has been excellent, but also startlingly expensive. Moreover, the broader reality behind it speaks to changes in the accessibility of “local services” that many of us depend upon and may have been assuming would always be available to us at prices we could afford.
We saw the beginning of this trend when big box stores promising lower prices replaced Main Street shopping districts. I suppose it was only a matter of time before these “saviors” came for our local services too. But instead of cheap consumer products at Walmart (as opposed to somewhat more expensive ones at the local book or clothing store), we’re finding ourselves presented with often mindboggling tabs for services like pet care.
Among many other things that are wrong with this, we have to work both harder and longer to be able to afford what not-so-long-ago seemed easily within our reach.
At the beginning of my journey with an ailing Wally was a chance encounter with a neighbor who breeds championship Welsh corgis. An additional fact about Deborah (that I sometimes think too good to be true) is that this often impatient woman also shows her dogs, as in running them through their paces in her business suit to the watchful eyes of dog show judges. So when I see her coming down the street with three of them in tow, I have those showtime performances in mind, along with the late Queen and her similarly frequent attendants.
Anyway, I mentioned Wally’s difficulties getting a cure from our longtime vet and she launched into a lament about “private equity” taking over specialty practices when the ailment is outside the fairly limited scope of problems that regular vets handle. Veterinary internists, oncologists and the like count on dog (really any kind of pet) owners to pay whatever they can get away with charging to restore these “family members” to health so, increasingly, treatment options are as expensive as an emotionally captive market like ours will bear. She thought the place I was taking Wally was “really good,” but also left me with a sharp “Watch out” for the coming bills.
As it’s turned out, the cost of Wally’s veterinary hospital experience has easily exceeded my wildest estimates—although I should say again, he seems to be thriving as a result. But relief aside, I’m hardly alone in my shock at the expense of his (and my) journey.
I say this, in part, because the place we’ve been using has an interesting set-up in its waiting room.
Pet owners and their pets (who mostly happen to be dogs) all stop at a billing station in that room to pay as well as get their medications before they leave. Everyone else who is waiting can hear the “It will be $__ for your visit today,” and the other numbers that I’ve regularly over-heard have been startling: $900, $650, $1200. One man with a large dog who didn’t look particularly well-healed himself, had a bill for $6000. (In fact, none of the people handing over their credit cards looked particularly well-healed.) But no one was challenging these charges, most likely because they’d also been given a budget for treatments like ultrasounds beforehand so their “sticker-shock” had mostly been numbed before it was time to pay. Moreover, from their familiarity with the personnel, these folks all seemed to be return customers, so these bills weren’t “one-time” events but semi-regular encounters at our clinic’s cash register.
When I decided to write about “private equity” moving into local services and chasing their “financial upside,” I didn’t realize what a hot topic it had become. For example, last Friday’s New York Times had a lead-off Op-Ed entitled “Private Equity is Gutting America—and Getting Away With It.”Last Thursday, NPR’s Fresh Airinterviewed a financial journalist whose new book about private equity firms is tellingly called These Are the Plunderers. This crescendo of alarm aside, my point today is not to take a side in the debate about private equity’s outsized role in the U.S. generally or in our local-services economies in particular, but more to raise awareness--because recent experience has certainly been raising mine.
I should also admit that I don’t know who owns Wally’s veterinary hospital, and it would be difficult for me to find out without an uncomfortable conversation with his specialist. In my poking around on-line, I did uncover “a typical private equity move” at this facility to drive up investor profits and make its services more expensive (which I’ll get to in a bit) but even if the place is an old-time partnership of neighborhood vets, the veterinary industry itself has apparently been so inundated by private equity’s involvement in recent years that everyone in it is responding to what is euphemistically known as “the new pricing realities.”
Before returning to my experience (and possibly yours), I’d like to step back, flesh-out the notion of “private equity” a bit, mention some of the statistics about its growing significance in the marketplace, suggest how it's been contributing to America’s global economic dominance, describe a few of it’s pros and cons for consumers of goods and services, and discuss why it has finally come for local service providers like vets.
This and the other photos today are care of photographer Seth Casteel
from his series called “Underwater Dogs.”
“Private equity” is (as it sounds) a private source of financing as opposed to a public one, such as when a company sells its shares on a public stock-market or auctions off its debt in a public bond-market.
The well-healed pool their cash in private equity companies (like Stephen Schwartzman’s Blackstone Group, or Bain & Company) with the goal of buying into product or service companies that might offer a tidy profit, perhaps by streamlining processes, reducing staffing levels or splitting off “non-essential” parts of their current businesses. Sometimes private equity companies function as aggregators, buying up so-called “mom & pops” and consolidating operations, thereby producing “economies of scale” in terms of staff, purchasing and profit-making. Other times, they enhance their “pricing power” (or what consumers have to pay) in markets like the ones for human or pet-health care services, by consolidating into one company what used to be competing players in a particular geographic area. In other words, if you’re one of the only outlets offering a particuplar service in, say, Philadelphia, local customers will likely have to pay whatever you decide to charge or go without.
A recent Freakonomics podcast about private equity’s role generally (and in the pet care industry in particular) identified two broad categories of investment: so called “buy-and-build investing,” where the investors want to maximize profits over the long haul, and so-called “squeeze-and-sell” investing, where they strip the companies they acquire of their most valuable assets (like real estate or intellectual property), charging them high fees while they do so before selling off what's left.
The stripping and bankrupting of Toys-R-Us is cited as a prominent example of “squeezing and selling” by the Times Op-ed and Fresh Air gadflies mentioned above. On the other hand, while the increasing consolidation of regular and specialized veterinary practices has aspects of “squeezing” (economies of scale) as well as “selling” (often the underlying real estate, which is then leased back to these practices at higher rates than previously—and a new cost ultimately passed onto customers), the over-all goal is long-term profit maximization.
In the course of reading up on this, I guess I wasn’t surprised to learn that private equity investing has become a way to mint almost instant billionaires. But these strategies have consequences for more than a few investors; they have economy-wide significance. While much has also been written recently about America’s declining global influence, the performance of the American economy is a glaring exception and private equity investing contributes to the bright spot in this otherwise uneven story.
Two weeks ago, The Economist's ran a much quoted cover story called "America's Economic Outperformance Is a Marvel to Behold." This is how it kicked off that story:
“American economic declinism is a broad church. Voices on the right claim that big government has stifled the frontier spirit and that soaring debt has condemned future generations to poverty. The left worries that inequality and corporate power have hollowed out the economy. In a rare display of unity, all parts of the ideological spectrum bemoan the death of American manufacturing American manufacturing and the crushing of the middle class.
“There is just one snag. On a whole range of measures, American dominance [vis-à-vis say China] remains striking. And relative to its rich-world peers [like in the E.U. and Japan] its lead is increasing.”
Despite the “human” and other costs, there is no denying that the economic vigor that private equity investing has unleashed in recent decades has contributed to the American economy’s global dominance. But the impacts on you or me are decidedly mixed.
Speaking on the Freakonomics podcast, a Harvard B-School professor described private equity’s efficiency contributions with enthusiasm:
“[I]t’s true that the larger, national firms have been far more productive than many of the local ones, even within the same industry. And that disparity has intensified, probably largely due to the arrival of information technology and logistics, right? When you think about the difference between Walmart and the local toy store — it was probably different in terms of efficiency 20 years ago, but it’s even more dramatic now, simply because Walmart is just such a fine-tuned machine which has squeezed every element of [unnecessary] cost out of the system.”
In other words, America’s profit-making is more “fine-tuned” than anywhere else, and private equity has played a prominent role in these efficiency gains.
But if Walmart is an exemplar of sorts after consolidating all of those formerly Main-Street operations, the co-director of a policy research center on the same podcast saw a darker side, using pet care as an example:
“This buy-and-build strategy is very common. It’s not like they care about pets. They don’t care about pets. What they see is a fragmented market, lots of people love their pets and are going to do everything they can to get them the best care — and they see an opportunity here. So they buy a slightly largish pet-care company. They try to find one that’s really good. And then they go out and look at who are its competitors, and they buy up the competitors. They want to monopolize. So that when you need a procedure for your pet, you have to take it to a place that they own.”
where (she might have continued) they can charge you as much as the market will bear. Of course, this results in high costs for consumers and even higher profits for private equity investors.
According to the Freakonomics folks again, even before the pandemic, pet ownership had been rising fast and now sits at a record high: 70 percent of American households have at least one pet. Also at a record high is the share of household income that we spend on pets. In 2021, that added up to $123 billion, and of that total, the American Pet Products Association reports that we forked over $34.3 billion to veterinarians.
In many parts of the U.S., the veterinary services market remains fragmented and amenable to private equity consolidation but also highy desireable because these investments tend to be stable and largely-recession proof. Since people like me increasingly treat their pets like family members, they know we’re more likely to spend freely on their healthcare needs regardless of the inflationary headwinds.
Moreover, like in human healthcare, technology advancements such as diagnostic imaging, minimally invasive surgeries and other innovative treatments are leading to improved patient outcomes and our willingness to pay for them, as I can attest with Wally.
At the same time, however, these specialized treatments tend to be more expensive for consumers and more profitable for vet-care providers. They also rely on equipment that is expensive to purchase and run. Costs like these to the provider need to be borne by customers' regular use of, say, that imaging equipment, calling into question whether such treatments are sometimes more necessary for the provider to perform than for the patient to receive.
But once again, if an ultrasound can prove that Wally doesn’t have cancer or other life-threatening conditions, am I going to say “No” to a treatment estimate that runs into the thousands of dollars—particularly when there’s nowhere better or cheaper that I can go for his health care?
It hasn’t been a theoretical question.
This underwater dog (in its double image) looks most like Wally did
when he first joined the family.
These days, farmer Brown almost never takes Lucky, his broken leg and a rifle to conduct last rites out in the corn patch. Far more common is my former nextdoor neighbor. When Frankie got arthritis, he received the dachshund equivalent of a baby carriage and Patti pushed him around the block for his daily constitutional—gently lifting him out when he finally seemed to be ready for business. It's in this behavioral sea-change that private equity has seen an opportunity to, as they say, capitalize.
Has the clinic that Wally and I have been using been acting like a rapacious capitalist in the face of this opportunity? Quite frankly, it’s hard to know.
In addition to its likely responding to upward price pressures given private equity’s general role in its pet-care marketplace, I did discover from poking around that a little more than a year ago, “the land and improvements” that house our clinic were sold for $7 million to an investing entity. It was impossible to identify the participants in this deal who all remained anonymous behind their "corporate veils".
Was this transaction done to charge the clinic a rental premium on its former cost of operating at that location, a new cost of business that could now be passed along to consumers like Wally and me, as well as a new profit stream for its investors? Again, it’s hard to know for sure.
We think a lot about how automation (yesterday) or artificial intelligence (today) are achieving economies and producing profits to the detriment of people in the workforce. We also need to be thinking about all the ways that private equity may be achieving economies and generating profits at the expense of consumers, particularly in what were (until quite recently) localized, mom-&-pop markets for services like pet care.
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Thanks for reading. Let me know if private equity seems to be impacting the cost of your local services.
I'll see you next Sunday,
It’s always good to hear from you. Just hit “Reply.”
