After private equity takes over hospitals, they are less adept of providing care
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1. Adverse Selection loop: Individuals in poor health are more likely to purchase health insurance, leading to higher payouts for insurance companies. Premiums may rise, discouraging healthier people from buying insurance, and so on.
2. Moral Hazard: Insured use more healthcare services than necessary or neglect preventive measures, when insurance will cover the costs. This leads to inefficient resource and costs.
3. Information Asymmetry: Patients lack information to make informed choices.
4. Monopoly Control and Entry Barriers lead to higher prices and limited choices for consumers
5. Interdependent Demand and Supply: supply and demand are not determined independently. Often more demand -> less supply.
6. Externalities, such as the spread of communicable diseases, can't be efficiently addressed by the market.
7. Public goods: non-excludable and non-rivalrous, are underprovided by the market
(This is also why other posters here observe that examples of sectors prone to market failure have high levels of government involvement)
I'd used a textbook by Joseph Stiglitz several decades ago whilst at uni, and there should be an updated version of it out.
I think this might be it or close: Economics of the Public Sector, Fourth Edition. By Joseph E Stiglitz (Author, Columbia University), Jay K Rosengard (Author, Harvard University).
<https://wwnorton.com/books/9780393925227>
The table of contents looks promising, particularly chapter 5.
Also at: <https://search.worldcat.org/title/39485400>
You might also find this in Handbook of public economics by Alan J. Auerbach, Martin S. Feldstein, Raj Chetty, and Emmanuel Saez.
Capitalism is amazing except for where market failures occur, which is many cases. The industries that suck the most also have the most market failures: healthcare, housing, and education
Once we stop motte-and-baileying this, then we can have productive discussions that identify cases where market capitalism actually does work and then fortify the cases where it doesn’t.
There are obvious cases and many non-obvious ones.
To make an exaggerated point: Medical research is not too far off from throwing things at the wall and seeing what sticks. A lot of working therapies and drugs aren't as well understood as one would hope.
Also it's incredibly complicated. I'm thinking of preventative measures, psychosomatic symptoms, rare conditions, varying sensitivity, long term risks and so on.
There's just no easy answer to any of those things.
In a perfect world, you'd have the social control by families and communities combined with the expertise of health care professionals that determine where the line is on a case by case basis.
Well said, 100% this. It's also worth noting that so many things that one might abstractly think of as matters of life and death are currently being provided on a "sometime in the next several months if you're lucky" basis. There are surely some aspects of healthcare that can never really have a functioning market dynamic, like emergency care. But the vast majority of medical care is provided not at the speed of cardiac monitor beeping, but rather at the speed of scheduled appointments and billable events. What we really have is one big market failure due to criminal behavior of "insurance" companies (price fixing and restraint of trade) as well as providers (collusion and extortion). I'd say that no matter who may be ultimately paying, two critical first steps to restoring some patient agency are outlawing "insurance" "networks" and outlawing post-facto billing shakedowns.
The healthcare, housing, and education industries are some of the most highly regulated. Which came first, the market failure or the regulation?
Standard Oil had a monopoly in the oil industry, so antitrust became a thing.
There was information asymmetry around food and drugs, because there's no way for a consumer to really know what's in a food or a drug. So the FDA mandates that they put out accurate info with penalties for incorrect info.
Information asymmetry and moral hazard led to 2008 financial crisis, which then led to Dodd-Frank reform
Those sectors you listed are actually among the least-capitalist and least-free-market in many locations.
They typically involve widespread and extremely invasive government interference that leads to significant inefficiency, service quality problems, and pricing distortions.
The healthcare industry, for example, is highly regulated in most jurisdictions. This eliminates most (or potentially even all, in particularly socialist systems) competition, which in turn eliminates consumer choice and also eliminates the incentives needed to ensure everybody involved behaves efficiently.
The housing industry is also highly regulated in most jurisdictions, and especially in urban areas where demand for housing can be highest. Restrictive zoning regulations, overzealous development review processes, unrealistic building codes, and financial system regulation result in a variety of market distortions that in turn can negatively affect the supply of available housing, the type and quality of housing that is built, rental rates, and purchase prices.
The education sector has perhaps the most government involvement of the examples you gave. In many places, it's provided directly by the government itself. Even if private options do happen to exist, they're often subjected to government-imposed accreditation and curriculum restrictions that neuter their independence. The situation can get particularly bad once government funding gets involved, especially in higher education, which can introduce severe tuition pricing distortions, inefficient use of resources, and so forth.
When a so-called "market failure" occurs, it's usually because there isn't actually a free market involved at all, but rather significant government interference and other socialist policies.
Of course government intervention has flaws too. I hope that we can make our government smarter and more effective over time.
Markets like healthcare, housing, education, and transportation tend to be early targets because they're large and widespread markets that are fundamental to everyday life, and thus prove to be very lucrative targets for government actors to exploit.
Sometimes, this government-imposed regulation is then co-opted by non-government actors who manage to further abuse it to their advantage, making the situation even worse.
"Market failure", "protecting the consumer", and similar phrases are simply the fake justifications used to try to make this unwanted and unjustifiable government interference more palatable to the public at large.
Government actors are inherently parasitic; they don't create real wealth, and are only able to siphon real wealth away from those who do have the ability to create it and then use it most efficiently. Thus, government interference inherently results in otherwise-fine markets becoming less-efficient and worse off, leading to what is then wrongly misinterpreted as "market failure".
When I buy indoor plants or VOD subscriptions, I'm participating in a market. I can choose to not buy these things at all.
When I buy healthcare (via insurance or not), I'm basically doing what my doctor suggests, because well, it's about my _health_. The consequences and risks of not buying can be too great.
Is healthcare an actual market in the real sense, or are we just pretending it is?
Are there things that are inherently unsuitable for privatization?
My thinking is that public transport, healthcare, law enforcement (including prisons obviously), public education and so on are all to some degree or another unsuitable for competitive markets. The incentives, power relations, feedback loops etc. just don't fit.
When medical care is funded by health insurance, you are the person who selects the goods, but you're not the one that pays the price. In some cases, you will never even be informed of the price, you don't want to be. And you rarely find out unless there are "problems".
The insurer doesn't worry if the bills are high, they'll just raise your premiums... but your monkey brain never makes the connection that your poor goods selection resulted in the higher price. It might even be unfair to blame you, even if you are careful which products you purchase, someone else was curious and you're punished with them. This incentivizes you to be less careful, not more. But if bills are really getting out of hand, the insurance company can just deny the claim.
This incentivizes the medical care provider to raise the number on the bills. If half of claims are denied, just double the bills and the math works out. The medical care provider is incentivized to get tricky with the billing codes, to obfuscate, to over-complicate. Over decades, a culture of being borderline fraudulent develops, a mythology that it's impossible to even know the costs upfront.
If I wanted to invent a machine that would cause prices to spiral out of control at the fastest possible rate, I don't think I could beat this.
> public education
By all means, I wish medical care could be as wonderful as public education. We could have the excellence of inner city Baltimore schools, coupled with the overabundance of service we see in California schools and the high levels of compensation of the average nationwide teacher salaries. Never mind the great outcomes that institution provides.
Public education where I live is not perfect, but it works well and teachers are compensated fairly. I consider it one of the bedrocks of a democratic society.
In know of people who went to public schools in America and have said good things about it. From my very limited knowledge it seems like the quality of public schools varies a lot from area to area though.
Nowadays, it is incredibly variable because school systems are funded at the local level, most the curricula is decided at the local level so you can go from a very well-funded high-quality teacher school like the Newton, Wellesley, and Weston high schools to the low income areas out West where the public school system has been outsourced to Christian schools.
I also think the public school system is a bedrock of a democratic society if the curriculum is uniform and covers critical thinking, history, literature, and sciences without flinching. I feel like we need to draw a line in the sand and say what someone needs to know to be a citizen of this country. The problem is, there are lots of different opinions where that line should go ranging from the religious and racist to the equally dogmatic far left.
I think it's misguided to point at the failures of one chronically underfunded public function to say that another would also perform poorly, unless the point is to say we would probably underfund public health care as well.
Other notable public goods are national defence, information, other general infrastructure, communications technology, etc.
There's another class of goods and services which are often at least in part government-provided because of coordination problems when provided by independent entities. Examples would include standards (weights and measures, specifications, safety requirements, shipping containers), transactional interchange formats (e.g., billing and purchase codes), large-scale information gathering (census, economic data), and the establishment of laws, regulations, courts, and enforcement themselves. Max Weber's definition of government as having a monopoly on the claim to legitimate use of force is another such case: regions in which that legitimate claim monopoly doesn't exist, in any of its three variants (not a monopoly, illegitimate, ineffectual force) are effectively ungoverned.
And then there's the case of insurance services, especially over broad areas or long periods. Pensions, healthcare, and disaster insurance would be three areas in which governments often, though not always, play a role, largely because private provision of such services simply fails to meet social needs.
If one looks at national governmental budgets, the largest items are typically pensions (e.g., Social Security in the US), healthcare (Medicare), and defence, with all other spending (largely: collective-action regulatory roles) being about a quarter of the overall total.
Who actually is pretending this is a real market? In a functioning market all participants have access to the relevant information, there is choice and competition.
* With employer based insurance you basically have no or minimal choice.
* Getting information from providers and hospitals to make a decision is extremely hard to impossible
* Pharmacies have contracts that forbid them to inform patients about alternatives
* Insurances' websites often list doctors that not in network anymore
The system in the US is very far away from anything resembling a market.
My standard of care went way up when I got private insurance in the UK as well. The only thing the public services were ever good at was emergency care.
This is an unpopular opinion and it's a shame that there isn't a panacea. Both systems have their strengths and weaknesses.
The exception is you don't have copays and deductibles but those aren't ever arduous and now that I've been using HSAs, it's negligible and a great hack at investing which is really what I use it for.
1. When did you experienced the UK health system?
2. US health system should be REALLY good then.
I had to use the UK NHS between 2004 and 2008 kind of "extensively": Started with GPs (which I think is the weakest link, as they only give you 15 minutes for appointment and appointments are difficult to get). But once I got into a hospital; attention was so amazing, and all the studies were free and I was pretty well treated (blood work, ultrasound, colonoscopy, among others).
All in all, my experience with the NHS was hugely positive the 4 years I lived there. I feel it was even better than the one I had in Germany (where I also lived 4 years and also had some touch with its health system).
If I understand correctly, In the US I would have to earn some good money and jump hoops and loops through the insurance process to get something barely similar no? and those horror stories I read about the premiums payment, or that I need to be working to have insurance, but if I get in some accident and cannot work but have to use the health system then, I'm screwed?
TBH when I had the chance, I choose to go live in the UK instead of the US partly due to the fear of its health system.
If you have insurance, which you would because you'd have a job and not be a bum, your insurance would cover mostly everything. You have out of pocket maximum which dictate how much you are limited to pay for which is marginal at best.
The people who get $50k medical bills are lying and if they call the billing departments, they apply 80% self pay discounts which bring the fees in line with having insurance. More so, every state has low/no income programs which cover everything.
The nice thing about America is you don't need to go to a GP who will refer you. If you want to visit a urologist for a problem, you call a urologist, schedule an appointment and show up. You can be seen as early as that week of an appointment is open or most of the time as soon as the following week.
Going in network with your insurance provides the best cost/benefit ratio and of all of the insurance coverages I get, even with shit high deductible ones I still get access to research and specialty hospitals.
Consequently , nurses and doctors are better paid and have far better attitudes towards care in America. Every nurse and doctor I met in thE UK and Canada were truly miserable and over worked.
Private care in the UK is cheaper compared to the US but the US subsidizes the vast majority of medical advancements through it's over priced medical system that if it didn't exist, the advancements European countries take advantage of would disappear. Personally, I'd love to American companies get panelized tax wise in America when they are told by foreign country regulators what they can sell X drug for on their countries when the price isnt in line with the free market. They should walk or be taxed for selling at a discount but that's a different argument.
I'm quite pleased to live in a country with a decent public healthcare system. It does indeed have some significant benefits. It still has half the problems on your list, and more besides.
If you have that small tight ball of nuclear fire burning in your chest, indicating something is very wrong, you really want to get to the hospital right away. Unfortunately, when you are having a cardiac event, you will make stupid decisions. I'm sure you can guess how I know.
The decade+ since I have helped several friends die more dignifiedly, including my own mother.
Take advantage every. fucking. day. and get your Last Wishes in order (e.g. EoL options/terminations; DNR; who-do-what?)
In the chaos of the inevitable stroke/heart attack (which will kill many of us, reading and writing this very comment), your un-informed family will be in even more chaotic whorlwind than our soon-to-be medically-endebted patient/cadaver.
Best wishes to all.
Classically, economists often pair the somewhat jarring set of healthcare and military procurement as sharing many of the same characteristics: high-ticket, high-consequence, difficult-to-assess purchasing behaviour in which the entity who is tasked with making the go/no-go decision is not the same as the party paying the bill. In the military case this would be a procurement officer (usually a commissioned officer within the military establishment) and the taxpayers generally.
Most of the other characteristics of your description of healthcare markets also apply to the military spending case.
(NoMoreNicksLeft made this same point in an earlier downthread comment: <https://news.ycombinator.com/item?id=41192300>.)
Another problem is the large hospital conglomerates that end up owning all local hospitals in some areas. Large corporate structures always end up disconnected from reality and optimizing for the wrong things.
Neither patient protection nor affordable care.
I think this is more about the retaliation of "having earned it/more," for all the decades of sacrifice becoming a thankless-physician entails. Money is a simple metric for simple people, but yes, absolutely it's about the money to a lot of people.
I dropped out after the first year, because I realized I would self-delete (at some point) should I continue on the careerpath to physicianhood. I am so grateful to still be here, xx years later, doing anything else:
If you want to help people and/or make lots of money, there are dozens of other career opportunities to do BOTH more-easily/better.
I don't really mean this as a dig at them either. It's just the way of business. High level leadership takes a certain type of person to survive and thrive. This tends to be people who want to optimize the value of every hour they spend working.
*source: am a physician
Here's the actual study.
https://jamanetwork.com/journals/jama/fullarticle/2821826?gu...
Hospital Assets Before and After Private Equity Acquisition
Private equity acquisitions appear to have depleted, rather than augmented, hospital assets. Although funds from asset drawdowns might be redeployed to enhance care or efficiency, previous studies suggest such effects may not occur. Financial outcome of private equity hospital acquisitions and effects on patient care require further study.https://www.theverge.com/23642104/barnes-and-noble-amazon-bo...
At least according to that interview, it was going well at the time about a year ago.
There have been some bad moves taken at the corporate level (cutting the book procurement team, massive reductions in corporate headcount, etc). This makes the stores have to be a lot more self-reliant and increased workloads. Pay kinda increased, but is still way below the average for retail.
Ultimately, it's good for the business, but it's not as great of a place to work at anymore. When I started, the average non-managerial employee tenure was 6 years, now it's only 2 years there.
But the point of PE buying a company is so that the company can help PE's mission, not PE helping the company's.
On the flip side, the high-profile "pump and dump" PE deals almost always seem to be bad for everyone but the PE firm and shareholders.
At their lowest, TPG became a majority shareholder and strongly influenced operations. The initial plan was a quick fix, but TPG saw opportunity and helped OnSemi make the jump up the component food chain.
A major part of this was the low cost structure that TPG drove. This then allowed for cheaper credit options which freed up money for M&A.
Hilton was in trouble after 2008 crisis. Blackstone purchased them as a lifeline. Under Blackstone, Hilton reorganized itself and then Blackstone sold them off.
PE buys some operation, loads it up with debt and then pays dividends to itself directly from that borrowed money (via a chain of subsidiaries)
it continues doing this until the company debt situation becomes unsustainable, then dumps the company on clueless investors (e.g. state pension funds)
paying dividends from debt is illegal, but apparently not if you launder it through enough subsidiaries in different countries
this is essentially exploiting a design flaw in capitalism
Like Toys'R'Us, Sears, Gymboree, Payless, Claire's, Radioshack, Sports Authority, Brookstone, all of them filed for bankruptcy, some closed for good. Now maybe they would have anyway, but it's hard to say.
But I guess they get money out of them. If you pile on debt and pay yourself, and then the company goes bankrupt, well you got paid, that's what matters to PE investors, right?
Not how good the care is at hospitals.
We all have nostalgia for small chains or companies at the mall in our youth. Almost all of those are terrible and failing businesses now. It's a bit like the movie Up In the Air where Clooney goes around firing people. He's the face of the bad news, but he's not the cause.
For the article at hand, hospitals really should be non-profit. Providing great care at low costs means the goal is a terrible business.
This isn't true in most cases. PE has killed many profitable companies by taking deliberate steps which resulted in the companies directing their incomes to servicing unsustainable debts rather than running or improving the businesses.
For example the eldercare company ManorCare was profitable and successful prior to being bought and destroyed by a PE group. The PE firm loaded ManorCare with the debt that the PE firm used to buy it in the first place and then sold ManorCare's real estate and forced ManorCare to rent it back, causing ManorCare to spend $500 million/year on rent[0]
Forcing companies to take on debt and sell their assets is a standard part of the PE playbook and inevitably ends in the death of the company regardless of how it was performing prior to being taken over.
0: https://skillednursingnews.com/2018/11/washington-post-blame...
Also, profitable is not the measure. Blame capitalism or investors or ourselves. I know I'd rather put my money earning 5% rather than 1%. Both are profitable, but the 1% is not the best use of my capital.
As I said above and again here, healthcare related services should not be under the profit pressures of regular businesses (though then you have to deal with other issues of inefficiencies and waste).
Consequently, it changed policy, raided the equipment to take expensive equipment to other hospitals, ran it into the ground, and then closed it permanently on the grounds that it was too expensive to operate.
The hospital sat derelict for probably more than 6 years as the city fought with the owner to try to get a hospital + emergency room back to no avail.
It was then promptly razed to the ground, and now the highly valuable real estate is currently sitting there growing weeds, as the owners contemplate what to do next. We believe they will build luxury senior housing there, but nobody knows.
The closest ER to my house used to be less than 5 miles away. Now it is more than 15 miles to the north, and it is shared by a much larger area. The nearest ER in any other direction is 30+ miles away.
It destroyed the hospital, and our local medical community in the process.
So yeah, at least in my case (and I suspect I'm not alone), private equity was completely destructive to our hospital.
It lays out how the PE firms' MO is to destroy companies while extracting every ounce of value from them leaving a husk that quickly falls apart. There are several different strategies used by PE firms such as selling off property and renting them back to the companies they own, forcing companies to take on debt to pay the PE firms, and strategically breaking the law because the PE firms are not liable for the broken laws. It also covers how PE firms buy up all companies in a particular region and sector so that competition is not possible and consumers have no choice but to use the PE owned providers.
It shows that the impacts PE has on hospitals such as those in this study are not side effects but are the known and intended goals of PE firms as they extract the value from the company.
These firms need to be regulated out of existence but unfortunately the book also covers how many high profile government movers and shakers are tied up with private equity. For instance former secretary of the treasury Geithner now runs a PE firm and former president Trump is good friends with a PE exec (CEO of Blackstone).
0: https://www.hachettebookgroup.com/titles/brendan-ballou/plun...
Private equity is the customer. Once private equity takes over, you are the product, even if what you are getting isn't free.
Fortunately I live near two of the community-run hospitals and the associated clinic network.
You just have to use it on executive pay, perks, expensive consultants who happen to be friends with the board, conferences in Tahiti, etc. instead of directly distributing it to shareholders.