Pod Insights Decoder Rewind: How private equity kills companies and communities About this episode Hey everyone, it’s Nilay. We’re settling back in here after the winter break and CES, and we’ll have new episodes for you starting next Monday. In the meantime, we wanted to highlight one of our favorites from last year: an interview with journalist and author Megan Greenwell about her book Bad Company: Private Equity and the Death of the American Dream.
My conversation with Megan last year was extremely illuminating as to why private equity does what it does to industries like healthcare, media and real estate — and just how deeply it's affecting the everyday lives of Americans everywhere. It's a really great conversation that feels just as timely today as it did last summer. Enjoy.
Links:
Bad Company | HarperCollins
How private equity kills companies and communities | Decoder
Private equity bought out your doctor and bankrupted Toys ‘R’ Us | Decoder
Private equity makes its first college sports play | Axios
Private equity Is gutting America — and getting away with it | NYT
I was fired from Deadspin for refusing to ‘stick to sports’ | NYT
Will private equity be the next ‘Big Short’? | Marketplace
The profit-obsessed monster destroying American ERs | Vox
Why your vet bill is so high | The Atlantic
The investment firms leave behind a barren wasteland’ | Politico
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Transcript 8,870 words · 11 speakers
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1:24 Speaker 04 Hey, everybody. It's Neelai. The Decoder team and I are settling back in the podcast booth after the winter break in CES. And we're going to have new episodes for you, starting on Monday. In the meantime, we wanted to highlight one of our favorites from last year, an interview with the journalist and author Megan Greenwell about her book, "Bad Company: Private Equity and the Death of the American Dream." Private equity is one of those recurring themes of modern capitalism. You just plug the words "private equity" into Google, and you will find scores of news stories about PE encroaching on everything, from college sports in Utah to mobile home parks in the Adirondacks. It's everywhere. And my conversation with Megan last year was extremely illuminating as to why private equity does what it does to industries like healthcare, media, and real estate, and just how deeply it's affecting the everyday lives of Americans everywhere. It's a really great conversation
2:09 Speaker 04 that feels just as timely today as it did last summer. Enjoy, and we'll see you next week with more new episodes of Decoder.
2:18 Speaker 04 Hello and welcome to Decoder. I'm Neelai Patel, editor in chief of The Virgin. Decoder is my show about big ideas and other problems. Today, I'm talking with Megan Greenwell, a former top editor at both Wired and Deadspin, about her new book, Bad Company: Private Equity and the Death of the American Dream. The book comes out on June 10, and it is a searing account of how private equity goes far beyond impacting failing businesses and deeply affects and transforms the lives of everyday Americans. Now, Decoder is very much a show about the systems and frameworks that explain tech, policy, and business. And that means we've talked about private equity a number of times on the show, because PE is everywhere across the business landscape, even though its massive influence on how so many companies operate is pretty hidden
3:02 Speaker 04 from view. But once you see it, you start to see it everywhere. And it is incredibly validating to hear that so many other people have had similar experiences with companies managed by private equity. One of the reasons I know this is because it's in our numbers and the feedback we get here on Decoder. Our 2023 episode with lawyer and author Brendan Ballou about his private equity book, Plunder, is one of our most popular episodes. We'll link to that in the show notes. Megan's interest in private equity came from her experience as editor in chief of Deadspin, the famous and now defunct sports and culture website. Deadspin was part of Gawker, and Gawker was taken over by a private equity firm called Great Hill Partners, which began to immediately micromanage Deadspin's content. This was when Megan first began
3:47 Speaker 04 to realize that the goals and financial results of a private equity firm were very disconnected from the goals and financial results of the companies which they had taken over. And her book is a deep dive into how private equity works, as expressed in four parts of the economy: media, of course, retail, housing, and maybe the most maddening of all, healthcare.
4:08 Speaker 04 My family has a lot of doctors in it, and I've heard so much about how private equity has changed healthcare in America. And you'll hear Megan connect the dots between the financialization of the healthcare industry and the poor experiences many people have with healthcare today. Megan and I also spent some time talking about the history of private equity and the cultural through line from the New York City real estate world that gave rise to Donald Trump, all the way to the private equity industry of today. There's a lot of history there that really does help explain how the incentives of finance have come to dominate the American way of life, and now seeped into the highest levels of government. Perhaps most surprisingly, you'll hear Megan take great pains to differentiate private equity from venture capital, which is very different and comes with very different
4:51 Speaker 04 problems. I always really enjoy talking to other editors, especially about something they're so obviously curious about. Let me know what you think about this one. I suspect you will have a lot to say. Okay, Megan Greenwell, author of Bad Company: Private Equity and the Death of the American Dream. Here we go.
5:20 Speaker 04 Megan Greenwell, you're a journalist. You're the author of Bad Company: Private Equity and the Death of the American Dream. Welcome to Decoder.
5:26 Speaker 05 Thank you for having me.
5:28 Speaker 04 I feel like the book is really important. It's really good. It's fun to read in an infuriating way. But I should say, journalist is important. You were the editor of Deadspin. You were at Wired for a minute. You have a long history as a journalist.
5:41 Speaker 05 Yeah, been around the block a few times.
5:43 Speaker 04 We've talked about private equity a bunch on the show. It's a force in American business. It's a rising force in technology, which is often the focus of this show. We've talked about it in the context of media a lot. And you had a very direct private equity in media experience at Deadspin. I came up as a blogger on the other side of the Gawker equation. We were ferocious competitors to Gizmodo, and I ran in Gadget. And we would always look at Deadspin as this amazing, vibrant force, not only in American sports media, but in political media and cultural media. Just for our audience who doesn't remember what Deadspin was like in that moment, just give a sense of what it was.
6:24 Speaker 05 I mean, Deadspin was like so many things because it was so fun and so weird. As the 2010s went on, there were fewer and fewer publications that were doing fun and weird. But Deadspin just never lost that ethos, but it added on all of this other stuff, right? So it added on serious investigative work and big, beautiful features, pretty ambitious videos and all of that stuff. We had a nice events business going. When I got there in 2018, it was absolutely my dream job. Like, that was the job I wanted, was editor of Deadspin. And I was sort of like, great, I'll stay here until they kick me out. And then kicking me out came a lot sooner than I expected it to because of private equity. But yeah,
7:08 Speaker 05 it was just, I think, one of the most distinctive sites on the internet in a way that really made it the place I wanted to work.
7:16 Speaker 04 And I feel like the rise and fall of Deadspin encapsulates a lot of things, right? There was a set of upstart blogs and we were all there for the moment when the traditional newspapers would be furious at the bloggers in a way that the TikTokers now refer to me as the mainstream media, which is like very funny. And I'm like, no, I lived the first version of this fight, actually. Hold on. But then there was a displacement, right? That that did become a huge force in American sports and culture. And then the business model fell out for a huge variety of reasons that we've talked about a lot on Decoder over the years. And then private equity rolls in. And the thing that grabs me about that, and I'm confident led you to write this book, is the P E company tried to operationalize
8:01 Speaker 04 Deadspin.
8:02 Speaker 05 Yes.
8:03 Speaker 04 Right? It tried to get more value out of whatever commodity it perceived Deadspin to be. And you lived it. So I'm just curious, that's how I saw it from the outside. Is that actually what happened?
8:13 Speaker 05 Yeah, I think that's basically right. I mean, we had been run by Univision. We were so far outside the core of what Univision did that they couldn't figure out what to do with us. And we were definitely under monetized, right? Like, we had failed to develop a subscription product because we on the editorial side would say, hey, we should think about subscription products. It's 2018 and this is the time to do it. They would say, yeah, yeah, yeah, totally. But we don't have the business staff to do that. And so when Univision finally cut us loose...
8:46 Speaker 05 It wasn't that I thought that private equity buying media was a good thing, but it honestly didn't seem like the worst case scenario because they were telling us, yeah, we're going to properly monetize you, right? And we all wanted that. We wanted to be successful. Deadspin was profitable. You can define profitable any number of ways, and we were part of a network of other sites, not all of which were profitable, right? But by any metric I ever saw, you know, Deadspin alone was profitable. And so we were sort of like, this is an opportunity moment. This isn't a like slice moment. They talked a big game about how we were going to develop a subscription product and go hard on all of these other things that would make us more profitable, and none of
9:30 Speaker 05 us objected to that at all. It just turned out that what they actually wanted to do was dictate what we could cover and try to make us ESPN, which was so far away from the functional business model that it was just going to destroy the whole thing.
9:47 Speaker 04 Where did that disconnect come from? That micromanaging of the newsroom? Like, did they actually want to dictate what you could cover? Or was that a function of this widget appears to be the most popular widget, make more of that widget and less of this other widget?
10:01 Speaker 05 No, I would have been much happier if it was going on any metric at all. But on, literally on day one, you know, we knew they hadn't seen many of the numbers, except sort of top line numbers and diligence. And they came in and said, well, you guys need to stop covering everything that's not sports. And my first reaction was sort of, I was trying to be generous. And I said, oh, yeah, you know, it's so funny. You would think that, but actually, non-sports content, which was about 10% of what we did, outperforms sports content by two to one.
10:38 Speaker 05 Expecting that that would shut down the conversation because why wouldn't you want to do the thing that does better on the metrics, right? They said, we don't care. You're getting rid of the non-sports content. And I think really their goal was to be ESPN. You know, one of the other immediate things they said was they wanted us to run scorebugs along the top of the website. And I was trying to explain, nobody comes to deadspin.com to check who won the baseball games last night. That is just so far from what we do. And they said, right, but we want more readers. I was like, great, I can think of all sorts of ways to get more readers, but the way to get more readers is not to try to compete with ESPN.
11:23 Speaker 05 And they would say things like, well, why can't we compete with ESPN? And I was trying to explain the very basics of media business models to them and literally saying things like, so for example, ESPN has rights to NBA games, which we do not have. And it was like they had never thought of that before. So that was what was really maddening about it was it, there was not like, um, you know, a journalistic purity thing where I was like, you just can't touch this precious thing we've created. We wanted to make more money and we felt like we knew some ways to make more money and that smart business guys would bring better ideas than what we had.
12:04 Speaker 05 But instead it just like was so nonsensical that we couldn't even follow.
12:09 Speaker 04 It does feel like, why did this sports journalist write a book about private equity comes from that moment, right? Because the private equity company just wants to increase returns and they have a lot of moves to increase returns that have nothing to do with the businesses themselves being more profitable.
12:28 Speaker 05 Yes.
12:29 Speaker 04 It feels like that disconnect became really apparent to you during this time.
12:33 Speaker 05 Really apparent to me and I knew nothing about how private equity worked other than a vague kind of it can be bad sort of thing. You know, Alden Global Capital in media had already become a boogeyman by then, but... I had covered a lot of things in my career by then, but I had never covered business, didn't know how this worked. And it was just very confusing to me that their incentives would be different than the incentives of the company they were running. And as I started reading more about it, I began to understand, yeah, that because of financialization tactics, they are just different incentives, right? And so they can make a lot of money off of
13:15 Speaker 05 a company they acquire without making the company itself successful.
13:21 Speaker 04 Talk about financialization for a minute. This show is, I would say broadly sympathetic to people who are trying to do stuff. It's kind of what we do here. We talk to people about the decisions they make and why they make them. And, you know, there is an underlying assumption in that, that what they're trying to do is make good products or run good companies. The producers and I are always joking that the founders are the most interesting people we have on the show.
13:45 Speaker 05 Yeah.
13:45 Speaker 04 Because they seem to care. You know, like, right, there's something else happening with those folks versus the sort of McKinsey robots that we sometimes get as the CEOs.
13:55 Speaker 05 Totally.
13:56 Speaker 04 But the assumption is they're actually trying to run their companies. And that's a pretty base assumption that this show is founded on. And then there's this other thing you're describing, financialization, where the point is not to run the company.
14:10 Speaker 05 Yeah.
14:10 Speaker 04 And that is a system that is everywhere. It's like in an invisible cloud for the American economy. And you ran right into it. Talk about that a little bit.
14:20 Speaker 05 One frequent confusion that people have is that they mix up venture capital and private equity. And to me, they are so diametrically opposed because venture capital, you know, faults though it has, the point is to invest in people who are making something, right? The point is give the founders the money. Private equity is sort of the opposite because A, you're not investing. You're buying companies outright typically. But B, the ways you make money just don't have anything to do with making the product in a lot of cases. So financialization can mean any number of things, but but at its core, what it means is you're making money not from making the thing. You're making money from making money.
15:06 Speaker 05 You're investing the money. You're selling off the real estate, which is a big thing in private equity. You're collecting your management fees. You're making strategic investments and selling things from one of your funds to another one of your funds to collect the dividends. It's really, the game is simply making money. The game is not making money off of a product or a service or whatever.
15:33 Speaker 04 There's a moment, or maybe several moments for the last 30 to 50 years, where the American economy shifted from industrialists and people who are known for their products to billionaires who are, who make money by having a lot of money. What would you describe those moments as?
15:50 Speaker 05 So the rise of private equity started in the 60s. But in the 60s, it was sort of taking over companies, a lot of family-run companies. They called them bootstrap deals, where you would take over a family-run company that showed the potential to expand, but didn't have the capital to expand. And so it did start almost from what we now think of as a VC type of ethos. And then in the 70s and 80s, private equity turned into this different beast. The rise of KKR, Colberg, Kravis and Roberts was a big moment for this wave of financialization and for the rise of private equity.
16:32 Speaker 05 So essentially, they said, great, let's take these little bootstrap deals and let's take them to massive, massive companies, right? And so Barbarians at the Gate, you know, to my mind, maybe the best business book ever written, chronicles the RJR Nabisco deal, which was a KKR deal and which was the largest leveraged buyout ever completed.
16:54 Speaker 05 And I think that was a huge moment where all of these other folks looked at what KKR was doing and said, oh, we can do that. And that will make us a ton of money. And it, you know, again, it really doesn't matter if the company is making money. They've sort of cracked the code of just using money to make money. And so I think that that rise of KKR was probably the most important moment in private equity history, but also in sort of setting the tone for everything is financialization. Kohlberg, Kravitz, and Roberts was three guys, one of whom was a generation older than the other two. And he ended up leaving
17:36 Speaker 05 the company he co-founded because he he found that his other two co-founders were far too ruthless in terms of the types of hostile takeovers and other deals that they would do, you know, just to make money for themselves, often at the expense of the company they were buying.
17:55 Speaker 04 Just to put this in context, this is the go-go 80s, right?
17:59 Speaker 05 Yeah, corporate raiders.
18:00 Speaker 04 Yeah, this is corporate raiders. This is big limousines in New York City, the whole thing. Not for nothing, this is the movie Wall Street Greed is Good. Wall Street is about a leveraged buyout of an airline. It's very incidental to the plot, but that is the business deal at the heart of that movie. This is where Donald Trump comes from, right? This is the milieu that produces Donald Trump and his worldview, where everything is a transaction and everything is zero sum. Can you connect those dots as clearly as I'm connecting them? Because this Trump administration in many ways feels like the 80s again. There's a modern gloss on it, but that worldview seems to persist.
18:38 Speaker 05 Yes, absolutely. And, you know, Donald Trump himself, obviously not a private equity guy, but what he is is a real estate guy. And the marriage between, you know, big corporate real estate and private equity has always been extremely tight-knit, right? A lot of the people in Donald Trump's close orbit have always been private equity guys. I think you're right that that ethos of just don't worry about anything else, don't worry about any downstream effects, like just do what we want to do in this exact moment without ever thinking about ramifications. Yeah, it very much unites them. And that really was all the same world in New York in the 80s, for sure.
19:21 Speaker 04 Many things have happened since New York in the 80s and now. Among them, the rise of the tech companies. Among them, the 2008 financial crisis. There was a lot of free money floating around in a zero-interest rate environment that created companies like Uber and Airbnb. It seems like that also accelerated and made private equity more aggressive. And that maybe is underrated compared to, well, a bunch of tech companies exist.
19:49 Speaker 05 I do think that's right. I think private equity has always gone where money is cheap and where industries show an opportunity for them to make money, which again, does not necessarily mean the industry is a growth industry, right? And so you think about industries like housing and healthcare, both of which I cover in my book, and those were industries where it was just like, policy changes of various types led to a lot of cheap money. And for private equity, that just looked like gold, right? And so that world that created Uber, Airbnb, et cetera, very much is the same conditions
20:32 Speaker 05 that caused this huge growth in private equity throughout the 2010s and has culminated for the moment in where we are now, which is just, you know, private equity devouring everything in a certain set of industries. There was a study last month that said, private equity firms now own about 10% of all apartments in the US. And in several metropolitan areas, it's over 25 or even over 30%. And that is a result of, you can get cheap money from Fannie Mae and Freddie Mac, and that was a deliberate policy decision, right? That was intended to benefit low and middle-income homebuyers and did benefit many of those people.
21:17 Speaker 05 And also meant that there was just this fountain of money for private equity firms.
21:22 Speaker 04 We have to take a short break. We'll be right back.
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22:55 Speaker 04 Welcome back. I'm talking with 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.
23:11 Speaker 04 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? 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 it 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.
23:43 Speaker 04 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 were going to go under. They extract the profits. Sure, maybe they cut some deals on the side to improve their own financial welfare, but then you have these lean, mean operating companies that can go off and do things.
24:10 Speaker 05 Mm hmm.
24:11 Speaker 04 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?
24:18 Speaker 05 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? And I do focus on the more disastrous stories in my book. While it is true that most deals are for small companies, the most of the money
25:01 Speaker 05 is for the big companies, right? And so the larger leverage 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
25:41 Speaker 05 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.
25:53 Speaker 04 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 a 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 healthcare in America.
26:38 Speaker 04 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 a better service is just short circuited. Why do you think that is?
27:01 Speaker 05 Part of the reason that a ton of private equity money flowed into healthcare 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. Many people can't pay for it.
27:43 Speaker 05 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 uh, we see a way for it to work for us. And working for them generally did mean.
28:22 Speaker 05 Kind of the stripping it for parts model. You sell off the real estate, you cut back the services. And 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?
29:02 Speaker 04 It did. You know, my parents were small town doctors in Wisconsin in the eighties. My sister's a doctor now. The, the reason that I focused on communities and businesses is the hospitals they worked at in small town, Wisconsin in the eighties were just part of the community.
29:17 Speaker 05 Yeah.
29:18 Speaker 04 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. 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.
29:47 Speaker 05 Yeah.
29:48 Speaker 04 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, you describe it very clearly in, 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, they still have the status and they're still doctors, but PE has made them workers. Talk about that a little bit. Is that, is, does that seem tenable? Cause 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 P E. Episode.
30:31 Speaker 05 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? You 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
31:16 Speaker 05 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. There'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 paid 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.
32:00 Speaker 05 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. And 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.
32:44 Speaker 05 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.
33:04 Speaker 04 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, you know?
33:45 Speaker 05 Yeah.
33:46 Speaker 04 The market is ultra receptive to recruiting and retaining that talent because it's scarce. And in the healthcare market, it feels almost as though it's the opposite. 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?
34:09 Speaker 05 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's 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, like, you have everybody fighting for this number of residency slots. But the other thing is, like, healthcare is an industry that... breaks what we think of as the rules of free market capitalism in so many ways. Because of there's 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
34:55 Speaker 05 American medicine as a business. It's called The Social Transformation of American Medicine. It's by this Princeton professor named Paul Stern. It came out in the eighties. 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. That'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?
35:40 Speaker 05 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.
36:03 Speaker 04 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 United Healthcare, was shot on the street in New York City. Luigi Mangione is in prison awaiting his trial for 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 the excesses of the private equity market in healthcare or really anywhere else.
36:43 Speaker 04 Has the industry seen, oh, this is, we've squeezed it so hard that there are shootings in the street? That feels like, okay, like it's time to pull the ripcord and maybe actually think about the outcomes here.
36:56 Speaker 05 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 you know, 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?
37:36 Speaker 05 So 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, I think that private equity executives probably still feel like they're in that group even after the Brian Thompson shooting.
38:20 Speaker 05 Because like, you know, who can name a private equity executive, right?
38:24 Speaker 04 Well, anyone. You just walk around New York, their names are on all the buildings.
38:27 Speaker 05 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 Kraviss Children's Hospital over there, could tell you who Henry Kraviss is and why he matters, right? There's like this interesting divide between like our perception of private equity guys as.
38:56 Speaker 05 Philanthropists, benefactors of cultural institutions, all of that, and private equity guys as private equity guys. And 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, it's, the negative outcomes there are pretty bad, too.
39:29 Speaker 04 I will say that the CEOs who show up on Decoder, increasing amounts of security when they show up in person.
39:35 Speaker 05 Oh, yeah.
39:36 Speaker 04 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, the, the, 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?
39:56 Speaker 05 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. A health insurance CEO, everybody hates their health insurance, right? So, trying to think of how to say this without sounding terrible, but like, it is less surprising
40:36 Speaker 05 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, nosey journalists like us.
41:21 Speaker 05 This 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.
41:46 Speaker 04 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.
42:22 Speaker 05 Yeah, the crafters, man, mad about Jo-Ann Fabrics. I hear from the crafters so often.
42:29 Speaker 04 Doctors and crafters.
42:30 Speaker 05 Yeah, exactly. Those folks are mad.
42:35 Speaker 04 We have to take another quick break. We'll be back in just a minute.
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44:05 Speaker 04 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 PE in some way. So I wanted to ask, how?
44:28 Speaker 04 That's the last bit of the book in the, it's the after section. You talk about ways forward, the vignettes in your book, the main characters have all fought against PE in some way. How do you see that playing out?
44:40 Speaker 05 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
45:22 Speaker 05 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. The 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,
46:06 Speaker 05 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. You 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 healthcare, 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.
46:48 Speaker 05 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. But 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.
47:24 Speaker 04 It feels to me like the, the big solve is somehow connecting the inputs and the outputs once again. Right? We talked to billionaires on the show. It, it, I, there's a part of me that says, you know, fair play, if, 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?
48:02 Speaker 05 I 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 PE, all told, would probably regulate PE basically out of existence. But the part of that that I find-
48:21 Speaker 04 The magic wand is making it go away.
48:23 Speaker 05 I mean, yes, but, but the, 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, 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.
49:05 Speaker 05 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. But 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.
49:46 Speaker 04 I feel like you definitely have to write your next book on the venture capital industry and the, the market conditions it has created. Because that is a really interesting contrast that you're making there.
49:56 Speaker 05 Yeah, no, I 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, you know, I don't know enough about it.
50:26 Speaker 04 Yeah. Well, Megan, you have to come back when you write your VC book. For now,
50:30 Speaker 05 Perfect.
50:30 Speaker 04 The book is Bad Company, Private Equity and the Death of American Dream. I highly recommend it. It is, like I said, it's a, 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.
50:39 Speaker 05 Thank you, Neelai.
50:44 Speaker 04 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 [email protected] . 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. If you like Decoder, please share it with your friends and subscribe wherever you get your podcasts. Decoder is a production of The Verge and part of the Vox Media Podcast Network. Our producers are Kate Cox and Nick Statt. Our editor is Ursa Wright. The Decoder music is by Breakmaster Cylinder. We'll see you next time.
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