Private Equity Sucks At Running Business of Medicine

as covered previously, the emergency medicine takeover has been a disaster

It finally happened. In my prior article in which I explain the disaster of the 2023 match, and the 555 unfilled emergency medicine spot, I highlighted the bankruptcy of envision, and poked fun at American physician partners for a sucking at their job

Adorable kittens pouncing on keyboards that could generate CPT codes for submission to a payer = business model that outperforms paying humans. Human doctors have demands for salary, benefits, and, most problematically, appropriate medical care for patients that might not be the most profitable.

Today, with grim satisfaction, I report:

American physician partners… is no more:

American Physician Partners, a medical staffing company based in Brentwood, Tenn., is closing and planning to transition its hospital contracts, according to Bloomberg. 

APP was founded in 2015 and provided emergency medicine and hospital medicine management services to more than 150 hospitals and health systems organizations in 18 states, according to its website. It is a portfolio company of Brown Brothers Harriman Capital Partners. 

I made assertions in that article about the role of private equity, and the fact that I didn't think they could actually make Healthcare any better.

It is about the timeline:

Private equity firms are companies focused on generating quick and substantial profits through acquisition and sales of businesses. They typically sell the acquired businesses within three to seven years for a higher price. This short-time commitment is one of the defining characteristics of private equity firms, according to the industry’s trade association, the American Investment Council.

They are promising to beat the market.

If they’re not beating the market, there’s no reason to hire all those B-School Grads to put on expensive suits and take over Healthcare.

It turns out not only can they not do that, but they can't make money either…for their investors, they made a lot of money on fees personally:

"Due to our ongoing financial challenges and despite our best efforts, American Physician Partners will begin transitioning service of its hospital and system partners as of July 31, 2023," a company representative said in a statement to Bloomberg. 

Do you know you know who doesn't get to transition out of hospitals?

Patients who are dying or sick and need that care. Hospital-based doctors probably don't either.

Private equity makes a ton of money on fees:

• These funds have a similar fee structure to that of hedge funds, typically consisting of a management fee (generally 2%) and a performance fee (usually 20%).

They they get to shut things down when it turns out they're business hypotheses aren't something they can pull off. They get paid 2% per year to do whatever the fuck they want. The doctors don't get paid that. They certainly don't get 20% on patient getting better or on the revenues they generate for hospitals.

In an emergency, Emergency medicine doctors have to stop the bleeding—otherwise the patient dies. They don't get to just bail. Sometimes the patient dies. Sometimes there's nothing they can do. And then they go back to work the next day, and save another life, and another, and another.

It is less optional to work in healthcare for physicians. And it's completely involuntary for the patients who are dying:

The news makes APP the latest physician staffing company to face distress following the 2022 No Surprises Act, which established new federal protections against surprise bills for emergency services and out-of-network care. In May, Envision Healthcare filed for Chapter 11 bankruptcy, citing implementation of the No Surprises Act as a factor for its poor financial position. 

The No surprises act made it illegal to continue to drop out-of-network bills on Americans and then ruin their lives with debt collectors because they walked into an emergency room staffed by people employed by PE vampires who used regulatory arbitrage to create massive medical debt as a profit center.

Everybody on earth should be cheering for the death of American Physician Partners, because they were neither physicians, nor our partners.

These companies are vampires sucking the blood out of the American dream, as well as sucking the literal blood of Americans and then sending them massive bills for the privilege.

I have never been more happy to see a business model go bankrupt and lose a metric F ton of money, I just wish the private equity vampires who made that possible would get staked in the heart also.

I would like to take this moment to point out that the only business model that made physician roll ups of emergency medicine staffing companies profitable was something made expressly illegal because it's fucking horrifying.

Absent the ability to create vortices of unbelievable debt on the tails of nightmareish human suffering, these business school graduates had no ability to run emergency medicine staffing as a business that wouldn't go bankrupt. They couldn't make money off of American healthcare once the scam part banned. They couldn't play by any reasonable rules of decent human society.

In late 2021, S&P Global Ratings downgraded APP Holdco — the parent of American Physician Partners — to CCC- after the company pulled its $520 million term loan deal. At the time, S&P said the downgrade reflected the view "that near-term default risk is high" with about $472 million in debt due in one week.

The business model of private equity roll ups is suffering. It's suffering, and it's arbitrage, it's not adding value, they don't know how to do it, they couldn't do it if you gave them every emergency medicine doctor and ruin the entire sub specialty in the process. Here is what they promised.

“APP has awesome ideas to make health care great. Did I say great? I meant profitable for them:”

"APP has numerous cost saving initiatives underway as part of the Company's continual focus on cost optimization," the document says, including a "shift of staffing" between M.D.s and mid-level practitioners.

From a balance sheet perspective, it makes all the sense to replace residency-trained doctors with adorable kittens. That is a great staffing model!

They are losers vampires. If they're offering your pool of capital the opportunity to get extraordinary returns, do not invite them in:

—Owen Scott Muir, M.D.