In this turbulent era of job cuts and stock market swings, businesses are usually more-than-happy to take investor monies. But, not all investment is celebrated equally among the political and chattering classes. President Biden and Congressional allies such as Sen. Elizabeth Warren (D-Mass.) have roundly criticized private equity (PE) firms as vultures intent on mining companies for profit, laying off workers, and deteriorating the consumer experience. Their current ire has been directed at veterinary practices, which have seen about $45 billion worth of PE dealmaking over the past five years. What Sen. Warren et al don’t tell you is that PE investment in these practices are helping veterinarians and the four-legged friends they take care of.
Even the popular podcast Freakonomics has weighed in, discussing the pros and cons of PE acquisitions. Despite the disproportionate noise generated by PE opponents, these investments have been paying dividends for all parties involved and helping beleaguered businesses get back on their feet. Politicians are barking up the wrong tree with regulations that would harm growth and innovation.
It's a tough time to practice animal medicine. In 2022, The Atlantic staff writer Sarah Zhang reported, “Hospitals, clinics, and vet offices around the U.S....have been turning animals away because they are short staffed. This crisis has hit all levels of the system, from general practice to specialists, but animal emergency rooms—where the job is most stressful—have it the worst.” Even if pet owners can find an elusive open spot, payment is certain to be a stressor for millions of households. About 1 in 4 pet owners had to forgo medically necessary care for their pet over the past year due to rising costs.
PE firms typically swoop into a fragmented and troubled marketplace. Veterinary clinics seemed like an obvious choice for investment managers. While there is not much data at this point, early signs are encouraging. Large PE-backed ventures such as National Veterinary Associates seem to be having success in retaining veterinarians in a notoriously-burned-out profession. A nationwide corporate infrastructure can prevent employee stress in ways that smaller practices cannot, through things like practice matching programs, mentorship, and development programs.
And, data from other industries suggest that PE can make significant operational improvements in a short period of time. According to Harvard Business School economist Josh Lerner, there is evidence that fast-food restaurants taken over by PE firms are cleaner and less likely to give consumers food poisoning. That result is encouraging for veterinary hospitals, given the significant issues associated with contamination and healthcare-related infection control. Evidence on employment is more mixed, but Lerner found that PE acquisitions of fragmented industries such as veterinary practices tend to have double-digit employment gains. Productivity also tends to increase, allowing practices to hire more people but keep costs under control for consumers.
Other factors, however, may result in higher prices for pet owners. E-commerce pet-goods provider Chewy is trying to grow their veterinary telehealth practice but has encountered significant resistance from regulators. Most states still require veterinarians to examine an animal in-person before diagnosing illnesses and prescribing treatments, making it all but impossible for providers to go completely virtual. And that’s a shame, because telehealth can save doctors and patients a significant sum of time and money.
Public officials should focus on these barriers to care instead of demonizing investments that are increasing growth and productivity in a long-struggling industry. PE can be the purr-fect solution to veterinary troubles.
