Episode 7 - Private Equity Unregulated: Flagship of our Rigged System
Private Equity 101
Welcome back to Toil Episode 7. Today is finally time to talk about private equity. And we have an interview today from a county council member in Pennsylvania who has witnessed private equity harm her community. Before we get to the interview, let's better understand private equity. Like many things, it is a tool that can be used for good or harm. But let's first just define it for any listeners not quite sure what it means.
Let's start with what each word means private and equity. Private just means we're talking about investments into companies that are not public. They're not listed on the public stock exchange. You and I can't just go to a public website and buy equity or shares in these companies. They're private companies. But really wealthy people in Wall Street firms can buy shares of them.
Equity is when an investor actually owns a portion of a company. So when any of us as individuals own a share in a company, a public company, that is us owning equity in the company, though obviously a very small non-voting share of equity. In the show shark tank, you'll see the sharks negotiate for a percentage of equity in the company. That means they own that portion of the company.
So, private equity, by its pure definition, just means owning some portion of a private company. That's not necessarily bad, and in some cases is really needed by companies and quite useful in helping them grow. The problem is that today, when you hear private equity, it probably means a leveraged buyout or LBO is what has happened. And this is incredibly harmful to companies. In finance, the word leverage means debt.
So a leveraged buyout is when a private equity firm takes out usually a massive amount of debt from a bank to fully buy out either an entire company or at least a majority of it, which gives it control. And the PE firm is not liable for that debt. Only the company they're buying is. And that debt actually finances the vast majority of their purchase, sometimes as much as 90% or more.
So only 10% or less of actual equity capital is coming from investors. So they don't have much of their own money or their investors' money at risk. This model incentivizes PE firms to run the company not with an eye towards long-term health and creating the best company for customers, employees, and the public, but rather with a focus on how it can extract as much money as possible.
PE firms do this because they exist to make money for their investors. That's their mission. They are paid by their investors to make a return. And they get a share of the returns they make as well. And because of the debt they use to buy their stake, they are not actually risking much of their own money. So they have every reason to try to extract profits. And if the company collapses, they don't lose much anyway because
They don't have to pay back that debt that they took out to buy their stake in the company. We'll get into this later.
Is it corporate greed? Absolutely. It's also just fulfilling the purpose of their business, which is to make money. That is the service they are selling. Not company stewardship, not job creation, just money. We can change this. We, the people, through our government, can force the PE industry to honor what is also in the public's best interests. And they can still make lots of money.
They just can't cause harm to the rest of us in order to do so. I linked in the notes to a great report authored by an expert on this, Audrey Stienon from Open Markets Institute, outlining how we could do this, how the government could provide these guardrails to protect us from PE's profit at all cost model. Because, sure, it's possible for good and moral actors.
To deploy beneficial private equity and not strip their companies for parts and drive them into bankruptcy. And there are some private equity investors out there who focus more on what's called growth equity investments and truly adding value to companies and helping them grow rather than using the leveraged buyout model.
But we have no government guardrails to ensure this happens across the industry. We're just trusting people to care about more than just profit when there are no incentives for this. And we know that on the whole, this isn't happening because the LBO model is still alive and well and driving companies into bankruptcy. So until the government steps in and finally does its job to protect us. We the people are not protected from this behavior.
So, what is this behavior specifically that I'm referring to? These extractive tactics that PE is increasingly becoming well known for? One, fees, fees, fees, fees, and more fees. PE firms charge the portfolio companies that they control millions and millions and hundreds of millions of dollars in fees as a way to siphon off funds from the company to the PE firm.
For example, a monitoring fee to monitor a company that they have control over, or a transaction fee for any time the company that again they control engages in a transaction, like acquiring another company, which is a whole other can of worms we don't have time for today, or spin off part of the company, or refinance its debt, which are almost always things the PE firm wanted them to do.
Why are we letting private equity firms charge the very companies they control for this kind of support? And there are even examples of companies still being charged these fees as they're going bankrupt.
A second tactic, dividend recapitalization. This is when private equity firms are allowed to add even more debt onto the company they control for the sole purpose of paying dividends to themselves. They literally take out a loan that they don't have to pay back just to give themselves dividends. Can you imagine any world in which this is legal outside of a world?
Where the private equity firms have influence over our legislators to prevent them from making this kind of behavior illegal? I can't. Here's another doozy. Sale leasebacks. This is when a company sells their assets and then leases them back. This could be land, buildings, machinery, vehicles. Now, sale lease backs can serve a purpose for a company that really needs some cash. The company sells some of their assets, gets that immediate cash, and then over time pays rent for those same assets. Obviously, in the long run, this is more expensive for the company, but it does give them immediate money in the short term if they're in a pinch.
The difference here when private equity firms make a company do this is that the company doesn't get to keep that cash. The private equity firm takes all those profits from the sale, and then the company has to now lease or rent back those exact assets. And the company has to pay that rent from its balance sheet, not the private equity firms. And of course, there are the more well-known tried and true PE practices of firing staff, cutting corners on quality, and raising prices. All of this helps them cut costs and raise revenues, so they increase the profit margins that they, as owner or controller of the company, can take. Even if this money comes at the expense of workers, customers, suppliers, the public, or the long term health of the business itself.
So it should be no surprise that all of these extractive tactics drive a company into bankruptcy. I link in the notes to a study that found that 20% of large companies acquired through LBOs go bankrupt within 10 years. The bankruptcy rate for comparable companies that were not acquired by private equity? 2%.
That's 10 times the rate of bankruptcy for private equity owned companies. Now, the PE industry and its defenders will tell you that private equity firms target struggling companies that were already in trouble. But the research that found this 20% versus 2% result specifically controlled for this. They studied healthy companies that were taken private. It's the debt load and extractive tactics that kill them. And the private equity firms walk away just fine. PE firms have this bankruptcy protection.
Because they claim they're not responsible for the management decisions of the firm. But because they bought a majority stake in the company, that gives them the power to have a majority vote on the board and appoint the kind of leadership they want and impose incentives like bonuses to motivate those leaders to do whatever the PE firm, whatever makes the PE firm the most money, regardless of whether it's good for the company, its customers, suppliers, or the general public.
Even if those decisions drive a company into bankruptcy, because the PE firm is protected from liability when this happens. The PE firm walks away unscathed from a bankruptcy while the employees of the company suffer, suppliers who relied on that company as a buyer suffer, customers and communities who needed that company suffer. Because sometimes that company that goes bankrupt is a hospital.
This leads us to our interview today with a county council member in Pennsylvania who saw this happen in her community.
Private Equity in Pennsylvania: Interview with County Council Member Dr. Monica Taylor
Claire (Toil Host) (11:44)
I am so grateful to be joined today by the former chair of the County Council, still serving on the council through 2027, in Delaware County, Pennsylvania, where over the last several years, private equity has bankrupted four of their six hospitals. Dr. Monica Taylor has been serving on the County Council since 2020, where she served four years as County Council Chair and helped champion the effort to create the county's first Health Department. Doctor Taylor, thank you so much for joining us today.
Monica Taylor (12:18)
Thank you so much for having me.
Claire (Toil Host) (12:20)
Before we jump into private equity, I've been trying to spread the word about how important local politics are. So I'm curious, why were you drawn to county government? And what might you tell listeners about how important work at that local level is?
Monica Taylor (12:35)
You know, well, I definitely didn't run for office because of private equity, though it has certainly become a really big part of what I'm focused on now. You know, if you would have asked me 10 years ago if I would be in politics, I would have been like, no, you know, I'm a professor, I'm a full-time professor still at Temple University. And I had like my eyes set on, you know, I'm gonna be in public and education administration and
Then I decided that I wanted to run for school board. I have little ones and you know they're all gonna be in Upper Derby School District for a while. And I thought education was my space and I really wanted to make a difference there.
Monica Taylor (13:11)
I was really focused on helping students who were going out to into the workforce but really didn't have access to family sustaining wage jobs and trying to make sure that they knew all the options that were out there for them. So I really started to work with the surrounding counties, work with the city of Philadelphia, building a workforce development program for our students at our at our high school.
And that really opened my eyes to the opportunities that were there and you know, working with the building trades, working with the community college, working with the local businesses, the tech companies, and really getting that into the guidance counselors so that they knew what was what was out there and how students could go. you know, the research from our school was telling us that the students who were going directly into the workforce were really getting, you know, jobs that weren't that were, you know, maybe restaurant jobs or retail jobs. And so it really wasn't that type of family sustaining wage. And so through this work, I realized the other counties were doing so much more than us in Delaware County. And I was like, okay, well, where are the programs in our county? And I started to look more into it and realize we just really didn't have a robust program. And we were at the time giving back almost a million dollars in federal funding that could have been going towards programs.
And so the more I looked into the county, then I realized we were the largest county in the country that didn't have a health department. And we were also the only county in the Commonwealth that had a private prison. And those issues just really spoke to me. And I was and so I I decided to run for office. I was like, maybe I can make a difference in these areas. and so fast forward, ran for office. We were able to create a health department, we were able to deprivatize the prison.
We've actually expanded our workforce development program. We were no longer sending money back. We actually are going out for more grants and providing more programming. So it's just really been it's it's been a wonderful experience and I love serving my community and the work we've been able to do.
Claire (Toil Host) (15:08)
that's so fantastic. And and the de-privatizing too. You know, not the topic of today, but I've been learning a lot about how privatization is just such a problem. And so that is really exciting to hear that you were able to de-privatize a prison. Okay, that's great. So, listeners, take note of all the things that you can do at the local level. Not everything's in Washington. but but diving into
Monica Taylor (15:22)
Yes.
Claire (Toil Host) (15:34)
our main topic for today, which as you said was not even why you got involved, but has become a huge part of your work now that you've been on the council, is private equity. And your county has lost four of its six hospitals under private equity ownership. What is going on? Can you can you catch us up on on what's going on here and how this happened?
Monica Taylor (15:58)
yes. So, you know, first of all, once again, thank you so much for having me here today. and for really what you're doing to drive this conversation because it's really just so important for people to understand more what's happening in this space. I want to set the stage here for how we understand this problem. In Delaware County, like so many communities, corporate greed was basically allowed to ransack an industry that all of us need to survive.
That greed has literally cost lives in my county. We had a nonprofit, wonderful healthcare system that started with Chester Hospital in 1893. That's how long the system had been serving our county. And it grew to a total of four hospitals in Delco out of six that we had. And in 2016, the system was sold to the private equity-backed Prospect Medical Holdings.
And of course, you know, they they promise that the system would be better, it would be invested in, patients would be protected, you know, executives who knew how to run businesses would be brought in to really help the hospital thrive. And so you could probably guess what happened next. Yeah, within years, the land was sold out to investors and then leased back to the hospital at exorbitant rates.
Services were then cut, you know, one at a time, year by year. Workers started to be laid off because those services were cut. but private equity executives made $424 million. And then in 2025, Prospect closed the last of their hospitals in Delaware County. They fired 3,000 workers. And all of this happened almost overnight.
And our county lost one of our largest employers. And we were down to two hospitals serving 575,000 residents. Only one birthing hospital left in our county. And patients were basically thrown into chaos.
I'm proud to say that we have rallied around each other and we're climbing out of the ashes of this disaster. But it's a disaster that was completely avoidable if public officials were aware of the threat of private equity.
Claire (Toil Host) (18:24)
Yes. Exactly. Absolutely devastating. So what what have you been working on to try to like you said, you've you know, folks have been rallying together. This has already happened. You have lost these hospitals. What where can you go from here? What can a county council do? you you mentioned more officials need to be aware to prevent this from happening in other places. What can you do now that it's already happened? What are what have you been working on?
Monica Taylor (18:57)
You know, unfortunately, counties, especially in Pennsylvania, have very little power to try to stop something like this once the wheels are in motion. You know, when Prospect declared bankruptcy, we all became at the mercy of the bankruptcy system, which is, you know, a legal process. It's designed to extract the most value possible for creditors of the bankrupt entity. And this process really isn't designed to move quickly. It isn't designed to predict.
patients or workers or you know think about community needs it's just not built for that and all that matters is really getting the most money for the creditors that prospect owed and you know none of that matters to the private equity executives they closed our hospitals they made their hundreds of millions of dollars and then they made their exit and now they're off to the next score for them.
Claire (Toil Host) (19:56)
man. So so moving up from the county level, states have been trying to do some things on these. And and I know that all of these hospital closures in your county have led Governor Shapiro of Pennsylvania to champion the Health System Protection Act. Can you talk about this? Wha have you been involved in this? I I think it passed the Pennsylvania House and is now in the state senate. Do you think it will pass?
Monica Taylor (20:24)
Well yes. So, you know, while communities are limited in their tools to fight back once hospitals are owned by private equity, it's really it's really tough once they're already at that point, right? we all have the power to protect our hospitals, if we are willing to use it. You know, private equity really has no place in healthcare, and for me I don't believe it really has any place anywhere. But we do have the power to pass laws that stop
Claire (Toil Host) (20:46)
I'm with you.
Monica Taylor (20:51)
private equity from buying these critical health systems in the first place, if we're willing to pass them. And, you know, I can't go back in time to before I was on county council to stop crozier from being sold, but I can go to every community and tell them firsthand what happens when private equity comes to town. And so I'm proud to say that that bill that Governor Shapiro has been championing, was actually sponsored by Representative Lisa Borowski, who is one of our Delaware County representatives in our state house. And I've supported it publicly. I'll continue to do so. But I do have, you know, serious doubts about the fate of any good bills currently sitting in our state senate. We have a chance, we do have a chance to take control of the chamber this fall. And there are quite literally lives that depend on whether or not we succeed. And if we succeed, I do think that then we have the prospect of being able to p pass this bill.
Claire (Toil Host) (21:54)
Yes, yes. That that's so exciting, but I agree. I'm I my instinct is that we need to take back the Senate, which leads to another question I had for you, which is how can folks in Pennsylvania in Delaware County how can they get involved? one thing that comes to mind is help flip the Senate. you know, do you have advice for folks in Pennsylvania on on how to h you know, help fight this issue?
Monica Taylor (22:21)
Well, yes, of course, right? You know, first we can always help flip the Senate. There are you can look online, there are target seats that are really close and in purple seats that really have a chance to flip and we don't need we don't need 15, 20 seats. We need a couple of seats to be able to flip the Senate. So that's like the first thing. Get involved. Figure out who's your representative, figure out who's your your state senator and how can you help to flip that that part of the the state government. But you know, as you know, this isn't just a story about Delaware County, right? This is happening all over the Commonwealth. and so it's not even a story about healthcare. this is about who is allowed to ransack and destroy the economy through greed. And this is about who is allowed to get rich and who's allowed to get fired. This could be a story with a turning point where working people decide that their future should belong to them.
One great place to start is by visiting peestakeholder.org to follow the work that the PE Stakeholder Project is doing. They were really instrumental in helping us to inform our residents really of the broader issue at work when our hospitals close. And I hope more people actually share their work because it's really, it's really a great, great way for residents to understand what's happening. And what's happening on a broader scale.
Claire (Toil Host) (23:52)
Yes. Yes. Yes. I double stomp on that. I have found incredible resources on private equity stakeholder projects site. anyone listening to this, I'll put the link in the show notes. Definitely recommend it. And they have information on how private equity is harming every sector and even maps of all over the country where where things are happening. It's really private equity is everywhere.
Monica Taylor (24:09)
Right. And it's mind blowing just to like understand just how it's everywhere. It's all all over the place. It's in so many industries and like the devastation that they're causing. It's a playbook that it's like a private equity playbook. This is what they do in every way, right?
Claire (Toil Host) (24:28)
Yes. Yes. Yes. Exactly. Exactly.
And I mean, a good example of that is you mentioned the sale lease backs. I talk about that earlier in the episode. And that is a common practice that private equity firms force the portfolio company to sell all its assets. The private equity firm gets those profits. But then the company now has to rent out whatever it is they sold.
Monica Taylor (24:43)
Mm-hmm.
They just saddle the company with debt and they've taken the money and run, right?
Claire (Toil Host) (24:56)
Exactly. Exactly.
It's a playbook, just like you said. Ugh well the so it really is. It it really is. And I, you know, I I talk about this earlier in the episode, but it's you know, I think a lot of things you've said speak to this, which is we we can change these laws. We can pass things that protect the people, not corporate greed.
Monica Taylor (25:01)
Right. It's shocking that it's allowed, that it's legal, but we can right. Yep.
Claire (Toil Host) (25:25)
And so it's so important to get involved. W another question I have specifically on Pennsylvania is what does Pennsylvania need that is not that it's not currently getting that it to protect itself from the threat posed by private equity? Is this bill that the Health Systems Protection Act enough or are there other things that PA is missing to to really on a full scale protect itself from private equity?
Monica Taylor (25:50)
You know, I think this bill is really a a really great first step, right? Because it does put regulations around private equity, regulations around what they can do if they do purchase a hospital, how they have to operate, to really try to prevent what happened to us, right? It helps to regulate those leasebacks, right? Those those things that we know are kind of the the start to a spiral and a downfall of a system. and so that's really the first step.
Is trying to get laws on the books. You can see, especially in our situation, right? Because when Prospect closed our hospitals, they didn't just close the hospitals in Delaware County or bankrupt the hospitals in Delaware County. They actually did them in several states at the same time. and you can see that those states where they they targeted were states that had really loose or no laws around controlling private equity. So they targeted them specifically. And so we can make laws, we can see that they actually protect folks in. In areas that have more concrete laws.
Claire (Toil Host) (26:52)
Mm-hmm. Yes. And and so zooming out of Pennsylvania to so many other states, like you said, that are facing this, if if we had true representation in Washington, we could really reign in private equity across the country with one bill. But we don't have that leadership right now. But I was very encouraged to see that Congresswoman Scanlon of Pennsylvania 5, which encompasses your Delaware County, and Senator Chris Murphy of Connecticut, they introduced the Take Back Our Hospitals Act.
Which would prohibit private equity firms from owning hospitals and skilled nursing facilities. And if passed in Washington, something like this would apply to all the states. But that's probably not going anywhere under the Republican control Congress or under President Trump. And not even all Democrats we have in Congress are.
I have found willing to really step up and protect us from the harms of private equity. So back to how important states are and local levels, how can folks in all of these other states who want to prevent private equity takeovers in healthcare in all the sectors?
How can they, you know, they can go to the private equity stakeholder project website like we talked about and really learn about what's happening in their state. And the the website even has scorecards for every state on how the state is doing. But beyond getting that information, how can they get involved at the county level or at the state level to actually push their representatives to do something about this?
Monica Taylor (28:20)
Well, you know, as many folks have said, right, states are really laboratories for democracy. They all kind of operate differently. and so we don't need just one idea on how to push back and protect ourselves. We need every idea really brought to the table. we need to watch several states pass the versions of the Health System Protection Act, bills on transparency.
And to learn lessons about how to pass and how to enforce these bills so that they're really effective. There's one final piece that of this that we need to note. While there's so much focus on what bills we can pass, we need to examine much more closely who puts cash into these private equity funds. You know, the fund that brought and closed our hospitals was stuffed with cash from pension funds. In Texas and California, Illinois, and so on. And most of these come from teachers who have no idea that the money taken from their paychecks ends up getting used to gut hospitals somewhere else. So we need to form a national coalition of shareholders that demand to end this type of practice.
Claire (Toil Host) (29:36)
Yes, yes. I love that. That's a huge piece of the puzzle. Yeah, yeah.
Monica Taylor (29:41)
Right, we have to ta attack private equity in our pockets. That's where it matters most for them. Right.
Claire (Toil Host) (29:45)
Exactly. Exactly. Yes. My my last question on this is around engaging with candidates as they're running for office. I have a stack of like 200, you know, pamphlets of different people that are running for office in my county, in Maryland. And I'm curious, having been in county council, being chair, having run a couple times, are you know, how much does it matter? For example, going to a candidate debate or a candidate forum and asking them about this and saying, I really care and I wanna vote for someone who's gonna protect us from private equity, and then, you know, ha holding them accountable if they're elected. Is is getting engaged now as people running for office an effective tactic?
Monica Taylor (30:33)
Yes, it's a very effective tactic. You know, you can go to those debates, you can ask questions, you can go to their town halls, and you can really see where they stand on this issue. And especially if you're an area who it has a hospital system or healthcare system that may be struggling, that's where private equity comes into attack. Right. And so you need to understand what your elected officials and where their stance is on this and or your state officials, how what type of policies are they willing to support to protect. You and your community from private equity. It's so important to understand that, you know, your representatives are going to take the strongest position possible on this issue.
Claire (Toil Host) (31:12)
Yes, yes, thank you.
Dr. Taylor, thank you so much for how much you've been working on this and and doing everything you can to protect your constituents from private equity and spreading the word outside of your county. so grateful for your service and thanks for joining me on this podcast today.
Monica Taylor (31:30)
Thank you for having me today and thank you for getting the word out about this. Cause I think more people really need to know. You know, people understand private equity, but they really don't. And they I don't think they understand exactly how far spread the spreading and far reaching it is.
Claire (Toil Host) (31:45)
Yes, absolutely. Thank you. Agreed. And to anyone listening, thank you for joining. If you want to learn more about private equity, I link to a bunch of resources and books on the topic, including the private equity stakeholder project that Dr. Taylor mentioned. All of that's in the show notes and on my website. so you can learn more there. See you next time.