Bad Company: Private Equity and the Death of the American Dream

by Megan Greenwell

They were so busy micromanaging how the company’s journalists worked—not just what stories we reported but what we wore and during what hours we were sitting at our desks—that they never seemed to have time to follow through on their plans for the business side.

The idea that hospitals had an obligation to make money, no matter where they were located or what kind of populations they served, went without saying.

In the early 1900s, there were newspapers for every type of person: morning versus evening delivery, conservative versus liberal editorial pages, sensationalist versus straight-down-the-middle sensibilities, stories and ads targeting factory workers versus bankers and lawyers.

By the start of the twenty-first century, just 1.4 percent of U.S. cities had multiple local newspapers.

In rapid succession, Craigslist took over the classified ads market; print advertising revenue fell off a cliff; readers became accustomed to getting journalism free online and stopped paying for print subscriptions; local TV news stations expanded their web coverage to go head-to-head with daily papers; Google and Facebook gained control over outlets’ readership and local ad markets; owners began cutting back on true local news in favor of cheaper syndicated coverage; and the advent of ad-targeting technology undercut the prices publications could charge.

And because of private equity’s trademark 2-and-20 structure—in which the firm takes 2 percent of the investors’ money, plus 20 percent of all profits beyond a set threshold—and other assorted fees and dividends, making some money is all but guaranteed. An oft-cited 2009 paper by economists Andrew Metrick and Ayako Yasuda found that roughly two-thirds of a private equity firm’s total revenues come from fixed costs rather than from actual company profits.

More than 1.3 million Americans lost jobs in retail and related industries between 2009 and 2019 as a direct result of private equity acquisitions.

Companies acquired by private equity firms are much more likely to go bankrupt than their peers, research shows: 20 percent of them enter bankruptcy proceedings within ten years, compared to 2 percent of other companies.

Private equity–owned chains that went under in the 2010s include RadioShack, Claire’s, Payless ShoeSource, Kmart, Sears, Gymboree, Charlotte Russe, A&P,

“You want to leave a place better than you found it. For a long time, I really did feel that way.” But that was before Riverton Memorial Hospital became SageWest Health Care, before one of the biggest rural hospital chains in the country saw it as a distressed asset in need of saving through a ruthless search for efficiencies.

The commission in charge of advising Congress on Medicare concluded in 2020 that the “preponderance of the research suggests that hospital consolidation leads to higher prices.” It turned out that normal laws of economics, like the one about how competition benefits consumers, apply to hospitals too. By the time those studies found that hospital consolidation was in fact harming patients, though, it was too late to undo all the deals.

Making money off a small-town maternity ward is extremely challenging. More than half of all births in rural areas are covered by Medicaid, compared to 42 percent overall. Medicaid reimburses at a lower rate than private insurance,

But accepting that some maternity wards don’t make enough money to survive requires accepting the premise that an individual maternity ward must justify its own existence financially. In the long run, they probably do.

As financial firms have swallowed up a growing swath of the American health care industry, maternity care has become a privilege that a growing number of people cannot access.

In other words, you’d certainly pay more if your local hospital got acquired by a private equity firm; whether you’d get better or worse care was unclear.

While it was easy to blame larger trends in the media industry for the endless newsroom layoffs, private equity strategies were just as much to blame. GateHouse was following a well-established playbook: cutting costs is a quicker path to boosting profits than the tedious work of improving a business’s strategy. And cutting costs often means cutting jobs—private equity–owned companies shrink their staff size significantly, according to multiple studies.

The only solution, to the owners’ minds, was to keep making each newsroom cheaper to run through layoffs and attrition. That meant less news—researchers found that coverage of local politics dropped by more than 56 percent between 1999 and 2017—which meant fewer reasons for people to subscribe. Each quarter, when subscriber revenue dropped, Gannett would simply lay off more people, starting the cycle anew.

By the end of 2022, just 11,200 employees worked for Gannett in the U.S., down from 24,338 at Gannett and GateHouse combined in 2018. In an effort to pay down its loans to Apollo and Fortress, the company had wiped out more than half its workforce in four years.

“Our empathy for residents must be balanced by our fiduciary responsibility,” the company wrote to a local news outlet. The choice between making people homeless during a global pandemic or angering investors was no choice at all.

Private equity and other investment firms spent $42 million on congressional races in the 2020 election cycle, two-thirds of which went to Democrats. Just four senators and sixty-two representatives didn’t get any private equity donations, a mere 12 percent of all elected members.

For centuries, celebrating the “free market” has been one of the strongest uniting forces between Republicans and Democrats. With help from the donations it throws at politicians of both parties, the private equity industry has been allowed to operate with little scrutiny, charming people in power while taking advantage of the workers below.

EIGHTY-EIGHT PERCENT OF PUBLIC PENSION funds have some private equity investments, according to a study from the industry’s lobbying group.

While it is true that millions of pensioners do rely on private equity returns, the evidence is far less clear that they must.

And while the pensioners make for a tidier narrative, the reality is that no one benefits nearly as much from private equity as private equity itself. The system is designed so that firms put in less money and shoulder less risk than anyone else, yet reap the lion’s share of the profits.

Asked to sum up Stroudwater’s approach to health care, Shell cited a different self-help book beloved by business leaders: Simon Sinek’s The Infinite Game, which uses the phrase “just cause” to mean a specific, idealistic, service-oriented vision of the future. Shell’s just cause is building a health system that works for everyone; he is fervent in his belief that his approach leads to higher profits and better care.

Across the country, some 460 hospitals are owned by private equity firms. Many of them, especially ones in rural areas, are suffering the same fate as SageWest Riverton: their owners are cutting costs, eliminating services, making more money by providing less health care. Building a new locally owned hospital isn’t a scalable way to help all those communities.

“You have to look at Gannett and the other big newspaper chains not as media companies but as financial firms,” media scholar Jay Rosen said. “They see newspapers as declining assets, and they ask themselves how they can squeeze a few more years of profit out of those assets.”

Loren is not built to triage, though she realizes life would be easier if she was. She moves through each day like a fire juggler who’s constantly getting another blazing torch tossed her way.