Medical group deals face growing antitrust scrutiny as price worries rise

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Recent actions by antitrust enforcers and courts to block or regulate purchases of physician practices by hospitals and insurers may signal increasing scrutiny for such deals as policymakers intensify their focus on boosting competition to reduce healthcare prices.

Last month, the Federal Trade Commission announced a settlement with UnitedHealth Group and DaVita unwinding United’s acquisition of DaVita Medical Group’s Las Vegas operations.

At the same time, Colorado Attorney General Phil Weiser separately reached a deal imposing conditions on UnitedHealth’s acquisition of DaVita’s physician groups in Colorado Springs.

Also in June, the 8th U.S. Circuit Court of Appeals upheld a District Court ruling blocking Sanford Health’s proposed 2015 acquisition of the multispecialty Mid Dakota Clinic in the Bismarck, N.D., area. That antitrust case originally was filed by the FTC and North Dakota Attorney General Wayne Stenehjem in 2017.

And in May, Washington Attorney General Bob Ferguson settled an antitrust lawsuit with CHI Franciscan setting conditions on the health system’s 2016 affiliation with the Doctors Clinic, a multispecialty group, and its purchase of WestSound Orthopaedics, both in Kitsap County. CHI Franciscan will pay up to $2.5 million, distributed to other healthcare organizations to increase access to care.

The cases represent the most significant antitrust developments involving physician acquisitions since federal and state antitrust enforcers won9th U.S. Circuit Court of Appeals ruling in 2015 upholding a lower-court decision forcing Idaho’s St. Luke’s Health System to unwind its 2012 acquisition of Saltzer Medical Group.

The agreements with UnitedHealth in Nevada and Colorado show a new willingness by federal and state antitrust enforcers to use seldom-cited vertical merger theory. Under that theory, acquisitions of physician groups by insurers or hospitals may foreclose competition by making it more difficult or costly for rivals to obtain physician services.

“I am concerned about the state of consolidation,” Weiser said in an interview. “Healthcare costs in Colorado have risen at an alarming rate. Protecting competition needs to be a central part of our strategy to provide affordable and quality healthcare.”

These recent antitrust actions come as concerns mount over the growing consolidation of hospitals and physician practices and the impact on prices and total health spending. Sixty-five percent of metropolitan statistical areas are highly concentrated for specialist physicians, while 39% are highly concentrated for primary-care doctors, according to Martin Gaynor, a health economist at Carnegie Mellon University.

Hospital acquisitions of physician practices have led to higher prices and health spending, researchers have found. Average outpatient physician prices in 2014 ranged from 35% to 63% higher, depending on physician specialty, in highly concentrated California markets compared with less-concentrated markets, according to a 2018 study by researchers at the University of California at Berkeley. The link between physician market concentration and prices is similar across the country, experts say.

Market consolidation in California

That’s why some elected officials and antitrust attorneys say it’s past time to step up oversight of physician practice acquisitions by hospitals, insurers and private-equity firms. These deals traditionally have received less scrutiny than hospital and insurance mergers, partly because they are smaller transactions that federal and state antitrust enforcement agencies may not have known about beforehand.

The recent cases suggest state attorneys general may play a growing role in policing physician acquisition deals by hospitals and insurers, given that they are in a better position than the feds to find out about brewing local deals. Most of the growth in physician group size has come from piecemeal acquisitions of small group practices, a Health Affairs studyfound last year.

Washington and at least two other states have passed laws requiring healthcare providers to give state officials advance notice before finalizing a merger or acquisition. That gives state AGs another advantage over the FTC, which under federal rules only must receive advance notice of deals exceeding $78.2 million in value. Few physician acquisitions meet that threshold.

Others worry, however, that the absence of clear federal guidelines for challenging vertical mergers between hospitals and physicians has made the FTC and the courts overly cautious, and that it now may be too late because many physician markets are already highly concentrated. In March, the FTC and the Justice Department said they were working on new vertical merger guidelines, which were last updated in 1984.

“The horse may be out of the barn in a number of markets where there have been very large acquisitions of physician practices,” said Tim Greaney, a visiting professor at the University of California Hastings College of Law. “It’s not clear what you can do about that.”

But hospitals, insurers and other physician aggregators argue that making it harder to buy physician groups would hamper their ability to establish cost-saving, high-quality delivery models emphasizing care coordination.

That’s how Sanford Bismarck President Dr. Michael LeBeau responded to last month’s 8th Circuit ruling against his organization’s merger with Mid Dakota Clinic. “Sanford continues to believe that combining with Mid Dakota Clinic would lead to the enhanced provision of and access to healthcare for patients in central and western North Dakota,” he said in a written statement.

Researchers have raised doubts, however, about whether hospital acquisitions of medical practices have truly achieved efficiencies and cost savings, and whether any cost savings have been passed on to payers and patients.

Going forward, hospitals, insurers and other healthcare organizations need to prepare themselves for an era of closer state and federal examination of physician acquisition deals, antitrust experts agree. That also may apply to private-equity firms, which have accelerated their investment in physician groups and have sought to build market power in particular specialties.

The FTC did not respond to requests for an interview.

Healthcare organizations pursuing physician deals must be ready to cite circumstances where competition continues to thrive following a merger. But that may not be easy, conceded Lisa Gingerich, an antitrust attorney at Michael Best & Friedrich.

“The challenge now is there has been so much consolidation that it’s harder and harder to find those circumstances,” she said.

Scaling back integration in Nevada and Colorado

The UnitedHealth Group-DaVita case may present the clearest warning shot to organizations contemplating large physician acquisitions, attracting both federal and state attention.

The FTC argued that the proposed acquisition by United’s OptumCare of DaVita’s HealthCare Partners of Nevada would result in a near-monopoly controlling more than 80% of the market for services delivered by managed-care provider organizations to Medicare Advantage plans.

The merger would be both horizontal—combining OptumCare’s and DaVita’s competing physician groups—and vertical, as it would combine a Medicare Advantage insurer and a physician group. That, the FTC said, would increase costs and decrease competition on quality, services and amenities by forcing rival Medicare Advantage plans to pay more for physician services.

Under the FTC settlement, UnitedHealth agreed to sell DaVita’s Nevada medical group to Intermountain Healthcare, which offers a Medicare Advantage product in Las Vegas through its SelectHealth insurance arm.

Colorado’s terms

Meanwhile, under a separate consent judgment with Attorney General Phil Weiser in Colorado, UnitedHealth will lift its exclusive contract with Centura Health for at least 31/2 years, expanding the provider network available to other Medicare Advantage plans. In addition, DaVita Medical Group’s agreement with Humana, United’s main competitor in Colorado Springs, will be extended through at least 2020.

All four FTC commissioners approved the enforcement action in Nevada. But the two Republican-appointed commissioners and the two Democratic-appointed commissioners disagreed on whether to ask a judge to block United’s acquisition of DaVita’s medical group in Colorado, a purely vertical merger. The 2-2 split meant no federal action was taken.

The Democratic commissioners. Rebecca Kelly Slaughter and Rohit Chopra, said the merger would harm competition and consumers, and welcomed the Colorado attorney general’s remedial conditions. “We hope all state attorneys general actively enforce the antitrust laws to protect their residents from harmful mergers and anticompetitive practices,” they wrote.

But the Republican commissioners, Noah Joshua Phillips and Christine Wilson, opposed action in Colorado on the grounds that the law on vertical mergers is “relatively underdeveloped” and that there was mixed evidence on whether the Colorado merger was pro- or anti-competitive.

Weiser said his office had to intervene to protect the ability of Humana and other Medicare Advantage insurers to compete with United by having access to physicians and hospitals. “State attorneys general will be a critical part of protecting competition, both because we’re close to our citizens and because of a lack of action by the federal government,” he said.

To other observers, the Nevada and Colorado agreements were notable because they invoked seldom-used vertical merger theory, which the FTC has been reluctant to use because it generally saw vertical mergers as helping reduce costs and increase competition.

“This shows that in the proper case, the FTC won’t hesitate to pursue vertical theory to reverse the course of” a physician group acquisition, said Douglas Ross, a veteran antitrust attorney at Davis Wright Tremaine in Seattle.

A muddier outcome in Washington state

Washington Attorney General Bob Ferguson’s settlement of his antitrust case against CHI Franciscan was less definitive than the outcomes in the other recent cases.

He had accused the hospital system of engineering the purchase of WestSound Orthopaedics and the affiliation with the Doctors Clinic to capture a large share of orthopedists and other physicians in Kitsap County, fix prices at a higher level, and shift more services to its Harrison Medical Center in Bremerton. But the settlement left in place CHI Franciscan’s purchase of WestSound and its tight professional services agreement with the Doctors Clinic, while placing relatively modest conditions on joint contracting by the hospital system and the clinic.

Ferguson’s bargaining position was weakened by a federal District Court decision in March granting CHI Franciscan’s motion to summarily dismiss his allegation that the acquisition of WestSound reduced competition and violated antitrust law. That may be the first time since the 1990s that a defendant won summary judgment on a horizontal merger claim in an antitrust case, one expert said.

In addition, the judge required the parties to go to trial on whether the transaction between CHI Franciscan and the Doctors Clinic was a true merger, as the two organizations claimed, or whether they remained two competing provider groups. If Ferguson lost on that issue, his antitrust case would be dead because a merged entity cannot be cited for price-fixing.

The attorney general settled that claim with CHI Franciscan and the clinic by requiring a $2.5 million payment to other healthcare providers and expanding the types of value-based contracts they could participate in. But the two sides differed sharply in their characterization of the settlement.

“This was a matter where we identified anticompetitive effects and ongoing harm to consumers and saw a need to act quickly,” said Jonathan Mark, senior assistant attorney general in Washington. “We believe the remedies in the consent decree are sufficient to address the anticompetitive effects we alleged.”

For its part, CHI Franciscan said there never was any court judgment or admission that it engaged in anticompetitive conduct, noting that the settlement preserved its deals with WestSound and the Doctors Clinic. It was particularly important for hospitals all over the country that Ferguson failed to establish that a professional services agreement with a physician group constituted price-fixing, an attorney for the hospital system said.

“The AG lost this lawsuit and is now twisting the facts to match his baseless allegations,” said Cary Evans, the hospital system’s vice president for government affairs. “Had we not affiliated, the closing of the Doctors Clinic and WestSound would have resulted in less choice, decreased access, and high costs for residents.”

A classic example in North Dakota

The outcome in the North Dakota case was more conventional than the others.

There, the 8th U.S. Circuit Court of Appeals affirmed the District Court’s preliminary injunction blocking Sanford Health’s acquisition of Mid Dakota Clinic as a horizontal merger.

That was fairly predictable because of the huge physician market share Sanford—whose physician group competed with the clinic—would capture if it completed the deal, experts said.

Sanford would control 99.8% of general surgeon services, 98.6% of pediatric services, 85.7% of adult primary-care services, and 84.6% of OB-GYN services in the Bismarck-Mandan market, the 8th Circuit panel found.

The appeals court also upheld the lower court’s finding that a competitor, Catholic Health Initiatives’ St. Alexius Health, would not be able to enter the market quickly after the merger, at least partly because it faced difficulty recruiting physicians in the Bismarck-Mandan area.

“That case really seemed like a no-brainer to me,” said Tim Greaney, a visiting professor at the University of California Hastings College of Law.

A key takeaway was the 8th Circuit’s rejection of Sanford’s “powerful buyer” defense. Sanford had argued that Blue Cross and Blue Shield of North Dakota, the state’s dominant insurer, had enough market power to resist any price increases sought by the newly merged entity.

But analysis of claims data and testimony by a Blues plan representative demonstrated that the merged provider would have the market power to force the insurer to raise prices or leave the market, the 8th Circuit panel wrote.

“If antitrust authorities see someone getting more bargaining power and being able to charge higher prices, that’s something they’ll worry about, even if the (payer) has significant bargaining power as well,” said Debbie Feinstein, a former top Federal Trade Commission official who heads Arnold & Porter’s global antitrust group.

Sanford didn’t say whether it planned to abandon the deal.

 

 

 

When a hospital wields monopoly power

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Illustration of a giant health plus on top of a pile of cash, the ground underneath is cracking.

NorthBay Healthcare, a not-for-profit hospital system in California, recently gave a candid look into how it operates, telling investors it has used its negotiating clout to extract “very lucrative contracts” from health insurance companies.

Why it matters: This is a living example of the economic theories and research that suggest hospitals will charge whatever they want if they have little or no competition, Axios’ Bob Herman reports.

Details: NorthBay owns two hospitals and several clinics in California’s Solano County. Kaiser Permanente owns the only other full-service hospital in the county, and Sutter Health operates some medical offices. (A NorthBay spokesperson argued the system is “more akin to the David among two Goliaths.“)

Three health insurers have terminated their contracts with NorthBay over the past couple years. During a June 19 call with bondholders, executives explained why this has happened.

“We’ve been able to maintain very lucrative contracts without the competition. And what the payers are saying is, they would like us to be like 90% of the rest of the United States in terms of contract structure.”

Jim Strong, interim CFO, NorthBay Healthcare

Between the lines: NorthBay’s revenue has increased by 50% over the past few years, from $400 million in 2013 to $600 million in 2018, due in large part to its natural monopoly and oligopoly over hospital services.

  • This is exactly what we should expect to happen when sellers have the upper hand over buyers, economists say.

NorthBay also serves as a cautionary tale for price transparency, the policy fix du jour.

  • If the health care system is consolidated, consumers don’t have anywhere else to go,” said Sunita Desai, a health economist at NYU. “Even if they see the prices of a given hospital, they’re limited in terms of how much they can ‘shop’ across providers.”

 

 

 

Health care price transparency: Fool’s gold, or real money in your pocket?

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The news is full of stories about monumental surprise hospital billssky-high drug prices and patients going bankrupt. The government’s approach to addressing this, via an executive order that President Trump signed June 24, 2019, is to make hospitals disclose prices, including negotiated rates with insurers, so that patients supposedly can comparison shop. But this is fool’s gold – information that doesn’t address the real question about why these prices are so high in the first place.

I know from my time as an academic researcher, hospital board member, adviser to Congress and health insurance CEO that the problems in health care are far deeper than just knowledge about hospital charges that few will ever pay.

While it is easy to blame greedy pharmaceutical manufacturers, health insurers and hospital executives, the problem comes from the very nature of our confused system. Who actually benefits from these high prices and why do they persist? Is it just greed, or something endemic in the system?

Should the EOB be DOA?

The EOB is not a bill, the insurance companies want you to know. Lynne AndersonCC BY-SA

Many in the health care system, including hospitals, doctors and insurers, are complicit in this confusing mess, although all can justify their individual actions.

The confusion begins for the patient when he or she receives an explanation of benefit (EOB). This typically says it is “Not a Bill,” although it really looks like one. What it actually shows is incredibly high provider prices and an equally implausible discount. The bottom line lists the actual payment and the amount the patient owes. Patients are supposed to be grateful for the discounts after they recover from the sticker shock of the listed price.

When a service is provided out-of-network, or is not covered at all, or the person doesn’t have insurance, the patient is supposed to pay this full amount. Such surprise bills” typically come to those least prepared to pay and, as a result, providers typically recover very little. So no one wins, except the collection agency and the lawyers.

I believe the standard EOB is the beginning of unnecessary complexity that leads to higher prices and an impossibly flawed market where shopping can never really work properly.

This ridiculous situation actually starts with insurance companies selling policies to ill-informed employers who don’t understand health care but effectively are the purchasers. Employers hire brokers and consultants to collect proposals from insurers; by some estimates, as many as 50 million people in the U.S. are covered by such plans.

These proposals frequently focus on the size of the discount from providers’ list prices as an indicator of how much the employer can save. The overall total cost or coverage is more important, but harder to estimate, since it depends on actual care delivered to employees. The unrecognized incentive for providers and insurers is to increase prices in order to increase the size of the discount.

I have actually seen cases where the insurer requests higher list prices from a provider to pump up the discount they can report to employers. This is crazy.

Stop the madness

One solution to this mess would be to require uniform prices by all providers to all purchasers. Maryland has a form of this “all-payer” system where everyone pays the same under rate regulation or negotiation. France, Germany, Japan and the Netherlands also use this form of control.

Benchmark pricing against what Medicare pays would do something similar, with everyone paying a fixed percent of these nationally regulated rates. This would blunt the ability of hospitals to arbitrarily jack up list charges and negotiate contract prices with insurers based on relative market power.

Unfortunately for consumers, such rate setting may be a political “bridge too far.” While some progressives might like regulation, conservatives likely will not because it challenges their faith in the superiority of free-market negotiations around prices.

And it might dampen innovation and even competition, depending on how realistic and flexible the regulators are in responding to new technology, alternative procedures, quality differentials and consumer demands – the decisions where markets are supposed work well.

Can price competition work?

It’s hard to shop around for some procedures, such as complex surgeries. Yulai Studio/shutterstock.com

The overarching question is whether patients and employers can ever do comparison shopping effectively. Clearly for many things, there can be no head-to-head choice. Trauma, highly complex surgery and other care cannot be predicted ahead of time or standardized to fit a consumer market model.

However, some things can be compared. Insurers now routinely let consumers know if a test or image could be done for less elsewhere. Perhaps comparing just a few services as an overall cost indicator is the best we can do.

But it may also be possible to determine overall relative bargains for a typical package of care to guide choices. My Cleveland hospital, MetroHealth System, manages Medicaid patients for a total cost which is 29% less than when they wander around without a medical home. This is a meaningful difference.

A first step towards comparison shopping might be eliminating the EOB as we know it. Rather than showing meaningless list prices, it would be more revealing if hospitals and insurers had to disclose their actual payment terms.

An alternative benchmark might be to provide health care consumers with a range of contract rates or the Medicare rate for a service. Then the difference between what you and others actually pay could be useful in comparing providers and insurers.

Those who long for a total overhaul of our system through “Medicare for All” or its variants, such as many Democrats vying for the nomination,will still have to deal with the question of how to contract and pay for all these moving parts. The temptation will be toward simple solutions involving prices, discounts and rate regulation – still, I believe, effectively a pursuit of fool’s gold.

 

The drug pricing debate is stuck in the past

https://www.axios.com/drug-pricing-debate-stuck-in-past-10ba315e-0ddf-4013-8c5a-f8ee89c2f530.html

Illustration of falling pills and coins

There’s a scientific and economic revolution happening in medicine, and the political debate over drug prices isn’t keeping up. Not only are policymakers struggling to agree on solutions, they’re mostly talking about yesterday’s problems.

Why it matters: Medical innovation is already hurtling toward a new era of highly specialized drugs — some are even tailor-made for each individual patient. They may be more effective than anything we’ve seen before, and also more expensive. But the drug-pricing debate is more focused on decades-old parts of the system.

The big picture: “We haven’t really contemplated how we’re going to absorb some of these things,” Food and Drug Administration Scott Gottlieb said. “These are good problems to have…but they are policy challenges.”

Where it stands: Congress is mainly squabbling over proposals to reduce prices by boosting competition — by making it easier to start developing generics, or by changing patent protections that help pharmaceutical companies keep their rivals at bay.

Yes, but: Those regulatory tools were designed for a world in which pharmaceutical companies develop relatively simple drugs and try to market them to a big group of people. But science is rapidly moving away from that world.

  • Gene therapy, for example, is the new wave in cancer treatment. It helps patients’ own immune systems fight off cancer — which means each dose is custom-made for each patient. It’s a highly promising approach, but treatment can come with a price tag north of $1 million once all is said and done.
  • The old dichotomy of a brand-name pill followed by a generic version of that pill doesn’t really hold up for custom-made drugs.
  • So tools that try to promote competition simply may not work as well. “I don’t think they’re solutions for gene therapies because I think you’re ultimately going to have to figure out ways to capitalize those costs,” Gottlieb said.

Even without being custom-made, many new drugs are still trying to treat smaller groups of patients — like people with the same specific genetic mutation.

  • “Generic entry might not prove to be as successful for addressing this problem as it has historically been, and I think it’s because we fundamentally have shifted into these other types of products where competition is just more challenging,” Vanderbilt’s Stacie Dusetzina said.

Most of these new drugs belong to a class known as biologics. They’re more complex than the drugs we’re used to, and therefore have the potential to be more precise in the way they interact with your body.

  • “The way drugs are produced and made now is quite different from the way they were produced and made in the early ‘80s, and that’s both because…you have a lot of these drugs being made for small populations, and for biologics the science is so much more complicated,” said Rachel Sachs, a professor at Washington University.
  • Biologics don’t have traditional generic versions; the equivalent are products known as “biosimilars.”
  • The Affordable Care Act created a pathway for the FDA to approve biosimilars, but that market has been slow to take off, and at least in the early going, biosimilars often don’t offer the same steep discounts as traditional generics.

Promoting competition isn’t the only idea in the world, but more muscular price controls are much more controversial.

  • Most of these new, complex drugs are administered at a doctor’s office, not picked up from a pharmacy. The Trump administration has proposed tying Medicare’s payments for that class of drugs to the lower prices that other countries pay, and Democrats support direct Medicare price negotiations.

The bottom line: “One version of ten years from now will have very limited competition in certain types of markets, either because the market has eroded it to be that way or because the drugs that are coming out will by definition have limited competition,” said Rena Conti, a professor at Boston University.

 

 

 

Healthcare consolidation goes beyond usual players

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Consolidation in the health system and health insurance industries has been a focus for years. But a new report sheds light on how the “bigger is better” mantra has taken hold in companies that make syringes, X-ray machines or other healthcare products.

The report, prepared by the Open Markets Institute using data from IBISWorld, shows a small handful of companies dominate their respective markets in certain healthcare sectors that tend to get less of a spotlight than their payer and provider counterparts. The largest three pharmacy and drugstore companies represent 67% of market share and the largest two ambulance manufacturers represent 83% of market share. Just two dialysis providers dominate 76% of market share.

Open Markets has released data on monopolization in other sectors of the economy, and Phil Longman, the group’s policy director, said with healthcare approaching 20% of the U.S. gross domestic product, it’s important to direct attention there, too.

“Pretty much anywhere you go in this economy, whether it’s eyeglasses or beer or automobiles or airplanes, if you ask the right questions, you’ll find it’s much more concentrated than it was before,” he said. “That’s true in healthcare, including all of its component parts.”

Pharmacy benefit management draws $453.4 billion in revenue, according to the report, and just four companies hold three-quarters of its market share: CVS, Express Scripts, UnitedHealth and Humana. The four largest healthcare consulting firms represent 76% of their sector, which draws $6 billion in revenue.

Two companies, LabCorp and Quest, have 37% of diagnostic and medical laboratory market share, a $52.6 billion industry, the report said. And three of the largest medical patient financing companies, Synchrony, Citigroup and Wells Fargo, make up 77% of that market, which draws $4.1 billion in revenue.

The report highlighted consolidation across several different healthcare manufacturers, including those that produce hospital beds, surgical apparel, PET imaging, pacemakers and wheelchairs. Three firms own 88% of the $10.6 billion orthopedic products manufacturing sector: Stryker Corp., Zimmer Holdings and Johnson & Johnson.

Healthcare in the U.S. costs more than in other countries because the prices are higher, Longman said. That’s almost always because there is a barrier to entry that thwarts competition. Longman noted that health systems typically purchase the supplies they need, from bed sheets to bandages, from group purchasing organizations.

“That adds up to serious money,” he said.

One of the factors driving consolidation across these subsectors of healthcare is the continued decline in government and commercial health insurance reimbursement for medical products and services, which puts the squeeze on the associated costs like equipment and doctor’s fees, said Beth Everett, managing director of healthcare banking and head of middle-market healthcare with MUFG in New York. Consolidation may help achieve healthcare cost reduction by creating economies of scale, she said. Whether this ultimately happens is “the million-dollar question,” Everett said.

Greater consolidation and integration in the healthcare system is widely recognized as necessary for improving patient care, Longman said. But it should come with some means of regulation to ensure the benefits of the resulting efficiencies go to the consumer. In this case, that hasn’t happened, and monopolistic corporations are holding the benefits of greater scale, efficiencies and coordination of care rather than passing them along.

“We’ve just really mismanaged competition policy in healthcare,” Longman said.

 

A Large Employer ‘Frames’ The ‘Medicare For All’ Debate

https://www.healthleadersmedia.com/finance/large-employer-frames-medicare-all-debate

As health costs continue to grow, straining employer budgets and slowing wage growth, the business community is beginning to take the option more seriously.


KEY TAKEAWAYS

More than 156 million Americans get employer-paid healthcare, making it by far the single-largest form of coverage.

Medicare-for-all supports say the health system overall would see savings from a coordinated effort to lower prices and administrative costs and eliminate insurance company profits.

While large business lobbying groups strongly oppose Medicare for all, the resolve of many in the business community — especially among smaller firms — may be shifting.

Walk into a big-box retailer such as Walmart or Michaels and you’re likely to see MCS Industries’ picture frames, decorative mirrors or kitschy wall décor.

Adjacent to a dairy farm a few miles west of downtown Easton, MCS is the nation’s largest maker of such household products. But MCS doesn’t actually make anything here anymore. It has moved its manufacturing operations to Mexico and China, with the last manufacturing jobs departing this city along the Delaware River in 2005. MCS now has about 175 U.S. employees and 600 people overseas.

“We were going to lose the business because we were no longer competitive,” CEO Richard Master explained. And one of the biggest impediments to keeping labor costs in line, he said, has been the increasing expense of health coverage in the United States.

Today, he’s at the vanguard of a small but growing group of business executives who are lining up to support a “Medicare for All” national health program. He argues not that healthcare is a human right, but that covering everyone with a government plan and decoupling healthcare coverage from the workplace would benefit entrepreneurship.

In February, Master stood with Rep. Pramila Jayapal (D-Wash.) outside the Capitol after she introduced her Medicare for All bill. “This bill removes an albatross from the neck of American business, puts more money in consumer products and will boost our economy,” he said.

As health costs continue to grow, straining employer budgets and slowing wage growth, others in the business community are beginning to take the option more seriously.

While the influential U.S. Chamber of Commerce and other large business lobbying groups strongly oppose increased government involvement in healthcare, the resolve of many in the business community — especially among smaller firms — may be shifting.

“There is growing momentum among employers supporting single-payer,” said Dan Geiger, co-director of the Business Alliance for a Healthy California, which has sought to generate business support for a universal healthcare program in California. About 300 mostly small employers have signed on.

“Businesses are really angry about the system, and there is a lot of frustration with its rising costs and dysfunction,” he said.

Geiger acknowledged the effort still lacks support from any Fortune 500 company CEOs. He said large businesses are hesitant to get involved in this political debate and many don’t want to lose the ability to attract workers with generous health benefits. “There is also a lingering distrust of the government, and they think they can offer coverage better than the government,” he said.

In addition, some in the business community are hesitant to sign on to Medicare for All with many details missing, such as how much it would increase taxes, said Ellen Kelsay, chief strategy officer for the National Business Group on Health, a leading business group focused on health benefits.

Democrats Propel the Debate

For decades, a government-run health plan was considered too radical an idea for serious consideration. But Medicare for All has been garnering more political support in recent months, especially after a progressive wave helped Democrats take control of the House this year. Several 2020 Democratic presidential candidates, including Sens. Bernie Sanders and Elizabeth Warren, strongly back it.

The labor unions and consumer groups that have long endorsed a single-payer health system hope that the embrace of it by employers such as Master marks another turning point for the movement.

Supporters of the concept say the health system overall would see savings from a coordinated effort to bring down prices and the elimination of many administrative costs or insurance company profits.

“It’s critical for our success to engage employers, particularly because our current system is hurting employers almost as much as it is patients,” said Melinda St. Louis, campaign director of Medicare for All at Public Citizen, a consumer-rights group based in Washington.

Master, a former Washington lawyer, worked on Democratic Sen. George McGovern’s presidential campaign before returning to Pennsylvania in 1973 to take over his father’s company, which made rigid paper boxes. In 1980, he founded MCS, which pioneered the popular front-loading picture frame and steamless fog-free mirrors for bathrooms. The company has grown into a $250 million corporation.

Master frequently travels to Washington and around the country to talk to business leaders as he seeks to build political support for a single-payer health system.

In the past four years, he has produced several documentary videos on the topic. In 2018, he formed the Business Initiative for Health Policy, a nonprofit group of business leaders, economists and health policy experts trying to explain the financial benefits of a single-payer system.

Dan Wolf, CEO of Cape Air, a Hyannis, Mass.-based regional airline that employs 800 people calls himself “a free market guy.” But he also supports Medicare for All. He said Master helps turn the political argument over single-payer into a practical one.

“It’s about good business sense and about caring for his employees and their well-being,” he said, adding that employers should no longer be straddled with the cost and complexity of healthcare.

“It makes no more sense for an airline to understand health policy for the bulk of its workers than for a health facility to have to supply all the air transportation for its employees,” he said.

Employers are also an important voice in the debate because 156 million Americans get employer-paid healthcare, making it by far the single-largest form of coverage.

Master said his company has tried various methods to control costs with little success, including high deductibles, narrow networks of providers and wellness plans that emphasize preventive medicine.

Insurers who are supposed to negotiate lower rates from hospitals and doctors have failed, he added, and too many premium dollars go to covering administrative costs. Only by having the federal government set rates can the United States control costs of drugs, hospitals and other health services, he said.

“Insurance companies are not watching the store and don’t have incentives to hold down costs in the current system,” he said.

Glad The Boss Is Trying To Make A Difference

What’s left of MCS in Pennsylvania is a spacious corporate office building housing administrative staff, designers and a giant distribution center piled high with carton boxes from floor to ceiling.

MCS pays an average of $1,260 per month for each employee’s healthcare, up from $716 in 2009, the company said. In recent years, the company has reduced out-of-pocket costs for employees by covering most of their deductibles.

Medicare for All would require several new taxes to raise money, but Master said such a plan would mean savings for his company and employees.

MCS employees largely support Master’s attempt to fix the health system even if they are not all on board with a Medicare for All approach, according to interviews with several workers in Easton.

“I think it’s a good idea,” said Faith Wildrick, a shipper at MCS who has worked for the company 26 years. “If the other countries are doing it and it is working for them, why can’t it work for us?”

Wildrick said that even with insurance her family struggles with health costs as her husband, Bill, a former MCS employee, deals with liver disease and needs many diagnostic tests and prescription medications. Their annual deductible has swung from $4,000 several years ago to $500 this year as the company has worked to lower employees’ out-of-pocket costs.

“I’m really glad someone is fighting for this and trying to make a difference,” said Wildrick.

Jessica Ehrhardt, the human resources manager at MCS, said the effort to reduce employees’ out-of-pocket health costs means the company must pay higher health costs. That results in less money for salary increases and other benefits, she added.

Asked about Medicare for All, Ehrhardt said, “It’s a drastic solution, but something needs to happen.”

For too long, Master said, the push for a single-payer health system has been about ideology.

“The movement has been about making healthcare a human right and that we have a right to universal healthcare,” he said. “What I am saying is this is prudent for our economy and am trying to make the business and economic case.”

 

“This is prudent for our economy and am trying to make the business and economic case.”