Docudrama

The New Republic

You have read:

0 / 8

free articles in the past 30 days.

Already a subscriber?

Log in here

sign up for unlimited access for just $34.97Sign me up

HEALTH CARE NOVEMBER 18, 2009

Docudrama

Exclusive: Click here to see slides from the McKinsey report. 

Ask doctors, hospitals, drugmakers, or insurers for their opinion of President Obama’s health care proposals, and you’ll likely get an earful about how reform will severely hurt their bottom line. Ask many liberals, and you’ll hear the opposite complaint: that the current incarnation of reform won’t affect these industries enough to significantly alter their behavior.

Now there’s a document that suggests both sides are wrong: The medical-care industry would need to make significant, and socially beneficial, changes in response to the bills currently moving through Congress; but such changes won’t come remotely close to destroying the industry’s profitability. Of course, reports on health care come out all the time. But this one deserves special attention--because it was prepared by the nation’s most famous consulting firm and was never meant to see the light of day.

Sometime in August, McKinsey & Company created a PowerPoint document called “Health Care Reform and Implications for Key Stakeholders: What this Could Mean for Client X.” Over the course of 44 slides full of charts and graphs, the firm examines the potential impact of reform on insurers, doctors, hospitals, and the drug industry. McKinsey tells Client X that the presentation’s purpose is to “help inform your understanding of the broader healthcare system impact and what this might mean for your key customers and Client X going forward.” After a source supplied me with the document--which is marked “confidential”--I contacted McKinsey. A spokesperson told me that “Client X” is not a particular company. Instead, he explained, the document is a broad overview of how McKinsey expects health care reform to play out. (It also appears to be a presentation that McKinsey consultants could adapt based on a client’s particular situation.)

Although legislation has evolved, McKinsey’s predictions about reform’s basic design and scope seem right on target, which is no small achievement. Remember that, in August, it seemed entirely possible Congress would pass no health care reform at all. But McKinsey identifies as the “most probable outcome” passage of a bill with somewhere between $750 billion and $1.05 trillion in federal outlays, a functional insurance exchange, a possible cap on the employer tax benefit, some cuts in reimbursements, and a severely watered-down public option. That outline describes, with uncanny precision, the bill Congress will probably pass sometime in the next two months.

But it’s the forecasts about what reform will mean afterward that matter to McKinsey’s clients. And perhaps the most surprising element of McKinsey’s analysis is its prediction that legislation really will force the medical-care industry to change its ways.

The bills moving through Congress use a number of strategies to induce such change. On the one hand, there are relatively heavy-handed efforts that would simply cut (or attempt to cut) the sheer volume of cash flowing into health care: reduced fees to insurance companies that offer private coverage to Medicare enrollees, a tax on the most expensive health insurance plans that would prod employers and individuals to buy cheaper coverage, and a dramatic strengthening of the commission that recommends changes in Medicare payments.

At the same time, the bills include more narrowly focused reforms. There would be bonuses for doctors who organize into integrated group practices, which tend to foster better care. There would be penalties for hospitals that have high rates of avoidable readmissions. And there would be funding for studies of which drugs work better than others, so that Medicare and insurers could stop paying for the less effective alternatives.

McKinsey seems convinced that this entire package of reforms will influence behavior. Over and over again, it tells Client X that the world is changing. Hospitals, McKinsey says, will face “increased requirements to coordinate care across system/care continuum,” “significantly more value-conscious consumer decision-making,” and “intensified focus on performance measurement and improvement.” It has even starker warnings for the drug industry: “Big Pharma faces the largest potential revenue risk,” the document predicts. Partly that’s because of existing trends in the drug industry. But it’s also because studies of comparative effectiveness are sure to reduce the sale of drugs that don’t work as well. McKinsey suggests that the drug industry can survive and even thrive in this environment “by focusing on ‘productive’ innovation (supported by strong evidence), collaborating with payors and providers in new ways, and revamping commercial and R&D models to significantly improve effectiveness and efficiency.” 

These are precisely the sorts of changes that the architects of reform want the drug industry--and, more broadly, the entire health care sector--to make. “One generally comes away with the sense that [McKinsey] sees reform as changing incentives, first more modestly and then, potentially, in a more fundamental way in later years,” says Larry Levitt, vice president for special projects at the Kaiser Family Foundation, who reviewed the document at TNR’s request. “That’s a good sign.”

Meanwhile, McKinsey’s analysis suggests that--as long as they adjust to the new incentives--doctors, hospitals, and insurers will be just fine. While predictions carry uncertainty, McKinsey states, “it appears that providers overall (both hospitals and doctors) and payors may be largely unharmed (but with lots of variation across them).” “One comes away with the impression that this is also very manageable for the various sectors and, at least in the case of hospitals, maybe a net positive,” Levitt says.

 

To be sure, McKinsey’s recommendations track closely with the firm’s self-interest. As a consultant that sells strategic advice on how to adapt to changing markets, McKinsey wants companies to believe, on the one hand, that dramatic changes are coming--but, on the other hand, that they can still prosper if they follow McKinsey’s advice.

Still, McKinsey’s report struck me as well-reasoned, and the conclusions themselves are hardly outlandish. Moreover, everyone--from McKinsey to the Congressional Budget Office to think tanks--has biases, and no one is operating with perfect information. So I don’t think McKinsey’s conclusions can be dismissed out of hand. And if they’re right? Then it’s decent news for Client X, and better news for the rest of us.

Jonathan Cohn is a senior editor of The New Republic.

share this article on facebook or twitter

posted in: health care, mckinsey & company, congress, medicare

print this article

SHARE YOUR THOUGHTS

Show all 2 comments

You must be a subscriber to post comments. Subscribe today.

Back to Top

SHARE HIGHLIGHT

0 CHARACTERS SELECTED

TWEET THIS

POST TO TUMBLR

SHARE ON FACEBOOK