Docudrama-Client X reveals the secret truth about health care reform.

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Docudrama
Client X reveals the secret truth about health care reform.

Jonathan Cohn


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.

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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.”


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