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.