Strategy Looks at Healthcare Reform


Last time he was running for President, the time before this time, Mitt Romney gave an interview to the Wall Street Journal that ran under the title, “Consultant in Chief.” Romney had of course been a consultant at Bain & Co. before becoming head of Bain Capital, before becoming head of Massachusetts (as in governor of the Commonwealth). Asked how he would cut costs, Romney first despaired of the way Washington was organized, then floated a possible solution: “I would probably have super-cabinet secretaries, or at least some structure that McKinsey would guide me to put in place. I’m not kidding, I probably would bring in McKinsey…I would consult with the best and brightest minds, whether it’s McKinsey, Bain, BCG or Jack Welch.”

Memories of Mitt’s avowal came over me this week as I watched healthcare reform wend its tortuous way toward passage. What, I wondered, would the pioneers of strategy, many of them consultants, make of the current healthcare mess? How would they parse the underlying problems? What solutions might they offer?

For our purposes here let me hastily gloss over the inconvenient fact that you can get the answers straight from the horse’s, I mean pioneer’s, mouth. Writing with Elizabeth Olmsted Teisberg, high lord Michael Porter has written an entire book on the subject, Redefining Health Care: Creating Value-Based Competition on Results. After leading the charge to make McKinsey a strategy firm, Fred Gluck served on the board of Amgen and as lead director of HCA, probably better known to you as Hospital Corporation of America. His thoroughly researched and well-considered recommendations for fixing Our Megaproblem can be found here and here.

I won’t attempt to summarize their latest thinking. I want to do something quicker and much smudgier: take a look at our healthcare arrangements through the lens of the three “C’s” essential to any strategic analysis: namely, costs, customers, and competitors.

Costs. Do you know how much the medical care you received last year cost? Of course you don’t. Probably no one does, except perhaps the mind of God, and She isn’t saying. In all likelihood, you or your employer tracks how much your insurance coverage costs. And you may have kept receipts for all your co-pays for doctor visits or prescriptions (if you’re lucky enough to have such benefits). But my bet is that nowhere in the system is there a tally of precisely how much it actually cost to provide the medicines and treatments you received. Or, if the number is there in some insurance company’s database, it’s certainly not readily available to you, or top of mind for you.

Four or five decades ago, strategy consultants figured out that most companies didn’t know their true costs, so smeared over and lumped together were these by conventional financial reporting. This was very worrisome when it came to figuring out which customers to serve and how the companies stood versus the competition.

Aggregate figures may be the best we can do for the current policy debate. But if we really want individuals to start worrying about how to control health costs, which is of course the National Bankruptcy Challenge of Tomorrow (and tomorrow is coming soon), at some point we’re going to have to get down to the brass tacks of everybody knowing their own tab. As numberless commentators have already pointed out.

Customers. Would any consultant today, designing a national healthcare system from scratch, start from the premise that your status as a customer should depend on who you work for? Our employer-based system seems increasingly out of whack with a world of dismayingly persistent joblessness, legions of part-timers, and, at its most aspirational, Freelance Nation.

The reforms passed this week nudge us in a better direction, providing as they do both carrots and sticks to encourage self-insurance, along with means to obtain same. But with fewer companies offering anything resembling lifetime employment, we’d better accelerate our progress toward some arrangement whereby a customer qualifies simply by being a human being.

Competition. Here’s one we can all agree on, right? More competition can only serve to bring down costs. But of course that hasn’t proved true in all cases, like those of physician-owned clinics with huge technology investments fighting for patients and their accompanying insurance dollars.

The trick with respect to this “C” is figuring out which entities within the system we want competing with one another, and on what basis. Quality of care? Measured how? One thing is for sure: Costs — real, true, well-calculated costs — will have to be factored in. The results may surprise and gratify us. A major lesson from the strategy revolution was that once companies finally understood their costs, their managers proved remarkably resourceful in finding ways to manage them downward.

Walter Kiechel

One Response to “Strategy Looks at Healthcare Reform”

  1. Vijay Kumar says:

    As a Gen Y doctor in an emerging market (Malaysia), accompanied by whirl-pool political connotations, I must add my 3 cents here.

    “Patient’s perception of health care delivery” is the resource we are trying to harvest. This perception is very difficult to quantify and qualify. The psychological aspects which steer the objective assessment of each “visit” a patient makes to a health care facility is probably 80-90% of the golden perception. I wonder whether studies have been done to analyse this

    How else would you explain an old white haired generalist working in the suburbs being the only doctor a community of patients would visit, bringing their children, grandchildren and what-nots to visit him time and again?

    The old opinion “the doctor dresses the wound, God heals it” still holds true even in a technologically dominated field.

    IF we could take the perception altering essence of this old white haired generalist, put it into a syringe and inject it into every doctor out there, would it make a difference in the current Social Web enabled population?

    In the sea of factors which constitute quantifying the three C’s of health care delivery, how do we manage patients perception of the service? And if we can do so, is it ethical?

    Lets teach our physicians NLP and hypnosis for starters.

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