Practice Cases

Magna Health

Introduction

To step through this case example, we will give you some information, ask a question, and then, when you are ready, give you a sample answer. We hope that the exercise will give you a sense of the flow of a case interview. (Please note, you can stop this exercise and pick up where you left off later. Your cookies must be on to use this feature).

In this exercise, you will answer a series of questions as the case unfolds. We provide our recommended answers after each question, with which you can compare your own answers. We want to emphasize that most questions in a case study do not have a single right answer. In a live case interview, we are more interested in your explanation of how you arrived at your answer, not just the answer itself. An interviewer can always assess different but equally valid ways of approaching an issue, and then bring you back to the particular line of inquiry that he or she wants to pursue.

You should also keep in mind that in a live case, there will be far more interaction with the interviewer than this exercise allows. For example, you will have the opportunity to ask clarifying questions.

Finally, a live case interview would typically be completed in 30 - 45 minutes, depending on how the case evolves. In this on-line exercise, there is no time limit.

There are ten questions in this on-line case study. This case study is designed to roughly simulate one during your interview, so you will not be able to skip ahead to the next question until you have answered the one you are on. You can refresh your memory of previous answers by clicking the highlighted Q&A links to the left. To print the answer, click on the print icon that appears in the TOP RIGHT corner. At the end, you can print the entire on-line case study at once.

Start Case Study

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Client Goal: To determine how to improve its financial situation.

Our client is Magna Health, a health care company in the Midwest. It both insures patients and provides health care services. Employers pay a fixed premium to Magna for each of their employees in return for which Magna covers all necessary health services of the employee (ranging from physician care and medications to hospitalization).

Magna currently has 300,000 patients enrolled in its plan. It has 300 salaried physician employees who provide a broad range of services to patients in six centers. These physicians represent a wide range of specialty areas, but not all areas. When a patient needs medical treatment in a specialty area not covered by a Magna physician, they are referred outside of the Magna network for care, and Magna pays all referral costs on a fee-for-service basis. Magna does not own any hospitals itself, instead contracting services from several local hospitals.

Magna‘s CEO has retained McKinsey to help determine what is causing the declining profitability and how Magna might fix it.
QUESTION 1
What key areas would you want to explore in order to understand Magna‘s decline in profitability?
ANSWER 1

Some possible areas are given below. Great job if you identified several of these and perhaps some others.

Magna‘s revenuesPrice paid by employer for employee health coverage.Number of employees covered by Magna.Magna‘s costs (or fixed and variable costs)Magna‘s main cost components consist of administrative (non-medical) and medical costs (e.g., hospital, drugs, outpatient care)Outpatient costs can be split into internal physician costs versus external referral costsMagna‘s patient base demographics/overall risk profile which may affect medical costs
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QUESTION 2
The team discovers that the demographics of Magna‘s subscribers have changed significantly in the past 5 years, from majority industrial workers/laborers to majority office employees. Knowing this, are there any specific areas you would investigate first?
ANSWER 2

We are looking for a few responses, similar to the ones below:

Claim costs, as the change in the subscriber base will change the profile of diseases (e.g., more heart disease/stress and less work related injury)External referral costs, due to the change in the disease profile for which they have in-house competency=============================================================================================================

QUESTION 3
After reviewing the basics of Magna‘s business, your team believes that one of the root causes of Magna‘s financial problems is how it manages medical costs, particularly the cost of referrals to specialists outside of its physician network. Your team has gathered the following information on Magna and its primary competitor, Sunshine HMO:

Number of patientsAverage cost of referral(per member per month)Magna Health300,000$20Sunshine HMO500,000$15