Investigation of the Impact of the Massachusetts Health Care Reform on Hospital Costs and Quality of Care
34 Pages Posted: 16 Jan 2013
Date Written: January 15, 2013
Managers use performance measurement systems to help align the interests of the firm and its agents. We argue that legislation can also provide an impetus to improve firm performance. The legislation we study, the 2006 Massachusetts Health Care Reform (the Reform), includes goals of cost containment as well as quality improvement. Yet, the Reform does not directly provide incentives for hospitals to reduce costs or improve quality. Instead, it makes publicly available hospital quality data as well as insurance costs; thus, helping patients make informed choices. We expect that hospitals with better performance in terms of quality will attract more insured patients, thus improving profitability. Accordingly, we predict that hospitals will be motivated to improve quality but not decrease costs.
We study hospital costs and quality for the period spanning 2003 to 2009. To assess the impact of the Reform on costs and quality, we compare the change in Massachusetts hospital costs and quality pre- and post-Reform to changes in a New England state that provides a similar level of quality of care for the same period (namely, Connecticut). Data from acute care hospitals show that there is no evidence that Massachusetts total hospital costs or salaries of departments providing clinical services decreased following the Reform more than in our control state. However, we find that quality of care improved for several quality measures post-Reform to a greater extent in Massachusetts than in our control state.
Keywords: performance measurement, health care, legislation
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