As the "individual mandate" of the Affordable Care Act moves forward, debate and speculation continue as to whether universal health insurance coverage will lead to significant cost savings for hospitals. The assumption is that providing appropriate primary care will improve the overall health of the population, resulting in less need for hospital services and less severe illness among hospitalized patients. Findings from a recent study published in Health Care Management Review challenge that assumption.

The new study reports that mandatory individual insurance coverage in Massachusetts was followed by a significant near-term drop in hospital productivity. The results raise the possibility of similar decrease in U.S. hospital productivity once the individual mandate is implemented as part of national health care reform. "As such, current cost estimates of the Affordable Care Act's impact on overall health spending are potentially understated," write Mark A. Thompson, PhD, of Texas Tech University and colleagues.

Hospital Productivity Drops after Mandatory Insurance The researchers used economic models to evaluate the effects of mandatory insurance coverage on hospital productivity. The analysis focused on the impact of the universal insurance coverage mandate implemented in Massachusetts in July, 2007.

Data from 2005 to 2008 was used to compare trends in productivity at 51 Massachusetts hospitals, 197 matched hospitals and other 2,916 hospitals across the United States. The analysis first used "propensity score matching" techniques to match hospitals in Massachusetts with the hospitals with comparable characteristics.

From 2005 to 2006 -- before passage of the Massachusetts health care reform legislation -- productivity decreased slightly for all hospitals. However, the largest and only significant decrease (2.4 percent) was seen among hospitals in Massachusetts. During the transition period, all hospitals again saw a slight decrease in productivity in 2007 compared to 2006, but Massachusetts hospitals had a significant decrease which was more than twice that of their matched hospitals.

In 2008 -- immediately after the mandatory insurance law took effect -- Massachusetts hospitals had a significant 2.5 percent increase in productivity over the previous year. This increase was more than for the comparison hospitals, but less than for hospitals across the United States.

From 2005 through 2008, the Massachusetts hospitals had an overall productivity loss of 3.5 percent, compared to a 1.6 percent loss among the comparison hospitals and a 4.1 percent gain in productivity among all hospitals.

Unexpected Effect on Productivity May Reflect 'Pent-Up Demand'

In Massachusetts, it was expected that mandatory insurance coverage would "bend the health cost inflation curve" -- making hospitals more productive and lowering the overall cost of public programs. However, the costs of providing universal insurance in Massachusetts have been higher than expected, raising questions about whether the "individual mandate" actually led to the predicted increase in hospital productivity.

"Based on the Massachusetts experience," Dr Thompson and coauthors write, "legislating mandatory health insurance coverage at the national level is likely to be accompanied by a near-term decrease in overall hospital productivity and a concomitant increase in overall health care costs." They speculate that increased access to health care may lead to "release of pent-up demand" for costly discretionary hospital services. The researchers add, "In the long-term, universal coverage should lead to significant savings for hospitals if they can shift non-emergent care away from their emergency departments."

In the meantime, Dr Thompson and coauthors urge realistic expectations about how increases in demand associated with universal coverage are likely to affect hospital productivity. They write, "In the face of policy change at the national level, the healthcare industry will undergo process and outcome transformation that may mimic Massachusetts."