It Takes Three to Tango: Soft Budget Constraint and Cream Skimming in the Hospital Care Market
SSRN Electronic JournalPublished 1 January 2005Open access
Rosella Levaggi, Marcello Montefiori
Citations30
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TL;DR
The paper studies the scope for these types of behaviour in a mixed market for hospital care where the hospitals do not share the same objectives and shows that cream skimming is made possible by the presence of two important elements: the public hospital prefers to treat high severity patients and the regulator is unable to enforce hard budget constraint rules.
Abstract
Cream skimming is an illegal behaviour that consists in choosing to treat patients according to their ability to recover. It arises from the use of prospective payment schemes in an asymmetry of information framework. In this context in fact the provider can observe some relevant information (freely or at a cost) before making his effort which will then be used to its own advantage. The paper studies the scope for these types of behaviour in a mixed market for hospital care where the hospitals do not share the same objectives. We show that in this context cream skimming is made possible by the presence of two important elements: the public hospital prefers to treat high severity patients and the regulator is unable to enforce hard budget constraint rules.
Keywords
Economics, Econometrics and Finance
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