A Taxonomy of Cream Skimming in the Provision of Hospital Care

The use of prospective payment system in health care has mixed evidences as concerns its effectiveness. On the one side it avoid the problem of misreporting cost, but has the downside effect that, if hospitals might choose which patients to treat, competition might become unfair and the whole system might collapse. The aim of the paper is to review cream skimming in private and public health care markets in different institutional settings. It is shown that the environment in which cream skimming takes place and the objectives of the parties involved should be carefully examined in order to study an effective incentive scheme to correct for this failure