Hospital financing systems determine major decisions made by physicians and managers within hospitals. This paper examines the impact of the transition toward an activity-based reimbursement system that has emerged in most OCDE countries. We consider two initial situations, one for a private...

In a paper published by Ma (1994) it was argued that the prospective payment system in the hospital industry was superior to the cost based reimbursement system to achieve both cost reduction and quality improvement objectives. In the analysis, it was assumed that quality and costs decisions...