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Cream skimming: Theory and evidence from hospital transfers and capacity utilization

Ou Yang, Marc Chan, Terence Cheng () and Jongsay Yong

Journal of Economic Behavior & Organization, 2020, vol. 173, issue C, 68-87

Abstract: The paper examines cream skimming behaviour by studying hospital transfers in a mixed public-private hospital system. A key innovation is the use of capacity utilization to identify cream skimming. We develop a dynamic model with uncertain patient arrivals and hospital capacity constraints to clarify the conditions under which a profit maximizing hospital will engage in patient selection by transferring ‘hard’ patients—those with severe/complex conditions—to free up capacity to accommodate ‘easy’ patients with few severe/complex conditions. Given finite capacity, public hospitals are strictly less likely to transfer patients than profit-motivated private hospitals at the same level of capacity. We test implications of the model using hospital administrative data from Victoria, Australia, and find empirical support for the cream skimming predictions of the model.

Keywords: Cream skimming; Hospital transfers; Capacity utilization; Mixed private-public hospital system (search for similar items in EconPapers)
JEL-codes: D25 I11 L33 (search for similar items in EconPapers)
Date: 2020
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DOI: 10.1016/j.jebo.2020.03.024

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Journal of Economic Behavior & Organization is currently edited by Houser, D. and Puzzello, D.

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