POLICY IMPLICATIONS OF TRANSFERRING PATIENTS TO PRIVATE PRACTICE

We construct a model to analyze the willingness of Health Authorities to reach agreements with private hospitals to have some of their public sector patients treated there. When physicians are dual suppliers, we show that a problem of cream-skimming arises and reduces the incentives of the government to undertake such a policy. We argue that the more disperse the severities of the patients are, the greater the reduction in the incentives will be. Moreover, we characterize the distortion that the cream-skimming phenomenon imposes on the characteristics of the policy, when this is implemented.