POLICY EFFORTS TO STRENGTHEN PUBLIC HOSPITALS IN ISRAEL

 
34                                                                                                    Eurohealth SYSTEMS AND POLICIES

 POLICY EFFORTS TO
 STRENGTHEN PUBLIC
 HOSPITALS IN ISRAEL
 By: Ruth Waitzberg and Sherry Merkur

                                         Summary: Although Israel has a national health insurance system
                                         which provides universal access to basic health care services, a
                                         majority of adults take out voluntary health insurance (VHI). The VHI
                                         enables them to seek specialist and hospital care in for-profit hospitals
                                         rather than the already overstretched public hospitals. The problem
                                         with private funding is its regressive nature that exacerbates disparities
                                         in access and quality of care. Private provision also negatively impacts
                                         on the public system by drawing away physicians, patients and
                                         revenues from public hospitals. The government is addressing these
                                         challenges through a multi-pronged effort aimed at reforming the
                                         VHI market, encouraging physicians to work full-time in the public
                                         sector, and moving to activity-based payments in public hospitals.

                                         Keywords: Voluntary Health Insurance, Public Hospitals, Procedure-Related Groups,
                                         Israel

                                         The Israeli health care system has a         community and procure, or directly
                                         relatively low level of public funding       provide, hospital services. The NHI pays
                                                                                      a premium to the HPs primarily according
                                         Since 1995, Israel has had a national health
                                                                                      to a capitation formula that considers the
                                         insurance (NHI) system that provides
                                                                                      person’s age, gender and whether they live
                                         for a broad benefits package to all Israeli
                                                                                      in the periphery or centre of the country. 1
                                         citizens and permanent residents, which
                                         the government updates each year. The
                                                                                      Each year, the government determines
                                         benefits package includes an extensive
                                                                                      the level of funding for the NHI, which is
                                         list of services including inpatient,
                                                                                      financed primarily from public sources
                                         ambulatory, emergency and preventive
                                                                                      (via payroll and general tax revenues).
                                         care, diagnostic tests and medicines.
                                                                                      When compared to other OECD countries,
     Ruth Waitzberg is Research
     Associate, Myers-JDC-Brookdale,                                                  Israel has relatively low rates of health
                                         Four competing, non-profit health plans
     Jerusalem, Israel; Sherry Merkur                                                 care spending. In 2016, health expenditure
     is Research Fellow, European        (HPs) are responsible for providing all
                                                                                      in Israel as a proportion of gross domestic
     Observatory on Health Systems and   their members with the NHI benefits
                                                                                      product (GDP) was 7.4%, 2 well below the
     Policies, LSE Hub, London, United   package and for ensuring reasonable
     Kingdom. Email: ruthw@jdc.org                                                    OECD average of 9%. 3 The share of public
                                         accessibility and availability of health
                                                                                      financing declined from 70% in 1996
                                         services. They provide care in the

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Eurohealth SYSTEMS AND POLICIES                                                                                                                                                                35

Figure 1: The Israeli health insurance market

                   PUBLIC HEALTH EXPENDITURE (61% of THE)                                                                 PRIVATE HEALTH EXPENDITURE (39% of THE)

                                                                           Depth: all benefits                                                                Depth: OOP 65%;
                                                                           cost covered except                                                                VHI 35% of
                                                                           small co-payments                                                                  private expenditure
                                                                           (6.45% of
                                                                           HPs income)
                                                   Meuhedet (14%)
                                   Maccabi (25%)

                                                                                                          HPs VHI (84%)
                                                   Leumit (9%)

                                                                                                                                  Commercial
            Clalit (52%)

                                                                                                                                  VHI (57%)
                                                                    Scope (benefits covered):                                                          Scope (benefits covered):
                                                                    NHI health basket                                                                  Complementary
 Breadth: universal coverage by 4                                                                 Breadth: (% of adult population                      Supplementary
 competing HPs (% of population                                                                   covered by type of VHI)                              Duplicative
 covered by each HP)

Notes: HP: health plan, NHI: national health insurance, OOP: out-of-pocket payments, THE: total health expenditure, VHI: voluntary health insurance.
                           6   7
Source: adapted from

to 61% in 2016 of total health expenditure                                        plan that offers a standard package to                       has the fourth highest VHI coverage rate
(THE), which is considerably below the                                            all policyholders, with fees determined                      among OECD countries, behind France,
OECD average of 72.5%. Accordingly,                                               solely by age by each HP. HPs provide                        Slovenia and the Netherlands (based on

           ‘‘
the share of private financing (at 39% of                                         the HP-VHI plans in addition to the                          OECD data for 2015). One distinguishing
THE) is one of the highest among OECD                                             mandatory health basket they provide                         feature of the VHI market is the
countries. This increase was accompanied                                          under the NHI Law.                                           prevalence of multiple coverage: 97% of
by a sharp increase in spending on                                                                                                             C-VHI owners also own HP-VHI, and 47%
                                                                               - Commercial insurance companies
voluntary health insurance premiums. 4 5                                                                                                       have more than one commercial insurance
                                                                                 market both collective and individual
                                                                                                                                               plan. This raises concerns that consumers
                                                                                 commercial voluntary health insurance
                                                                                                                                               may be paying twice for policies that
                                                                                 (C-VHI) policies, tailored to the
                   Israel                                                        preferences of the purchaser.
                                                                                                                                               provide the same or overlapping coverage. 8

          has the fourth                                                       VHI has a complementary, supplementary
                                                                               and duplicative role in the Israeli health
                                                                                                                                               Public hospitals function under
                                                                                                                                               pressure

             highest VHI                                                       system. VHI policies cover (a) services
                                                                               that are not included in the NHI basic
                                                                                                                                               Of the 44 general hospitals* in Israel,
                                                                                                                                               35 are non-profit owned by the Ministry
           coverage rate                                                       health care package (for example, dental
                                                                               care for adults or alternative medicine);
                                                                                                                                               of Health (MoH), municipalities, HPs
                                                                                                                                               or NGOs. They are considered “public
          among OECD                                                           (b) services that are covered by the NHI,
                                                                               but only to a limited extent (for example,
                                                                                                                                               hospitals” in Israel. The remaining
                                                                                                                                               nine are smaller for-profit hospitals and
               countries                                                       in vitro fertilisation and physiotherapy);
                                                                               and (c) services that are covered by the
                                                                                                                                               operate 3% of the beds. 9

                                                                               NHI, and can be purchased in the private       Public general hospital care in Israel is
Voluntary health insurance and the                                             sector. Such services are provided in          one of the most crowded among OECD
dual coverage problem                                                          the private sector with enhanced choice        countries. Table 1 shows that, compared to
                                                                               of provider, faster access or improved         the OECD average, Israeli public hospitals
On top of the NHI, two forms of voluntary
                                                                               facilities. VHI does not cover or reduce       function with about half the average rate of
health insurance (VHI) are available in
                                                                               co-payments in the public system. 1 6          acute care beds and nurses per population.
Israel: VHI offered by the HPs to all of
                                                                                                                              Average length-of-stay (ALoS) in Israeli
their own beneficiaries; and commercial
                                                                               Even though the Israeli NHI benefits           hospitals is also one of the shortest, and
insurance, offered by commercial
                                                                               package is broad compared to other OECD occupancy rates of acute care beds is one
insurance companies to individuals
                                                                               countries, Israel’s VHI market is still one
or groups.
                                                                               of the largest. In 2016, 84% of Israel’s adult
- Health plan voluntary health insurance                                       population had HP-VHI, and 57% had             * Israel adopts the OECD definition for general hospitals,

  (HP –VHI) is a collective insurance                                          C-VHI 7 (see Figure 1). Accordingly, Israel see http://stats.oecd.org/fileview2.aspx?IDFile=5700cad3-
                                                                                                                                               3cc3-4055-b732-0d4ba59faf17

                                                                                                                                                                Eurohealth — Vol.23 | No.4 | 2017
36                                                                                                                                       Eurohealth SYSTEMS AND POLICIES

Table 1: Hospital activities indicators, Israel and OECD average, 2016                                                   Between 2007 and 2011, the number of
                                                                                                                         elective operations increased by 58% in
                                                                             Israel                          OECD        for-profit hospitals, compared with an
     Acute care beds/1,000 population                                          2.3                            3.7
                                                                                                                         increase of only 4% in public hospitals.
                                                                                                                         By 2013, almost two out of every five
     ALoS (acute care)                                                          4                             6.7
                                                                                                                         (38%) elective procedures were carried
     Occupancy rate of acute care beds                                        93%                            78%         out in for-profit hospitals. The shift in
     Nurses/1,000 population                                                   4.9                            8.9        volume from public hospitals to for-profit
     Physicians/1,000 population                                               3.1                            3.4        hospitals has raised a number of concerns
     Discharges rate/100,000 (all causes)                                    15,890                          15,815
                                                                                                                         including: a two-class system of care;
                                                                                                                         loss of revenue for public hospitals; many
Source:   3    10                                                                                                        senior physicians undertaking private
                                                                                                                         work in for-profit hospitals in the late
                                                                                                                         afternoons and evenings, raising concerns
of the highest among OECD countries,                               this purpose in 2013 – 2014. 11 Challenges            about quality of care provided during those
reaching almost full capacity at 93%.                              related to the hospital market, which are             times of day and longer waiting times for
Over the last decade, although the physical                        discussed below, represent a growing                  elective operations in public hospitals. 12 13
capacity of public hospitals has increased,                        concern that is now being addressed by
it has roughly paralleled the natural                              changes in policy.                                    Moonlighting is drawing away public
growth of the population. For example,                                                                                   hospitals’ doctors
between 2010 and 2016, the number of                               Private funding, the fuel for private
                                                                                                                         The increasing private health care funding
acute care beds increased by 6%. 9 Yet, the                        activities
                                                                                                                         is to some extent crowding out the public
rates of beds per population have remained
                                                                   VHI is the main source of funding for                 sector in the competition for physicians’
stable over the last decade. ALoS in
                                                                   private hospitals’ activities. Individuals            time: prices in the private sector are
general hospitals is four days, and has also
                                                                   with VHI coverage (and often multiple                 higher, and physicians in that sector are
remained unchanged over the last decade.
                                                                   coverage) look to private hospitals in                paid on a fee-for-service basis. Therefore,
                                                                   order to access care. The main reasons                physicians have strong incentives to
Challenges facing the public                                       for preferring private hospitals is the               prefer private practice. Many of the best
hospital sector                                                    possibility to select the surgeon, which              and more senior physicians have reduced
                                                                   is not allowed in public hospitals,                   their publicly-paid activities, which leads
Over the last decade, budget deficits in
                                                                   and shorter waiting times for certain                 to increasing waiting times in the public
hospitals and HPs have been a major
                                                                   elective procedures.                                  sector. Moreover, it increases the gaps in
concern. Strengthening the public system
                                                                                                                         access and quality of care between those
has been one of the main efforts of the
                                                                   Over the last decade, Israel’s for-                   with VHI and those without. 14
MoH and Ministry of Finance (MoF),
                                                                   profit hospitals’ activities have grown
which convened a National Committee for
                                                                   significantly, particularly for surgery.              Prices do not reflect real costs
                                                                                                                         The main source of income for Israel’s
Figure 2: Distribution of Governmental hospitals’ gross income by type of service                                        public hospitals comes from the sale of
provided and type of payment, 2016                                                                                       services to HPs. Hospital reimbursement
                                                                                                                         rates are determined by a joint MoH
                                                                                                37% Inpatient PD         and MoF pricing committee, under the
                                                                                                                         “Price List for Ambulatory and Inpatient
                                                                                                26% Inpatient PRG        Services”. This maximum price-list also
                                                                                                                         determines the type of payment, which
                                                                                                23% Outpatient PRG/FFS
                                                                                                                         can be per diem; per activity, so called
                                                                                                8% Births PRG by NII     procedure-related groups (PRG); or fee-
                                                                                                                         for-service (FFS).
                                                                                                6% Emergency FFS
                                                                                                                         As shown in Figure 2, in 2015, a quarter of
                                                                                                                         the gross revenue of government-owned
                                                                                                                         hospitals was for inpatient care paid for by
                                                                                                                         PRG, 37% for inpatient care paid by per
                                                                                                                         diem, 23% for ambulatory care paid by
                                                                                                                         FFS or PRGs, 8% for births paid by PRGs
                                                                                                                         and 6% for emergency care paid by FFS. 15

Note: PD: per diem; PRG: procedure-related group; FFS: fee-for-service; NII: National Insurance Institute.
          16
Source:

Eurohealth — Vol.23 | No.4 | 2017
Eurohealth SYSTEMS AND POLICIES                                                                                                                   37

                                                 addition, for-profit hospitals are not subject
                                                 to the MoH price-list and charge FFS. This
   Box 1: Changes to the C-VHI market            situation creates negative spill-over effects       Box 2: Specific objectives of the
                                                 on the public sector: cream skimming                full-timers programme
   •	Creation of a “standard policy” for
                                                 of patients by for-profit hospitals leaves
      surgery and specialist consultations:                                                          •	to increase the availability of senior
      insurance conditions and policies must     the most severe and costly cases for
                                                                                                        physicians in public hospitals outside
      be the same for all insurers and           public hospitals. Furthermore, the public              of regular work hours, thus improving
      insured, including coverage, premium       hospitals usually receive patients with                quality and safety of care;
      and co-payments. The premium can           complications and readmissions from
      vary according to eight age-groups and                                                         •	to contribute to the development of the
                                                 for-profit hospitals. Consequently, over               next generation of clinical leaders in
      gender, and a few personal risk factors,
      such as previous medical conditions.       the past decade, the case-mix treated in               public hospitals, and develop
                                                 public hospitals has become more costly                physicians who look to the publicly
   •	Insurers must offer the different policy                                                          financed system as a sole and
      packages separately, each with its own     than the average, but hospitals have not
                                                                                                        satisfying source of income;
      price and without mutual dependency        been reimbursed for these additional costs.
      of ownership. Examples of insurance        Since MoH prices are set as national-               •	to improve the image of the publicly
      policies are policies for surgery and                                                             financed system and related
                                                 use averages, and PRGs are not adjusted
      specialist consultations; medications                                                             public trust;
                                                 for severity of case, these costs are not
      not in the NHI; transplants overseas;                                                          •	to increase the volume of care provided
      and severe diseases. 8                     reflected in the price list, and public
                                                                                                        by public hospitals; and
                                                 hospitals are under-funded and are finding
                                                 themselves in chronic financial deficits. 17        •	to reduce waiting times for elective
                                                                                                        operations and ambulatory treatments.

Until 2010, MoH price lists were not based
                                                 Three measures to strengthen
on a methodical costing process. Per
                                                 public hospitals
diem and FFS rates were set about three                                                           In mid-2016, the MoH put forward a plan
decades earlier based on the historical          Since 2015, the MoH and MoF have been            according to which selected physicians
expenditures of certain hospitals. Since         addressing the aforementioned challenges         in public hospitals would be offered
then, rates were updated for inflation, but      through a series of policy reforms, some of      significantly enhanced pay in return
no major recalculations were undertaken,         which are described here.                        for working additional hours in a public
despite significant changes in cost                                                               hospital and agreeing not to work in the
structure due to technical and medical           1. VHI reform to limit private funding           private sector. The overall objective of the
advances. Therefore, some activities are                                                          full-timer initiative is to strengthen Israel’s
                                                 Since 2015, the government approved

                  ‘‘
underpaid and others are overpaid. The                                                            publicly financed health care system by
                                                 several changes to the C-VHI market to
gaps between costs and prices create                                                              improving its availability, quality and
                                                 address the multiple coverage issue and
a series of inefficiencies caused by the                                                          safety (see Box 2). The initiative may
                                                 protect consumers. 18 The changes create
influence of economic considerations on                                                           also contribute to efforts to constrain the
                                                 simplified and more transparent insurance
medical decisions.                                                                                private provision of care. 13
                                                 products to help refine consumer
                                                 choice and potentially enhance market
                                                                                                  3. Adoption of Procedure-Related Group
                                                 competition based on quality rather than
                                                                                                  (PRG) payments to improve payment for
                                                 price (see Box 1). Another change was that
                                                                                                  public hospitals
                                                 VHI can cover services provided only by
  physicians have                                physicians with selective contracts with
                                                 the insurer, and providers cannot extra-bill
                                                                                                  The MoH has been working to build a
                                                                                                  consistent costing and pricing mechanism
 strong incentives                               patients. This measure intends to limit
                                                 private funding, and consequently limit
                                                                                                  for public hospitals to reduce gaps between
                                                                                                  costs and prices. A hospital payment
           to prefer                             the private provision of care.                   reform (the PRG reform) began in 2010,
                                                                                                  which consisted of costing hospital
   private practice                              2. Cooling-off period to limit diversion
                                                 of patients to private practices and the
                                                                                                  activities and setting differential pricing
                                                                                                  for inpatient care per procedure by medical
                                                 full-timers programme                            fields. Once the price for a specific
In addition to the imprecise costing and
                                                                                                  procedure has been set, the per diem
pricing mechanism, the unbalanced                In December 2015, new legislation
                                                                                                  payment is replaced by the PRG. In 2015,
competition of public and private                stipulated that a physician who has started
                                                                                                  there were over 300 PRGs codes, which
hospitals poses further difficulties to          treating a publicly-funded patient cannot
                                                                                                  account for half of all procedures and a
public hospitals. For-profit hospitals can,      provide that patient with privately-funded
                                                                                                  quarter of all discharges. 15 19
on the one hand, select the low risk or          services during a period of at least four
low cost patients and, on the other hand,        months. This law attempts to limit the
                                                                                                  PRGs differ from diagnosis-related
do not incur the cost of emergency care          diversion of patients from the public to the
                                                                                                  groups (DRGs) because they classify
or teaching and research activities. In          private system. 14
                                                                                                  patients based on the main procedure they

                                                                                                                 Eurohealth — Vol.23 | No.4 | 2017
38                                                                                                                                Eurohealth SYSTEMS AND POLICIES

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