Establishing a Fifth Sick Fund

• Abstract
• Characteristics of this policy
• Purpose and process analysis
• Expected outcome
• References

Featured in half-yearly report: G-politik in Industrieländern 10

Abstract

A recent 2007 cabinet decision has allowed for the establishment of a new non-profit sick fund. The driving force behind the decision is a government hospital that plans to become a subsidiary of the new sick fund and expects to benefit by securing its patient flow, currently threatened by the referral policy of the two largest sick funds. The Ministry of Finance supports the idea which is expected to increase competition, improve quality and efficient use of hospital infrastructure.

Neue Entwicklungen

The recent 2007 cabinet decision has allowed for the establishment of a new not-for-profit sick fund (SF), in addition to the four SFs currently operating in Israel. This decision is a major change compared to previous propositions (1998, 2005) to allow the operation of an additional new for-profit SF.

Unlike the past propositions, another innovative aspect of the 2007 cabinet decision is the provision that the new SF will be allowed to operate one or more hospitals managed by a subsidiary of the SF. These hospitals will benefit from the relationship with the SF which will refer patients to them thus securing their patient flow and financial viability. 
 
The 2007 cabinet decision does not need additional approval of the parliament since the new SF will operate under the same terms as the four existing SFs (stated in the National Health Insurance law).  

The driving force behind the 2007 cabinet decision is the Sheba government hospital which plans to become a subsidiary of the new SF, and expects to benefit from this initiative by securing its patient flow. It has initiated this idea following changes in the SFs hospital referral strategy. Since 1997, the two largest SFs (Clalit and Maccabi) have increasingly directed new patients needing hospitalization or outpatient services to their own facilities and hospitals. Recently, since 2004 Sheba hospital has perceived an escalation of this policy and a growing decrease in referrals from these SFs. For example, SFs began re-directing even oncological patients and other patients with serious complex conditions to their own facilities and hospitals. This ongoing and escalating strategy of the SFs was perceived as a threat to government hospitals' financial viability, threatening their patient flow. 

The Sheba hospital initiative is also related to their perceived threat related to SFs strategy to refer patients needing minor surgery to private for-profit hospitals. Sheba is concerned that these SFs (who jointly have more than 80% of the SF market share) will divert small and profitable procedures to private hospitals, changing the case mix referred to government hospitals, and endangering their financial viability. They are particularly concerned that Maccabi will divert procedures to the private hospital it owns and wants to expand (Assuta hospital). Therefore, Sheba hospital initiated the new policy proposal with the objective of establishing a preferred provider business relationship with the new SF, to ensure its patient flow and financial viability. Other government hospitals as well as hospitals from the voluntary sector share these concerns. In October 2007, all goverrnment hospitals have anounced their intention to join this arrangement  too.

The MOF supported and promoted this initiative because it is in line with MOFs previous efforts to improve the functioning of the health system by: a) increasing competition in the SF market to improve quality and efficiency (see reports (4)2004,  (5)2005); b) transferring ownership of government  hospitals from the MOH to SFs (see report (8)2006); and c) encouraging efficient use of existing hospital infrastructure (instead of developing duplicate services by the SFs). 

Innovationsgrad	traditionell		innovativ
Kontroversität	unumstritten		kontrovers
Strukturelle Wirkung	marginal		fundamental
Medienpräsenz	sehr gering		sehr hoch
Übertragbarkeit	sehr systemabhängig		systemneutral
current    previous

Innovation - rather innovative because since the mid 1970s the sick fund market in Israel was stable and consisted of the same four  SFs.

Controversy - the new policy is controversial and opposed by the existing sick funds.

Structural impact - rather fundamental, since it will likely increase competition among SFs, have an impact on service provision arrangements as well as on the level of income of the existing four SFs. 

Visibility - low, only a few newspaper articles were published on the topic.

Transferability - the idea of increasing competition by allowing establishment of a new SF can be transferred to other health systems with sick funds.

Purpose and process analysis

Current Process Stages

	Idee	Pilotprojekt	Strategiepapier	Gesetzgebung	Umsetzung	Evaluation	Veränderung/Richtungswechsel
Implemented in this survey?

Initiators of idea/main actors

• Regierung

• Leistungserbringer

• Andere

Stakeholder positions

Ministry of Finance - They support the current initiative in order to increase competition in the SF market. They expect this to lead to improved quality of services and efficient use of resources.

Ministry of Health -The Minister of Health supported the initiative presented to the cabinet by the MOF, although was not actively involved in promoting it. His main concern was to ensure that the new SF operates under the terms of the NHI law, and when that was included in the MOF proposal he supported it. Other officials do not show enthusiasm to implement it, but do not publicly oppose it. Recently a senior official anonimously expressed concern in the press that the new SF will attract mainly the young and healthy (who are more flexible in decisions to transfer to a new SF) thus endangering the financial viability of the existing SFs, and promoting inequality in the system.

Sick Funds -The formal position expressed by Clalit and Maccabi in the media welcomes competition in the market. At the same time they question the motivation behind this initiative claiming that this initiative is aimed at weakening the existing SFs and procuring indirect additional subsidies for the government hospitals. They also raise concerns related to the ability of the new SFs to offer a nationwide distribution of services and to provide high quality primary care, health promotion and preventive services. The other smaller SFs have not expressed a public stand on this topic  arguing that  they do not need to oppose the initiative since it is likely not to be implemented, as were the 1998 and 2005 proposals.

Sheba hospital - initiated this policy. They argue it will improve the quality of service to citizens offering increased choice of hospital and improved outpatient community services. The main reasons for initiating and supporting the policy include: a) an attempt to ensure their patient flow in light of SF restrictions on referals to outpatient hospital services, b) an attempt to secure the hospital's financial viability in light of the expected change in case mix if Clalit and Maccabi operate a private hospital and direct less severe and more profitable procedures to these hospitals, c) Sheba argues they can provide higher quality care than exisiting SFs (better continuity of care, more choice). They also argue they will be more cost-efficient and make better use of hospital infrastructure.

Other government hospitals - support the initiative for similar reasons as presented by Sheba hospital.

Civil Society - Physicians for Human Rights Association raises concerns regarding the ability of the MoH to regulate the activities of the new SF and its ability to ensure that the new SF will not cream skim and will open clinics in peripherial and disadvantaged areas. Additionaly, it claims that establishing a new SF will increase the overhead expenses in the health system.

Israel Medical Association - opposes the policy. The main reasons for their position are: 1) do not believe it will really increase competition (the Israeli public does not tend to transfer between funds); 2) believe that mostly the young and healthy will join the new fund as they are more likely to transfer; 3) believe the new fund will also accumulate a deficit which will be rolled on to the public; 4) do not believe the public will benefit in any way from this change; 5) do not believe the new SF will be able to provide a nationwide distribution of services and thus choice of providers for their members will be restricted.

Actors and positions

Regierung
Ministry of Finance	sehr unterstützend		stark dagegen
Ministry of Health	sehr unterstützend		stark dagegen
Leistungserbringer
Sick Funds	sehr unterstützend		stark dagegen
Sheba Hospital	sehr unterstützend		stark dagegen
Other government hospitals	sehr unterstützend		stark dagegen
Physicians for Human Rights Association	sehr unterstützend		stark dagegen
Andere
Israel Medical Association	sehr unterstützend		stark dagegen
current    previous

Influences in policy making and legislation

The previous propositions to establish a for-profit SF required an amendment to the NHI law which stipulates that every SF must be a not-for-profit organization. The new 2007 cabinet decision is fundamentally different as it  proposes a not-for-profit additional sick fund operating under the terms stipulated in the NHI law. Therefore there is no need for a legislative change of the NHI law.

The new  proposition was approved by the cabinet on  August 12, 2007 and does not need additional legislation. National Health Insurance regulations (defining the terms of establishing a new SF) need to be slightly amended. For example, the number of members in the new SF needs to be adjusted to the provision in the cabinet decision (a slightly lower number of members is now required  than in the original regulations). The Minister of Health has the authority to amend the regulations as needed.

Legislative outcome

n/a

Actors and influence

Regierung
Ministry of Finance	sehr groß		kein
Ministry of Health	sehr groß		kein
Leistungserbringer
Sick Funds	sehr groß		kein
Sheba Hospital	sehr groß		kein
Other government hospitals	sehr groß		kein
Physicians for Human Rights Association	sehr groß		kein
Andere
Israel Medical Association	sehr groß		kein
current    previous

Positions and Influences at a glance

Adoption and implementation

The cabinet decision to approve establishment of a new SF will go into effect in 2008. The necessary measures for implementation include:

1. The Ministers of Health and Finance will appoint a professional committee under the director general of the MOH that  will be responsible for implementation. They will define the terms for establishing the SF as well as the process for selecting the entity that will establish the new SF. The terms for establishment will include registration of at least 40,000 members after one year and at least 130,000 members after three years of operation. They also include abiding by all the National Health Insurance regulations including national distribution of services, accepting all applicants, and prohibition of discrimination between members.
2. The Minister of Health has to change the NHI law regulations (defining the terms of establishing a new SF) in concordance with the above terms.
3. A not-for-profit association has already been established with a public board of governors, which is a legal entity that can apply for ownership of the new SF. 
4. Initial negotiations have begun with a large insurance company that will serve as a "management company" with which the SF will contract for managing the operational aspects of the SF. These include information techonology infrastructure and management of database, contracts with physicians and other providers, marketing, operation of service centers for SF members.
5. The new SF will need to establish a subsidiary for managing hospitals. The SF will be allowed to intiate a business partnership with a subsidiary hospital for more efficient use of infrastructure and manpower.
6. The Sheba hospital (currently the biggest goverrnment hospital in Israel and the initiator of the proposition to establish the new SF) is currently negotiating with additional government and non-government hospitals to join it in creating  a partnership with the new SF. Recently all government hospitals have anounced their intention to joing the partnership. At the first stage, they will  contract with the new SF as preferred providers and at a later stage they will become subsidiaries of the new SF.
7. The initiators of the new SF have prepared a business plan, and have fielded a market survey of 1000 households to assess needs. They have also hired an insurance advisor to coordinate the tender for contracting wit h an insurance company. 

However, there is still uncertaintly regarding the actual implementation of the new policy. The Ministry of Health has to convene the committee and lead it to define the terms for establishing the new SF, and then carry out the procedure of selecting the organization that will operate the SF. If they are not enthusiastic about this idea they may postpone the process and consequently the de facto establishment of the SF. The existing four SFs can apply pressure on the government (directly or through parliament members) to retract the decision. They can also pressure hospitals not to partner with the SF, for example by decreasing referrals to hospitals who contract with the SF. To date, such pressures are not apparent but  they may evolve as the process of establishing the new SF begins.

Monitoring and evaluation

The cabinet decision does not include provisions for monitoring and evaluation.

Expected outcome

It is too early to be definitive regarding the outcomes of this policy. They depend on

• the ability of  the new SF to attract enough members given the low rates of transfer between SFs (about 1% annualy); 
• the quality of services it will provide; and 
• the other SFs perceived threat from a new actor entering the market. 

Will establishment of a new sick fund improve quality...

Quality of services might improve if the new SF manages to provide better services, which may set a new standard for the other SFs. For example, the new SF might provide more choice, shorter waiting times for hospital specialists and care or better management of the continuum of care (primary-secondary-tertiary) for chronic patients. On the other hand, the new SF may have an incentive to improve mainly visible services to attract the young and healthy and neglect to provide high quality outpatient services for chronic and elderly patients (which incur higher costs and are thus perceived as less profitable).

The perceived competition from the new SF might induce the other SFs to improve the quality of their services so as to maintain their market share, regardless of the quality of services provided by the new SF.

...and efficiency?

The new SF may also be able to manage resources more efficiently if it makes better use of the hospital infrastructure for outpatient care. This may induce the other SFs to adopt similar strategies and become more efficient.

However, improvements in quality of care and efficiency depend on the degree to which the other SFs perceive the new SF as threatening their market position thus motivating them to improve. Furthermore, effects may be seen only at the local level, if SFs feel threatened in a particular locality.

Possible negative effects

An adverse outcome of this policy may be that the new SF will provide improved services only to localities that are near its hospitals. This may compromise equality if peripheral communities will not have access to these improved services.  However, this negative outcome may be prevented if the MOH closely regulates service development decisions.

Another adverse outcome may be that some of the established SFs will lose a substantive number of members and thus lose part of their income (which is capitation based). However, they will probably need to maintain the same infrastructure (if those members who have left are dispersed). This may result in less efficient use of their resources and in financial deficits. 

 

No substantial increase in overall system costs expected

No substantive increase in overall system costs related to supply of services is expected as the fifth SF is supposed to rely on existing infrastructure. Thereby, the national expenditure on health is not expected to increase. Establishing a new SF will probably incur some additional administrative costs (probably marginal).

Impact of this policy

Qualität	kaum Einfluss		starker Einfluss
Gerechtigkeit	System weniger gerecht		System gerechter
Kosteneffizienz	sehr gering		sehr hoch
current    previous

It is yet early to be definitive about the impact of the new policy.

Quality of Service - Quality may improve if the new SF is perceived as threatening to the older SFs' market share. The new SF may set higher standards of care as it seeks to attract new members. However, it may attempt to improve mainly visible services to attract the young and healthy and neglect to provide high quality outpatient services for chronic and elderly patients (which incur higher costs and are thus perceived as less profitable). Also, as the old SFs will lose part of their capitation based income they may have less resources to provide services, thus compromising the quality of services.

Equity - may improve if the new SF targets disadvantaged peripheral groups in an attempt to recruit them in order to achieve the number of members they need to recruit in order to stay in business. Furthermore, the new SF is required to provide services in all areas and is prohibited from rejecting applicants. However, equity may be compromised if the new SF strategy will be to improve services mainly in the vicinity of the Sheba hospital in order to mainly ensure the patient flow to the hospital initiating the idea. Other SFs who will lose some of their capitation based income may respond by reducing services mainly in the periphery, or services for less attractive populations (elderly, chronically ill) thus compromising equity.

Cost-efficiency - may increase if the new SF sets higher efficiency standards which the other SFs will be pressured to adopt. It may also better use hospital infrastructure and thus contribute to overall cost efficiency of the system. On the other hand, the old SFs may not be able to reduce infrastructure even if their capitation based income decreases, and this may result in lower cost-efficiency and deficits. There may also be more overhead expenses in the system (administrative costs of managing a fifth SF).

References

Sources of Information

• Increasing competition between sick funds. Cabinet decision, number 2204. August 12, 2007. www.pmo.gov.il
• Linder-Ganz, R. "Government hospitals initiate establishment of a fifth sick fund", Haaretz, 01.04.2007
• Linder-Ganz, R. "Fifth sick fund on the move: Rambam and Sheiba joining, Hadassa and Ichilov are about to join", Haaretz, 15.08.2007
• Linder-Ganz, R. "All government hospitals join the initiative to establish a fifth Sick Fund", Haaretz, 14.10.07
• Gal, I. "A fifth sick fund: what to expect?", Ynet, 15.08.2007
• Niv, S. "Prof. Shemer: "establishing a fifth  sick fund  might increase competition but it is not a practical idea", Globes, 09.08.2007
• Kukiya, E. "A fifth sick fund for all-2, The Marker, 27.08.2007
• Har-Noy, E. "Soon in Israel: a fifth sick fund", NRG, 09.08.2007
• Leibovitz-Dar, S. "Behind the curtains of the health system", NRG, 18.08.2007
• Filk, D. and S. Avni. "The health system needs more resources and not a new sick fund", Haaretz, 13.08.2007
• Personal communication of authors: Leumit Sick fund, Meuchedent Sick fund, Israel Medical Association, Ministry of Health

Reform formerly reported in

For-profit Sick Fund Process Stages: Gesetzgebung

For profit Health plan Process Stages: Veränderung/Richtungswechsel

Author/s and/or contributors to this survey

Gross, Revital; Kogen, Reuven; Noi, Shlomo and Noa Ecker

Revital Gross is a senior researcher at the Smokler Center for Health Policy Research, Myers-JDC-Brookdale Institute and an Associate Professor at the School of Social Work, Bar Ilan University; Reuven Kogen is the health referee at the Budget Division of the Ministry of Finance; Shlomo Noi is the director of the Rehabilitation Hospital at the Sheba Medical Center and vice president of R&D and Academic Affairs. He is also a Professor at the Sakler School of Medicine, Tel-Aviv University; Noa Ecker is a research assistant at the Smokler Center for Health Policy Research, Myers-JDC-Brookdale Institute.

Empfohlene Zitierweise für diesen Online-Artikel:

Gross, Revital; Kogen, Reuven; Noi, Shlomo and Noa Ecker. "Establishing a Fifth Sick Fund". Health Policy Monitor, October 2007. Available at http://www.hpm.org/survey/is/a10/4