Wednesday, March 09, 2011

Observations about the Israeli health care system

As I share this view from my room in Tel Aviv after leaving the conference in Haifa, it is a good chance to consider the features of the Israeli health care system and draw some comparisons with that of the US. You can find a full description here, but let me hit the highlights as I understand them, based on discussions over the last two days.

Israel has had universal coverage for many years. It is provided by four HMOs, one with about 55% of the market, another with 20% or so, and the remaining two splitting the rest. The competition that exists is not based on price. Indeed, the cost of care is covered by a payroll tax and other government funding in the form of a capitated payment to each HMO based on enrollment. People are free to shift from one HMO to another as often as every two months, but only a very small percentage (well under 2%) shift each year.

Supplemental insurance, privately paid, is also available. However, the basic coverage offered to the population is very inclusive, and the supplement is for the small number of elective items that are not of great interest to most people.

The HMOs offer a strong primary care network and then contract with the hospitals for secondary and tertiary care. Some hospitals are owned by the HMOs, but many of the patients go to hospitals that are not owned by the HMOs. These are either government owned or are private, non-profits.

Now, as we explore transactions among these entities, it gets interesting. What is the process by which the rates for the government hospital are set with the HMOs, for the services purchased by the HMO out of its capitated budget? This is a negotiation in which the government is a participant. But recall that the government also owns those hospitals for which it is negotiating the rates with the HMOs. The HMOs are not permitted to joint together to negotiate with the government.

The government has also established uniform salaries that can be paid by HMOs to their executives and doctors. Even accounting for exchange rates and different standards of living, the salaries paid to doctors are well below those in the US. This is possible, in part, because the cost of medical education is highly subsidized by the government.

Finally, if any of these institutions -- government hospitals or HMOs -- runs a deficit, the finance ministry makes up the losses.

For those in the US hospital and physician practice world who are aghast at the idea of rate-setting, you find it here in a very interesting form. In essence, there is little in the way of market forces in place determining the level of financial transactions within or among the major entities providing health care services. And, the whole system is subject to a budget that is set, directly or indirectly, by the parliament.

Regular readers may recall observations I made a few years ago about the Icelandic health care system. There, too, the annual national budget for health care, as a percentage of GDP, was set by the parliament. I asked my Icelandic hosts the following questions and derived a conclusion:

Is this percentage based on a quantified assessment of the actual health care needs of the public, i.e., is it driven by public demand (e.g., a growing aging population)? No. Does it take into account the government's expectation for certain quantifiable levels of service quality, medical quality, or operational efficiency of hospitals and other parts of the system? No.

In essence, this appropriation by the parliament is a politically derived decision, just as it would be for any appropriation for a program of important national priority, and it therefore competes with other worthy national programs for resources.

Such is the case in Israel, too.

It is instructive to compare the differences among these systems, and it is worthwhile to understand the trade-offs that have been made in each political jurisdiction. There is no right or wrong way to do this. The system in each country is a composite societal judgment call.

It is important to recall, though, that all developed countries face similar structural challenges for the future: An aging population that is living longer and demanding more in the way of hospital service; a rapid introduction of technological innovation in diagnosis and treatment that tends to increase the cost of health care; a greater expectation on the part of the public of the "rule of rescue," i.e., devoting more and more resources to the more unusual, but emotionally charged, medical conditions; and a growing base of consumers/patients who are better informed through social media and who therefore have higher expectations of the services provided to them.

These trends intersect with the ability of a society to pay for them, and the bulls-eye for that intersection will be the hospitals. Why? Hospitals are capital-intensive and staff-intensive organizations. In essence, they are characterized by large fixed costs or by variable costs that are hard to vary very quickly. In competing for business, hospitals are prone to engage in the "medical arms race," prompted by their doctors, companies who cleverly market expensive devices and equipment, and ultimately by patients who want the latest and best -- even if clinical efficacy has not been demonstrated.

Hospitals also often have an overlay of responsibility for medical education, the costs of which cannot be easily shed, and many also engage in research for which they are not fully compensated.

In contrast, the HMOs in Israel or the multi-specialty physician practices and primary care groups here in the US have the most potential to change their ways of delivering service to get ever more clinically effective and cost-effective. For one thing, they are not burdened by high levels of fixed overhead. For another, they are better situated to use technology to deliver care more efficiently. For example, they can start to use home-based, remote reading devices to check on a congestive heart failure patient's weight and other vital signs -- or they might use other types of remote testing devices to review a diabetic patient's blood levels and other metrics. These technologies, in the hands of primary care doctors, will enable patients to get the care needed in a low-cost setting and help avoid hospitalization.

The hospitals that succeed in the future will need to do everything possible to avoid incurring large increments of capital expenditures. To do that and otherwise minimize cost increases, they will also have to learn to engage in front-line driven process improvement (whether of the Lean variety or something else) to redesign their work flows. A strong emphasis on quality and safety improvement will also be a virtue rewarded over time. These latter steps do not happen without a strong commitment to transparency: You can't improve unless you acknowledge where you are failing.


Barry Carol said...

Paul – I have three questions.

1. Did you get any insight into the medical litigation environment in Israel vs. the U.S. and to what extent does it influence physician practice patterns?

2. Are there significant differences in patient expectations with respect to end of life care?

3. How are prescription drug prices determined / negotiated, especially for the ultra expensive specialty drugs?

Paul Levy said...

1. Medical malpractice with regard to obstetrics is viewed as a very serious problem. I did not hear about how it influences physician practice patterns, but I did hear thoughts about creating a captive insurance company to handle the cases and financial issues.

2 and 3 did not come up in conversations in the last two days, but I will try to find out more or get people from here to comment.

Alik Aviram said...

History counts! The Israeli Health System was established almost 30 years BEFORE the State of Israel. Practically all the population was voluntary insured by "Sick Funds"(=HMOs),the vast majority in the one owned by the Federation of the Labor Unions .Income-related membership fees, definitely NOT premiums, were collected supplemented by parallel taxing of employers. Benefits were granted according to "affordability" of the Sick Fund. Immigration caused a great surplus of doctors, 95% of whom were therefore salaried. Hospitals were owned by local and central government or by the largest Sick Fund. Private practice hardly existed. Things have changed profoundly since then but these are the foundations on which a health system was built in which there is hardly any rationing and is financed by less than 8% of the GDP.

Anonymous said...

Interesting however as a stem cell transplant patient with numerous graft vs host issues I read many blogs and forums. I can't help but notice that fellow suffers from a variety of other countries asking about coming to the US to see particular doctors. They find the meds we are offered are simply not available in their own countries and that doctors have never heard of them. As far as I understand, socialized medicine works for emergencies and typical ailments but does not address highly specialized medicine. I know someone in France who has been trying to get serum tears in his own country for two years and had to come to Boston to get them. Many stories exist just like this. Would love to hear your thoughts

Brian Rosman said...

I heard from Ezekiel Emanuel once that the Israeli HMOs all compete fiercely on quality. Since patients can switch without consequences, and since most of the members tend to stay in their plan, any movement by patients is mostly marginal added revenue to the plan, without added costs. Hence a plan can succeed financially by getting a few more members from another plan to join.

Emanuel thought the Israeli template might be the best way to adapt universal coverage to the US desire of choice and competition.

Richard D. Sudmeier, MD said...

"Even accounting for exchange rates and different standards of living, the salaries paid to doctors are well below those in the US."
I wonder if Israeli hospital executives' salaries are also much less than their amrican "nonprofit" hospital counterparts'.
If so, it is likely because in the US the salaries are set by the executive him or her self in collusion with cronies on the "nonprofit" hospital board.

Paul Levy said...


I cannot imagine a situation in which a CEO sets his or her own salary. That would violate several rules of good practice and likely federal law as well.

I can't speak to your crony argument in all cases, but I know that most boards now are very cognizant of IRS rules regarding executive compensation and are quite diligent in setting salaries.

Paul Levy said...

Anon 8:37,

I think what you describe varies highly from country to country.


I think you are correct, and I think at least one HMO is trying to be the leader in the service and quality arena. That being said, there is apparently not a lot of churn in the system.

Thank you for the historical perspective, Arik. As mentioned, the 8% figure is a politically derived one. It also does not include certain items, like the subsidized tuition for MD students. Whether it is the "right" number, given the growing demand for health care services is not yet known; but I can tell you that it causes a lot of skimping and saving in the system, not always obvious to the consumer and probably not always to the public benefit. Overall, though, as you suggest, people seem quite satisfied with what they get.

Paul Levy said...


One of my colleagues here sent the following answers to your questions:

1. The medical litigation environment in Israel is unfortunately following the American way. Here in Israel it is an important part of the hospitals' budget. Unlike in the US, in Israel all hospital physicians are employed by the hospital. Their insurance premiums are paid for by the hospital and not by the physician. Even though we pay millions of NIS for litigation of cases we do not see the trend which is seen in the US where obstetricians are leaving the profession.

The trend is increasing in terms of the increasing number of litigations and the amounts being settled per case. The leaders in the field in Israel are the obstetricians followed by neurosurgeons. Recently, genetic consultants have begun to move up this ladder as well.

2. Regarding end of life care: It has become an issue for discussion, concern and involves ethical dilemmas but is not yet organized in any formal way.

3. As you know, in Israel we have universal coverage and prescriptions are fully covered. There is a small co-payment and a cap if you need many prescriptions per quarter.

As for ultra-expensive NEW drugs, which are not part of the health basket, the consumer must pay the full cost out-of-pocket. However, there are not many drugs in this category.

Tanya said...

Having a Masters in Health Policy, Planning, and Finance from a top European University and having lived in Israel for a number of years- and then having returned to the US and taken courses this past year on Health Care Management and the Health Care Reform- I feel like I might have something to say here.

First, Paul- In Israel there is an age/sickness adjusted capitated rate that is budgeted to each sick fund(HMO). These funds are Public-Private funds. The role of the private premium add ons to the Basic coverage has increased over the last decade, allowing the sick funds to use the extra funds to improve thier services, hire more staff or cover imbalances.

Within the Health Clinic environment, all clinics- both primary and specialist Doctors- are connected to a national medical records database that they use for evidence based medicine, patient record keeping, and prescribing. Each of these sections cross reference to alert Docs to allergies or for better ideas. For example, if the doc wants to prescribe a female patient with a certain medicine- the computer might tell him that recent studies suggest another similar medicine is better for women. This system seems to help enormously in time and effort- and thus is both more effective and efficient. It is also very helpful for patients- especially if they need to go to specialists.
Also- a new phenomena at some Israeli health clinics- a low membership fee to guarantee a call within the day and a visit within 2 days tops with the Doc of your choice. If your chosen Doc does not have any more spaces on your sick fund- then this is really helpful. The fee is about $10 a month (about 100 NIS every 4 months or so).
Health care executives do not have the exorbitant salaries that they do in the US and I think this is a valid point.
Hospitals do not have the same kind of computer system network that clinics do- and I am not exactly sure why- they can view all of the information on the clinic network- but if you have a family member that has to switch between departments you often have to fill out new forms like in the US often.
The government of Israel bases its capitation formula for the sick funds on the adjusted formula of age and sickness- (and perhaps gender I cannot recall that one) - thus the 8% is not randomly set- but received by information that each sick fund collects and informs the government about. There is clearly a desire to keep funds low- and there have been many articles in the US- particularly by Dr. Gawande, that point to the fact that increased services do not in fact lead to better health outcomes. In fact, research has shown the opposite if anything. When there are less resources the medical professionals deliberate more about the most effective treatment and this added thought helps improve the quality of care. Gawande has a few great articles from the New Yorker about this.
My experience with the Israeli Health System has been enjoyable. I think there could be more patient support initiatives- though many user directed Internet groups have developed. This is so because it is very difficult to guage the quality of health specialists. The good news is that Primary care Docs tend to be, in general, very attentive and in the Israeli Medical Home model people tend to build good relationships and the Primary care Doctors can be very good advocates.
Arik was correct in the historical perspective. The only thing he leaves out was the 1995 Health Reform law. Before the law about 95% of Israeli's were covered by insurance, who were able to decline coverage to a person if they wanted (though clearly did not often do so). After 1995, no Sick fund could deny an applicants request for coverage. Also, the capitation formula became adjusted for age and sickness. This pretty much increased coverage to 99% or so.

Tanya said...

You talked a bit about the pressures of the hospital in terms of research and training. This does exist and I believe they are deliberating on these issues as we speak.
The greatness of the system is how focused on primary health care they are. All of the Nurses and Doctors are well trained in preventive care- and all patients are given a good screening annually or bi-annually. They incorporate your profile into their care practices- if you have blood sugar levels they will monitor you more often, if you have cholesterol issues- the same.
If you as a patient feels like there is a health issue that could be helped with a procedure- your Primary care doc will tell you how it goes down- he or she will help you understand your options and plan your treatment. They are flexible and not rigid in patient care.
Many family health clinics have at least mini- labs on site where a number of more routine blood tests can be taken. Otherwise, there are large centers available in a number of locations.
We talked about the Basic care and then the private add ons. This is tiered in levels- Basic- and then I think Silver- and Gold and some plans have a platinum level (this is similar to what is envisioned for the plans in the US under the Reform). The Silver plan allows emergency coverage for people when they travel internationally. The Gold plan has this- plus included access to many Allied and/or Holisitc health care such as physical therapy, accupuncture and other similar therapies. The great thing about this is that in order to be a part of the Holistic/Allied Health service the sick fund has to certify a provider- which aids in the safety and quality of these allied health services offered through them. there are also some other benefits that I have forgotten.
I do not know what extras the Platinum tier provides, but it is probably not a huge difference. All of these "Add ons" are really quite affordable- about $17 a month now for the gold plan. the silver is lower than that and the Platinum higher.

I think, like Arik said, there were a lot of Docs that came in as immigrants and that helped oil the wheels of the system. Today, I know that certain Docs are under more stress than others- for instance- there is a higher rate of child bearing in a number of areas and thus pediatricians are often more stressed than others. I am not sure if the sick funds compensate them for that extra stress (I would not be surprised if they did- given how family orientated the country is).
Again, like the response you got said- prescription wise, the basket of medicines is large. This is in fact what has helped develop one of the largest generic medicine companies (Teva) within Israel. It is sort of an interconnected relationship. Interesting isn't it, the inter-relatedness between a population with access to health care that helped to germinate and grow an internationally competitive business.
ALso, many people in the health care workforce take great pride in their work. Great, Great pride.
I think there is a lot that the US could learn from the Health System in Israel.
I am sure there is more I can say- but cannot think of it now.