Abstract
Objectives
To analyse the process of health care privatization using the case of Israeli health care reforms during the last three decades.
Methods
We used mixed methods including quantitative analysis of trends in health expenditures in Israel and qualitative critical analysis of documents describing the main health reforms.
Results
Israel epitomizes how boundaries between the private and public sector become blurred when health care services are subject to privatization, both of finance and supply. Additionally, the continuous growth of public–private relationships in health care results in systems that lack both equity and efficiency.
Conclusions
More than three decades of experience show that such private–public partnerships increase both inequality and inefficiency. While most discussion surrounding the private–public mix in health care focuses on financing infrastructure, in Israel, the public–private mix has become a central way of financing and delivering services, making its damaging influence more pervasive.
Neo-liberalism and health care reforms
Health care systems, especially in the richer countries, have undergone a process of continuous reforms since the 1980s. 1 While changing therapeutic paradigms and technological developments, professional demands from medical associations, changing demands from users and an aging population require adaptation of the system, the character of these reforms stems from the transition of states’ economies and welfare systems to a global, neo-liberal socio-economic model. 2 One of the main characteristics of the neo-liberal model in the richer countries is the privatization of both finance and supply of welfare services, and among them of health care services. In order to cope with growing health care expenditures and heightened budget constraints, which characterize the neo-liberal model, many countries have adopted a range of public–private partnerships. Supporters of such partnerships, which include professionals within the private sector and international consultancy firms, believe that public–private cooperation is efficacious in shrinking public capital investments in health care.3,4 For this reason, diverse public–private partnerships exist in order to design, finance, build, and maintain hospitals and health care infrastructure. Additionally, the partnerships provide services through outsourcing or privatizing specific services.3,4
This paper evaluates the impact of public–private collaboration in health care reforms in Israel, which has the fastest rate of increase in private financing and supply of health services in the world. We claim that the Israeli case epitomizes how boundaries between the private and public sector become blurred when health care services are subject to privatization, both of financing and supply. Additionally, we argue that the continuous growth of public–private relationships in health care will result in systems that lack both equity and efficiency.
Health care reform in Israel
The Israeli health care system has a history of fragmentation and complexity. The Ministry of Health is responsible for planning and supervision, running hospitals, and directing preventive services. Sick funds in the form of non-profit health maintenance organizations are responsible for the provision of health services (the ‘health care basket’) to their members and were established years before the National Health Insurance Law (NHIL) in 1994. As non-profits, sick funds administer and provide primary and secondary care in addition to financing (and sometimes providing) hospital services. Voluntary non-profit organizations run some of the hospitals and provide emergency care. City councils are in charge of some preventive care and public health services, sometimes running hospitals.
Percentage of national health expenditure in Israel by source before the NHI legislation (Central Bureau of Statistics, 2004). a
The Central Bureau of Statistics provides only government expenditures for years 1981–1983, and it considers members’ fees and out-of-pocket expenditures as a single sector for years 1990–1993.
The law increased equality of health care by ending sick fund cream-skimming, improving services in more remote areas, and redistributing funds more equally between the four sick funds. However, the transformation of Israel’s health care system into a universal single-payer system ran against Israel’s neo-liberal ideological orthodoxy in the same period. It was not long before Israel introduced significant modifications to the NHI, shifting costs from the public budget to patients. In 1997, only two years after the passage of the NHIL, the government passed a Budget Reconciliation Act that eliminated employer contribution to health care. In 1998, the government passed another Budget Reconciliation Act which replaced the government’s commitment to bridge the gap between the cost of the health basket and the funds distributed by the NII. The second Budget Reconciliation Act provided significantly less money each year. To compensate for diminishing public funds, the legislation increased co-payments, even though rising co-payments often harm access to health care among people of lower socio-economic status in poorer health.
National health expenditure in Israel by financing sector (Central Bureau of Statistics, 2014).
As a result, Israel now has a relatively high share of private expenditure and a low share of public expenditure compared to other OECD countries.
5
The increase in private spending is occurring at one of the fastest rates in the world, creating severe constraints on the health care system as a whole. In Israel, private insurance accounts for the bulk of private expenditures. Between 2000 and 2011, the revenues of private insurance grew more than fourfold, from 700 million NIS to 3.1 billion NIS.
8
Today, Israel has one of the highest private health insurance coverage rates in the world
8
(Figure 1). The privatization process in Israel is unique due to the magnitude and characteristics of the public–private relationship.
Percentage of people forsaking medical treatment.
The blurring of the private/public divide as the main form of privatization
Budget constrains pushed hospitals and sick funds to find alternative, market-related sources of income. In order to alleviate pressures on the state budget, the Israeli government allowed sick funds to sell private supplementary insurance. Hospitals developed different arrays of private initiatives in order to replace insufficient funding. As previously discussed, the private share of Israel’s health expenditures has grown primarily due to the expansion of supplementary insurance sold by the sick funds. In 1999, 49% of Israel had private insurance, while 75% of Israelis had private insurance by 2011. 8 Supplementary insurance covers services not included in the public health basket, such as diagnostic procedures, pharmaceuticals, and alternative and cosmetic medicine. With supplementary insurance, patients can choose their surgeons for private hospital procedures, thus shortening waiting times. Nevertheless, sick fund-initiated supplementary insurance plans are community-rated and have no underwriting, thus making them less inequitable than commercial private insurance. Yet as will be presented, their influence on inequities and the character of the Israeli health care system is crucial. 5
Provision of services
Percentage of national expenditure in Israel on health care by operating sector (Central Bureau of Statistics, 2014).
Household expenditure on health care, 1997–2012 (MOH, 2014).10
The hospitals incorporated these private and semi-private initiatives in three main ways: Sharap (Private Medical Services), Sharan (Supplementary Medical Services), and the operation of private facilities within public hospitals. Within the Sharap system, patients choose their physician in a public hospital for an additional fee. Already during the 1950s, the Hadassah Medical Center incorporated Sharap. However, in 2002, the Attorney General forbade the service in government-owned hospitals, a decision sustained by the Supreme Court in 2009. 13 Within the Sharan system, public hospitals sell services not covered by National Insurance to private insurers or individuals. The sick funds follow a similar logic, providing services such as private dental care and alternative medicine. They also own private medical imaging services, laboratory facilities, and private hospitals.
The boundaries between public and private health care sectors have become increasingly blurred to a point that sick funds now sell private insurance for procedures performed in the afternoon in private hospitals owned by those same sick funds, by physicians who during the mornings work in the public system. Assuta Medical Centers, a Maccabi sickness fund-owned private corporation, plans to build a new hospital in Ashdod, Israel which illustrates how the boundaries between the public and private sector are blurring. Jointly with the state of Israel, Assuta will finance the building costs and the new hospital will dedicate 25% of its activity to private patients using the Sharap arrangement. 8
The blurring of the public and private sectors has increased inequalities in health care access. Physician salaries benefit from the potential of combining the private and public sectors, primarily financed by sickness fund-sold private insurance. 5 In the public sector, there is a growing gap between patients who can and cannot afford private insurance: 80% hold supplementary insurance and 20% do not. The reforms encourage a tiered system divided between public insurance holders, sickness fund insurance holders, and private insurance holders. 14 Additionally, the majority of new private services within the public sector are located around Tel Aviv and Jerusalem, exacerbating existing inequalities in service provision between Israel’s centre and periphery. 12
The blurring of the private/public divide and the crisis of the public health care system
The increasing commodification of health care in Israel has resulted in a public health care crisis due to decreased public financing and the blurring of the boundaries between public and private. Growing deficits in the public sector (sick funds and public hospitals) have occurred in line with the rapid expansion of private facilities, often owned by public institutions. For the following reasons, among others, the Israeli health care system presents growing inequalities and inefficiencies:
Inequalities in access to health care services between the better off and the poorer: As shown in Figure 1, according to a survey conducted by the Brookdale Institute, almost 30% among the lower income quintile refrained from buying drugs or visiting a specialist due to co-payments.
15
Waiting times are considerably higher for those in the public system compared to the patients accessing the public system through Sharap. A study conducted in 2012 and 2013 showed that in the Hadassah hospital, the largest in Jerusalem, waiting times for public patients were 11.8 to 13.5 times longer than for patients with Sharap. In another large Jerusalem hospital, Shaarei Tzedek, waiting times for public patients were 2 to 4.8 times longer than for private ones.
16
Private insurance-holding patients have the ability to choose surgeons and specialists for a second opinion, while those without insurance do not. As expected, the percentage of private insurance ownership among poorer sectors (such as Israeli Arabs or people receiving social security transfer payments) is lower than among the better off.
17
Among the wealthiest 20% of Israel’s population, 86% hold sickness fund-sold private insurance, while 57% own commercial private insurance. Among the poorest 20% of the population, the respective percentages are 66% and 17%.
18
Inequalities between the centre and periphery: Decreased public investments meant that the criteria for developing new infrastructure are at the will of the market (those who are willing to pay) and at the will of private donors. For this reason, private services have significantly improved in Tel Aviv and its surroundings. For example, from a total of 100 million NIS in private donations in 2013, 60% went to different projects at the Sheba hospital, located in Ramat Gan, a suburb of Tel Aviv, while only 10 million NIS were donations to hospitals in the periphery.
19
Consequently, disparities between the number of health care workers and access to services between the centre and the periphery grew significantly.
5
In 2012, in the Tel Aviv area, there were 2.4 hospital physicians per 1000 inhabitants, while in the Southern periphery 1.2 and in the Northern periphery one hospital physician per 1000 inhabitants.
20
In a national survey evaluating waiting times, 56% of patients in peripheral settlements reported waiting times longer than a month, while only 38% of patients in the centre reported waiting more than a month.
21
Inequalities between physicians: While there are no available data on private physicians’ income, there is indirect evidence that physicians that work both in the private and private sectors experience a greater increase in their income compared to those working only in the public sector. Additionally, those working only in the public sector experienced a significant increase in workload without increased wages.
5
Porat and Regev-Rosenberg show a positive correlation between physicians in Tel Aviv and Jerusalem who earn significantly above-average wages and the number of medical procedures they undertake compared to the rest of Israel.
22
Inefficiencies due to duplicate insurance: 34% of Israelis have both commercial health insurance and sickness-fund private supplementary insurance. Duplicate insurances promote an inefficient system, since those insured pay twice for similar and many times identical products. Nevertheless, commercial insurance companies benefit, as sickness-fund schemes pay for most of the services. This is shown in the low loss ratio of about 40% of private commercial insurances.
23
Inefficiencies due to duplicate use of services: patients holding both public and private health insurance visit specialists both in the public system and privately for the same problem, increasing the phenomenon of ‘doctor shopping.’
5
Recent research showed that 63% of patients searching for a second opinion did so in the private system; 15% reported consulting with three or more doctors for the same problem.
24
Inefficiencies in technology use: the Ministry of Health is not involved in the direct regulation of the services provided by the sick fund-sold private insurance. For this reason, the sick funds often encourage the inclusion in their private insurance schemes of technologies, treatments, and drugs with no clear patient benefit compared to existing and cheaper treatments, financed through higher premia and co-payments.6,18 Evolution of private health insurance coverage, 2005 to 2013.

Possible solution for the crisis: the German committee
In 2013, following stakeholders’ pervasive sense of a serious crisis, the Minister of Health constituted a Committee to Strengthen the Public Health Care System in Israel, known as the German Committee, since Minister of Health, Yael German, headed it. The committee included representatives from physicians’ and nurses’ organizations, hospitals, academia, and research institutions. Interestingly, the committee did not include representatives from sick-funds or non-governmental organizations, which supported a stronger public sector. While committee members agreed about the Israeli health care system’s main problems, heated debates – both among committee members and in the public sphere – took place regarding solutions. All agreed that the main problems leading to the crisis included declining resources available to the public system, the erosion of public confidence in the system, the transition of senior physicians and resources from the public to the private system, and the expansion of private health insurance.
Proposed solutions varied. Many thought that the only sustainable and politically viable way to fund the system was to expand the private–public mix still further. On the other side stood those who demanded an increase in public funding and a clear demarcation between the public and private systems.
The first group put forward the following main proposals: the implementation of Sharap in all public hospitals, the regularization of medical tourism as a source of private funds, and splitting the sick-fund-sold private insurance scheme into three different programs. One would cover choice of surgeon and private second opinions, a second would cover alternative medicine and cosmetics, and a third one would cover drugs not included in the public health basket. 12 In order to avoid increasing inequality or the ‘slippery slope’ growth of private services, supporters of this approach proposed tight regulation.
Those who argued for the complete separation between public and private sectors presented a proposal that would forbid any private activity within the public system. The proposal included incorporating the main services covered by the private insurance schemes sold by the sick funds into the public health care basket. It also proposed to bar the sick funds from selling private supplementary insurance; eliminating the Sharap and Sharan, and implementing a system of limited choice of surgeons and other specialists within public hospitals. The reforms would be financed by a 1% increase in health taxes.
The final recommendations of the German Committee represented a compromise. The Committee proposed to increase public funding, taking into account population growth and technology changes, to prevent the erosion of public health care funding that had characterized the first two decades of the NHIL. The committee decided to significantly increase the wages of senior physicians who were to work full-time in public hospitals, in order to reduce the common practice in which doctors leave public hospitals to work in private clinics during the afternoon. The committee also decided not to extend the Sharap to all public hospitals. In order to reduce waiting times, the number of public beds would be increased and the MOH would take steps to increase the number of health care professionals. Additionally, the Committee proposed to expand the number of hospitals from which patients could choose sick fund treatment by giving them comparative data on waiting times, thus increasing transparency and public trust, supervised by the Ministry of Health. Altogether, an additional 1 billion NIS will be devoted to the supporting these changes. The Committee also recommended steps to limit private sector growth, such as increased taxation and limitations regarding opening new facilities.
On the other hand, the Committee not only did not eliminate public sick fund marketing of private insurance schemes. The Committee adopted the proposal to divide the existing schemes into three, one of which became a second-tier health basket within the public system. Moreover, the committee allowed public hospitals to provide some private services not covered by NHI (Sharan) and private health care for foreign citizens (medical tourism) but with tightened regulation. Important topics such as reducing health care inequalities, strengthening community health and health promotion, and investing in the periphery did not receive public attention and only received marginal consideration in the Committee’s recommendations.
Conclusions
In a global neo-liberal context, characterized by continuous budget restrictions and commodification of welfare, different forms of public–private mix have been recommended and implemented as an answer to diminishing public funding. In developed countries such as the UK, France, Sweden, and Australia, such public–private partnerships are primarily utilized for developing or renewing infrastructure. 3 In Spain, Portugal, and Finland public–private partnerships provide different care.3,4 Similarly, Galea and McKee claim ‘in the current context of budgetary restriction and economic crisis public private partnerships with major corporations are here to stay.’ 25 Yet, more than three decades of experience show that such private–public partnerships increase both inequality and inefficiency (see, for example, the private public mix in Australian hospital care; 26 the problems in the Spanish Alzira model; 4 and public versus private practitioners in Norway 27 ).
While most discussion surrounding the private–public mix in health care focuses on funding infrastructure, 3 in Israel, the public–private mix has become a central way of funding and delivering services, making its damaging influence more pervasive. This mix has financed (through the private insurance schemes sold by public sick funds) an impressive growth in the private sector at the expense of the public sector. The German Committee was an attempt to cope with the consequences of this expansion and proposed positive steps to limit further commodification of health care in Israel. However, the fact that the Committee did not eliminate private insurance within the public system, but installed a second-tier health basket through the splitting of complementary insurance, will limit the effectiveness of future attempts to control privatization. Appealing to private investors appeared more feasible to the committee than struggling for increased public funding. As a confirmation of this, the Ministry of Health recently proposed a plan to fund health promotion initiatives by allowing hedge funds to sell social impact bonds (SIB). According to the plan, private investors profit from reductions in health costs from successful health promotion programs. This new proposal suggests that new forms of public/private mix represent a main form of privatization of health care services.
Footnotes
Declaration of conflicting interests
The author(s) declared no potential conflicts of interest with respect to the research, authorship, and/or publication of this article.
Funding
The author(s) received no financial support for the research, authorship, and/or publication of this article.
