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Administration and Policy in Mental Health

Vol. 23, No. 3,January 1996


Mordechai Mark, M.D., Jonathan Rabinowitz, D.S.W., Dina
Feldman, M.A., Dalia Gilboa, Ph.D., and Joshua Shemer, M.D.

Most western countries are reconsidering the roles of the public a n d private sectors in health care financing a n d delivery.
In the U.S., the Clinton administration has
proposed heavy regulation of private insurance and eventual full "privatization"
of mental health services by 2001 (Arons,
Frank, & Goldman, 1994). In March 1988,
Holland enacted a law that radically
changed health insurance. In December
1988, Germany enacted a law of health
care reform (Gesundheitsreform). In Jan-

uary 1989, England publicized its "Working for Patients" that called for revolutionizing the National Health Service. Previous to this, New Zealand published its
Gibbs Report entitled "Unshackling the
Health care in Israel is also in flux. In
general, reform is moving toward a market-based system, a promising b u t problematic development for mental health
care. In this paper we present the evolving
reform of the mental health care delivery
system in Israel. (For a recent overview of
the mental health care system in Israel see
Kates, 1994.) First we present the problems that brought about the reform and
the historical background to these problems. Next, we discuss some of the proposed solutions. This change process is
presented from the perspective of the
Mental Health Branch team of the Ministry of Health.

Mordechai Mark is Director of Mental Health

Services, Jonathan Rabinowitz is Senior Advisor
on Quality of Mental Health Care, Dina Feldman is Administrative Director of Mental
Health Services, Dalia Giiboa is Chief Psychologist of Mental Health Services, and Joshua Shemer is Director of Medical Technology Assessment Unit at Sheba Medical Center--all
affiliated with the State of Israel Ministry of
Health; Jonathan Rabinowitz is also Senior Lecturer. School of Social Work, Bar Ilan University.
The authors are grateful to Thomas McGuire
for comments on an earlier draft of this article.
Address for correspondence: Jonathan Rabinowitz, D.S.W., School of Social Work, Bar Ilan
University, Ramat Gan, Israel.

Currently, health care in Israel is provided by one large Sickness F u n d r u n by

9 1996 Human Sciences Press, Inc.


Administration and Policy in Mental Health

the Histadrut Labor Union, several smaller

funds, and by the Ministry o f Health.
A b o u t 94% o f the population are covered
by funds. In practical terms, an Israeli Sickness F u n d resembles a health maintenance
organization (HMO). In the rest of this
p a p e r we will refer to these funds by the
acronym "HMO." The Ministry mainly
provides inpatient care and regional community mental health center services. The
Israeli health care system was built on an
equity-based ideology as part o f the socialist roots o f the Zionist movement. Premiums for health care are on a sliding fee
that is based on the insuree's income. Insurees are required to present documentation o f income to their H M O before their
p r e m i u m s are set. This system was set up
before the founding of the State o f Israel
to care for the immediate needs o f the
early settlers in dealing with serious illness.
The first institution for persons suffering
from mental illness was f o u n d e d in 1895.
The first psychiatrist began practice in
1921. In 1948 when the State was founded
there were 1,200 psychiatric beds.
T h e r e has been growing discontent in
Israel that parallels similar discontent
about health care in most of the West. Although health care costs are low by international standards, they are rising rapidly.
Health care costs in Israel in 1971 were
5.4% o f the gross domestic p r o d u c t and
rose to 7.8% in 1979. During the 1980s
they stood at about 7.3%. Since 1986 costs
have been rising, and in 1989 and 1990
they were 7.9%, which is the highest that
they have ever been in the last 30 years
(State o f Israel Ministry o f Health, 1992).
This share is m o r e than Finland, Japan,
and the United Kingdom, b u t considerably less than the U.S., Sweden, Canada,
France, Holland, and Germany (Organization for Economic Co-operation and Development [OECD], 1991).
In response to increasing public concern with the health care system, a commission h e a d e d by retired S u p r e m e Court
j u d g e Shoshana Netanyahu was established in 1988. The commission's r e p o r t

n o t e d many problems. Those particularly

relevant to mental health care are: (1) the
Ministry o f Health's conflict o f interest as
a p r o v i d e r o f service and as the overseer
o f health care; (2) regional differences in
availability o f services between the center
o f the country and its periphery; (3) mental health care is not formally provided by
HMOs; (4) hospital budgets are based on
occupancy o f beds; a n d (5) most services
are hospital-based.

The Ministry of Health's conflict of interest

as provider and overseer. The commission
n o t e d that a body that provides services
could not-effectively also be responsible
for overseeing it functions as a provider. It
r e c o m m e n d e d that the Ministry o f Health
should n o t provide direct care. Instead,
the Ministry should divest itself o f the hospitals to make them financially autonomous; the Ministry should focus on
oversight and strategic planning o f health
services. All health services should be provided by HMOs based on a standard bundie o f services.

Regional differences in availability of services. T h e r e is an unequal distribution o f

services with some areas lacking service altogether. T h e Netanyahu commission reco m m e n d e d that health services should be
organized into six large regions to create
competition. Currently, there is no competition a m o n g psychiatric hospitals because the system is based on 23 well-defined small catchment areas. This leads to
gaps in distribution o f facilities. To address these gaps, regional organizations
for planning are being established. The
goal is to develop regional mental health
and health services authorities to assure
continuity o f and comprehensive care
through quality assurance and regional
planning. This a r r a n g e m e n t is designed to
ensure that the b u d g e t o f a region will be
according to capitation and to avoid shifting o f budgets a m o n g regions.

Mental health care is not formally provided

by HMOs. Prior to 1978 mental health care
was partially covered by HMOs. In 1978
there was a change in mental health care

Mordechai Mark, et al.

delivery that removed responsibility for

mental health care from the HMOs. Community mental health and almost all the
psychiatric hospitals b e c a m e state managed. Under public management the availability of inpatient services continued as
before. But outpatient treatment was inadequate since almost 90% o f public resources were allocated to the hospitals.
The government did not invest enough in
the community psychiatric infrastructure.
The 1978 reform established a budgetary
system that allows for no flexibility for
changes in needs; longterm care private
hospitals with problems of low standard of
care filled the gap in services.
Unlike in Western Europe where health
care costs per person are about $1,300 a
year and psychiatric care costs are about
10% of this figure, and in the U.S. where
they are over $2,300 per person a year
with a higher proportion for psychiatric
care (OECD, 1991), in Israel health care
costs are less than $1,000 a year, only 5%
of which is for mental health care (estimates of the Ministry of Health). While
mental health treatment costs to insurers
in many places have been rising, in Israel
these costs have declined (Koop, 1993). As
one illustration of this, in 1972 there were
2.53 psychiatric beds per 1,000 persons; in
1994 this figure had dropped to 1.3 (estimates of the Ministry of Health).
The Netanyahu commission recommended enacting a national health insuran,e law to include public health, preventative medicine, ambulatory care, hospital
care, rehabilitation, mental health, and
geriatrics. A health care bill, based on the
Netanyahu commission, was passed in
June 1994 and took effect on January 1,
1995. It will begin covering mental health
services in April 1996. This legislation includes comprehensive mental health benefits. In preparation for this bill, a committee was set up to plan coverage for mental
health services. The committee first reco m m e n d e d a proposal similar to the Clinton health care plan that would limit the
mental health coverage given to the in-


suree. This was replaced with another proposal in which coverage is given with limitation put on the provider (see next section for details). The mental health
benefits as deemed by the new law include
three types of services: hospital, ambulatory, and substance abuse treatment services. Hospital services include: emergency
and triage services, hospitalization, day
hospital, consultation liaison psychiatry in
general hospitals, alternatives to long-term
hospitalization such as sheltered housing
and hostels. Ambulatory services include
diagnostic, assessment consultation, individual, family and group psychotherapy,
crisis intervention, follow-up and supportive treatment, rehabilitation and home visits. Substance abuse treatment includes
hospitalization, ambulatory care, and
home-based rehabilitation.
Making mental health services part of
the HMOs responsibility enables integration between general medical and mental
health care, thus potentially improving the
quality of care (Mechanic, 1994). We suspect that like in the U.S. most mental
health care in Israel is provided by primary care physicians; that primary care
physicians rarely refer patients to mental
health professionals; that a majority of all
psychoactive drug prescriptions are written by non-psychiatrists; and that over one
fourth of non-psychiatrist physician visits
are for psychological problems (Schurman, Kramer, & Mitchell, 1985). Yet,
much psychiatric morbidity goes unrecognized and untreated by primary care
A W H O study (Sartorious et ai., 1993),
that was conducted at 15 sites around the
world found that psychological disorders
comprised substantial levels of morbidity
in general health care in developed and developing countries. They also found that
"the majority of the psychological disorders were mood, anxiety, and somatoform
disorders and neurasthenia" and that only
about "one half of these cases were recognized by the health care providers in all
centers as suffering from psychological


Administration and Policy in. Mental Health

problems." O n the other hand, psychiatric

patients are likely to have coexisting physical illness (Honig, Pop, de Kemp,
Philipsen, & Romme, 1992; Koranyi, 1979)
much o f which remains undiscovered in
outpatient treatment (Bartsch, Shern,
Feinberg, Fuller, & Willet, 1990; Koran et
al., 1989). Patients with psychiatric disorders use medical services more than persons
(Lipowski, 1987). These patients also need
more medical services because physical
and psychiatric symptoms tend to cluster
in some individuals who dominate use of
medical and psychiatric services (Fink,
1990a, b). The health reform in Israel enables implementing a national mental
health liaison program in HMOs with primary health care physicians.
Hospital budgets are based on occupancy.
Psychiatric hospitals in Israel can admit
patients without having to justify decisions
to any regulating body or insurer. Similarly, there is no a priori limit on length of
stay which do not have to be justified for
reimbursement. This leads to over use of
hospitalization in Israel (Ginsberg, Penchas, & Israel, 1991). Perhaps as a result of
this, mean lengths of stay in acute psychiatric hospitals are about 60 days, which is
long as compared to other countries like
New Zealand (Joyce, Khan, & Jones,
1981), Canada (Woogh, 1986) and the
U.S. (De Francisco, Anderson, Pantano, &
Kline, 1980) where average stays are well
under 30 days. Related to this is the fact Israeli hospitals admit at higher rates than
hospitals in other western countries. In a
study o f the emergency rooms o f four psychiatric hospitals, which provide about
one third o f the acute psychiatric care in
Israel, we found that an average of 80% of
the patients who came to the emergency
rooms were admitted to the hospital. This
compares with an average of 30 to 40% of
patients admitted from psychiatric emergency rooms as reported in the literature
(Rabinowitz et al., 1995).
Various proposals have been made to
move away from the per-diem method of

reimbursing hospitals. Ginsberg, Penchas,

and Israel (1991), after studying data from
general hospitals in Israel, r e c o m m e n d e d
a combination o f capitation a n d / o r DRG
like system linked with some form o f payment via physician gatekeepers. DRGs are
problematic in psychiatry, instead we are
recommending differential reimbursement based on combination o f fee for service and regional capitation, similar to the
"mixed" system proposed for the U.S.
(Frank, Goldman, & McGuire, 1992). The
consumer will be entitled to receive all
needed services and the provider will be
encouraged to provide these services in
the most efficient way. We are also developing a differential pricing system and a
fee for treatment in emergency r o o m (unless the patient is hospitalized).
As a way of exploring how the hospital
system will react to a reformed funding
environment, and to find the best reimbursement system, we are running an insurance simulation in four psychiatric hospitals. The insurance simulation creates a
"what if" scenario that hospitals were reimbursed by insurance companies. Insurance companies strive to provide services
at lowest possible costs. Since for many
psychiatric inpatients the chance for total
recovery is low and does not increase by
staying in the hospital, thus the insurer
prefers to have patients moved as rapidly
as possible to lower cost alternatives.
In contrast to the open admission policy, hospitals will be required to pre-approve patient admissions except for forensic and forensic-like care. Treatment plans
will have to be submitted to the insurer at
regular intervals. Hospitals will be reimbursed in part based on capitation, and in
part by semi-per-diem payment of differential categories of long-term, acute, rehabilitation, and emergency care by open
and closed unit and by age groups. To
avoid the creation of "heavy user" patients, hospitals will be reimbursed in per
diem by a payment system that will be adjusted for higher mean time between admissions (MTBA) and shorter lengths of

Mordechai Mark, et al.

stay (LOS). This will prepare the health

care system to shift from per diem payment for psychiatric hospitalizations to a
payment system that will be closer to a per
episode payment without encouraging
heavy use. In this way costs will be contained and risks will be shared between
hospitals and insurers. We hope that this
payment system will encourage a shift in
locus o f care from hospital to community.
Most services are hospital-based. As mentioned above, almost 90% of funds for
mental health care have been earmarked
for the hospitals. The new legislation will
encourage developing a range o f services
including homecare, sheltered housing,
and hostels as alternatives to hospitalbased care. HMOs will be paid to provide
those alternatives since HMOs are funded
based on capitation. This attitude is also
reflected in the new Israeli Treatment of
Mental Patients Law, 5751-1991, which includes two measures designed to reduce
hospitalization by serving as substitutes in
some cases for compulsory admission. A
mechanism called Order for Compulsory
Ambulatory Treatment (OCAT) and one
called Compulsory Examination. Similar
to attempts elsewhere (Fernandez & Nygard, 1990), it gives the district psychiatrist the legal mandate to require that a
person attend outpatient treatment in situations that before this law would have
probably resulted in involuntary commitment. OCAT can also be used to require
that a discharged inpatient seek outpatient care. Under OCAT, treatment can be
mandated for up to six months and then
renewed each six months.
Several steps have been taken to reduce the reliance on hospitals and to shift
to less restrictive care. The number of
hospital beds have been decreased by
closing long stay beds and by not adding
new beds, even during a period of massive
immigration from the former Soviet
Another step that has been taken is to
invest heavily in rehabilitating long-term
psychiatric patients in attempt to return


them to, and maintain them in, the community. Studies have suggested that high
treatment costs may be offset by savings in
inpatient use and have examined more
closely the relationship between costs and
benefits of treatment (Rosenheck, Massari, & Frisman, 1993). Clozapine has been
made available to all neuroleptic non-responsive patients who have accumulated
one year in the hospital. Although clozapine is several times more expensive than
other neuroleptics, the Ministry of Health
provided every hospital with a monthly
subsidy for each patient receiving the
drug. As a result, the treatment of these
patients costs the hospitals less money
than that of other psychotic patients. A recent national survey of patients receiving
clozapine shows that about 20% of them
were released after years of hospital stay;
over 30% improved significantly enough
to move to less restrictive care (e.g.,
locked unit to open unit).
A large scale assessment has begun of all
psychiatric patients, numbering several
thousand, who have been hospitalized for
at least 12 consecutive months. Each patient's clinical status and treatment history
are being reviewed to help identify less restrictive alternative care, and to asses patient suitability for clozapine and other
new treatment technologies. Methodology
similar to what Left has done in England
(Anderson et al., 1993) is being used.
However, in Israel, we are not closing hospitals, instead we are conducting a survey
of housing alternatives for long stay psychiatric patients and we are planning
transformation of existing hospital units
to other types of care such as halfway
houses, hostels, and sheltered housing.
The patient and housing survey will provide data for planning a continuum of
needed services.
Also, as part of the reform, the Ministry
has sponsored workshops focusing on
quality assurance and the economics of
mental health care and working gToups
with sick funds for joint planning. The
Ministry has also sent professionals to


Administration and Policy in Mental Health

study the mental health care systems in

other countries.

We have described the b a c k g r o u n d for
the reform o f mental health services in Israel. This reform is in response to public
dissatisfaction that led to the g o v e r n m e n t
to set up the Netanyahu Commission
which suggested far reaching reforms in
health care. The p r o p o s e d solutions are
integrated and geared toward making
mental health services m o r e c o m p r e h e n sive and available in the community, in
general, and specifically in the primary
medical setting. This redefines the role o f
hospital care in psychiatry for only patients who cannot benefit from less restrictive care. These changes will hopefully
r e n d e r the system m o r e c o n s u m e r oriented and financially m o r e efficient.

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