REFORM IN MENTAL HEALTH SERVICES IN ISRAEL: THE CHANGING ROLE OF

GOVERNMENT, HMOs, AND HOSPITALS

Most western countries are reconsidering the roles of the public and private
sectors in health care financing and 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 January 1989, England publicized its "Working for
Patients" that called for revolu tionizing the National Health Service. Previous to
this, New Zealand published its Gibbs Report entitled "Unshackling the Hospitals."
Health care in Israel is also in flux. In general, reform is moving toward a
marketbased system, a promising but 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.
BACKGROUND OF REFORM
Currently, health care in Israel is provided by one large Sickness Fund run by the
Histadrut Labor Union, several smaller funds, and by the Ministry of Health. About
94% of the population are covered by funds. In practical terms, an Israeli
Sickness Fund resembles a health maintenance organization (HMO). In the rest of
this paper 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 equitybased ideology as
part of the socialist roots of 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 of income to their HMO before their premiums are set.
This system was set up before the founding of the State of Israel to care for the
immediate needs of the early settlers in dealing with serious illness. The first
institution for persons suffering from mental illness was founded in 1895. The first
psychiatrist began practice in 1921. In 1948 when the State was founded there
were 1,200 psychiatric beds. There 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% of the gross domestic product 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 of Israel Ministry of
Health, 1992). This share is more than Finland, Japan, and the United Kingdom,
but 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 headed by retired Supreme Court judge Shoshana Netanyahu was

established in 1988. The commission's report noted many problems. Those
particularly relevant to mental health care are: (1) the Ministry of Health's conflict
of interest as a provider of service and as the overseer of health care; (2) regional
differences in availability of services between the center of the country and its
periphery; (3) mental health care is not formally provided by HMOs; (4) hospital
budgets are based on occupancy of beds; and (5) most services are hospitalbased. The Ministry of Health's conflict of interest as provider and overseer. The
commission noted that a body that provides services could not-effectively also be
responsible for overseeing it functions as a provider. It recommended that the
Ministry of Health should not provide direct care. Instead, the Ministry should
divest itself of the hospitals to make them financially autonomous; the Ministry
should focus on oversight and strategic planning of health services. All health
services should be provided by HMOs based on a standard bundie of services.
Regional differences in availability of services. There is an unequal distribution of
services with some areas lacking service altogether. The Netanyahu commission
recommended that health services should be organized into six large regions to
create competition. Currently, there is no competition among psychiatric
hospitals because the system is based on 23 well-defined small catchment areas.
This leads to gaps in distribution of 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 of and
comprehensive care through quality assurance and regional planning. This
arrangement is designed to ensure that the budget of a region will be according
to capitation and to avoid shifting of budgets among 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 delivery that
removed responsibility for mental health care from the HMOs. Community mental
health and almost all the psychiatric hospitals became state managed. Under
public management the availability of inpatient services continued as before. But
outpatient treatment was inadequate since almost 90% of 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 recommended a
proposal similar to the Clinton health care plan that would limit the mental health
coverage given to the insuree. 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 longterm hospitalization such as sheltered housing and hostels. Ambulatory services
include diagnostic, assessment consultation, indi- vidual, 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 physicians. A WHO 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 problems." On the other hand, psychiatric patients are likely to
have coexisting physical illness (Honig, Pop, de Kemp, Philipsen, & Romme, 1992;
Koranyi, 1979) much of which remains undiscovered in outpatient treatment
(Bartsch, Shern, Feinberg, Fuller, & Willet, 1990; Koran et al., 1989). Patients with
psychiatric disor- ders use medical services more than persons without
psychiatric disorders (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 of the
emergency rooms of four psychiatric hospitals, which provide about one third of
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
emer- gency rooms as reported in the literature (Rabinowitz et al., 1995). Various
proposals have been made to move away from the perdiem method of
reimbursing hospitals. Ginsberg, Penchas, and Israel (1991), after studying data
from general hospitals in Israel, recommended a combination of capitation and/or
DRG like system linked with some form of payment via physician gatekeepers.
DRGs are problematic in psychiatry, instead we are recommending differential
reimbursement based on combination of 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 room (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-perdiem payment of differ- ential 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 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 of 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 of services
including homecare, sheltered housing, and hostels as alternatives to hospital
based 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 & Ny- gard, 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 Union. 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 study the
mental health care systems in other countries.
CONCLUSION
We have described the background for the reform of mental health services in
Israel. This reform is in response to public dissatisfaction that led to the
government to set up the Netanyahu Commission which suggested far reaching
reforms in health care. The proposed solutions are integrated and geared toward
making mental health services more comprehensive and available in the

community, in general, and specifically in the primary medical setting. This

redefines the role of hospital care in psychiatry for only patients who cannot
benefit from less restrictive care. These changes will hopefully render the system
more consumer oriented and financially more efficient.