The relationship between hospitals and health plans is crucial to health system finances: health plans are by far the largest purchasers of hospital services in Israel, while hospital expenditures constitute the single largest component of health plan spending.
In the mid-1990s, the hospital-health plan relationship was dramatically affected by two major policy changes. The initiative to institute a cap (or ceiling) on the amount of money that hospitals could charge health plans for services provided reduced the incentive for hospitals to promote utilization. At the same time, the introduction in 1995 of national health insurance redistributed health care monies from the smaller health plans to Israel’s largest health plan. As such, it provided the smaller health plans with a strong budgetary imperative to reduce spending in all areas, including on hospital services.
The JDC-Brookdale Institute carried out a multi-year investigation of recent trends in the health plans’ hospital utilization and expenditures in light of these government-initiated health care reforms and the health plans’ efforts to contain their spending on hospital services.
The specific aims of this investigation are to do the following:
Review the history of the capping initiative and its effect on incentives for health plans and hospitals.
Explore whether, prior to the introduction of the cap and national health insurance, opportunities existed to reduce hospital utilization.
Document post-reform changes in the health plans’ hospital utilization patterns and expenditures.
Document specific organizational measures taken by the health plans to contain hospital expenditures.
Place Israel’s experience in an international context.
This investigation has produced two reports. The first report focuses on changes in the hospital-health plan relationship through 1996, and analyzes experience with the hospital cap as it was originally formulated. In 1997, the cap was modified. The second report summarizes the experience with it between 1997 and 1999.
The study was conducted in an environment of criticism of the hospital revenue cap for unfairly penalizing certain health plans and hospitals. Indeed, this criticism was substantiated by the study. At the same time, the study also found that the cap appeared to have achieved its main objective: Between 1995 and 1999, hospital utilization rates stabilized, and per capita hospital expenditure declined. This finding contributed to the government’s 2002 decision to refine the hospital revenue cap, rather than eliminate it, as some analysts had proposed.
This project was financed in part by the Israel National Institute for Health Policy and Health Services Research. It was a cooperative effort of the JDC-Brookdale Institute, the Brandeis University Health Policy Institute, the Israeli Ministry of Health, and Hadassah-Hebrew University.