HMO Budget Deficits Widened 50% to NIS 2b in 2012

Health Ministry report cites growing hospitalization costs; officials warn deficit will grow further this year.

The combined budget deficit of Israel's four health maintenance organizations widened by close to 50% last year to NIS 2 billion, not including government aid, the Health Ministry said on Tuesday.

The 2012 deficit at the Clalit, Maccabi, Leumit and Meuhedet represented a significant increase over 2011, when their deficits reached NIS 1.36 billion. Much of the 2012 deficit included aid provided by the Finance Ministry as part of a so-called stabilization agreement, so that the HMOs’ actual deficit was NIS 861 million. But officials at the Health Ministry said that they expect the deficits for 2013 to be even greater than the last year’s.

In her brief response to the news, Health Minister Yael German said the deficits could not be allowed continue and that she and the Finance Ministry need to address the issue. "We should sit down with the treasury to find a way…to realistically fund the health maintenance organizations," she said.

The sharpest deterioration was at Clalit, the biggest of the HMOs. Excluding government aid, Clalit’s deficit nearly doubled to NIS 1.2 billion last year from NIS 578 million in 2011. The deficits at Maccabi and Leumit before government aid grew in 2012 to NIS 375 million and NIS 337 million, respectively, from NIS 240 million and NIS 158 million the year before.

Only Meuhedet reduced its deficit - to NIS 164 million from NIS 282 million in 2011. Meuhedet has yet to sign the stabilization agreement with the government like the other HMOs and has yet to receive any government aid.

The report also found that all the HMOs, with the exception of Clalit, have negative working capital, which has hurt the ability to meet financial obligations. Maccabi had negative working capital of NIS 235 million last year while Meuhedet's reached NIS 321 million and Leumit's was NIS 1.16 billion. Clalit, by way of contrast, had positive working capital of NIS 925 million.

The cash reserves held by the four HMOs at the end of 2012, NIS 1.9 billion in total, would be enough to run Clalit for 23 days, Maccabi for seven days, Meuhedet for three days and Leumit for one day, the Health Ministry said.

"The report proves what I have been saying for long time,” Clalit CEO Eli Defes said. “One day the HMOS will reach a crisis. In the coming year, if there isn't substantive action, the health maintenance organizations will deteriorate to such an serious extent that it would completely disrupt payments to suppliers, hospitals and paychecks to employees."

Defes called on the government to help the HMOs by adjusting the healthcare price index and reining in the rising cost of hospital stays. He also criticized German for not adequately addressing the financial situation at the HMOs. Echoing Defes' criticism, Leumit warned that the increasing cost of hospitalization and declining revenues would lead to wider budget deficits at HMOs in 2013 and bring them to the brink of crisis.

The Health Ministry report found that hospitalization costs rose 8.8%, salary costs by 7.9% and medicine and equipment by 8.9%. Altogether, expenses rose 7.1% at the HMOs last year. Hospitalization costs were the single biggest expense item for the HMOs, comprising 42.3% of the total in 2012, while salaries were 26.1% and drugs and equipment, 20.9%.

"The government must solve the problem of under-budgeting of the health maintenance organizations at the root," Maccabi said in response to the report. "One-time [injection of] funds are like a small Band-Aid on a bleeding wound."

Nir Kafri