Supplementary Income for Clalit Health Services

The HMO is a major player in the real estate sector, buying and selling scores of valuable properties and developing its own clinics, labs and private hospitals.

For all intents and purposes, it operates like a regular real estate company: Clalit Health Services owns properties covering a total of a million square meters (10.8 million square feet), buys and sells large numbers of buildings annually, implements construction plans for residential and office towers, and renovates, improves and upgrades its many properties with great regularity. Despite all this, Clalit Health Services CEO Zeev Vurembrand insists that the main purpose of the group is to grant good health services to Clalit's clients.

"Maximizing profits from the real estate," he says, "is only a means of raising capital in order to improve service."

For many years Clalit was affiliated with the Histadrut labor federation, which controlled huge swaths of the Israeli economy. In 1995, with the implementation of the National Health Law, Clalit was separated from the Histadrut, with all the properties in its possession. Today, Clalit is independent and belongs to its insured.

According to data provided by Clalit, it has an annual cash flow of NIS 17 billion, owns 14 hospitals with a total of 690,000 square meters, including Ha'emek Hospital in Afula, Carmel Hospital in Haifa, Meir Hospital in Kfar Saba, the Rabin Medical Center in Petah Tikva, Kaplan Hospital in Rehovot and Soroka Hospital in Be'er Sheva. The health services company likewise owns 700 community medical centers and 400 pharmacies, as well as subsidiaries such as Clalit Smile and Mor Imaging.

According to Clalit's figures, the company has 3.8 million clients, 1.3 million of whom are children. In an interview with Haaretz, Vurembrand said that "in any given year of the past several, we have bought and sold real estate, but have always bought more than we have sold. In Holon, for example, we recently exercised a right we had to lot measuring 2,800 square meters. We plan to build a physiotherapy institute there, and later to bring in clinics of other specialists. We are also planning to build a mega-lab in Atidim, which will centralize all the labs from Rehovot to Netanya."

In the sales department, Clalit recently sold what had been one of its flagship clinics, the Zamenhof clinic in downtown Tel Aviv, with a built-up area of 4,700 square meters, for $5.35 million.

"That clinic may have been well-known," says Vurembrand, "but it was not wheelchair accessible and had no [adjacent] parking. We sold that property and are due to vacate it within two years. We have split the clinic's operations in two: We have rented 2,900 square meters on two and a half floors of the Century Tower, which will house the specialists' offices and the imaging center. For that we are paying $11 per square meter before the management fees. We are also looking for suitable land in south Tel Aviv, from Yad Eliahu southward, where we can build a specialists' center."

What about the property you own on Remez Street, near the main Clalit building on Arlosoroff Street?

"There is an immense parking area there. We have arranged to improve the land and transferred all the necessary building rights to it. Now we can build 120 housing units in a tower that will cover 9,500 square meters, with 13 stories and 7 floors of underground parking."

Do you plan to develop this project?

"No. We will issue a tender this coming June and the projected sale price for the land is estimated at $15 million. There are already many interested parties. We are beginning to move forward with the tender and are currently examining what type of tender to use in order to maximize the sum we can get - whether by marketing to a developer or to a building association. In any event, we are now waiting approval from the board of directors."

So you won't be retaining any rights to use the place after the sale of the land?

"We will retain the right to 200 of the 400 parking spots, and will have a separate entrance."

What do you plan to do with the money from this sale?

"The money will be used to upgrade existing clinics, including the one in Ramat Aviv Gimmel. We plan to upgrade that clinic and to build a specialists' clinic that will cover 3,600 square meters and will have underground parking. The cost of the construction is estimated at $10 million."

The private hospital market in Israel's central region is almost completely controlled by Clalit's competitor - Maccabi. This worries Clalit, as it does not like to send its insured to hospitals controlled by competing health services companies. What about Clalit's plans to build a private hospital?

"We are planning to build a private hospital in the center of the country, which will probably be built by a private developer who will finance the project and operate it for a defined period (the BOT method). That hospital will be used for private operations outside the public medicine system and for procedures covered by supplementary insurance. This June we are planning to publish a tender to developers for proposals. The investment in the hospital is estimated at $20 million. The developer's franchise will be for a period of 20 years, during which time Clalit will pay $7 per square meter."

How big will the hospital be?

"The plans are for a hospital covering 12,000 square meters, with 8 operating rooms and 60 beds on an area of 10,000 square meters, plus 2,000 square meters of rooms for other services and private specialists' services. The hospital will have underground parking.

"The hospital will be built close to a non-regional hospital. We are looking at the possibilities of Petah Tikva, Hod Hasharon and east or north Tel Aviv."

What about the land Clalit owns in the Tnuva compound?

"We have 10 dunams (10,000 square meters) in the Tnuva compound, beside the Azrieli Towers. The site is in the improvement rights process and will have 500-percent building rights. We'll build some 50,000 square meters there, half of which will be for our use."

The activities you describe here give the impression of a huge real estate company - do you also profit from your properties?

"Our main goal is to improve service for our insured. Each year there are 70,000 meetings between the community and health care personnel. We want these meetings to be held in proper, modern facilities that provide not only the right medicine, but also a good feeling."

Still, you must have made an effort to profit from the properties.

"True. We want to maximize the potential of our properties. We won't sell them at a loss."

Are you totally separate from the Histadrut?

"Yes. It got to the point that when the Histadrut did not meet its payments schedule, we even took properties instead of money."