State Report Exposes Family Ties Between Meuhedet Executives and Suppliers

Last week one Meuhedet executive was arrested on the basis of the report, and the Health Ministry ordered an emergency convention of the HMO's board within 10 days.

State Comptroller Micha Lindenstrauss issued a report yesterday detailing alleged financial crimes and irregularities carried out by top executives at the Meuhedet health fund over a period of several years. Meuhedet is the country's third-largest HMO, with 1.1 million members.

Lindenstrauss is recommending criminal investigations into six of the cases detailed in the report, as well as the appointment of inquiry panels by the Health Ministry and the State Control Committee. In addition, he has recommended court orders be issued for the return of money paid out improperly.

Micha Lindenstrauss - Emil Salman
Emil Salman

Last week, one Meuhedet executive was arrested on the basis of the report, and the Health Ministry ordered an emergency convention of the HMO's board within 10 days.

Yehuda Eliash, Jerusalem District director for Meuhedet and the HMO's former marketing communications director, was arrested together with several family members. He is under investigation for allegedly awarding supply contracts without a tender to companies that employed relatives, in exchange for bribes.

The comptroller's report, which took three years to research and compile, points to "material flaws in the managerial, supervisory and oversight practices of the fund, which the state entrusted with public funds for the provision of health care to a million insurees and which has an estimated annual turnover of about NIS 4 billion."

The report characterized the failure of several senior executives to report on family members who worked for suppliers of the HMO as a "severe and ongoing conflict of interest."

Shmuel Mualem, who became Meuhedet's CEO in June 2007 after serving as deputy CEO and vice president of human resources, could bear corporate liability for the irregularities in the report. On a personal level, he allegedly failed to report to the HMO's counsel and management that three of his relatives were employed by suppliers for a number of years.

The report claims two of Mualem's children worked for the Israeli branch of Novolog, which supplies drugs to the HMO, while a third was employed by an accounting firm that was involved in internal audits of the health fund.

In a response to the comptroller Mualem admitted, "At the time I was insufficiently aware of the obligation to report their employment by suppliers of the fund as long as there was no suspicion of conflict of interest ... therefore I did not report. I realize now that this was a mistake."

The State Comptroller's investigation found that Meuhedet gave its employees, especially senior ones, irregular monetary bonuses that it reported only partially to the Finance Ministry's wages director.

A number of Meuhedet employees were previously ordered by the wages director to repay a total of NIS 900,000 in vacation pay they received in violation of salary directives.

Meuhedet documents indicate that at least 17 senior employees, including Mualem and internal auditor David Somekh, received "presentation fees" for attending family events of HMO employees. Between May 2008 and May 2009, executives received a total of about NIS 292,000. Mualem alone received NIS 66,000 for attending 132 events.

Three members of the immediate family of Zvi Hertz, director of Meuhedet's Judea and Southern District and a member of the board, were employed for an extended period by a firm that provided cleaning and security services to the HMO. Meuhedet paid the company NIS 220 million for the 2002-2008 period.

Hertz claimed he had nothing to do with hiring suppliers, but according to the comptroller's report on several occasioned he signed off on expanding the scope of the company's services to clinics within his district. Lindenstrauss has asked the Health Ministry and the HMO to consider dismissing Hertz.

Zvi Lemberger, one of 65 members of the Meuhedet Council, which manages the health fund, was given special attention in the report.

Lemberger has been on the council since May 2005, and from 2004 to 2009 he headed a nonprofit organization called Lema'an Yerushalayim that operates in Jerusalem's ultra-Orthodox community. Over 37 percent of the capital's residents belong to Meuhedet.

According to the report, the HMO contracted with the NGO to provide administrative services to the health fund's Malakhi branch, located in Jerusalem's Geula neighborhood, which serves 27,233 people.

According to Lema'an Yerushalayim's financial reports, from 2004-2009 it received about NIS 12.7 million from Meuhedet. Lemberger's positions as Meuhedet board member and as director of the nonprofit constituted a conflict of interest, according to the report. The HMO made monthly payments to the nonprofit association in accordance with their agreement but did not demand detailed receipts and payment orders in return.

Lindenstrauss has asked the Health Ministry to consider requiring Meuhedet to repay the state for money it disbursed for the association's activities in violation of the Health Insurance Law in the guise of payment for administrative services in its branches.

The findings on Lemberger were submitted to the attorney general, to decide whether to pursue a criminal investigation.

The state comptroller also asked the attorney general to investigate allegations that Meuhedet regularly gave money to nonprofit organizations with the aim of recruiting new members to the HMO.

George Chriki, Meuhedet's chief pharmacist, negotiates with the HMO's pharmaceutical suppliers over the provision of NIS 550 million in drugs annually. He is also the owner of Jerusalem's Moriah pharmacy, which sells drugs to Meuhedet members and which for several years even employed pharmacists who were on the HMO's payroll.

Meuhedet ended its dealings with Chriki's pharmacy in April of this year, in the wake of the comptroller's findings.