This presentation was made by Ruth Waitzberg, Israel, at the 4th meeting of the Joint DELSA/GOV-SBO Network on Fiscal Sustainability of Health Systems, held in Paris on 16-17 February 2015.

1. How Israel reimburses hospitals based on activity: the
Procedure-Related Group (PRG) incremental reform
Shuli Brammli-Greenberg1,2, Ruth Waitzberg1,
Vadim Perman3 and Ronni Gamzu4
1Smokler Center for Health Policy Research, Myers-JDC Brookdale Institute
2School of Public Health at the University of Haifa
3Director of Pricing at the Department of Planning, Budgeting and Pricing, Ministry of Health
4Retired Director General, Ministry of Health. OECD health policy Analyst

2. Part of the OECD project on "innovative payment schemes"
1. Overview of the Israeli healthcare system
2. The Israeli hospital market
3. The hospital payment reform: from per diem to PRG
4. Conclusions
5. Lessons for other countries
2
Outline

3. Source: Brammli-Greenberg et al., 2014
Overview of the Israeli healthcare system funding
3
The Total Health Expenditure (THE) in 2012 was ~€15.3 billion
HPs
supplemental
insurance
(83%)
Commercial
Insurance
(42%)
Breadth
(% of adult population covered by type of VHI)
Depth
Scope
PRIVATE HEALTH EXPENDITURE (39% of THE)
Maccabi(25%)
Meuhedet(14%)
Leumit(9%)
Breadth: universal coverage
(% of adult population covered by HP)
Depth
Scope
PUBLIC HEALTH EXPENDITURE (61% of THE)

4. 6
6.5
7
7.5
8
8.5
9
9.5
10
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
Total Expenditure on Health,
as % of GDP 2000-2012
Israel OECD median
4 Sources: 2013; CBS, 2014
Low and stable expenditure on health

5. THE ISRAELI HOSPITAL MARKET
5

6. 0.0
0.5
1.0
1.5
2.0
2.5
3.0
3.5
4.0
4.5
5.0
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
Acute care beds/1,000 population
Israel OECD AVERAGE
OECDIsrael2012
3.31.9Acute care beds/1,000
7.46.5ALoS (all cases):
5.64.0ALoS (acute care):
7798
Occupancy rate of
acute care beds
8.94.8
Nurses/1,000
population
15,59016,356
Discharge rates/
100,000 (all causes)
General hospitals resources and activities: overload
Source: OECD , 2014
6

7. • 25% of total health expenditure
• Tight regulation for cost containment:
–Strict certificate of need regulation on beds and tech.
–Stringent control on salaries and standard positions
–Maximum price-lists
–Cap on annual revenue from each HP (min and max)
• Discounts arrangements between hospitals and HPs
• MoH subsidizes gov. hospitals retrospectively
7
Public Hospital Financing

8. 8
Distribution of Governmental hospitals' gross income by type
of service provided and type of reimbursement, 2012
Inpatient care –
PRG
23%
Inpatient care - per
diem
40%Emergency care -
FFS
6%
Outpatient care
FFS
21%
Births (NII rates)
8%
Other
2%
Source: MoH, 2014

9. • Under-compensation selection, deficits, waiting times
• Overcompensation  increase activity, inappropriate care
• Too much per diem share  underutilization of resources
• Unbalanced competition between public and private market
9
Problem: inadequacy between costs and prices
Refined costing and pricing mechanism
Substitution of per diem by payments based on activity

10. THE HOSPITAL PAYMENT REFORM:
FROM PER DIEM TO PRG
10

11. The objectives of the reform
1. Reimburse hospitals more fairly
2. Reduce inefficiencies caused by gaps between costs/prices
3. Improve risk-sharing between hospitals and HPs
4. Maintain the overall budget and balance of resources allocation
5. Improve transparency
6. Improve MoH's capacity to set policy, priorities, supervise,
control
7. Strengthen public hospitals
11

12. 47
16
24
13
40
23 21
16
0
5
10
15
20
25
30
35
40
45
50
per diem PRG ambulatory FFS births and other
2003 2012
Gradual costing and pricing PRGs  replace per diem
Government hospitals income by type of reimbursement (%)
12
280+ PRGs = 50%
of procedures
Source: MoH, 2014

13. Why PRG?
• Insufficient data to build DRG
• Solution: build "in house" PRGs based on its own
data collection for micro-costing
• Led hospitals to better register and report
activities + capacity of supervision and control +
transparency
13

14. Why incremental?
• The players involved are strong (MoF, HPs, hospitals)
• Gives the players time to adjust to changes during the
implementation process
• Keep players in the picture  avoid opposition
• Budget neutral: no winners or losers
• Zero-sum game within players
14

15. Advantages
• Increases activity with same budget
• Shortens unnecessary hosp. days
• Reduces gaps between costs/prices
Reimburses more fairly
• Increases transparency
• Balanced risk sharing payers/providers
• Simple accounting process
• Less room for gaming and up-coding
• +Technological developments
Disadvantages
• Not applicable for diagnoses that lack
interventional procedures
• Demands monitoring quality of care
• Broad groups or non-accurate pricing:
preference or oversupply of
(profitable) procedures
• Technological developments: constant
updates
15
Conclusions and discussion

16. Lessons for other countries
1. How to implement activity-based payments with a partial
database
2. How to implement a controversial reform by
 involving the main players avoiding opposition
 Incremental implementation
3. Create monitoring tools to assess for changes in quality of
care and waiting times.
16

17. Ruthw@jdc.org
Thank you
17
Acknowledgments:
Bruce Rosen, Tamar Medina-Artom and Ido Elmakias from the Smokler Center for Health Policy
Research, Myers-JDC Brookdale Institute for the constructive comments and advice.
Boaz Aricha, Economist in the pricing department, planning, budgeting and pricing division
at the MoH for the valuable inputs.