State Comptroller issues stinging report on Meuhedet

Scathing allegations lead officials, MKs to promise major shakeup and health fund system reforms.

311_Micha Lindenstrauss (photo credit: Ariel Jerozolimski)
311_Micha Lindenstrauss
(photo credit: Ariel Jerozolimski)
Allegations of corruption, nepotism, waste, flagrant mismanagement, bribery, conflict of interest, nonexistent accountability and concealment of documents by senior administrators at Israel¹s third-largest health fund, Kupat Holim Meuhedet, were disclosed on Monday afternoon in a 286-page special report by State Comptroller Micha Lindenstrauss.
The report, which is highlighted by his call for the establishment of a state committee of investigation on the health fund that insures over a million Israelis, was called an "earthquake" by health system experts, even though the first signs of malfeasance were reported three years ago by a Health Ministry deputy director-general responsible for supervision of the health funds.
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Lindenstrauss said, when presenting copies of the hefty report to the Knesset and the Health Ministry, that it was one of the most serious reports that he had issued in five years in his post. Veteran staff members in his office said it was one the most serious released by the office in decades.
Although most of the report focuses on Meuhedet, it has implications for the three other health funds ­ Clalit Health Services, Maccabi Health Services and Kupat Holim Leumit. These three funds still have the legal status of "Ottoman societies" based on laws going back to Turkish rule in 1903, and are not required to have independent boards of directors to supervise them.
The affair will likely lead to requirements that all four be supervised by boards with independent, public and professional representatives rather than "puppets" affiliated to management, union representatives and other nonobjective parties.
Although Lindenstrauss does not call outright for the resignation of the Meuhedet officials he mentions by name in the report, he does call on them not to "hold on to the horns of the altar," a biblical reference to desperate people going to the "protected" altar in the Temple who sought protection from punishment by men who sought them out.
"It is not a health fund [kupat holim]," suggested one experienced health system observer who read the report. "It is a Pandora¹s box full of vermin [kupat shratzim]." Deputy Health Minister Ya¹acov Litzman issued a two-sentence comment, saying he had received the report and issued "an immediate order to establish a professional team headed by director-general Dr. Ronni Gamzu for dealing with the matter in accordance with the law and the rules of proper management." Litzman also said he would "wait for decisions that will be made in the health fund board of directors in accordance with the State Comptroller's Report." The allegedly illegal dealings are believed by the State Comptroller¹s Office and others to involve hundreds of millions or even billions of shekels and dozens of administrators, including Meuhedet director-general Shmuel Muallem; his predecessor, Uzi Salant, who headed the fund for 30 years and received a huge pension; its chief pharmacist George Shriki; Meuhedet Council member Tzvi Lemberger; and Jerusalem district director (and former marketing director) Yehuda Eliash.
Also mentioned by name is health fund chairman Rabbi Yerahmiel Boyer, a former mayor of Bnei Brak, who is described in the report as having failed in supervision and control.
Meuhedet is regarded as having developed a "culture of thievery and deception" over the last decade and even more, according to the report.
The comptroller devoted oceans of green ink to highlight serious findings throughout the report, which focused on six criticisms of Meuhedet.
His office also examined the three other health funds, but they were found, by comparison, to have only negligible shortcomings.
Senior health fund administrators, among them those at Meuhedet, are ­ according to annual Treasury reports ­ among the highest paid people in the public sector, with salaries reaching NIS 60,000 a month or more.
Gamzu on Sunday sent a stern letter to Boyer declaring that the comptroller's report "reveals significant and extreme failures in the running of the health fund, its officials and its institutions. We have learned that some findings have been sent to the Attorney-General¹s Office during earlier stages of the comptroller's work and include allegations of criminal acts." The ministry director-general continued in his letter that a major assessment of the findings was required, and that there could be a complete reshuffle in Meuhedet¹s management in the future.
He gave the Meuhedet chairman 10 days to convene a meeting of his 15-member board, hold a discussion and make decisions; Gamzu demanded an immediate response on when this meeting would be held and a full protocol of the session, with detailed decisions and timetables for their implementation.
Meuhedet management's spokesman issued a terse comment on the comptroller's report, saying the fund regarded "the criticism ­ and all criticism ­ as vital and deserving serious consideration. [We] will study the details of the report and take action to fix the shortcomings that remained after the period covered by the report..."
Serious as the failures are, they do not deny two central facts: That Meuhedet is the only health fund whose management presented financial stability for the benefit of its members; and members have for many years enjoyed continuous excellent services. All government and independent surveys have shown the highest level of satisfaction (among the four health funds), including during the period studied by the report. Eliash was arrested by the Israel Police last week and remanded by the Rishon Lezion Magistrate's Court for questioning by the police's National Fraud Unit and Lahav 433 unit, as well as the Israel Tax Authority.
Eliash has denied the allegations, which include that he awarded, through illegal tenders, large Meuhedet contracts to companies owned by his close relatives.
Other health fund officials are to be questioned by police soon.
Meuhedet was founded in 1974 as a private health fund that merged the Amamit health fund established in 1931 by Hadassah Hospital physicians and a smaller health fund. It offered an alternative to residents who did not want to join the Histadrut ­ or were not accepted by it ­ which was required in order to be covered by the labor federation's Kupat Holim Clalit.
Since 1995, all health funds are required to accept as members anyone who wants to join. Today, Meuhedet, with a NIS 4.2 billion annual budget, serves over a million people. It is particularly strong in Jerusalem, but has indeed received high grades for service from members around the country.
This seeming contradiction between a high level of medical services and suspected widespread corruption was explained to The Jerusalem Post by a senior State Comptroller¹s Office official.
Meuhedet regards haredi families (and to a much lesser extent, Arab families) as very profitable for it. While they have many children, the National Insurance Institute, not the funds, covers all hospital delivery costs, and these families are younger and healthier on average than non-haredim.
Haredim are also less aware of the expensive medical services available in the health basket and don't generally demand them. Haredim constitute 40 percent of Meuhedet members in Jerusalem, and they bring money, in the form of health tax, to the health fund.
As Meuhedet made significant profits on haredi members, it had extra income to spend for illegal and unapproved purposes, including paying for the illegal transfer of residents from other health funds to itself.
To attract even more haredim, Meuhedet managers hired macherim (freelance contractors) to bring in large numbers of haredi families and yeshiva students in well-organized synagogues and neighborhoods in exchange for benefits, including cash payments.
Tens of thousands of haredim were apparently induced by these macherim to switch from other insurers, mostly Leumit, to Meuhedet.
According to the National Health Insurance Law (1994), individuals may join a health fund or switch insurers solely by registering in person, and health funds are not permitted to offer material favors to induce groups of people to join.
Regulations also set strict limits on the health funds' marketing expenses, so that large sums would not be wasted on advertising, prizes and other benefits and would instead be used for health care. As a result, Meuhedet in Jerusalem allegedly manipulated the books so that marketing budgets seemed to have been spent on transport of blood tests to labs by messenger services.
A "non-profit organization" called Lema'an Yerushalayim, which is a clinic in the capital's haredi Geula neighborhood, was set up in 2004 to provide clinic services to area residents, while in fact Meuhedet covered all the clinic's expenses. Lema'an Yerushalayim was headed by Lemberger, who later became a member of the Meuhedet Council as a Jerusalem district representative.
This clinic was also given money for "marketing," but according to the report, this money was used by the organization for financing yeshiva students, interest-free loans, helping to marry off poor haredi brides and providing matza and other Passover food for the poor.
Thus NIS 2 million went for these nonm-edical uses without the Health Ministry knowing of it. Recently the ministry discovered this, and ordered Meuhedet to stop spending for these purposes.
Also according to the report, money from Meuhedet's supplementary health insurance fees were illegally diverted to various purposes, including marketing. By law, supplementary health insurance income cannot be used by the health funds for any purpose other than to provide health services.
Over 85% of Meuhedet members take out these policies (such as Meuhedet "Adif" or "Si") at extra cost, to be entitled to services not covered by the health basket; they were unknowingly subsidizing these criminal activities.
The comptroller notes in detail that Shriki, who while serving as Meuhedet¹s chief pharmacist (and getting a salary of NIS 110,000 a month), also runs his own private pharmacy in Jerusalem. He allegedly brought three health fund pharmacists to work in his establishment, their salaries paid by Meuhedet.
Shriki also allegedly kept a "private health basket" of medications not included in the official state health basket ­ which he collected from pharmaceutical companies ­ and gave them to friends or acquaintances for free.
He also illegally accepted luxury foreign trips for health fund pharmacists, managers, doctors and even drivers at the pharmaceutical companies' expense.
Health system experts noted that a serious problem in supervising the health fund is that doctors and others who received undeserved benefits had no interest in filing complaints against violators.
Dr. Yoel Lipschitz, a lawyer by profession and since 2006 the Health Ministry¹s deputy director-general responsible for supervising the four health funds, told the Post on Monday that the report is full of "severe failures. We can't be apathetic to it. Action must be taken, and supervision must be stronger and and tighter. Every document Meuhedet sends to us will from now on be examined from all angles." But he added that his responsibility at the ministry, where he has only three assistants, is "to be a guard dog, not a canine hunter of criminals. I set up traffic lights on their paths." He was not told to regard everyone in the health funds as having violated the laws, he said, but to check reports and supervise to the best of his ability.
His immediate predecessor, who was also responsible for preventing such long-term irregularities, was Michal Abadi, who left in 2006 to manage a large employees' provident fund.
Lipschitz said that if these tens or hundreds of millions of shekels allegedly stolen and wasted by health fund officials had been used by Meuhedet to supply lifesaving medical technologies for members who could not receive them as part of the official state health basket, the complaints of these members would have been unnecessary.
The only blame Lipschitz was willing to accept was that when Treasury proposals to change the health funds' legal structure and thus its supervisory mechanisms were raised, "I thought it was technical and a waste of time." "But these legal loopholes allowed Meuhedet managers to pull the wool over the eyes of the ministry and the public."
Kadima MK Rachel Adatto, a physician, lawyer and medical administrator, told the Post that the police is bound to investigate all criminal allegations.
"It is not our problem. What we in the Knesset must do is pass legislation that will change the supervision process in the four health funds. They cannot supervise themselves in the amateur way it has been done." Two years ago, she continued, "Meuhedet and other health insurers successfully lobbied in the Knesset to drop a section of the economic arrangements bill that would have changed the supervisory system so that they become accountable and transparent, like corporations."
"They must have independent boards of directors with experts and public representatives. I will very soon present such a private member's bill to the Knesset," said Adatto.
While the state comptroller voices clear and serious criticism about the lack of adequate Health Ministry supervision of some health fund operations and hints at others, Adatto said she did "not blame the Health Ministry" for the report findings.
"A handful of officials cannot supervise the powerful health funds," she said. "They're too big for this. The health funds need corporation-like supervision and control." Israel Medical Association chairman Dr. Leonid Eidelman said he was shocked by the report.
"It is an explosion in front of our very eyes. Clearly, the accusations must all be investigated," he said.
But, he added, "while it is good the comptroller raised the issue, the whole public health system is in danger, because in the past decade or so, the government has adopted a policy to dry up the public system. It allocates less and less funding for it, thus requiring the individual to pay more and more for services out-of-pocket." "National health expenditures have remained at a steady 7% to 8% of the Gross Domestic Product since the 1990s, while medicine has transformed itself with expensive new technologies," Eidelman added. "The health funds increasingly operate under severe economic and political pressures."
They are in an impossible situation. They have to make decisions about patients with economic and not just medical considerations in mind. They have become economic bodies that have to constantly market themselves. The whole health system must be examined. As many of Meuhedet's largely self-employed physicians are not Israel Medical Association members, Eidelman had not received any complaints from them about goings-on in the health fund.
Among the government's options is to appoint a management committee of its own to run Meuhedet, just as failed municipalities are sometimes run by non-elected officials until they can recover financially.
Meuhedet members could, in theory, petition the High Court of Justice against the health fund or could apply for class-action status and sue failed administrators who said they could not afford lifesaving medical technologies while living it up themselves.
It remains to be seen whether large numbers of generally happy Meuhedet members will switch to other funds, to protest against the corruption or out of fear that chaos may soon reign, and the fund would not be able to continue with the same high level of services.

Kupat Holim Leumit, whose former owner, the National Workers Labor Federation, was chaired by Avraham Hirchson, who resigned as finance minister and is now serving a 5.5-year prison sentence for stealing nearly NIS 2 milllion from the federation, is now cleaning up its act.
Its new director-general, Nissim Alon, has signed a recovery plan that has put Leumit on the path to transparency and improved supervision.
Maccabi Health Services, the second largest fund, has consistently shown high levels of reliable management, while the largest fund, Clalit Health Services, has improved its services, management and supervision in recent years.