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HMO Q&A

QUESTIONS & ANSWERS
HADASSAH MEDICAL ORGANIZATION RECOVERY PROCESS
Contact: CommunicationsDepartment@hadassah.org

This information is intended to inform you about the current situation at HMO with background notes. As we have said before, Hadassah, the Women’s Zionist Organization (HWZOA) stands with HMO and is prepared to do its part to help HMO restore the hospital’s financial stability and operational integrity, provided the Government of Israel, the unions and other stakeholders share in that commitment.

  1. Q:   What led to the financial distress of HMO?
    A:   A deficit has accumulated due to a combination of management problems, combined with lack of adequate payment by the health funds that insure all Israelis. Among changes to be made will be staff reductions, updating accounting systems and streamlining operations. We have demanded from the government to renegotiate the agreements with the health funds. The accounting system vis-à-vis patients, especially through the health funds was very old and did not guarantee HMO receiving equitable reimbursement from them. HMO’s Operating Rooms, one of its most important sources of income, were not optimally utilized. An additional 13 ORs will soon be added, bringing the total number on both campuses to 40, with the last 7 operating theaters in the Tower to be opened in the future.
  2. Q:   What occurred at HMO shortly after Dr. Avigdor Kaplan became the Director General of HMO in June of 2013?
    A:   Under the leadership of the new Director General, Avigdor Kaplan, Hadassah Medical Organization began the recovery process that dealt with improving financial and operational efficiencies. This included expansion of certain services (i.e. medical tourism, increased utilization of OR's and ER's) and the reduction of costs (i.e. IT, management structure) to streamline operations without compromising on the excellence of healthcare for which HMO is known. This recovery program was based largely on the recommendation of PricewaterhouseCoopers (PwC), hired by HMO and paid for by HWZOA. The recommendations were intended to rectify a cash shortfall of approximately NIS 400 million or $114 million for 2013, and a comparable projected cash deficit in 2014, and to introduce modern managerial procedures that complemented the advanced medical care and research of the institution.
  3. Q:   What were the major components of the PwC recovery plan?
    A:   The major components included:
    1. New salary guidelines and pay practices
    2. Better staffing ratios
    3. Increased utilization of operating rooms
    4. Renegotiating reimbursement rates from Sick Funds (state-operated insurance program)
    5. Additional government subsidies
  4. Q:   Before the ultimate crisis what did Director General Kaplan achieve toward the recovery program?
    1. A significant amount of time was spent talking to Members of Knesset and Ministers regarding the discrimination against HMO vis-à-vis the CAP policy, the maximum amount of money the Government of Israel will reimburse a hospital per procedure or hospitalization.
    2. ntensive negotiations took place with the Unions regarding employee layoffs and salary cut-backs.
    3. Approximately 120 positions were cancelled and accordingly permanent and temporary employees were laid-off.
    4. There was significant improvement in financial auditing and the Finance Division was still aligning the finance system with the new organizational structure.
    5. As of October 1, 2013 all purchasing at HMO became a centralized system.
    6. HMO began the computerization and upgrading process of all hospital departments.
    7. Due to a cash flow problem, for the months of October and November staff received part of their salary on the first of the month, with the remainder being paid within 10 days. Since December all have been paid on schedule.
  5. Q:   Did the decision not to pay January salaries on February 1 provoke a crisis?
    A:   The financial crisis facing HMO was real and the decision not to pay full salaries to most of the staff was an absolute last resort as HMO could not make payroll. The best way to protect the interests of HMO’s employees and all of its stakeholders is for the recovery plan to be agreed upon by all parties and put into effect as quickly as possible.
  6. Q:   What can be said to HWZOA donors who ask how their contributions are being used?
    A:   As always, contributions made to HMO will be carefully monitored and stewarded by HWZOA to ensure that they fulfill the intent of the donor. Full disclosure of the situation at HMO is being made to all, affirming that their directed funds are secure during this process. If any donation cannot be applied to the designated purpose for which it is intended, it will not be sent to Israel at this time.
  7. Q:   Is there a scenario under which HWZOA would decide to simply sever its financial pipeline to HMO?
    A:   The HWZOA National Board reinforced HWZOA’s commitment to HMO at their 2014 Mid-Winter meetings in January 2104 and is prepared to do its part to help restore the hospital’s financial stability and operational integrity, provided the Government of Israel and HMO’s other stakeholders participate in that effort. We are 100% focused on securing that positive outcome.
  8. Q:   Is HMO in a liquidation situation?
    A:   On Friday, February 7, HMO filed for Section 350, which is almost analogous to the American Chapter 11, a reorganization process, meant to avoid liquidation.
  9. Q:   What is the Section 350 process?
    A:   Under Section 350, the court and trustees take over the operations of HMO, making decisions as to who gets paid and how much. The court accepted HMO’s request that the current management of the hospital, including the HMO board and the CEO, will retain their powers in order to enable the hospital to regain financial stability. Section 350 immediately gives protection from all creditors provided that an acceptable plan for the recovery of the hospital is able to be submitted to the court. During Section 350 no new debts may be incurred and all expenses must be paid in full.
  10. Q:   Will the Government of Israel be sending any new funding to HMO during Section 350?
    A:   The Government of Israel and HWZOA will share the NIS 100 million needed now. HWZOA already forwarded NIS 50 million, a portion of its annual contribution, to HMO on February 13. The government sent their portion as well on February 13.
  11. Q:   How long will the Section 350 proceedings last?
    A:   Section 350 is filed for 90 days, with a 90 day extension possible.
  12. Q:   Will patient care in HMO be impacted by the Section 350 process?
    A:   Care for patients will remain at the highest level, as we are accustomed to expect.
  13. Q:   Was the Madoff scheme responsible for this current situation at HMO?
    A:   HWZOA did decrease its operational support during the global economic crisis and the impact of the Madoff scheme, however we have maintained our annual commitment as well as funding construction of the Sarah Wetsman Davidson Hospital Tower. HMO’s current financial crisis would have occurred even if HWZOA had not reduced its allocation to HMO's operational budget.
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