This study evaluates the nature and degree of adaptation, implementation, and inculcation of management strategies in public hospitals in Israel.
The local ecosystem—the health system in Israel
In considering the factors that make up the ecosystems that affect the Israeli health system, one must take into account not only the global changes in recent decades but also the structure of the local health system: Because of its brief but complex history, it is a patchwork of diverse bodies with complex relations among them and various types of ownership. Every Israeli citizen is entitled to health coverage by one of four nonprofit HMOs that compete with each other. The HMOs use various payment systems to purchase hospitalization services from the hospitals. The distribution of hospital beds, in terms of ownership, location, and main costs—such as purchase of expensive equipment—is arranged and overseen by the Ministry of Health [
5,
7]. The public system comprises hospitals with various types of owners—including nonprofit organizations, HMOs, and the Ministry of Health—and competes with a private system [
7]. This pluralism generates unique organizational problems. An example is the multiplicity of roles of the Ministry of Health: The legislator is also the owner and regulator of some of the hospitals [
8]. Another example includes the changes and reforms of the public health services, whose crowning achievement was legislation of the National Health Insurance Law, 1995, which was to have led to a reorganization of the Ministry of Health and its involvement in the direct operation of health organizations. This reform, implemented only in part, led to far-reaching changes in the health system whose ramifications were manifested in the behavior of the health organizations [
9,
10].
For the hospitals, the ramifications were indirect but significant from the outset. The new financial arrangements, capitation arrangements, updating of fees, and competition among the HMOs generated pressure on the hospitals and a decline in the HMOs’ use of their services. This generated an acute need for the hospitals to develop new services and compete with each other [
5].
This need, in turn, is forcing them and their managers to adopt business-oriented modes of behavior, so as to adapt continuously to changing market conditions, stiff competition, and conditions of uncertainty [
2,
3,
11], and creeping corporatization has intensified in the hospitals, forcing them to operate in accordance with a business plan [
12].
To survive, public hospitals must balance their books and generate income beyond their usual funding. Among the creative business solutions has been the establishment of research funds associated with the hospitals. Under a 2002 law, they function as legally separate entities and make possible activity outside regular work hours, research, employment, medical tourism, and other revenue-generating business activity [
5,
7]. The funds provide administrative autonomy and flexibility in the use of resources and employment. They are subject to regulation, but they enjoy broader freedom of activity than do the hospitals. Today, about one-third of all the government hospitals’ activity is conducted through these funds, which act as separate economic units (apart from 20% overhead paid to the hospitals). They contribute substantially to shortening the wait for hospitalization and surgery, employment of senior doctors, and medical tourism as well as to the hospitals’ positioning, reputation, construction of added value, attractiveness, and financial stability. How the funds are managed varies from hospital to hospital and leads to far-reaching differences in the hospitals’ turnover, in accordance with their size, geographic location, and services provided. (Whereas, for example, in 2018 Sheba Hospital reported a turnover of NIS 965.3 million, that year Poriya Hospital reported NIS 52.2 million) [
13]. The corporations, the introduction of private services in some of the public hospitals (Sharap), and the broad range of commercial services provided in conjunction with the hospitals constitute hybrid business and organizational solutions in which there is a blurring of the boundaries between the types of organizations and their aims [
7].
This behavior was addressed in the State Comptroller’s Reports of 2008 and 2015, which pointed out that to some extent creeping corporatization was manifested in the activity of health corporations and public hospitals. Such hybrid organizations and such behavior generate a problematic, inherent lack of global oversight of budgets and management [
14].
The changes in the overall environment of hospitals are lasting, and they require hospitals to change extensively and permanently. Recent years have seen a continuing crisis caused by the unequal encounter between the health system’s ability to provide high-level health services and the state’s limited ability to fund these services for the entire population. Many factors—the global ecosystem, the changes in the local ecosystem described above, budgetary constraints, a substantial increase in the use of medical services, new financial arrangements with the HBOs and hospitals, updating of fees, competition by the HMOs, and the development of private supplementary insurance policies—have all combined to undermine the sought-after financial stability and generate a chain reaction of limiting the use of hospital services by the HMOs while creating great competition among the hospitals. This has resulted in continuous financial pressure, great work pressure, and great uncertainty for the hospitals [
5]. Having to function with budgetary shortfalls is driving an increase in the business behavior of hospitals and a blurring of boundaries between being regulated public organizations and organizations acting in an autonomous business manner with the aim of trying to survive or at least achieve financial stability [
7].
All the above factors make it difficult for the health system to provide quality health care for all the state’s citizens, thus threatening the collapse of Israel’s public health system [
15]. To cope with this situation, changes have been made in the structure of payments to the hospitals for their services, in the mutual relations between various stakeholders in the health system [
16], and in the positioning and differentiation strategy of hospitals in relation to their competitors [
17]. The result is that hospitals are becoming more independent and must become more competitive [
18].
In many respects, the health services, and especially hospitals, act in a manner very similar to that of business organizations [
19], even though they are not independent entities and are required to provide service for all regardless of profitability considerations. However, despite the public hospitals’ resemblance to business organizations, there are many differences: in hospitals’ ability to make decisions independently, in their limited financial behavior because of their limited income, and in the externally determined limitations on contracts and staff positions. There are also organizational differences, such as financial and managerial independence of the organization’s units—the clinical departments, for example [
4,
20]. Nevertheless, the comparison between hospitals and purely business organizations, despite its inherent problems, is necessary for the hospitals’ survival [
21], although, while analyzing their adaptation to the changing ecosystems, we must recognize that making such a shift—including changes in the approach and in the manner of providing services, as well as changes in management of the human capital, with an emphasis on the degree of profitability and utility as core goals—involves a complex and difficult process of organizational change [
22].
Many studies have addressed the complexity of medical–managerial relations in health organizations, particularly in hospitals [
23,
24] which makes organizational change and adaptation to change more difficult and charged. The difficulties include the inherent conflicts of interest and power relations within the organization [
25]. Whereas hospital managers must address the financial aspects and adopt a global view of the organization, the doctors are concerned with treating patients and are supposed to ignore considerations of cost and benefit. This conflict [
26] is combined with the inherent managerial tensions related to work conditions, wage agreements, and promotion [
26]. In Israeli hospitals most of the managers are doctors by profession, but they are not currently treating patients. Department heads, however, are senior doctors and must be physicians and managers simultaneously [
26]. The departments are organizational units in which the in-house treatment of patients takes place. The department heads fulfill their managerial role—for example, obtaining equipment and human resources—in addition to treating patients and being responsible for the department and treatment in it. The departments are not managed as closed financial units, though often their activity is measured by their degree of profitability [
27], and their heads do not have full autonomy in decision making. In some cases departmental budgets have been implemented but do not include personnel costs. The degree of autonomy in managerial and financial decisions, including those regarding the departmental budget, varies from one hospital to another in Israel and this, too, constitutes grounds for tension in the doctor–manager relationship [
7].
In Israel this conflict combines with strained work relations resulting from labor disputes and a lack of trust and transparency vis-à-vis the Ministry of Finance and even vis-à-vis senior doctors of health organizations and hospitals. This complexity of relationships is another difference between purely business organizations and health organizations and increases the difficulty of inculcating change and adaptation to a dynamic reality. It is particularly important in hospitals that must adapt very rapidly to reduce the negative effects on the services provided.
These changes require adaptation at all levels of the organization and in the managerial and therapeutic staff [
21]. Two levels of obstacles hamper the inculcation of change: the external context (the array of factors in the environment, under-budgeting, and a problematic distribution of resources) and the internal context (the array of forces within the organization, the power relations and tensions at the various levels of management, the doctor–manager relationship, the organizational culture, problems in the organization’s structure, and the granting of managerial and budgetary authority to the doctors who head the departments).
The premise is that to succeed in today’s market, hospitals must adopt a managerial approach and invest in strategic planning to overcome the obstacles in their institutional and operational structure, described in this section, and to achieve financial and managerial efficiency.