Deficit soaring, Hadassah will require years’ more bailout payments to survive

In July 2014, a closed-door presentation to Hadassah Medical Center’s board of directors on “What can be expected at Hadassah by the end of the government bailout period” set out a bleak forecast for the hospital.

The medical center had just been rescued from immediate financial collapse by the government and Hadassah, the Women’s Zionist Organization of America, with a bailout agreement that would provide the hospital with a total of NIS 3.3 billion ($930 million) over seven years to enable it to become financially independent and sustainable.

As part of the agreement, Israel had agreed to invest a total of nearly NIS 1.5 billion ($422 million) during that period. Most of the bailout would come through direct payments to the hospital, and some through grants and the freezing of existing debts to government-owned suppliers.

Hadassah Women, for its part, committed to investing nearly NIS 700 million ($197 million) over the same period, through one-time grants as well as annual support.

During the 2014 presentation, the board of directors learned that by the end of 2020, the government’s annual payments of some NIS 96 million per year ($27 million) would end, as would the NIS 68 million per year ($19 million) annual payments from the Hadassah Women. At the same time, existing debts — put on hold for the duration of the bailout period — would resurface, requiring payback.

All told, without additional recovery measures, the board of directors was to expect a deficit of NIS 360 million ($101 million) by the end of 2020.

That was then. Five years later, in July 2019, it turns out that Hadassah’s financial situation is even worse than this prediction. And the Finance Ministry may now be beginning to taking note: Hadassah CEO Prof. Zeev Rotstein was summoned last week for questioning under caution as part of a ministry investigation.

According to an investigation by Zman Yisrael, The Times of Israel’s Hebrew-language sister site, the hospital’s accumulated deficit is expected to be NIS 519 million ($146 million) by the end of 2019, NIS 162 million ($45.5 million) higher than its year-end target. Currently, that deficit is even higher, at NIS 574 million ($161.5 million). And senior health officials estimate that Hadassah’s financial hemorrhaging is far from over.

The bailout plays out

Hadassah Medical Center consists of multiple care and teaching centers across Jerusalem, including two large hospital complexes — one in Ein Kerem, at the southwest end of the city, and  the other on Mount Scopus, at the northeast point. Hadassah has over 1,000 hospital beds, several operating rooms and intensive care units, and at the Ein Kerem campus it runs the busiest emergency room in Jerusalem and its vicinity.

Hadassah Medical Organization, a public benefit company, owns and operates Hadassah Medical Center, with all its hospitals and services. Hadassah, the Women’s Zionist Organization of America, is the primary patron of the company, holding a third of the seats on Hadassah’s board of directors and contributing regularly to its budget via donations and fundraising.

Following years of financial mismanagement, Hadassah had accumulated a deficit of close to NIS 1 billion ($281 million) by 2014. Unable to pay salaries and its accumulating debts, the hospital was close to ceasing operation and becoming defunct.

It faced three options: government nationalization, piecemeal sale to various interested tycoons, or a bailout agreement funded by the Israeli government and Hadassah, the Women’s Zionist Organization of America.

The chosen option, the bailout agreement — which received a court mandate in order to allow the hospital to fend off debt collectors during the bailout period — meant that Hadassah was largely put on taxpayer-funded life support.

Along with the nearly NIS 1.5 billion ($422 million) being paid to Hadassah over a period of seven years, the government bailout was contingent on the hospital management’s commitment to “a long term, sound operation… while maintaining financial balance throughout.”

The agreement held a list of strict and precise policies and measures the hospital was to follow in order to streamline its operations.

However, as soon as the agreement was put into action, both the hospital management and the government oversight authorities seemed to ignore many of these required policies and measures. Various warnings have been issued over the years, but the departure from the bailout framework has continued.

Just four months into the bailout period, in October 2014, Hadassah CFO Yuval Adar sent the hospital management an email, seen by Zman Yisrael, warning that the hospital had strayed from its commitment to shrink its workforce and had canceled the layoff plans that were put in place.

A year later, in September 2015, nearly 18 months into the bailout period and with the hospital’s annual financial records showing it was already failing to meet expected targets, the accountants overseeing Hadassah’s activities added a note of “growing concern” to its annual report. The accountants determined that the hospital’s financial state raised “real doubts as to its ability to operate in the near future.”

The state comptroller’s 2016 annual report about Hadassah’s financial mismanagement further suggested that implementation of the agreement was flawed. The comptroller spared no criticism of the health and finance ministries for what he saw as a lack of oversight over the hospital’s compliance with the bailout agreement.

State comptroller: Over the years, every Hadassah management has signed bad agreements with its employees, which has damaged its financial stability

The 2016 report indicated that Hadassah had continued to squander money and called on the government to impose more rigorous limitations on the hospital’s expenditures. Regarding inflated salaries, the comptroller asserted that “over the years, every Hadassah management has signed bad agreements with its employees, which has damaged its financial stability.”

Enter Rotstein, who in 2016 was appointed CEO of Hadassah. Rotstein, at times a controversial figure in the Israeli medical industry, is considered especially close to Deputy Health Minister Yaakov Litzman, who lobbied for Rotstein from 2015 until his eventual appointment.

From the get-go, Rotstein clashed with the Finance Ministry over his reluctance to implement the agreement. In a letter sent to Hadassah’s board, then accountant general for the Finance Ministry Michal Abadi-Boiangiu, criticized Rotstein, stating that he had been violating the bailout agreement “systematically and thoroughly.” Rotstein, in turn, responded publicly in a September 2016 letter, saying Abadi-Boiangiu and her ministry staff were hindering his management.

Zeev Rotstein: Your ego blinds you so muc, that you cannot see the incredible turnaround that has been taking place in the eight months that I have been CEO

“Your ego cannot allow you to see the major advantage of appointing someone of my caliber to run a complex and problematic institution such as Hadassah,” wrote cardiologist Rotstein, who prior to his position at Hadassah was director general of Chaim Sheba Medical Center in 2004-2016. “Your ego blinds you so much that you cannot see the incredible turnaround that has been taking place in the eight months that I have been CEO.”

In January 2017, Abadi-Boiangiu ended her tenure at the Finance Ministry. In a farewell interview, she confirmed publicly that Hadassah was not holding up its part of the bailout agreement. “The results speak for themselves,” Abadi-Boiangiu said. “Two-and-a-half years into the bailout, the hospital is still not financially independent. It has serious problems.”

For her clashes with Rotstein, as reported in the Hebrew website Calcalist, Litzman thwarted Adabi-Boiangiu’s nomination to the role of civil service commissioner.

Exorbitant salaries

With Abadi-Boiangiu out of the Finance Ministry, and with Litzman at the helm of the Health Ministry, Rotstein seemed, at least until recently, to have enjoyed the full backing of both ministries.

A spokesperson for the Finance Ministry refused to answer any specific questions regarding Hadassah’s growing deficit, telling Zman Yisrael only that “as of right now, the hospital’s cash flow activity is balanced and its accumulated deficit, as of the end of 2018, is within the bailout’s set targets.”

The investigative unit of the Finance Ministry apparently thinks otherwise: last week Rotstein was summoned for questioning under caution on suspicion that he inflated salary agreements with doctors from Hadassah’s hematology-oncology department.

In 2017, the hospital faced a serious crisis when the entire staff of the hematology-oncology department fled the hospital en masse to work at other medical institutions in a vote of no confidence in Rotstein’s management.

Rotstein, determined to keep the one-of-a-kind department operational, recruited new doctors who, according to the Finance Ministry investigation, were paid hundreds of thousands of shekels to join Hadassah.

This, along with several other inflated salaries paid to recruit “star” doctors for other departments in the hospital, is a violation of the bailout agreement. In fact, one section of the agreement issues a hospital-wide salary freeze for the entire duration of the bailout and forbids increasing the number of employees at the hospital over said period.

In correspondence with Zman Yisrael, Rotstein insisted that “the management has brought down HR costs by NIS 115 million ($32.3 million) through layoffs, as required by the bailout plan.” Rotstein abstained from providing details as to when and how these layoffs took place.

Hadassah’s internal reports through 2018, obtained by Zman Yisrael, show that HR costs have in fact increased in recent years. This could be due to a rise in the number of employees, or because of an increase in salaries. Either case would be a violation of the bailout agreement.

While both Abadi-Boiangiu and the state comptroller have warned that the government should keep a closer eye on the hospital’s management and cap its expenditures, Rotstein himself now happily acknowledges an increase in spending under his management.

“Hadassah has invested tens of millions [of shekels] per year in upgrading and improving its medical infrastructure and equipment, and in obtaining leading technology in all medical fields,” he wrote in his statement to Zman Yisrael.

And if increased expenditures are not enough, Hadassah now has yet another steep payout on the horizon, this time to its employees. In January of this year, in a court case unrelated to the bailout, the Jerusalem Labor Court ruled that the medical center must transfer a total of NIS 100 million ($28 million) to the pension funds of employees who have not received their allocations since 2004.

Back to the future

So what is to be expected after December 2020, when the bailout period ends?

Rotstein himself dismissed the effectiveness of the bailout agreement altogether, telling Zman Yisrael: “Given that the bailout plan did not factor in Hadassah’s needs after 2020, this agreement is essentially a wild goose chase.”

Despite the financial reports, the high deficit, and the dismissal of the agreement by the hospital’s CEO himself, the Litzman-led Health Ministry continues to stand by the hospital’s management.

A spokesperson for the ministry told Zman Yisrael this week that Hadassah “has been meeting the fundamental requirements of the bailout agreement.” The ministry refused to respond to specific questions about Hadassah’s financial reports, but stated: “If the government had believed the hospital was in violation of the agreement, it would not have continued to make the bailout payments every year.”

Rotstein is adamant that Hadassah is thriving, despite the fact that its current accumulated deficit is well over half a billion shekels.

“The financial reports published at the end of every year show we are in a much better situation than anticipated in the agreement, including our cash balance at the end of the year,” Rotstein wrote Zman Yisrael. “The financial audits run by the government and by Hadassah’s management prove that Hadassah has the capability to exist just like any national hospital in Israel.”

Rotstein further stated that the hospital management is already working on a new plan for the post-bailout period years of 2021-2025, which he said he has presented to the Finance Ministry’s current accountant general, as well as to the director of the Health Ministry. Rotstein declined to make the plan public.

Rotstein did note that at the core of his new plan, he relies on regular government appropriations, which are awarded annually to all of Israel’s hospitals. These payments, however, are significantly smaller than those Hadassah receives now as part of the bailout plan.

A high-ranking source at the hospital who spoke with Zman Yisrael on condition of anonymity doesn’t share Rotstein’s optimistic view of the situation and estimates that by the end of the bailout period in December 2020, Hadassah will be back to square one — this time with little choice but to nationalize the institution, making it fully government-owned.

“The bottom line is worrying, the numbers are clear,” said the source. “The management plays with the data and the excuses are great, but the facts reveal a grim situation.”

A governmental source well acquainted with Hadassah’s condition in the last five years told Zman Yisrael that one thing remains clear: For Hadassah to exist beyond 2020, it will need to receive even more of the taxpayer’s money.

This article has been adapted from the original Hebrew on The Times of Israel’s sister site, Zman Yisrael.

Source Article from https://www.timesofisrael.com/deficit-soaring-hadassah-will-require-years-more-bailout-payments-to-survive/

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