KUALA LUMPUR, Dec 28 — Malaysia’s private medical healthcare, which has become a significant tourism draw and revenue generator for the country, appears to be increasingly out of reach of many citizens.
It came to a point where Prime Minister Datuk Seri Anwar Ibrahim had to weigh in and said that private healthcare costs needed to be regulated as they were “too high and unreasonable”.
Bank Negara Malaysia data showed a 12.6 per cent medical cost inflation rate in 2023 — more than double the global average of 5.6 per cent and an increase from 12 per cent in 2022.
And so earlier this month, Health Minister Datuk Seri Dzulkefly Ahmad touted the plans to roll out the Diagnosis-Related Group (DRG) pricing system by the second quarter of 2025.
But what is DRG?
Simply put, the DRG is a pricing system that charges a fixed rate for certain medical procedures.
Say you are a patient, the DRG is a way for hospitals to get paid a fixed amount for treating you based on your specific illness or condition.
It doesn’t matter how long you stay or how many tests you have — once your condition is identified, the hospital gets a set amount from your insurance or government programme, based on the typical cost for treating that condition.
This helps hospitals manage costs and keeps payments predictable for everyone.
How is it different from the medical billing system now?
Currently, private hospitals here use a fee-for-service system (FFS), whereby each service is itemised.
This means that as a patient, you are charged separately for each individual service or procedure you receive, like a hospital stay, doctor visits, lab tests, or surgeries.
So, if you need more tests or treatments, your bill can keep growing, and the cost depends on what and how much you get.
In contrast, under the DRG system, the hospital gets a fixed amount based on your diagnosis, no matter how many services you use or how long you stay.
This makes your costs more predictable in the DRG system, whereas in FFS, you're billed for each thing separately.
The DRG model is implemented in developed nations like Germany, the United States, South Korea, and Japan.
What is the purpose?
The DRG is said to enhance the transparency of medical fees and to address the hike in private healthcare costs which contributed to the recent rise of medical insurance premiums, which has been generating a lot of buzz recently.
This is also good news for patients because private hospitals might be required to bear the costs of additional treatment if complications arise, according to Dr Yap Wei Aun, chief executive of the Health Ministry’s Health Transformation Office, in a news report published by healthcare portal CodeBlue after an August 27 meeting with the Health Parliamentary Special Select Committee.
Under DRG, unnecessary hospital stays and curb the sharp incline of healthcare costs, benefiting not just patients but hospitals, Affin Hwang Investment Bank Bhd analyst Tan Ei Leen told Business Times on December 14.
But not everyone is convinced.
Potential downsides to DRG
Hong Leong Investment Bank (HLIB) Research cautioned that the DRG system could reduce profit margins for private hospitals.
With a standardised payment model, HLIB Research said some private hospitals might be tempted to cut corners, discharge patients prematurely, or be selective in admitting low-cost cases.
This is because the cost structures among Malaysia’s private hospitals vary widely due to different room configurations, staff-to-patient ratios, and adoption of advanced medical technologies.
HLIB Research expects Putrajaya to repurpose the DRG payment system as part of a future national health insurance (NHI) scheme, consistent with global practices outlined in the Health White Paper.
A NHI scheme usually requires citizens or residents to contribute a portion of their salaries and receive standardised healthcare services.
RHB Investment Bank Bhd analyst Oong Chun Sung warned that Malaysia needs a robust data and technical management system to effectively implement the DRG mechanism.
Galen Centre for Health and Social Policy founder and chief executive officer Azrul Mohd Khalib highlighted that the current framework in Malaysia cannot effectively support the implementation of the DRG.
He emphasised that the system would require vast data about the patients and would rely on detailed clinical coding and reliable cost data, Business Times reported.
Azrul said that the information technology infrastructure in the Malaysian healthcare system is irregular and decades behind, adding that Malaysia also struggles with noting granular cost data.
He said that hospitals must be able to break down their expenditures-staff time, pharmaceuticals, consumables, and equipment usage-per episode of care.
Further training would be required to interpret DRG-based performance indicators and to adjust internal processes accordingly, he said.
What needs to be done for a smooth rollout?
Azrul also underlined that consultations, stakeholder engagement, and regulatory and legislative amendments would be crucial to implementing the DRG system.
He said that engagement and trust from consumers, hospital administrators, clinicians, and professional bodies were pertinent to ensure a smooth sailing system.
The Association of Private Hospitals Malaysia president Datuk Dr Kuljit Singh said its members are not against cost containment, but called for a transparent and collective discussion with all stakeholders to address the issue of rising healthcare costs without delay.
