The Fat Cats in Health Care

When I visited a private sports medical centre in January because my left knee hurt whenever I went jogging, the bill came up to over RM2,500.  

An MRI of my knee cost almost RM1,600. Two X-rays cost RM462. Consultation plus physiotherapy was another RM386. Two tabs of medicines cost about RM79. That was just my first visit.

I had to do subsequent fortnightly physiotherapy sessions, each costing between RM100 and RM150. I would have gone to a public hospital if I could, but I couldn’t stomach the idea of waiting months for physiotherapy as my knee would likely take a long time to heal.

Almost five months later, my knee is only now starting to get better, though I still have problems running because I am used to shifting all my weight to my right leg.

Of course, I want cheaper medical bills. I think it’s absurd to be charged over RM2,500 for a minor problem, especially since I was paying out of pocket for it; I couldn’t claim insurance because I wasn’t hospitalised.

Is regulating drug prices through yet-to-be-determined price ceilings the answer to rising health care costs though?

Malaysia is the only country in Southeast Asia and the only other country in Asia Pacific (besides Pakistan) that is projected to experience double-digit medical inflation this year, hitting 13.6 per cent compared to 12.4 per cent in 2018. The 2019 projected medical inflation rate is almost 5.7 times that of the general inflation forecast of 2.4 per cent, according to Aon’s 2019 Global Medical Trend Rates Report.   

Neighbouring countries are expected to have lower medical inflation than Malaysia for 2019, such as Indonesia (9.6 per cent), Singapore (9 per cent), Thailand (8.3 per cent), Vietnam (8 per cent), and Philippines (6.2 per cent). The global average medical inflation is forecast at 7.8 per cent this year, lower than 2018’s 8.4 per cent.

The cost of medical procedures in Malaysia reportedly almost doubled between 2000 and 2015, such as open heart surgery (RM30,000 to RM62,000), single total knee replacement surgery (RM14,000 to RM25,000), and craniotomy (RM32,000 to RM50,000).

What exactly is causing the double-digit medical inflation in Malaysia? Is it the cost of medicine alone? Hospitalisation? Medical procedures? If we’re talking about drugs, are they far more expensive at certain places like private hospitals than in pharmacies or public facilities?  

Dr Tan See Leng of IHH Healthcare Bhd, a government-linked company (GLC), is the fifth-highest paid CEO in Malaysia, making about RM33.9 million last year, according to the Securities Commission’s Corporate Governance Monitor 2019 report.

IHH, which runs 10 Pantai and four Gleneagles Hospitals in Malaysia, earned RM11.5 billion revenue for the 2018 financial year, up 3 per cent year-on-year from 2017. Headline PATMI (profit after tax and minority interests) was RM627.7 million for 2018. Inpatient admissions at IHH’s Malaysia hospitals grew 12 per cent to 55,196 in Q4 2018 compared to the corresponding period in 2017, while revenue intensity (average revenue per inpatient admission) grew by 3.7 per cent to RM6,653.

Amiruddin Abdul Satar – managing director and president of KPJ Healthcare Bhd, the health care arm of Johor state-owned conglomerate Johor Corporation – reportedly received RM2.3 million in compensation last year, according to Bloomberg. Two other KPJ executive directors reportedly made RM4 million in remuneration combined last year.

KPJ, which runs 25 specialist hospitals in Malaysia, recorded RM3.3 billion revenue for the 2018 financial year, up 4 per cent year-on-year from 2017. Profit before zakat and tax last year reached RM266.5 million, increased by 14 per cent from 2017. KPJ’s Malaysia segment revenue grew 4 per cent to RM3.2 billion in 2018 from 2017.

“Higher revenue was mainly contributed by the increase in number of patient visits, number of beds and surgeries particularly for KPJ Rawang, KPJ Pasir Gudang and KPJ Bandar Maharani. These hospitals have also recorded high profit during the year,” says KPJ on its website.

Contrast IHH’s and KPJ’s billion-ringgit revenue with the RM452.6 million revenue of the Malaysian subsidiary of top pharmaceutical importer Pfizer, or the RM206.3 million revenue of top local pharmaceutical manufacturer Pharmaniaga Manufacturing Bhd (also a GLC), according to 2014/2015 data cited by the Malaysia Competition Commission’s Market Review on Pharmaceutical Sector under Competition Act 2010.

Ramsay Sime Darby Health Care, which owns three hospitals in the Klang Valley, made PBIT (profit before interest and taxes) of RM57 million in the 2018 financial year, representing a 58 per cent increase year-on-year. The company is a 50:50 joint venture by Sime Darby Berhad, a GLC.

Private hospitals made huge mark-ups in medicine sales, ranging from 18.9 per cent to a whopping 900 per cent, according to the Health Ministry’s Medicine Prices Monitoring 2017 report. The median retail mark-up was 51 per cent for originator drugs and 166.9 per cent for lowest-priced generics. The maximum retail mark-up of 900 per cent was considered excessive compared to other countries.

Mark-ups in retail pharmacies were lower than in private hospitals, ranging from 8.1 per cent to 400 per cent. The median retail mark-up was 22.4 per cent for originator medicines and 94.7 per cent for lowest-priced generics.

The Pharmaceutical Services Programme’s report mentions that Malaysia’s public procurement of drugs is considered efficient, as the median price ratio of medicines purchased by the government sector is less than three times the international reference prices (benchmark against prices in other countries), for both originator and generic drugs.  

Interestingly, the Health Ministry’s own report points out that the public sector enjoys the advantage of economies of scale and encourages the private sector to do pooled procurement, like bulk purchases in the public sector, to reduce drug prices.

This means that if pharmaceutical companies can sell drugs cheaper to the public sector, they can similarly do it for the private sector, simply by using free market principles. Would the price of medicine fall drastically across the board if the entire country shifted to a single-payer system then so that only one buyer, the government, purchases Malaysia’s drug supplies? (But that is a conversation for another day).   

If Pakatan Harapan really wants to curb health care costs, why not start by slashing the pay of GLC hospital executives who make millions a year? These GLCs, which already enjoy the advantage of state support over private companies, make billions in revenue and hundreds of millions in profit.

Are GLC hospitals profiting at the expense of middle class Malaysians, who are increasingly driven to congested public facilities mainly used by the poor?

What are the profit margins of drugs, medical procedures, and various products and services at GLC hospitals? How big are the medicine price mark-ups?

Health Minister Dzulkefly Ahmad has said that price ceilings for drugs will be set at the wholesale and retail points, including at hospitals. But he has yet to specify the external reference pricing model.

Price regulations are tricky and should never be used. The State should not intervene in business. Competition in a free market is the best way to bring down prices. This was illustrated in the case of trastuzumab (Herceptin), when Roche slashed the price of its breast cancer drug by 52 per cent, making it even cheaper than the biosimilar equivalent.

I’m not advocating for drug price controls at private hospitals, but competition should be fostered by making private hospitals display a price list of standard procedures at least. The government can start with GLC hospitals.

And while companies should have the freedom to compensate their directors and CEOs however they wish, a huge market capitalisation of over RM40 billion for a health care GLC, arguably made on the back of taxpayers, should make it incumbent on the company to give back some of its profits to the people.

• This is the personal opinion of the writer or publication and does not necessarily represent the views of CodeBlue.