KUALA LUMPUR, Dec 19 — Under a planned national diagnosis-related groups (DRG) payment mechanism, private hospitals could be mandated to cover the cost of additional treatment if anything goes wrong.
This was highlighted by Dr Yap Wei Aun, chief executive of the Health Transformation Office (HTO) under the Ministry of Health (MOH), during an August 27 meeting with the Health parliamentary special select committee (PSSC), though details remain scarce.
“If they somehow did not treat the patient well, [and] there is an infection and the wound will cause another operation or another week of antibiotics, they will actually – hospital would actually have to pay for it because it should not be reimbursed as an additional amount for what is actually their fault,” Dr Yap told the Health PSSC, according to the Hansard in the PSSC’s report titled “Reforms in Health Care Financing in Malaysia” that was tabled in Parliament last November 21.
The DRG system groups charges based on the service provided, reimbursing hospitals at a fixed rate for procedures, such as appendectomies. Hospitals that provide efficient, high-quality care – avoiding complications or unnecessary treatments – would benefit, while those responsible for errors could incur additional costs.
“This is one way of controlling medical pricing inflation, but we do need to leverage the power of monopsony to encourage this within the system. Monopsony means there are few purchasers and many suppliers basically,” Dr Yap said.
This strategic purchasing model aims to address medical inflation without imposing strict price regulations that could jeopardise hospital operations or access to care, Dr Yap said.
“We may not need to do hardcore regulation of prices. The reason why is because we don’t know what the real price should be. We’re not going to dig up every hospital account and see how much actually this should cost.
“Also, we do not want to distort things if we overly lower the price then the hospital may decide to close down, impeding access. If the price is too high, then you might be paying them too much.
“We don’t actually know what the actual price is, so we want to leverage strategic purchasing, to negotiate and to modernise the provided payment mechanism,” Dr Yap said. “The specific one that the MOH is working on is the National DRG System.”
Private hospitals in Malaysia currently operate on a fee-for-service model, in which payers (such as insurance companies or patients paying out-of-pocket) pay health care providers for the amount of services delivered, instead of paying for treatment outcomes or a bundled payment for a particular procedure.
CodeBlue previously reported that the MOH plans to benchmark private hospital bills against reference prices in Rakan KKM – the “premium economy” wing that has yet to be launched in Cyberjaya Hospital – that takes into account a “marginal” profit margin.
National Health Fund: Government Eyes Centralised Approach To Health Financing
The MOH is also exploring the establishment of a National Health Fund, which would serve as a central institution for managing public health finances. This move could lay the groundwork for social health insurance (SHI) or national health insurance (NHI).
Dr Yap said Malaysia currently lacks the institutional capacity to efficiently manage additional health contributions, whether through SHI or NHI, even under ideal economic conditions.
“Even if our economy was booming and households and businesses were doing great and they are all saying, ‘We will only be too happy to contribute towards health or a dedicated health fund’, [but] we don’t have the institutions and capacities to make the best out of it.
“If we do it today, we scramble to do it, it might end up being a system which reimburses for hospital services and neglects primary care, for example. So, rather than waiting for ideal economic conditions, we want to leverage existing financing, both public and private, creatively to develop this common financing pathway,” Dr Yap said.
Dr Yap said the proposed National Health Fund would centralise government health allocations, contributions, and additional funding sources like zakat or pension funds. The fund would require legislative action to establish, with work expected to begin in 2025.
HTO said the fund could operate under various financing models – including Malaysia’s existing general government revenue system or a hybrid SHI framework – without requiring an immediate decision on contributions.
“We just need to establish its fund firstly with this appropriate function that it has,” Dr Yap said, adding that the process would involve reviewing global examples and inclusive stakeholder engagement to tailor the system to Malaysia’s needs.
The Health PSSC has recommended placing the management of the National Health Fund under the Prime Minister’s Office (PMO) to effectively oversee contributions from institutions like the Employees Provident Fund (EPF), the Social Security Organisation (SOCSO), and relevant health-related taxes.
Additionally, the committee proposed separating the MOH’s roles as both a provider and purchaser of health services. This measure is intended to avoid conflicts of interest and ensure equitable allocation of funds between government and private hospitals.
The government currently does not permit even the earmarking of tax revenue like sin taxes, the sugar-sweetened beverage tax, or vape liquid tax for health; these all go into the federal consolidated fund.
