Azrul Mohd Khalib, CEO of the Galen Centre for Health and Social Policy, says 70 per cent of private hospital bills are unregulated, according to a CodeBlue article dated January 8, 2025.
Azrul also suggested that a new body should regulate health insurance companies instead of Bank Negara (BNM). He indicated that the same body is to regulate the private hospital charges.
Interestingly, in the same article, Bayan Baru MP Sim Tze Tzin described private health care as the “Wild West,” claiming the sector operates without sufficient regulation and is excessively profiteering. The MP hit a bull’s eye; published financial reports support his statement.
Should we take this path as Azrul suggested? This article will disect the idea; I will provide my thoughts on the need to look at the health and insurance industry from a broader perspective.
We will not dwell on the high percentage of hospital charges mentioned, but I believe insurers’ data can validate (or otherwise) the statement. Azrul is unlikely to say anything that he could not defend.
Impact Of Introducing New Regulations
Do health assurers need to have a separate regulator from BNM? What is the ultimate objective? Should the proposed regulator also manage private hospitals? In the context of this article, the term private health care services (PHS) refers to the providers in the entire health care ecosystem, which includes GPs, pathology services, pharmacies, and hospitals, and the word assurers includes insurers and takaful companies.
Forming a new legislation means the government must invest much effort and resources. It will have to go through a standard process and be approved by the parliament. Many stakeholders need to be engaged. In the Malaysian context, such a process may take a few years.
Following the regulation, a body needs to be set up, and people need to be employed to implement it. It does not appear to be an efficient and cost-friendly approach to addressing one objective, i.e., to address rising assurance premium and PH cost.
In pursuing Universal Health Care (UHC) services for Malaysia, there is a need to close the service and pricing gap between private and public hospitals. There must be a uniform pricing structure.
Therefore, any regulations must not deviate from this ultimate objective. UHC realisation will remain a dream if PHS remains widely dichotomised in Malaysia. In pursuing UHC, the mechanism is through the 30-year-old proposed mechanism called the National Healthcare Financing Scheme (NHFS).
The ultimate goal of Azrul’s proposal is to curtail the excessive health care costs and ensure premiums remain relatively stable. These goals can be achieved by other means.
BNM As Financial Regulator
There are already two financial regulators in Malaysia. BNM, being a KL-based regulator, regulates all onshore financial business, while the Labuan Financial Services Authority (FSA) regulates all offshore business. There is little value seen in having LFSA as a second financial regulator just to manage commercial health insurance.
Assurance companies sometimes sell health products in pairing with other products (rider). Having a third regulator would complicate matters.
Therefore, creating a dedicated third regulator to regulate Health Assurers regulators is a non-starter as there is no business case. The same Financial Services Act already governs the companies’ activities. What is needed is to enhance the regulation being applied to health products.
The commercial aspect of the business of health products for Insurers and Takaful is similar. Typically, companies are required to put aside capital for each product they sell based on a prescribed formula in a risk-based capital (RBC) framework.
It is recommended that additional measures be applied with the aim of ensuring price stabilisation over the medium term and that companies earn reasonable profit growth based on Year-On-Year (YOY).
BNM can adjust the RBC for this product and also impose additional measures like limiting companies to earn a gross profit of 3 per cent to 5 per cent YOY. Anything in excess is put back into the Insurance/Takaful risk fund. BNM’s existing powers allow them to impose such conditions.
In summary, there isn’t a need to have a dedicated and separate health assurance regulator as it does not bring added value. Existing laws are adequate to ensure price stability. The full details on added options for BNM were explained in my previous article.
Regulatory Body To Govern Private Hospital Charge
The country does not require a new specific Act to regulate hospital charges. It can be done by amending the Private Healthcare Facilities and Services Act (PHFSA) 1998. Currently, the PHFSA regulates the registration and operation of private health care facilities and services without the power to regulate hospital charges.
The law needs to be amended to accommodate a diagnosis-related groups (DRG) pricing system and to have a mechanism to address excessive YOY profit growth from domestic operations.
The excess is contributed to the National Health Fund. In this manner, health providers will be discouraged from overcharging and making excessive YOY profit growth.
What is needed quite urgently is the regulatory framework to operationalise the National Healthcare Financing Scheme (NHFS), which was summarised in my previous article.
Conclusion
Private health care is a social business. Both insurers and private health care service must balance their financial desires and social needs.
A stable and reasonable growth on YOY is good for the industry rather than a spike in growth annually. It gives stable returns to shareholders and maintains a long-term view of the business.
The 70 per cent ratio of hospital and specialist charges can be verified from insurers’ data, and we believe the numbers are not far off. We don’t need a dedicated regulation to address hospital charges and profits. The PHFSA 1998 regulation can be enhanced to address excessive profit growth of private hospitals.
The existing Financial Service Act and its various rules are adequate for BNM to ensure that companies take some small profits and that the premium remains stable over a medium term. The YOY profit excess is suggested as medicine is a social business.
There is an urgent need to have the NHFS legal framework. NHFS will ensure a single health care system that aligns with the UHC principles exists.
The corporatisation of public hospitals under the NHFS framework will contribute to stable health care industry pricing. DRG is a critical component of NHFS and ensures equitable access under the concept of UHC.
Dr Mohamed Rafick Khan, a reassurer and assurance industry consultant, is a trained physician with 12 years of experience in military medical services and over 22 years of experience in the assurance industry. He retired as the CEO of a multinational reinsurance company in 2019. Currently, he remains active as an independent international assurance industry consultant.
- This is the personal opinion of the writer or publication and does not necessarily represent the views of CodeBlue.
