This week, the Association of Private Hospitals Malaysia (APHM) and the Assurance Association issued several statements affecting the relationship between private hospitals and health insurers.
In a CodeBlue article dated December 3, 2024, I emphasised that rising health insurance premiums benefit both private hospitals and insurance companies working in harmony.
I also underscored the importance of protecting each other’s interests to ensure the long-term sustainability of the business. The Diagnostic Related Groups (DRG) system serves as a methodology for ensuring the long-term sustainability of the health and assurance ecosystem.
Responding To APHM Media Statement
In recent weeks, both the Assurance Association and APHM have released public statements, even as the Parliamentary Select Committee (PAC) has started to address the issue of rising health care premiums.
Is there a need to engage in the public arena, or should these matters be resolved privately?
On February 26, 2025, EdgeInvest reported that APHM claims some of its member hospitals risk being removed from insurance panels because they cannot meet insurers’ demands for “exorbitant discounts” on patient bills. This news has been covered by nearly all media channels, including CodeBlue.
What is the underlying objective of such statements? Insurers have the right to choose their cashless panel hospitals and are fully capable of communicating with their policyholders.
If implemented, policyholders would need to pay upfront and then claim their hospital bills on a reimbursement basis. They would risk receiving partial claim payments and would have to cover certain hospital expenses if the treating doctors, hospitals, and patients could not justify the charges.
Under the reimbursement-based policy, policyholders would have no choice but to question doctors and hospitals about any procedures and treatments provided. Private hospitals would no longer be able to have their cake and eat it, too.
Challenging APHM Defence
In its defence, APHM argues that excessive discounts are unsustainable and could undermine the quality of care patients expect, ultimately affecting its ability to reinvest in technology and infrastructure. This statement is debatable and readily contested.
Quality does not equate to high costs in health care services. Quality means that patients are accurately diagnosed and treated promptly.
Proper and judicious use of diagnostic tools helps keep costs low. Unnecessary admissions and prolonged stays do not reflect quality. Recovery is often best accomplished at home.
In comparison, the National Heart Institute (IJN) provides high-quality care that rivals that of private hospitals, all at a much lower cost than that offered by APHM members (I’m referring to IJN’s private wing).
Meanwhile, the government delivers quality care at public hospitals at a subsidised rate. Is APHM implying that the Ministry of Health (MOH) offers poor-quality service to its patients?
In health care, quality is not directly proportional to cost. Even with the latest surgical tools, investments in technology have not led to shorter hospital stays.
Is the treatment outcome significantly different when using the latest technology? The advantages of investing in medical technology require an objective evaluation.
Clearly, the APHM statement is more focused on the financial impact on its members than on its effect on patient care. It seeks to instil public fear in hopes that policyholders will exert pressure on insurers.
The financial implications for its members are considerable, especially since the bulk of its revenue comes from one source: the insurance sector.
Unlike the insurance sector, where earned premiums are distributed among millions of policyholders, private hospitals depend almost entirely on insurers.
Insurers are their lifeblood, and their reactions stem from their actions. They must recognise this reality.
The Empire Can Strike Back
Today, some insurers have chosen to negotiate with or remove certain hospitals from their cashless panel, which has APHM in a state of panic.
What if assurers decide to eliminate cashless products throughout the industry? How will this impact APHM members’ cash flow and profits? Can hospitals explore alternative revenue sources?
Many have long scrutinised the ethical conduct of private hospital operators. Their in-house practices are often opaque and questionable, and certain service charges are unfairly bundled.
Assurers have endured this for a long time. They reacted by raising premiums, which elicited minimal responses from policyholders in the past.
However, last year was different. For the first time, policyholders are upset, and parliamentarians, along with the government, are seriously examining the issue. This indicates that this government is different from the previous one in addressing public concerns.
APHM’s argument regarding medical inflation is simply misleading. Inflation arises from fluctuations in supply and demand.
Health care is primarily motivated by the pursuit of profits to satisfy shareholders’ expectations. It reflects profit margins over the cost of doing business rather than true inflation.
According to APHM’s definition, all industries may start adopting the term inflation.
Private hospitals must change their strategy. Insurers can do this by switching to reimbursement or delisting some hospitals from their list of providers.
They must stop biting the hands that feed them.
Assurers Are Not Blameless
When health insurance products first emerged in the late 1990s, they were structured around reimbursement. Policyholders relied on credit cards, and products were generally sold on a co-insured basis, with numerous limitations placed on hospitals and policyholders.
Gradually, coinsurance and inner limits have been removed and replaced with overall limits. Even the overall benefit limits have recently skyrocketed.
Insurers are now competing to offer the highest annual and lifetime limits. Essentially, insurers have provided hospitals with a blank check. This has resulted in decreased oversight of claims expenditures and has shifted costs to policyholders.
Sales and competition led to the current predicament, and assurers need to take steps to reverse it instead of purely demanding a 40% reduction in hospital charges.
Symbiosis
As previously highlighted, the relationship between private hospitals and insurers is best described as symbiotic. However, it is rapidly becoming parasitic and harming the host.
In any consumption business, there is a limit to how much the payer or provider can endure before reaching its breaking point. As a financial host, it is quickly approaching a stage where it may have to cease offering hospitalisation products.
Private hospitals should adopt a long-term perspective on their relationship with insurers rather than concentrate on immediate profits. They need to reassess their role as service providers and strive to be genuine partners in the health assurance industry. This is not a zero-sum relationship.
They must manage hospital charges and the cost of doing business without exploiting their financial partners. They need to understand that insurers have their limits and can fold the health business anytime. What will APHM members do if that happens?
As partners in a symbiotic relationship, hospitals and insurers must manage their operations by maintaining a reasonable profit level and seeking growth.
With the demand for medical services increasing exponentially, they need to adopt a long-term perspective. A healthy relationship benefits all stakeholders.
Private hospitals must engage in sensible discussions with their bulk paymasters (insurers) to create a win-win situation or to operate as both providers and Health Maintenance Organizations.
At this stage, media disputes do not benefit private hospitals. The public understands the issues well and views themselves as victims caught between two giants.
Conclusion
What is the underlying objective of APHM in making statements that some member hospitals risk being removed from insurance panels due to their inability to meet insurers’ demands for “exorbitant discounts” on patient bills? Is the intention to alarm policyholders so they will take action?
APHM argues that excessive discounts are unsustainable and may compromise the quality of care that patients expect, ultimately impacting its ability to reinvest in technology and infrastructure; however, these claims can be easily countered.
In the battle between insurers and private hospitals, the latter will ultimately lose. Insurance companies have numerous tools, including reimbursement and various financial instruments, to manage excessive hospital claims.
If the health business goes south, insurers will move on and abandon health insurance. They would survive, as health is not their sole product. APHM needs to ask whether its member hospitals can survive without health assurance providers.
Private hospitals should adopt a long-term perspective regarding their relationship with insurers rather than focusing solely on immediate profits.
They need to reassess their role as service providers and strive to become genuine partners in the health assurance industry. Bringing issues to the media does not benefit APHM; instead, they should discuss and negotiate behind closed doors.
Dr. Mohamed Rafick 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.
