KUALA LUMPUR, March 20 — The Association of Private Hospitals Malaysia (APHM) warned that implementing the Diagnostic Related Group (DRG) payment system without sufficient data could lead to failure, noting that the United States took four years to pilot DRG before adopting it for Medicare and Medicaid.
The DRG system groups medical procedures into categories with fixed prices, aiming to standardise costs and improve transparency. While widely used in national health care schemes in various countries, private hospitals have raised concerns that its rigid structure may not account for variations in patient needs and treatment durations.
“DRG started in the US in the late 1970s and 1980s. They piloted it for four years before it became a national payment scheme, and even then, it was only for Medicare and Medicaid, paid by the US government, not out-of-pocket (OOP) expenses,” APHM honorary secretary Anwar Anis said on the Keluar Sekejap podcast co-hosted by Khairy Jamaluddin and Shahril Hamdan aired on March 7.
APHM president Dr Kuljit Singh said DRG is conceptually the right tool but stressed that it has not been widely applied in fully private health care systems globally.
“If you look at all the countries in the world—I am also the president of the Asian Hospital Federation—most of my counterparts in other countries have started with DRG, but now they are actually moving away from DRG because there are certain components that it does not fully cover, particularly if it is purely private.”
Dr Kuljit explained that DRG is typically used in national health schemes to help governments budget for health care costs.
“If you use DRG for the government, it’s okay because it is just a calculation so that it can be segmented. But for private hospitals… I’ll give an example to make it easier to understand. If a treatment is meant to cost X amount for two or three days, it is all calculated. But medical science is such that one person’s case and another person’s case may not be the same.
“What happens if one patient requires one or two more days? Maybe due to their body’s condition, they need a little more observation—then the DRG will collapse,” he said.
Anwar echoed this concern, citing cases where fixed DRG pricing led hospitals to delay necessary procedures due to financial constraints, ultimately increasing costs.
“Let me give an example—say the price is set, and a patient comes in with two to three blockages and may need, let’s say, three stents.
“But because the set price is fixed at a level where inserting one stent is viable, but inserting two stents means a loss for the hospital, the hospital and doctors will not insert two stents because it would be a financial loss. So, they only insert one stent.
“Then, the patient—who actually needs three—comes back after three to six months when their insurance or policy resets for the second stent. After another three months, they return for the third stent.
“This results in three admissions, and the overall cost is actually higher than if it had been done in one admission,” Anwar said.
Anwar added that DRG is used in countries like Thailand and Indonesia where national health insurance schemes exist, allowing governments to manage payments to private hospitals. “We support the government’s effort to study how DRG can be implemented, but it must be done systematically,” he said.
Former Health Minister and podcast co-host Khairy Jamaluddin acknowledged the concerns but urged the industry to work towards DRG adoption, suggesting pricing bands could address potential financial risks for hospitals.
The government has said it plans to introduce DRG within one to two years as part of its health care reform agenda. Dr Kuljit maintained that DRG implementation in Malaysia would require at least a decade to develop a reliable dataset.
“In my view, DRG will not work over only one or two years—it has to be implemented by the government for maybe the first 10 years because you need the data.
“You need real data to be input into the DRG, and it has to run long enough to show its effectiveness, just like in other countries. It took time, with a lot of data fed into the system, to see the benefits of DRG,” Dr Kuljit said.
“As I said, DRG is a very good tool, but you need the correct data with the correct costing factored in. Otherwise, it will fail. This is what we have seen in other countries—they have studied it. So, we are not against it, but it has to be done systematically, and it takes time for DRG to be effective.”
