KUALA LUMPUR, July 18 — Rakan KKM aims to generate high profit margins by using public resources at cost and charging paying patients steep markups for its supplies and services.
A source explained the business model of the Ministry of Health’s (MOH) new private health care service – operated by Rakan KKM Sdn Bhd – that primarily relies on using the MOH (i.e. the government) as a supplier to keep costs low in a business that is typically associated with extremely high expenses.
Rakan KKM Sdn Bhd will purchase supplies like consumables, devices, and presumably, medicines, from the MOH and lease government facilities and assets like ward beds and medical equipment at cost price, rather than market rates.
“Rakan KKM doesn’t get anything for free,” an authoritative source told CodeBlue on condition of anonymity as he wasn’t authorised to speak to the press.
He explained that the government cannot charge Rakan KKM commercial rates because the State should not be profiting from the use of public assets.
The source added that Rakan KKM can then mark up the prices of things like consumables by 100 per cent, for example, to generate high profit margins that will go towards paying participating health care staff and to help fund the public health care system.
He gave an example of the government selling cotton balls to Rakan KKM at cost.
“So maybe Rakan KKM gets the cotton ball at RM5, at cost, which means the public sector doesn’t lose any money. Then Rakan KKM could charge RM10 to the paying patient. From that RM5 margin, maybe RM2 goes to the doctor, RM2 to the nurse, and the remaining RM1 or RM2 is profit.
“That profit could then be channelled back into upgrading hospital beds or setting up mental health corners, for example. Not necessarily at the same hospital, but across the public system because the funds are pooled so that every hospital in the country can benefit.”
This would allow income generated from facilities like Cyberjaya Hospital to be redistributed for health care improvements in underserved areas like Sabah or Sarawak, said the source.
Rakan KKM is expected to use a leasing model for major equipment like linear accelerators (LINAC) for radiotherapy from the National Cancer Institute (IKN), one of the four participating government hospitals in the pilot phase, besides Sultan Idris Shah Serdang Hospital and Putrajaya Hospital.
“Rakan KKM will pay to use those machines. The pricing point? Probably at cost,” the source said.
Earlier this year, the government purchased new-generation LINAC machines for MOH hospitals, including two for IKN. Each LINAC machine was estimated to cost around RM25 million, said the MOH in a statement last March. It is unclear if the government will charge Rakan KKM maintenance and service fees for use of these machines.
Assuming that the government doesn’t charge Rakan KKM Sdn Bhd interest rates (which are typical for leasing medical equipment), a monthly lease for an RM25 million machine in a five-year leasing agreement costs about RM417,000, excluding maintenance and service fees.
This amounts to RM5 million for one year, a whopping 20 per cent chunk of Rakan KKM’s RM25 million seed funding from the government. If the lease price is halved (since Rakan KKM supposedly will only operate after-hours or weekends), leasing one LINAC machine would still eat up 10 per cent of the company’s seed funding.
CodeBlue’s insider said Rakan KKM Sdn Bhd CEO Dr Mohamed Ali Abu Bakar — former chief executive of the Malaysia Healthcare Travel Council (MHTC) — is currently in discussions with hospital directors and MOH’s Medical Practice Division to determine how much can be charged for the consumables, equipment, or services that Rakan KKM plans to use.
These discussions are expected to guide the pricing framework for leasing arrangements that will most likely be pegged to cost, rather than market or premium rates.
“There is no incentive for MOH hospitals to overcharge because the money will go into the government’s consolidated fund,” said CodeBlue’s source.
“The whole idea is for Rakan KKM to have the biggest possible margin when charging patients, so that the money can be returned to upgrade MOH facilities.”
Public concern has grown over the idea of a private company operating within public hospitals, potentially enabling wealthier patients to skip queues. However, the source pushed back against the notion that lower-income patients are subsidising the initiative.
“Rakan KKM doesn’t get anything for free. We don’t want to be like Emirates Airlines — free fuel so they can charge cheap ticket prices, not like that.”
Still, the source stressed that government hospitals will not charge Rakan KKM “highly premium rates.”
As an analogy, the source cited the misuse of public infrastructure for private gain: “Let’s say the government builds a RM200 million hospital parking facility that’s meant to be free for the public. Then suddenly I say, I want to privatise the parking, install a barrier, and charge RM10, even though the rakyat already paid RM200 million. Cannot. Definitely no.”
Rakan KKM suppresses costs with low capex, use of the government’s bulk procurement channels, and a fee-for-service model for health care staff whose emoluments are paid by the government.
This will enable Rakan KKM to charge patients much lower than conventional private hospitals or even university hospitals, despite 100 per cent markups, potentially attracting uninsured patients who can afford to pay out-of-pocket for faster access to treatment.
However, by targeting high profit margins and marking up supplies or services for patients, Rakan KKM acts like a conventional private hospital, even as the MOH touts a contradictory objective of reducing private health care costs.
Over the past year, lawmakers and the general public have been outraged over a rise in medical insurance premiums and hefty hospital bills that detail the charge for every single item used for patients, including medical supplies like latex gloves.
About 70 per cent of private hospital bills are unregulated. This means that Rakan KKM (which is legally obligated to produce itemised billing as a private health care provider) enjoys the same advantage as conventional private hospitals from the lack of regulation over private health care charges.
Rakan KKM is part of the Reset framework by Bank Negara Malaysia and MOH in a bid to curb medical inflation.
Rakan KKM Sdn Bhd Set Up To ‘Ring-Fence’ Revenue
Nik Azmi Nik Fathil, former press secretary to Health Minister Dzulkefly Ahmad, posted on X that Rakan KKM was incorporated as a Sdn Bhd company to allow operational flexibility, attract investments from government-linked investment companies (GLICs), and avoid bureaucratic constraints.
Rakan KKM Sdn Bhd currently has a sole shareholder: the Minister of Finance Incorporated (MOF Inc.). Other GLICs may join as company shareholders, potentially the Employees’ Provident Fund (EPF), since its CEO sits on the board of directors.
EPF is a major shareholder in private hospital groups like IHH Healthcare Berhad with an 11.33 per cent stake, as well as KPJ Healthcare Berhad with a 13.31 per cent stake.
“[Rakan KKM is] a private limited company (Sdn Bhd) because there is a need to ring-fence the revenue so that it is not channelled to the Treasury,” Nik Azmi wrote, noting that the model was reviewed by the MOH’s Health Transformation Office, the Ministry of Finance (MOF), EPF, and an unnamed Big Four consultancy.
But MOH hasn’t explained whether there’s a legal mechanism to earmark money given by Rakan KKM to the government, specifically for the ministry’s annual budgets, instead of the funds ending up in the Federal Consolidated Fund. According to Dzulkefly, Rakan KKM’s profits will be distributed among shareholders.
MOF previously said it was unconstitutional to earmark vape tax revenue for MOH because “all revenues and funds acquired by the Federation, regardless of their source, shall be paid into the Federal Consolidated Fund.”
Elective Services Only, Starting With Daycare OTs On Weekends
CodeBlue’s source said Rakan KKM, which will only provide elective procedures, will likely begin with minor surgeries during weekend OT sessions.
“That’s what is being suggested, to maybe start with Saturday OTs. For Saturday OTs, you can start by doing the daycare OTs, meaning patients come in the morning and leave in the evening. So we can start by doing those types of cases first. It’s going to be very specific.”
Examples include non-urgent surgeries, such as bunion or trigger finger procedures that typically face long public wait times.
“You go to the orthopaedic clinic, the doctor will say, you’ll have to wait 12 months, because you can live with a trigger finger, right? Unless it’s really painful, then I can do it now. But otherwise, you wait lah.”
Under Rakan KKM, patients can pay for expedited treatment. “The patient may say, ‘But doctor, I heard there’s Rakan KKM, I want to pay RM2,500.’ Then the doctor looks at the slot, ‘Okay, in two weeks, there’s an available slot under Saturday OT if you want to opt for that.’ That’s how it can work,” the source explained.
The source declined to provide a full list of Rakan KKM services.
Rakan KKM’s ‘Ultimate Goal’: Retaining Health Care Workers
Rakan KKM’s core objective is to retain experienced health care workers with financial incentives, especially specialist doctors and nurses, amid the Public Service Department’s (JPA) supposed reluctance to raise salaries or allowances.
“I know it’s not a perfect model but we’re trying to see, can this actually be the avenue because what is our main goal? There’s many words being thrown around like ‘privatisation’ etc., but there is only one core thing that KKM wants to do and it is actually retention,” the source told CodeBlue.
“We just want them to stay in the system – jangan keluar. We can’t get JPA to approve salary increases, we can’t get allowances increased, we can’t get more positions approved — that’s the honest truth. This is the real reason for Rakan KKM.”
Although Dzulkefly previously said Rakan KKM targets specialists and staff with “extra time” who locum in private hospitals, the initiative may extend to retired consultants.
The source cited former Health director-generals Dr Noor Hisham Abdullah, a breast and endocrine surgeon, and Dr Muhammad Radzi Abu Hassan, a consultant physician and gastroenterologist, as well as Dr N. Thiyagar, former Kedah state consultant for paediatric services, as examples of potential participants in Rakan KKM.
“It’s not that we are preventing them from going elsewhere, but there are groups, if there isn’t an avenue (like Rakan KKM) to make an additional income, they will go to the private sector.”
On whether more staff would be hired, the source said: “We do not know if Rakan KKM will need to hire more or not. If push comes to shove, can we hire? Yes.”
The source pointed to government training institutions like Institut Latihan Kementerian Kesihatan Malaysia (ILKKM) as potential manpower sources. “Let’s say there are 10 trainees — eight go to MOH, and the other two are already lost to the private sector. So instead of going there, why not have those two join Rakan KKM instead?”
All Health Workers Will Get Paid (Standard Government Rates) Under Rakan KKM
Rakan KKM is seen as a way to better reward public health care staff for extra work, in contrast to MOH’s full-paying patient (FPP) scheme that only paid specialists (who sometimes informally shared their earnings with health care team members).
“You know what was the failure with FPP right? Only the surgeons got paid. With Rakan KKM, everyone will get paid,” the source said, adding that payments will follow existing ministry rates.
Remuneration for participating health care professionals in Rakan KKM isn’t a salary as they remain civil servants but are fees for procedures or services.
“It won’t be called salary; it will follow the government’s standard rate. For example, if the rate is RM1,250, then they will get RM1,250. If I don’t give my surgeon RM1,250 for a Saturday OT, he will go to the private sector and get RM3,000. Then after six months, the surgeon will think, ‘I might as well just leave.’
“Currently, a lot of the ministry’s staff, especially in cardiac centres, are working until 3am. At the same time, MOH runs outsourcing programmes with private facilities like CVSKL, MSU, and others. If we keep handing all that to the private sector, why not give a portion of it to our own surgeons who are already working until 3am? Even if they’re on-call, they only get RM235. What is RM235, really?
“Of course, at one point, if you were a cardiologist, you would say, I should just leave MOH because I can make 10 times more in the private sector. We have to do something to make them stay.”
The source further highlighted that post-basic nurses are especially vulnerable to leaving the national health service.
“You know for post-basic nurses, how much their allowances are? RM100 a month. That is their allowance for being superb. This is where our problem is; it’s so pathetic. We can all agree that it’s so pathetic,” the source said.
“This is where the private sector will come knocking and say, ‘Come lah, I will double your salary’.”
Through Rakan KKM, these nurses may be offered additional income to stay.
“I may pull two nurses to Rakan KKM to make an extra RM1,000 a month or RM2,000 a month…If I can do that, they stay and they rotate. If we don’t do this, the two may have left MOH to work in the private sector.”
The source claimed that most nurses already opt for double shifts in public service due to financial need.
“Almost 60 to 70 per cent of them request to do double shifts because they want the extra allowance. So we know that it’s not really about time; what they actually want is money.
“If they wanted the easy way out, they would’ve just left. But those who are still in the system stay because they say, ‘I’m close to retirement,’ or ‘My child is sick and I need access to public hospitals,’ or ‘I get to stay in government quarters,’ and so on,” the source said.
“This is one way we are trying to keep and reward them at the same time.”
