Medical inflation in Malaysia has emerged as one of the most pressing challenges facing the nation’s health care system. At 11.9 per cent in 2024, Malaysia’s medical inflation rate significantly exceeds global averages and is projected to continue rising in the coming years.
If left unaddressed, escalating health care costs will threaten the affordability of private medical insurance, increase pressure on public health care facilities, and ultimately compromise access to quality care for many Malaysians.
Addressing medical inflation requires a comprehensive, multi-stakeholder approach. No single group can be held solely responsible.
Rather, health care costs are influenced by a complex interaction between health care providers, hospitals, insurers, policymakers, medical technology, and consumer behaviour.
Over-Testing And Over-Investigation
During a recent Public Accounts Committee (PAC) inquiry, concerns were raised regarding the increasing use of diagnostic investigations within the health care system.
One insurer’s CEO highlighted the issue of potentially excessive testing and its contribution to rising health care expenditure.
The phenomenon of overtesting is not unique to Malaysia. International initiatives such as Choosing Wisely, Less Is More, and Too Much Medicine have highlighted the growing concern that some investigations may offer limited clinical value while increasing costs and exposing patients to unnecessary risks.
The fundamental purpose of any diagnostic test should be to improve patient outcomes through accurate diagnosis, monitoring, and treatment—not merely to reduce uncertainty or satisfy expectations.
Several factors contribute to this global trend. Defensive medicine remains one of the most significant drivers. In increasingly litigious health care environments, clinicians may feel compelled to order additional tests to protect themselves against potential legal claims.
Hoffman and Kanzaria have highlighted a survey revealing that 97 per cent of emergency physicians in the United States ordered advanced imaging primarily due to legal concerns and the desire to rule out low-probability diagnoses, despite acknowledging the tests were clinically unnecessary.
Equally important is the health care system’s diminishing tolerance for uncertainty. Modern medicine increasingly operates within a culture that prioritises risk avoidance, encouraging clinicians to investigate extensively in order to minimise even remote possibilities of missed diagnoses.
Cognitive biases, particularly availability bias, may further reinforce this tendency. Clinicians who have recently encountered rare conditions or adverse outcomes are often more inclined to pursue broader investigations in subsequent patients.
Patient expectations also play an important role. The widespread availability of online medical information and AI-generated health content has increased public awareness of diseases but has also amplified anxiety and demand for diagnostic testing.
While diagnostic testing remains an essential component of modern health care, greater emphasis should be placed on appropriateness rather than volume.
Shared decision-making, careful clinical assessment, and adherence to evidence-based guidelines can help ensure that investigations are ordered when they are likely to provide meaningful clinical benefit.
Reducing unnecessary testing will require cultural change across the health care ecosystem. Clinicians should be supported in exercising sound clinical judgement, and patients should be educated about the limitations and potential harms of over-investigation.
Ultimately, medical practitioners are not infallible, and while unintentional errors can occur, the current legal framework increasingly penalises clinicians rather than supporting balanced care.
Escalating Health Care Costs Due To Multiple Factors
Rising medical inflation is often attributed to pharmaceutical pricing or physician remuneration. While these factors are frequently highlighted in public discourse, they represent only a small part of a far more complex issue.
Medical inflation is ultimately the result of multiple interacting forces involving patients, insurers, hospitals, health care professionals, regulators, and advances in medical technology.
According to reports from KPJ Healthcare, approximately 55 per cent of patients rely on insurance to finance their medical expenses.
In addition, employer-sponsored health benefits accounted for nearly half of all premiums collected by Malaysian insurers during the 2014–2015 period. As health care utilisation continues to rise, increasing claims inevitably place upward pressure on insurance premiums.
One important contributor is the phenomenon of moral hazard. Many policyholders perceive their insurance premiums as an investment that should generate a tangible return.
Historically, the widespread availability of cashless medical cards with little or no co-payment has inadvertently encouraged the utilisation of health care services beyond what may be clinically necessary.
When health care appears to be “free” at the point of use, patients may be more inclined to seek hospital-based care even for conditions that could be appropriately managed in less costly settings.
This behaviour is not unique to Malaysia and has been observed in health care systems worldwide. Nevertheless, it highlights the need for greater public understanding of the fundamental purpose of insurance.
Insurance is designed to protect individuals against significant and unpredictable financial risks, rather than to facilitate routine consumption of health care services.
The insurance industry itself also faces structural challenges. Frequent product launches, aggressive marketing of increasingly high (astronomical) coverage limits, and incentive structures that reward policy volume rather than value may inadvertently contribute to rising health care expenditure.
While broader coverage enhances consumer protection, it can also encourage higher utilisation. When this is coupled with heavy incentives for agents and management (10-month bonus) to prioritise volume over value, the industry creates an environment where surge in claims is an inevitable outcome.
At the same time, medical inflation cannot be discussed without acknowledging the role of technological advancement. New diagnostic tools, innovative treatments, precision medicine, and advanced surgical interventions have transformed patient outcomes and extended life expectancy.
However, these innovations often come at substantial cost. Health care systems worldwide face the challenge of balancing access to cutting-edge care with long-term financial sustainability.
Beyond technological advancement, there remains a need for greater transparency and oversight regarding hospital pricing structures. In Malaysia, professional fees are subject to regulatory controls and have remained relatively constrained over time.
However, there is comparatively less scrutiny of institutional hospital charges, which now constitute a substantial proportion of total health care expenditure. As a result, public attention is often directed toward physician remuneration despite hospital-related costs accounting for a much larger share of overall medical bills.
This imbalance creates a policy gap. Without adequate transparency and accountability regarding hospital pricing, efforts aimed solely at controlling professional fees are unlikely to meaningfully reduce health care inflation.
More comprehensive cost-containment strategies should therefore examine all major components of health care expenditure, including hospital charges, administrative costs, procurement practices, and utilisation patterns.
As private health care becomes increasingly unaffordable, more patients may defer treatment or turn to the public health care system, which already faces significant workforce and capacity constraints. This shift risks further straining public hospitals and may compromise timely access to care for the broader population.
To enhance affordability and improve market efficiency, policymakers could consider standardising private health insurance products into a limited number of core plans with clearly defined benefits.
Such a framework would enable consumers to compare products more easily, encourage competition based on price and service quality, and reduce unnecessary complexity in the insurance marketplace.
Simplification may also lessen reliance on intermediaries (agents), therefore reducing cost and empower consumers to make more informed purchasing decisions and buy the products directly from insurers.
From a clinical perspective, health care professionals should continue to practise according to evidence-based standards and established professional guidelines.
Such an approach helps minimise low-value investigations and treatments that offer limited benefit while contributing to rising health care costs. However, achieving this objective has become increasingly complex within evolving legal and ethical frameworks.
Traditionally, medical decision-making was guided largely by the Bolam principle, which assessed professional conduct against the standards accepted by a responsible body of medical practitioners. M
ore recently, the Montgomery standard has shifted emphasis toward patient autonomy and informed decision-making, requiring clinicians to disclose material risks and engage patients more actively in their care.
While this evolution represents an important advancement in patient rights, it also creates a practical challenge. In seeking to address patient concerns and ensure comprehensive disclosure, clinicians may feel compelled to discuss — or in some cases perform — additional investigations that they would otherwise consider to be of limited clinical value.
Consequently, the legitimate goal of patient-centred care may unintentionally reinforce a culture of over-investigation, particularly when clinicians fear allegations of inadequate disclosure or insufficient consideration of patient preferences.
The challenge moving forward is not to choose between professional judgement and patient autonomy, but to achieve an appropriate balance between the two. Sustainable health care requires clinicians, patients, insurers, hospitals, and regulators to recognise that resources are finite and that higher utilisation does not necessarily translate into better outcomes.
Cost containment should therefore focus on promoting value-based care, transparency, and evidence-based decision-making rather than assigning blame to any single stakeholder.
Building A More Health-Literate Society/Nation
Efforts to curb medical inflation must extend beyond regulatory reform and cost-containment measures. They must also address the underlying cultural beliefs and behavioural patterns that shape health care utilisation.
Achieving sustainable health care financing requires a national commitment to improving health literacy and fostering a more informed understanding of health, insurance, and medical decision-making.
One of the most important educational priorities is correcting the misconception that medical insurance is an investment intended to generate a return on premiums paid.
Insurance is fundamentally a risk-pooling mechanism designed to provide financial protection against significant and unpredictable health events.
When policyholders view their medical cards as assets that must be “utilised” to justify the premiums paid, they inadvertently contribute to the overconsumption of health care services and the depletion of insurance resources.
Public education initiatives should therefore focus on helping consumers better understand the purpose and limitations of health insurance.
Individuals should be encouraged to select insurance products that align with their actual health care needs and financial circumstances, rather than assuming that higher coverage limits automatically translate into better protection or superior value.
Equally important is improving public understanding of the realities of modern medicine. There remains a widespread belief that more tests, more consultations, and more interventions necessarily lead to better outcomes.
However, international initiatives such as Choosing Wisely have demonstrated that excessive investigation and treatment can expose patients to unnecessary risks without providing meaningful clinical benefit.
Diagnostic tests are not harmless; they may generate false-positive results, incidental findings, unnecessary anxiety, overdiagnosis, and even harmful downstream interventions.
Public health education should therefore promote a more nuanced understanding that appropriate care — not simply more care — is the hallmark of high-quality medicine.
Patients should be empowered to ask informed questions and participate in shared decision-making while recognising that restraint and watchful waiting are sometimes the most evidence-based clinical approaches.
The rise of internet-based self-diagnosis, social media health content (which are largely not regulated), and artificial intelligence tools has further transformed patient expectations.
While access to information can be beneficial, it may also contribute to unrealistic expectations regarding diagnostic certainty and encourage demands for extensive investigations.
Restoring trust in the physician-patient relationship is therefore essential. Patients and clinicians should work collaboratively to identify the most appropriate course of action based on scientific evidence, clinical judgement, and individual circumstances, rather than pursuing every possible test in pursuit of absolute certainty.
Greater public awareness is also needed regarding the factors driving rising health care costs. Many patients are understandably frustrated by escalating insurance premiums and medical expenses, yet there remains limited understanding of the complex economic forces involved.
Educational initiatives led by the Ministry of Health, insurers, health care providers, and professional bodies can help improve understanding of how health care utilisation, defensive medicine, technological advancement, insurance design, and hospital pricing structures collectively influence health care expenditure.
Conclusion
Medical inflation is a multifaceted challenge that cannot be solved by focusing on any single stakeholder. Meaningful reform requires a balanced approach that addresses health care utilisation, insurance design, hospital pricing, technological advancement, regulatory oversight, and public expectations simultaneously.
In this context, it is important that policy discussions remain focused on the major drivers of health care expenditure.
Professional fees, which are regulated and have remained relatively stagnant compared with broader inflationary trends, represent only a modest proportion of total health care costs.
Consequently, strategies aimed primarily at reducing physician remuneration are unlikely to produce substantial reductions in overall health care expenditure.
Particular attention should instead be directed toward improving transparency in hospital pricing, strengthening value-based health care delivery, reducing low-value care, and aligning incentives across the health care ecosystem.
Efforts by insurers to negotiate further reductions and discounts in professional fees may provide short-term cost savings, but such measures alone do not address the structural factors underlying medical inflation and risk undermining the sustainability of the medical profession.
Only through shared responsibility, greater transparency, and a commitment to evidence-based reform can Malaysia successfully contain medical inflation while preserving access to quality health care for all.
The author is a consultant nephrologist and physician.
- This is the personal opinion of the writer or publication and does not necessarily represent the views of CodeBlue.
