A previous article on CodeBlue highlighted the various stakeholders’ positions on diagnostic-related group (DRG) payments. The same article explained why DRG benefits outweigh the harm. The article also highlighted the concerns of private hospital CEOs and the Association of Specialists in Private Medical Practice Malaysia about their revenue, should the DRG be implemented.
This article will share some pertinent points on the Taiwanese DRG implementations, and whether they can be adopted wholly for Malaysia. DRG is unlikely to reduce the hospital and doctors’ revenue, but will create a more transparent, sustainable, and fair pricing mechanism. It will prevent abuses in commercial medical practice.
Taiwan Health Care And National Insurance
As of March 2024, Taiwan’s population is estimated to be 23.42 million. Taiwan has approximately 494 hospitals, with 413 of them being private and not-for-profit (corporate). A total of 81 hospitals are government-owned hospitals managed by the health ministry.
On January 1, 1995, the government set up the Bureau of National Health Insurance (BNHI), later known as the National Health Insurance Administration (NHIA), followed by the launch of the National Health Insurance (NHI) programme on March 1, 1995.
The programme features mandatory enrollment with a single-payer system. All citizens and eligible foreign residents must participate in the NHI.
About 99 per cent of the population is covered by the NHI. The administrators collect health premiums, maintain a fund, invest, and pay for defined medical expenses.
The health premium contribution to the NHIA is based on the concept of shared responsibility among the insured individual (employee), their employer, and the government.
The premium varies according to individual income. A significant portion of the premium is covered by the employer, followed by the employee, while a smaller portion is subsidised by the government.
The number of corporate hospitals (not-for-profit hospitals) has increased since the establishment of the NHIA. The Chang Gung Medical Foundation set up and managed seven corporate hospitals under the name Chang Gung Memorial Hospital (CGMH). They are the largest corporate hospitals in Taiwan.
Meanwhile, the number of privately owned commercial hospitals is declining.
In 2000, the NHIA, in cooperation with CGMH, initiated a DRG mechanism. Taiwan’s DRG mechanism was developed to ensure standardised, transparent, and fair hospital charges based on the World Health Organization’s (WHO) International Classification of Diseases (ICD). It was formally implemented in 2010.
The learning curve was quite steep, especially in the early days, when computing technology was limited. The DRG development was rather tedious.
Today, with automation and AI, the learning curve would be shorter for any countries that want to introduce the DRG. Currently, the TW-DRG applies to all corporate, private, and public hospitals.
Taiwan National Health Insurance Administration
The NHIA is an agency under the Taiwan Ministry of Health. In 1995, the NHIA merged three existing health insurance programmes–government employee insurance, labour insurance, and farmers’ health insurance, and subsequently expanded into a comprehensive social insurance system. It offers universal coverage based on the principles of sustainability and pays for defined medical benefits.
NHI services generally do not cover clinical investigations and treatments that are not considered medically necessary. These include treatments for cosmetic procedures, non-essential treatments, experimental therapies, usage of private rooms in hospitals (unless medically necessary), and certain over-the-counter medications. Those seeking such treatments must pay out of pocket.
Taiwan DRG
For medical treatment charges covered by the NHIA, the charges payable are computed based on DRG. However, not all treatments can be coded under DRG. Generally, most surgical, orthopedic, and acute treatment charges can be quantified using DRG.
Some treatment costs are not computed under DRG, as it was quite difficult to code the pricing. Such treatments are still paid by the NHIA based on a different system (Hospital Global Budget, HGB), where claims are paid based on negotiated actual expenses.
Some treatments are not covered by the NHIA, but are partially paid by the patients with or without government assistance. Treatments that are not covered under the DRG system include rare diseases, complex mental health conditions, certain genetic disorders, and some highly specialised treatments.
To protect patients’ rights, the NHIA publishes specific guidebooks to enhance public literacy on the NHI and their rights. The NHIA has also established various admission monitoring indicators. For example, the NHIA monitors the rate of re-admission after discharge to observe whether patients are forced to be discharged prematurely.
Public complaints are addressed by a specific independent department within the NHIA. If hospitals or doctors are found to be negligent, the NHIA will impose penalties under specific regulations.
Applying The Taiwan Experience In Malaysia
Is it appropriate for the Taiwanese version of DRG to be applied in Malaysia in-toto? One cannot just copy and paste the practice practised in other countries. There are simply far too many different variables that need to be addressed.
The single most important factor is the legal framework and the health care system. Malaysia, despite planning the concept of the National Health Care Financing Scheme (NHFS) for nearly 30 years, has not done anything meaningful. The NHFS unit in the Ministry of Health (MOH) remains rudimentary. The seeds of the NHFS was never planted.
Conceptually, DRG development is doable, but the approach and strategy have to be refined. Much of the strategy has been addressed in previous articles published on CodeBlue.
Taking into consideration the various challenges in Malaysia, the government has two options. Either it pushes the MOH to initiate the NHFS project, or let the assurance industry take a lead in the development of DRG and a National Health Assurance programme.
In the current political scenario, the NHFS is likely to end prematurely. It is unlikely its seeds will be planted during the term of the current government.
Alternatively, the assurance industry could take a lead and form a precursor to the formation of a Malaysian Health Assurance (MHA) programme. For this article, we will call this National Health Assurance Administrators (NHAA), which shall be the nucleus for the MHA. It will function as a single payor/payment gateway for all commercial health assurance payments.
As a single payor, the NHAA will represent all health assurers. They will negotiate and pay all hospital charges. The NHAA will gradually take over the function as claim assessors and payors from all the assurance companies.
At the same time, the NHAA will take steps, in cooperation with the MOH, to appoint experts to develop the DRG system here. The project will benefit the assurers immensely, and the MOH’s regulatory powers will be required to ensure private hospitals participate in the implementation of DRG.
The private sector has less bureaucracy, has lots of data, and is in a better position to negotiate private hospital charges. The MOH has technical knowledge and can support the development of a legal framework to support the NHAA. Assurers and the MOH need to have a long-term view of the proposed assurance-led NHAA and DRG projects.
The DRG system will eventually weed out unfair and inconsistent hospital pricing, stabilise claims ratio, and lead to a more manageable product repricing. Assurers will benefit as DRG will promote product price stability and lead to greater policy owner retention and new entrants.
Through the NHAA, assurance companies have greater bargaining power. The risk of non-compliance, when measured against the Competition Act 2010, will be minimal and can be managed effectively. The NHAA will be the nucleus for an MHA programme and can form the crux of NHFS.
Based on Taiwan’s DRG journey, the DRG price determination must be a continuous process. The list of illnesses grows with time. DRG pricing must be adjusted regularly to meet the cost variation in the medical fraternity.
Therefore, there is no need to have 100 per cent of illnesses priced based on DRG-based operationalised hospital charges. The DRG-based pricing list can be built gradually with the NHAA, and DRG can be nationalised at a future date. The public sector employee medical benefits will be gradually managed by the NHAA.
Corporatisation Of Public Hospitals
The need to implement DRG in Malaysian public hospitals is not a reason to corporatise public hospitals. DRG can be implemented in public hospitals even if they remain under the MOH domain.
There appears to be some misconception on the need for corporatisation. DRG can be used by the MOH as a pricing basis that can be charged to other government agencies.
The primary motivations for public hospitals to corporatise are to reduce brain drain, improve staff retention, enhance service efficiency, reduce bureaucracy, and securitise assets.
Operating as a corporate entity allows hospitals to enter partnerships with private firms, secure investments, and implement new medical technologies and management practices without excessive bureaucratic delays.
This will help with the modernisation of public hospitals and reduce the government’s financial burden. The biggest beneficiaries would be the customers’ (patients).
With a stronger focus on efficiency and patient satisfaction, corporatised hospitals will be incentivised to improve service quality, reduce patient waiting times, adopt modern health care technologies, and reduce financial leakages.
The corporatisation of public hospitals does not remove their obligatory role in providing a treatment safety net for the underserved population. With the necessary legal framework, such a safety net can be made explicit and transparent to the public.
Corporatised hospitals remain under government control. Removing the safety net will be political suicide.
Conclusion
In the absence of other standardised and fair pricing mechanisms for hospital charges, the insurance industry should lead the development of DRG. It will benefit them immensely.
DRG is a critical component of NHFS and ensures equitable access under the universal health care (UHC) framework. Private hospitals and specialists must recognise the broader business benefits of DRG. It promotes clarity and fairness and can be used to defend against public criticism. DRG does not reduce medical providers’ earnings.
As part of the agenda for UHC, both private and public hospitals need to migrate to a single system (private and corporate) based on standard pricing.
Together with the corporatisation agenda of public hospitals, the DRG project and NHFS will be become a reality. The public would be expected to contribute to a National Health Fund, together with employers and the government.
Having a good public literacy programme on National Health Assurance is an important component to ensure the success of NHFS. Such programmes should be incorporated into the education system.
Dr Mohamed Rafick Khan 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 and 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.
