Malaysia tackles rising healthcare costs with new payment outsourcing model
KUALA LUMPUR, MALAYSIA — Malaysia’s Health Minister, Dzulkefly Ahmad, has proposed using the Ministry of Health’s (MOH) outsourcing model as a blueprint to regulate private healthcare charges.
Speaking in Parliament, Dzulkefly highlighted the adoption of a diagnosis-related group (DRG) payment system, expected to be mandated by the second quarter of next year following amendments to the Private Healthcare Facilities & Services Act 1998 (Act 586).
“With the DRG system, there will be greater transparency, so patients will know what they are being charged,” Dzulkefly explained.
He emphasized that the DRG model would function similarly to the MOH’s bundled payment system used in outsourcing arrangements for specialties like cardiology and nephrology. This approach involves fixed payments based on case complexity rather than itemized billing, ensuring patients are informed of charges upfront.
Medical inflation crisis: Understanding the numbers
The push for reform comes as Malaysia grapples with soaring medical costs, which rose by 12.6% in 2023 — more than double the global average. This inflation has driven up health insurance premiums, with increases of 40-70% expected in 2025.
Bank Negara Malaysia (BNM) has highlighted non-transparent private hospital charges as a key driver of these costs, citing cases where insured patients were billed up to 286% more than uninsured patients for similar treatments.
Prime Minister Anwar Ibrahim has emphasized the urgency of these reforms, noting that Act 586 currently regulates only doctors’ fees while leaving other hospital charges unregulated.
The DRG system aims to cap costs and ensure fair pricing for all patients, particularly those from middle-income groups who are increasingly burdened by rising healthcare expenses.
In tandem with the DRG rollout, the MOH is mandating drug price transparency in private hospitals and general practitioner (GP) clinics starting next year.
However, this move has faced resistance from medical associations like the Federation of Private Medical Practitioners Associations Malaysia (FPMPAM) and the Malaysian Medical Association (MMA), who argue it could disrupt GP clinic operations.
Public-private collaboration through outsourcing
The MOH’s Hospital Services Outsourcing Programme (HSOP), launched in July 2024, serves as a template for these reforms.
By outsourcing patients from public hospitals to private facilities under fixed bundled payments, HSOP has reduced congestion in government hospitals and improved service quality.
The success of this initiative underscores the potential of applying similar cost-regulation mechanisms nationwide.
Implementing challenges and safeguards
While promising, experts caution that both the DRG system and value-based healthcare models carry risks. These include premature patient discharges or prioritizing low-cost cases over complex ones. Proper oversight will be critical to ensuring reforms do not compromise care quality.
By adopting these measures, Malaysia aims to curb escalating healthcare costs while safeguarding access to affordable and transparent medical services for its citizens.
