How The Recent Rise In Medical And Health Insurance Premiums Might Affect The Healthcare Sector In Malaysia?

Medical and health insurance (MHIT) premiums surged in 2024, with over 60% of policies having seen hikes of up to 20%, according to news report. Additionally, total medical claims cost inflation skyrocketed by 56% from 2021 to 2023, having outpaced the 20% growth in premiums.  

The rising cost of medical care could be attributed to several factors, including the escalating prices of medicines, adoption of advanced medical equipment and steady increases in wages and salaries within the healthcare sector. 

As insurers, healthcare providers, and policymakers work to rein in the costs, the burden of escalating premiums continues to weigh heavily on policyholders. 

For years, the public has grappled with the growing burden of medical inflation, but the sharp rise in insurance premiums may be the breaking point. In a bid to ease the strain, the Ministry of Health (MOH) has proposed a Diagnosis-Related Group (DRG) pricing system.  

What is A Diagnosis-Related Group (DRG) Pricing System? 

Under the DRG model, hospital cases are categorised into groups based on diagnoses and procedures. This system establishes standard payment rates by providing a fixed amount for each group, rather than itemising individual treatment charges. Private hospitals must operate within this predetermined budget that is negotiated in advance between patients and hospitals. 

The concept of DRG pricing system has been introduced since 1980s and is practised in many countries such as the US, Australia, Canada, Romania and Singapore. 

Private hospitals in Malaysia currently operate under a fee-for-service model, where healthcare providers are paid based on the volume of services rendered. This approach requires hospitals to issue lengthy, itemized bills detailing every charge—from drugs and surgical supplies to the use of medical equipment and operating theatres.  

With the government’s plan to enforce the DRG model, hospitals will transition from itemized billing to presenting a single, consolidated charge for each procedure or treatment, simplifying the billing process and enhancing cost transparency. 

Pros And Cons Of The DRG Model 

The DRG system is like a blueprint for making healthcare work smarter, not harder. Its main goal is to ensure that resources for health services are used where they’re needed while cutting down on waste and unnecessary spendings. 

As there are fixed pricings for the categories of diagnoses, this promotes a more standardised healthcare service and discourages the excessive use of resources or recommendations for patients to undergo medical procedures that may not be needed. 

One major challenge is accurately determining the cost and reimbursement for health services, as the standardized codes and groupings could fail to reflect the true value or impact of the care provided. This misalignment can push hospitals and physicians to prioritize procedures that offer better financial returns rather than those that best serve patients’ needs.  

As a result, patients may face under-served care, resources may be underutilized, and healthcare providers might inflate costs by focusing on procedures with less relative value, all in an effort to maximize their financial gains. This highlights the need for a more value-based approach to truly address these shortcomings. 

Is Malaysia Ready For The DRG System? 

For a DRG system to work effectively, the data used to set payment rates and groupings must accurately reflect the range of clinical conditions, procedures, and patient demographics in a country. This requires input from both public and private healthcare players to ensure the categories are comprehensive and meet the population’s healthcare needs.  

Additionally, implementing the DRG system requires thorough research and collaboration with stakeholders to account for the complexity and varying costs of medical procedures. 

Paving The Path To Affordable And Sustainable Healthcare In Malaysia 

The sharp rise in medical insurance premiums underscores the urgent need for sustainable solutions in Malaysia’s healthcare sector.  

While the planning of introducing the DRG system promises greater transparency and efficiency, its success hinges on robust data integration, stakeholder collaboration, and a value-based approach to healthcare delivery.  

However, with careful planning and execution, the DRG model could serve as a stepping stone toward a more equitable and efficient healthcare system, one that balances affordability for patients with the financial sustainability of providers. 

Read Also: Guide To Purchasing Life And Critical Illness Insurance Via EPF’s i-Lindung 

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