Malaysia to amend PHFC Act to control private hospital charges

Anwar Ibrahim announced that the government is planning to amend the Private Healthcare Facilities & Services Act 1998 (Act 586) next year to control private hospital charges.

The prime minister’s announcement in the Dewan Rakyat was made in response to a surge in health insurance premiums, with the insurance industry blaming unregulated bills from private hospitals.

Act 586 currently only caps doctor fees; all other charges by private hospitals, clinics, and other facilities and services are unregulated. Specialist doctors’ consultation fees and their fees for various procedures are controlled under Schedule 13.

“The short-term measure is to control the increase [in insurance premiums]. Pending the implementation of diagnostic-related groups (DRG) and the possibility of amending Schedule 13 under Act 586 for this regulation, it is difficult for us to agree to a surge [in insurance premiums],” Anwar, who is also the finance minister, told the Dewan Rakyat during Prime Minister’s Question Time.

“DRGs must be expedited. We have asked the Ministry of Health (MOH) to set the rates immediately, hopefully by early next year, so that costs are not too high.”

DRG involves paying a fixed amount based on the complexity of the case, rather than itemising each charge. Hospitals would receive a set amount (e.g., RM25,000 for a knee replacement surgery) – which is pre-negotiated between the payer and the hospital – and manage their resources within that budget.

“This, we think, will force hospitals to try to go the other way. So instead of trying to sell more services, they would be interested in giving what is necessary and conserve as much as they can out of the package price,” Life Insurance Association of Malaysia (LIAM) CEO Mark O’Dell told Business Times in a recent interview.

The insurance industry has been pushing for private hospitals to move from fee-for-service payment models to DRG or value-based health care. Value-based health care involves paying health care providers based on patient outcomes, rather than the amount of services they deliver.

“DRGs will provide set guidelines for reasonable costs for an MRI or CT scan,” Anwar told parliamentarians. “This must be regulated.”

He gave an example of a patient returning to a hospital with health problems within two to three years after getting a stent.

“Should we impose a requirement for the hospital to pay a portion, half, or the full cost? This is being studied by the MOH.”

Anwar blamed high health care costs particularly on medicines, saying that drug procurement in Malaysia has been monopolised for decades.

“Because of that, we will cancel a few commitments to one or two companies and we ask MOH to procure cheaper generics, like other countries. Generics are more well-known in Brazil, India, and China; we don’t have to be tied to the United States or Europe where the costs are too high,” he said.

“Big companies charge MOH or Malaysia RM5,000 because of monopoly and loose controls. But Thailand gets RM1,500 for the same drug. We must do pool procurement. Why can’t MOH, the Ministry of Higher Education (MOHE), and military hospitals do pool procurement to reduce costs by 20 per cent to 25 per cent?”

Health care providers in the public sector have already pooled procurement of drugs. An MOH official previously told a conference last year that pool procurement between the MOH, six teaching hospitals, and a military hospital enabled nearly RM80 million in savings for the government from 2020 to 2022.

Private health care providers procure medicines separately from the public sector. Major private hospital groups that operate multiple hospitals – such as IHH Healthcare – already centralise the procurement of medical supplies, drugs, and equipment at the group or network level, instead of purchasing by each individual hospital, according to the Association of Private Hospitals Malaysia (APHM) Factbook 2024.

According to the APHM Factbook 2024, private hospitals are also increasingly turning to generics and non-inferior biosimilars, which offer similar efficacy at a significantly lower cost.

Then-Health Minister Dr S. Subramaniam said in 2014 – after amending the 13th Schedule of Act 586 to raise doctors’ and dentists’ fees – that other components of hospital charges, such as fees for accommodation, laboratory investigations, nursing care, use of equipment and operation room, and drugs – are not regulated “due to the varying costs in operating and maintaining a private hospital in different areas of the country.”

Anwar today acknowledged that private health care charges in Malaysia are still “competitive” compared to other countries, citing the increase in medical tourists to Malaysia.

“Half of the patient load in certain hospitals are patients from overseas because our costs are considered reasonable.”

When Bayan Baru MP Sim Tze Tzin asked if the government would impose a moratorium on the increase in medical insurance premiums for next year, Anwar replied: “We’re not doing a moratorium, but an interim, reasonable, and small increase.”

He cited a briefing on the matter to MPs earlier this morning. “There will be a guideline by year end. I believe that amending the Act and setting DRGs will also control it.”

Anwar further cited the new Rakan KKM programme by the MOH, where patients can seek a few additional “facilities” at minimum cost in government hospitals, separate from the congested public wing, that is cheaper than private hospitals.

CodeBlue understands that a briefing on medical inflation and the rise in medical insurance premiums was held for the backbenchers club (BBC) and the Health parliamentary special select committee in Parliament this morning.

According to an attendee, the briefing was held by Bank Negara governor Abdul Rasheed Ghaffour, Finance Minister II Amir Hamzah Azizan, and Deputy Finance Minister Lim Hui Ying. From the MOH, only officials were present. Health Minister Dzulkefly Ahmad earlier briefed Anwar for Prime Minister’s Question Time in Parliament. CodeBlue