KUALA LUMPUR: Malaysia's insurance industry has been pushing for private hospitals to move from fee-for-service payment models to a diagnosis-related group (DRG) or value-based healthcare since 2023.
Concurrently, certain hospital operators such as IHH Healthcare Bhd and KPJ Healthcare Bhd have already embarked on advocating value-based healthcare.
Some observers, however, think DRG's implementation still requires extensive study and engagement with various stakeholders, given the complexity of each medical procedure and their underlying costs.
DRG is a healthcare payment system that specifies a fixed amount based on the complexity of a case rather than conventional fees-for-services.
Hospitals receive a pre-determined price between the payer and themselves, before having to manage resources within that budget by focusing on cost-effective treatments (i.e patient outcome), streamlining unnecessary procedures and over-prescribing medication.
DRG Effectiveness?
Affin Hwang Investment Bank Bhd analyst Tan Ei Leen said DRG has been shown to significantly minimise unnecessary hospital stays and control the rapid growth of healthcare costs, offering advantages to both hospitals and patients.
Anecdotal evidence from the US Medicare programme shows how DRGs have reduced hospital stays and curbed escalating healthcare expenses, a;though early discharges might occasionally impact health quality.
"In Australia, it helped control healthcare expenditures and improved hospital resource management," Tan said.
RHB Investment Bank Bhd analyst Oong Chun Sung said DRG is not a price-capping mechanism, but could be viewed as a cost-discipline approach on streamlining patient care.
"DRG benefits both hospitals by optimising resources and efficiency, while delivering better medical outcomes for patients," Oong said.
Implementation
RHB Research said based on its empirical studies across countries that have been practicing DRG, the period required for the transition from examining to full implementation of a DRG model typically spans at least three years.
"This duration is necessary due to the complexity of the process, which involves multiple stakeholders - including healthcare providers, government agencies, insurers and IT systems.
"Moreover, the qualitative and quantitative complexity of a DRG system itself – such as accurate categorisation of diagnoses and procedures, setting appropriate reimbursement rates and aligning clinical practices with the payment model – adds significant challenges that require careful planning and coordination," Oong said.
RHB Research highlighted the question of whether Malaysia has the technical infrastructure and database capabilities required to transition to a DRG model in under three years.
Implementing a DRG-based system necessitates robust data management, including the ability to collect and analyse both cost and clinical data comprehensively, Oong said.
"According to a preliminary study by the World Bank, one of the key factors determining the success of DRG implementation is the availability and reliability of data.
"Furthermore, the representativeness of the data sample is critical. For a DRG system to function effectively, the data used to determine payment rates and groupings must reflect the actual spectrum of clinical conditions, procedures, and patient demographics within a country.
"This includes data from a variety of healthcare settings – including public and private hospitals – to ensure that DRG categories are robust and aligned with the diverse healthcare needs of a population," Oong explained.
Economist Dr. Geoffrey Williams said the primary challenge private hospitals face in shifting from a fee-for-service model to DRG or value-based healthcare lies in the need for private medical providers to adopt a new mindset.
"In the current system they charge for everything on an item-by-item basis which pushes up revenue for them at the expense of patients. Private health insurers pay the high costs and pass that onto patients by increasing insurance costs.
"Under the DRG approach, the costs for medical care are fixed according to the illness or procedure," he told Business Times.
Geoffrey suggested that the government collaborate with the private sector to facilitate a smooth implementation.
"It is the patients who are the government's priority, not private companies who are making excess profits by pushing up costs and insurance premiums," he said.
Serious Healthcare System Reform Needed
RHB Research said Malaysia's healthcare system till faces significant challenges despite undergoing digital transformation since 1997.
While many healthcare facilities have implemented electronic health records (EHRs) or electronic medical records (EMRs), these systems remain fragmented, with patient data often isolated within individual hospitals or facilities.
The firm suggested that to align Malaysia's EMR aspirations with its DRG ambitions, the country could adopt a phased implementation approach.
One approach is to limit the scope of the DRG system in its initial phases by concentrating on common diseases or conditions, as these are easier to classify and manage.
Another option will be for Malaysia to draw from the United States model, which implemented the DRG system in phases.
"In this approach, a blended funding model could be introduced, where the healthcare system uses a combination of traditional funding models and DRG-based payments during the transition period.
"This would allow the country to ease into DRG while maintaining some flexibility in the funding structure," it said.