The DRG: A silver bullet for rising medical costs or just one piece of the puzzle?

The Star

05-07-2025

AS Malaysians grapple with rising healthcare costs and increasing insurance premiums, the government is exploring a new payment model aimed at curbing medical inflation, which is scheduled to be rolled out within the next few years.
While the Diagnosis-Related Group (DRG) system is being promoted as a potential solution to control escalating costs, its effectiveness in addressing the root causes of medical cost inflation remains uncertain. At the same time, many patients are still unclear about what DRG is, and how it might actually benefit them.
In simple terms, the DRG system categorises hospital patients into groups based on diagnoses, procedures, and expected length of stay. Rather than paying hospitals for every service provided, which is also known as the traditional 'fee-for-service model', DRG assigns a fixed payment rate per patient group. This means that hospitals are reimbursed based on the type of care they provide the patient, not the volume of services rendered.
The aim of this is to improve efficiency, achieve standardisation, and ultimately, achieve the main goal, which is to de-escalate rising medical costs.
The DRG as envisioned by the government is a way to make healthcare more transparent, predictable, and fair for Malaysians. By standardising treatment costs based on diagnoses, patients will be able to know in advance the expected cost of care, helping them avoid the shock of an unexpected medical bill upon discharge.
DRG is also a way to provide comparable pricing for similar treatments across different facilities, making it less likely for patients to be overcharged for the same procedure.
Furthermore, by shifting away from a fee-for-service model, DRG encourages hospitals to provide care that is appropriate rather than excessive. It is hoped that this will bring down the incidences of unnecessary tests or admissions.
As the DRG system brings consistency to healthcare pricing, patients may also benefit from improved insurance products with more predictable reimbursement structures. In short, the DRG system is intended to address medical costs in a way that directly benefits patients.
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For a national-level DRG to be set up, hospitals must code each patient case, typically after the patient is discharged, using standardised systems. This coding will form the basis of billing and benchmarking. In Malaysia, the DRG system has already been in use.
Teaching hospitals such as Universiti Kebangsaan Malaysia Medical Centre (HUKM) and Universiti Malaya Medical Centre (PPUM) have already implemented the DRG system to improve operational efficiency. In fact, HUKM has been using the DRG system for about 20 years to date, and PPUM, for three.
The Health Ministry has also worked with DRG frameworks for the past 10 to 12 years. However, full-scale national implementation remains a work in progress.
For the DRG system to function effectively at a national level, several prerequisites must be met.
Firstly, a Malaysian DRG grouper, which is a system that classifies and assigns DRG codes, needs to be developed using comprehensive data from both public and private hospitals.
Without a unified dataset, it is impossible to benchmark charges, track outcomes, and identify inefficiencies accurately. In various engagements with the Health Ministry and Finance Ministry, private hospitals have expressed eagerness to contribute data, and are waiting for a further response from the government.
Equally important to the success of a national-level DRG system is accurate coding. If coding is incomplete or inaccurate, the system will fail to reflect actual performance, leading to unfair reimbursement and inefficiencies.
This calls for enhanced training of medical officers and coders, which takes time and investment. After all, more important than having a DRG system in place is for it to be efficient.
But is DRG the silver bullet to reduce healthcare costs?
Comprehensive 'toolkit' vital
This topic was a central theme across several panel discussions at the APHM (Association of Private Hospitals of Malaysia) Conference and Exhibition 2025, which was held from June 9 to 11.
Many of the experts speaking at the conference, from academicians to public health specialists and DRG experts, agreed that while the DRG system can benefit patients by providing greater transparency and predictability in billing, the system is not a standalone solution. Instead, coordinated effort across multiple fronts is required, rather than relying on any single solution.
One important strategy to control healthcare costs is price transparency, which countries like France, Japan, Singapore, and the United States have employed in addressing cost inflation, not only in the healthcare sector but across various industries.
This approach allows patients and payers to compare prices and make more informed choices, especially when purchasing medicines.
In Malaysia, the recent enforcement of the Medicine Price Display Gazette under the Price Control and Anti-Profiteering (Price Marking for Drug) Order 2025, effective from May 1 this year, has been adopted by private hospitals.
In addition to medicine price display, more public education on the use of generic medicines by doctors and pharmacists is still needed to ensure price transparency measures truly help bring down healthcare costs.
The Medicine Price Display Gazette under the Price Control and Anti-Profiteering (Price Marking for Drug) Order 2025 was enforced on May 1. — AZMAN GHANI/The Star
Another key approach is value- based care, which moves away from the quantity of services provided to patients to the actual health outcomes achieved.
In addition, strategic purchasing, such as bulk buying of medicines and pooled procurement, helps reduce costs by eliminating inefficiencies.
Private hospitals in Malaysia have long practised bulk buying and pooled procurement, and further efforts are being made to remove middlemen from the procurement process altogether.
Social health insurance plays a critical role in protecting vulnerable groups through better risk pooling.
In Malaysia, the Health Ministry recently announced the Medical and Health Insurance/Takaful Basic Product, which aims to ensure that all Malaysians, regardless of socioeconomic background, have access to health insurance.
Broader system-wide reforms are essential as well. These include strengthening primary care (by making family doctor services stronger and more available), expanding digital health services (by using technology like health apps more often), and improving health literacy (by helping people better understand health information) to empower patients.
Finally, incentives for preventive care, such as bonuses when insurance policyholders do not make any claims, and co-payment structures, should be encouraged.
These incentives reward responsible insurance subscribers and help build funds when individuals are younger, so that their coverage is maintained in their older years.
It is important to consider that beyond government and hospital efforts, patients themselves must also use healthcare responsibly to help contain costs over the long term. Together, these strategies will create a more robust and sustainable healthcare system that balances cost control with quality care.
Ultimately, the success of the DRG system in Malaysia will depend on how well it is designed, implemented, and supported. Coding accuracy, quality data, and professional training are critical.
If implemented poorly, the DRG system risks becoming just another bureaucratic layer, but if done right, it could be a vital lever in Malaysia's healthcare reform toolkit.
It is important to remember that the DRG system is not a standalone solution. Rather, it should be part of a comprehensive toolkit of strategies to manage rising healthcare costs holistically.
As Malaysia considers scaling the DRG system nationwide, policymakers must keep in mind that building a fair, efficient, and patient-centred healthcare system requires a combination of approaches.
There is no single silver bullet.
Datuk Dr Kuljit Singh is president of the Association of Private Hospitals Malaysia (APHM) and Independent Director of the Malaysia Healthcare Travel Council (MHTC) Board. The views expressed here are solely the writer's own.