What to do with rising medical inflation?

Malaysian Reserve

24-06-2025

Malaysia is launching an ambitious healthcare transformation to address funding, accessibility and rising medical costs
by GLORIA HARRY BEATTY
MALAYSIA is embarking on an ambitious transformation of its healthcare landscape, unveiling a multi-pronged strategy designed to tackle long-standing issues of funding, accessibility and the escalating cost of medical care.
At the Sasana Symposium 2025 organised by Bank Negara Malaysia (BNM) last week, a panel discussion titled 'Rising Cost, Rising Stakes: Expediting Reforms to Address Medical Inflation' brought together key policymakers and experts, including BNM governor Datuk Seri Abdul Rasheed Ghaffour, Health Minister Datuk Seri Dr Dzulkefly Ahmad, Treasury Secretary General Datuk Johan Mahmood Merican and World Bank senior economist Aakash Mohpal.
The session explored the medical inflation containment initiative, given a codename Reset, a joint effort by BNM, Ministry of Health (MOH), Ministry of Finance (MOF) and other stakeholders.
Dr Dzulkefly underlines health financing as one of his key focuses as the health minister (pic: MUHD AMIN NAHARUL/TMR)
Rakan KKM: Opening New Doors
During the panel discussion, Abdul Rasheed revealed that Prime Minister (PM) Datuk Seri Anwar Ibrahim had informed him of the Cabinet's approval on June 18 for the Rakan KKM initiative.
Rakan KKM is a whole-of-government initiative aimed at enhancing public healthcare services through strategic collaboration with the MOH and other stakeholders. The programme focuses on strengthening hospitals and clinics while promoting both equity and sustainability in healthcare delivery.
It is designed around three core objectives: Improving healthcare worker retention for better patient outcomes; increasing public health-care investment to uplift access for lower-income groups (B40) and providing more value-based options for middle-income (M40) patients amid rising medical costs.
The initiative introduces a 'premium economy' tier at selected public hospitals for elective outpatient, daycare and inpatient services. This includes personalised care, the option to choose a specialist and enhanced privacy.
Distinct from earlier efforts, Rakan KKM extends income support to the entire healthcare team, not just lead specialists. Crucially, surplus revenue will be reinvested to strengthen services across the public system, ensuring the programme supports long-term system resilience.
The rollout will begin with a limited number of hospitals and gradually expand to most major specialist facilities nationwide.
Abdul Rasheed noted that the Cabinet's green light for the programme is good news for Malaysians, noting that 'some action is happening now' in regard to the government's efforts towards improving the future of the healthcare sector, and continued enhancements are expected as 'that is where we are moving towards'.
Concurrently, Dr Dzulkefly noted that while MOH has been allocated RM42.3 billion, the amount is not enough to catch up on under-spending for the sector in the last few decades. He underlined health financing as one of his key focuses as the health minister.
Obtaining sufficient funding has proven to be an uphill battle, but is much needed both in the public as well as the public healthcare sectors.
'Ultimately, we need to modernise our health financing system that will be equitable, high-quality care and have sustainability as an essential characteristic. This includes a reorientation toward prevention and a careful layering of the role of private and public financing to achieve this goal. I'm just not a minister for the public sector, but also for the private sector, it is so very important that I get that done.
'Now, our current fiscal space may not allow this. I cannot keep asking the PM for more and more. Now, given this situation, I'm actually reminding him that if you don't give me the resources, allow me to be resourceful,' he said.
Coupled with medical inflation, the need for sufficient funding has become even more imperative for MOH.
'I surely would have to diversify sources of income, not just from the consolidated fund…Therefore, I have come around to have a kind of a game changer of sorts for the Rakan KKM — a win-win kind of synergy with extra capacity of our public facilities, with our specialists and our healthcare team.
'So, we move away from the model of the private wing, full-paying patient, to one that we call the premium economy healthcare facilities of MOH, essentially to drive or generate revenues, to retain our specialists and at the same time, cross-subsidise our public facilities,' he said.
Dr Dzulkefly said the aim is two-fold — to raise the floor by improving standards in public healthcare facilities while raising the ceiling to enable broader access to basic medical health insurance under the medical and health insurance/takaful (MHIT) scheme.
MHIT refers to medical insurance and takaful products offered in Malaysia. These products are designed to cover the cost of medical treatment for illnesses or accidents, and are offered by both conventional insurers and takaful operators.
He added that the initiative also serves as a form of benchmark competition, setting a reference price point to remind private healthcare providers that while they can offer similar services, they may not be able to match the affordability of the public sector.
'My overarching consideration is value-based healthcare — and that's where the diagnostics-related group (DRG) model comes in,' he said.
Some elements of Reset certainly should be on track to be implemented this year, says Johan (pic: MUHD AMIN NAHARUL/TMR)
Rising Medical Costs
Recognising the intricate challenges posed by medical inflation, the government has formed a joint ministerial committee to spearhead long-term reforms in Malaysia's healthcare system.
This was announced by Anwar on June 18 when presenting the keynote address at the same event.
He said the new panel would comprise representatives from the MOF, MOH and BNM.
'When the issue of medical insurance first erupted into the public sphere, you had everyone pointing fingers. Rakyat was getting very upset with the insurance companies. The insurance company said: 'Don't blame us, it's the hospitals that are overcharging,' said Johan.
'And the hospitals said: 'No, but look, it's the insurance companies making large profits' and then everyone else (asked) what's the government going to do about it. Hence, the decision by the PM to establish this committee.'
He said the committee aims to cut through the blame game by bringing together regulators, hospitals, insurers, consumer groups and medical professionals to drive long-overdue reforms.
Johan stated the focus includes breaking silos between stakeholders, increasing pricing transparency, improving access to affordable insurance and exploring new financing channels, including the use of Employees Provident Fund (EPF) savings.
'At the end of the day, the committee really has to balance different interests of the different stakeholders, and particularly in the dynamics of a well-thriving economic activity.
'We need quality affordable healthcare, but at the same time (we need to) ensure that there's fair returns to the different sectors, whether it's the private healthcare, practitioners, doctors, insurance companies, so that there should at the end of the day be continued investment, continued product innovation to ensure the sustainability of the sector,' added Johan.
When asked whether the committee had set clear deadlines, he said Anwar had instructed the committee that in no uncertain terms, tangible reforms must begin within the year.
He noted that the proposal of Rakan KKM, which some deem as controversial, was approved by the Cabinet.
'We're very confident that some elements of the Reset (initiative) certainly should be on track to be implemented this year. At the same time, I think you also recognise (that for) healthcare reform, there's no silver bullet that can be done immediately.'
Reset — which stands for revamp, enhance, strengthen, expand and transform — outlines five strategic thrusts and 11 initiatives designed to rebalance the healthcare cost ecosystem.
'The important thing is to demonstrate the seriousness of all parties showing some progress on the low hanging fruits. That hopefully also gives the credibility of these platforms like this committee to (show) that we're serious, we really want to bring all the different stakeholders to the table in terms of progressing in a very structured manner going forward for the betterment of all parties and also the healthy growth of the industry,' said Johan.
This article first appeared in The Malaysian Reserve weekly print edition