3 days ago
DRG model still challenging for private healthcare
Unlike the conventional fee-for-service model, the DRG system sets a fixed price for treatments based on case complexity and industry benchmarks.
PETALING JAYA: Malaysia's diagnosis related group (DRG) model to manage rising healthcare costs and allocate medical resources remains a challenge for implementation in private hospitals, analysts say.
This is despite efforts to find solutions, including data collection.
The issue is compounded by absence of a universal healthcare financing system in Malaysia.
Unlike the conventional fee-for-service model, the DRG system sets a fixed price for treatments based on case complexity and industry benchmarks. According to Bank Negara data, medical inflation in the country reached 15% last year compared with the global average of 10% and the Asia Pacific average of 11%.
For insurers, this becomes a problem as claims rose by 73% between 2021 and 2023 while premiums collected only increased by 21%.
CIMB Research, who spoke to Association of Private Hospitals Malaysia (APHM) president Datuk Dr Kuljit Singh, said implementation of the DRG model in private hospitals could be challenging due to the absence of a universal healthcare financing framework and limited data availability despite efforts focused on generating and collecting data.
The research house, quoting Kuljit, noted that no robust DRG models exist globally for private healthcare except in cases involving a single funder or universal healthcare financing.
Public hospitals have all come under a mix of the DRG model and annual budgets to fund and provide for healthcare.
'Most countries use DRG in public healthcare to calculate costs and determine government budgets. In private settings, challenges emerge when patients face complications or require additional care beyond what the system covers,' the research house said, adding that the lack of data accuracy makes an effective rollout of the DRG model challenging for private hospitals.
Despite the challenges, Kuljit shared that APHM-affiliated hospitals have been working closely with the Health Ministry and holding regular engagements to support an effective rollout of the DRG model.
CIMB Research has maintained an 'overweight' stance on healthcare stocks, underpinned by the defensive nature of such stocks and the demand for private healthcare.
Growth prospects remain supported by organic expansion, the rising prevalence of non-communicable diseases and an ageing population.
IHH Healthcare Bhd remains the research house's top pick with a 'buy' call and target price of RM8.50.
It has a 'hold' rating on KPJ Healthcare Bhd with a target price of RM2.90.
'Within our coverage, we believe KPJ is more exposed to risks from the possible implementation of DRG in Malaysia, given that 98.1% of its revenue for the first quarter for this year (1Q25) was derived locally.
'In comparison, we estimate Malaysian operations contributed only 18% to 21% of IHH's 1Q25 revenue,' the research house said.
IHH has a presence across Malaysia, Singapore, Turkiye, Europe and India.
