http://aph.sagepub.com/Asia-Pacific Journal of Public Health

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 DOI: 10.1177/101053950201400106

2002 14: 23Asia Pac J Public HealthK. Kananatu

Healthcare Financing in Malaysia  

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23

Healthcare Financing inMalaysiaK Kananatu

Health Solutions (SE Asia) Sdn Bhd, Kuala Lumpur, Malaysia

Address for correspondence:K Kananatu, Health Solutions(SE Asia) Sdn BhdLevel 11, Menara Genesis33, Jalan Sultan Ismail50250 Kuala Lumpur, Malaysia

Abstract

This paper presents an overviewof the Malaysian healthcare

system and its method of financing.The development of the healthcaredelivery system in Malaysia iscommendable. However, the

strength and weaknesses of thepublic healthcare system and thefinancing problems encounteredare also discussed. Cost ofhealthcare and funding of both thepublic and private sectors werealso revealed. One must optimisethe advantages of operating ahealth financing scheme which isaffordable and controllable whichcontribute towards cost-

containment and quality assurance.Thus, there is a need for theestablishment of a NationalHealthcare Financing, a

mechanism to sustain thehealthcare delivery network andoperate it as a viable option. Amodel of the National Health

Financing Scheme (NHFS) wasproposed. Asia Pac J Public Health2002; 14(1): 23 - 28

Keywords: Healthcare financing,healthcare system, cost

containment, quality assurance,Malaysia.

Introduction

Malaysian healthcare financing hadbeen well administered all this while

by the Government for the publicsector and by the people themselvesfor the private sector. The Governmentfinanced the provision of medical andpublic health services throughconsolidated revenue fund (CRAW)under the Ministry of Finance. Thesource of fund for CRAW comes fromvarious taxes, revenues and alsoincome earned by governmentcorporatised enterprises, while thesource of funds for the private medicalservice providers was through out ofpocket expenses by the consumers atlarge

Background

However, since 1984-85, theGovernment was concerned of theincrease in health expenditure andrising cost of healthcare in both publicand private sector. The National HealthFinancing Study conducted in 1984-85revealed at that point in time the heavyreliance of the people on public healthservices, where the annual healthexpenditure was financed to a tune-of75% and 25% between public andprivate sector. On the other hand in1996, &dquo;the National Household HealthExpenditure Survey revealed a steepgrowth of health expenditure arisingfrom out of pocket expenses of morethan 100% compared to Ministry ofHealth (MOH)’s s recurrent t

expenditure of Malaysian Ringgit(MR) 2.2 billion. MR2.8 billion wasspent on health by households, of which62.4% was spent at private facilities.This has proven that operatingexpenditure is on the increase, like forMOH increasing from MR157 millionin 1970 to MR4.9 billion in the year2002&dquo;. This does not include out of

pocket expenses by the consumersbuying medical services.

Situational Analysis

While the increase in health

expenditure is alarming, the recoveryis only 3 to 5% for MOH in spite ofthe heavily subsidized Fee Schedulewhich was ignored by consumers atlarge. Fortunately, the University ofMalaya (UM) Teaching Hospital andthe National Heart Centre (IJN) werecorporatised, and the charges havebeen revised and able to recover

charges and bills fully. The

government hospitals under the MOH,the Ministry of Defence (MINDEF)and Ministry of Home Affairs are notable to refuse treatment for patientswho do not comply payment charges.

Furthermore, the system offinancing is also biased towards publicsector employees, and their

dependants including their agedparents. They are only chargedminimal rates, far below the prescribedFee Schedule rates. The special ratesare based on employer-employeecollective agreements (General Order/Service circulars) which entitles themto obtain services at Government

hospitals and clinics, including atcorporatised institutions such as theUM Teaching Hospital and the IJN.The private sector employees and selfemployed also pay according to the FeeSchedule. In the private sector,separate fee for service and feeschedules are in place approved by theMalaysian Medical Association(MMA). The biggest difference is thegovernment employees and theirdependents enjoy the eligible classesof services even after their retirement,while the Employees Provident Fund(EPF) and Social Security Organisation(SOCSO) do not finance medicalassistance for the private sector

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employees during the retrenchmentperiod or retirement.

In the public and private sectorhospitals, the Fee Schedule and Feefor service is in force. Consultation,treatment and medication costs are

separately charged while hospitalservice costs which are nursing,classes of rooms/wards and food are

payable to the hospital authorities.As for outpatient services, the

public sector employees and theirdependants are exempted from anypayments, while private sector

employees and retired staff as well asthe self employed pay MR 1 per visitas well as follow up visits. Privateclinics charge a fee for service. Thepublic sector rates are community ratedcharges.

The Government had passed anAct in 1998, to regulate the

mushrooming private healthcarecentres, Day Surgery centres, nursingand maternity homes and clinics andhospitals. The Act includes validationof type of premises, scope of services,credentialing of the staffs deployed andstructuring of fee schedules for patientcare and hospital services.

The other financing source is theinsurance sector which is the third

party payers, and they reimburse forspecific illnesses only. They are riskrated. The private health insurance isstill in infancy stage, but groupinsurance schemes throughcooperative societies and employer-employee collective agreements coverscheduled illnesses for selected agegroups. The EPF as a third partypayer cover part payment for

catastrophic illnesses (sourced fromAccount III) which is limited to 10%of the member’s saving. The SOCSOcovers only employment relatedillnesses and accidents or traumas.Both EPF & SOCSO cease theirassistance when their members hadretired.

Therefore, in this context, anational health care financing schemebased on community rated premiumsis required to cater for the financingof medical services, both at institutionallevel, as well as day care/ambulatory,outpatient primary care/birthing andhospice centres. To enable thescheme to operate, the existinghealthcare delivery system under

MOH, its infrastructure, the tele-healthnetwork, and development plans whichare based on need and incremental

approach, and standardised facilitiesare aptly placed to be adopted andcontinued. The National RegistrationDepartment (NRD) has also

implemented the SMART CARD/MYKAD which will be useful in thiscontext to facilitate personal medicalinformation and sources of financing.The entire population is used to thenational health care delivery systemincluding the referral system.

The financing network for thePublic Sector through the FederalTreasury is also in place. The annual

budget for hospitals and outpatient/primary healthcare services is

adequately covered. The agreedsubsidies have been built in the FeeSchedule. The Public Sector’s financingnetworks need to be supported by acentralised HEALTHCARE FUND,where the GLOBAL BUDGET,subscriptions/premiums/and paymentsfrom third party organization such as theEPF, SOCSO, the private insurance, andthe cooperatives will have to beorganised to support healthcare needs.The self employed will also contributebased on means test on their income.Each contributor may establish aMedical Saving Account which theFUND operators under the Authoritywill manage.

In this context, the situation and

existing framework of health

administration, the infrastructure andexperience of MOH is adequately inplace to support and operate a nationalhealth services financing scheme. Thecurrent development, after twodecades of studies ranging fromfinancing, case mix/DRG studies,National Health Security Fund,morbidity and mortality surveys andhousehold health expenditure studies,and enactment of revised Acts to

regulate private health facilities andservices, puts the development of aNational Health Financing Authorityunder MOH as a Government entityin its appropriate position. This is acontinuum process towards optimisingthe advantages of operating a healthfinancing scheme which is affordableand controllable which contributestowards cost-containment and efficientuse of resources..

Healthcare Financing

a) In the public health sector it iswell planned, and well controlledthrough medium and long termplanning and financing. Themethod and networking hasdeveloped into a well structuredmature system from Central toState, District, Mukim and Villagelevel, as well as between urbanand rural sector. Planning anddevelopment of facilities andservices is supply induced.

b) Operating and Developmentbudget is nationally funded andcontrolled by the FederalGovernment and FederalMinistries and Agencies througha network at state and district

levels, and provide services. Theoptimum usage of services is

through a referral system whilecoverage has been achieved

(about 95%) through primary,secondary and tertiary levels ofcare.

c) Private sector medical services

system is well developed in urbanareas, but does not have an

organised referral system withinor outside its network.

d) Private health sector financing isthrough out of pocket basis basedon fee for service and by thirdparty payers who reimburseemployees.

e) Private Sector Development costis borne by the providersthemselves.

f) Distribution of private medicalfacilities is not well planned, andmarket forces control theirlocation and scope of services.

g) Scope of services is limited, basedon what is available against whatis demanded, and providerinduced.

Strengths of the Public HealthcareSystem

a) It is supply driven, greatlydemanded, well planned andfunded.

b) Affordable to all/ and policy ofnon refusal to provide treatmentwhich accommodates everybodyirrespective of affordabilityincluding foreign residents.

c) Comprehensive services through

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adequate facilities are equitablywell-spread between urban andrural sectors.

d) It is funded through CRAW withno additional pinch on tax payersincluding employees s and

employers, and the self employed.e) Highly subsidised fee schedule, with

little or r no co-payments s(particularly in rural areas).

f) Cost effective because ofintensive utilisation of allied healthprofessional staff who are thegatekeepers of all outlets in thesystem.

g) Government funding also coversthe military staff and their

dependents, the teaching hospitals,schools and universities, aboriginesand Malaysian diplomat personnelin overseas.

h) Staggered corporatisation andprivatisation process is in force toincrease efficiency in delivery.

Weaknesses s

a) Higher classes of inpatient careservices and class of ward facilitiesnot well spread, and thereforesecond and third class facilities areover utilised and over crowded.

b) Outpatient care is over utilised andmisused, where even the rich enjoyheavily subsidised care.

c) Outpatients and district hospitalfacilities well spread but underutilised: (Inter sector/state

disparities). Under utilisation ofhealth centres, and district hospitalsbetween rural and urban sector,because of i) Distribution ofmedical officers, specialists andspecialised diagnostic facilities andservices, and ii) By passingsyndrome

d) No subsidy on transportation cost.e) Little utilisation of insurance and

third party funding facilities likeEPF and SOCSO at Public Sectorfacilities.

f) Subsidised Fee Schedule exploitedby the private sector employersand employees who utilise publichealth sector facilities, therebydepriving public sector employeeneeds.

g) Consumer perception of quality interms of price and range ofservices between public/ privatesectors.

h) Employers preference and choiceof packaged healthcare for theiremployees

i) Employer/employee collectiveagreement for healthcare services.

Cost Escalation and Cost

Ballooning

a) Implications on labour cost andcost on the economic sectors as awhole.

b) Implications on overall medicaland health service cost vis a visthe country’s dependence onexport sector and its contributionto the GDP.

Increased Cost of Medical Servicesfor Reasons such as

a) Pharmaceutical’ production ofboth drugs and equipment still

imported.b) Privatisation of medical stores,

foreign workers health screeningand monitoring and hospitalsupport services.

c) Increased subsidy for publicsector employees and their parentshealthcare at public facilities aswell as the corporatised IJN andUM teaching hospital.

d) Cost escalation in maintenance of

hospital support services fullyborne by Government.

d) People’s expectation andadvances in medical technology.

Strengths of the Private HealthSector

a) Caters well for affordableconsumers

b) Facilities and services well spreadonly in urban areas.

c) Choice available based on

affordability and minimal waitinglist.

d) Fee schedule not controlled byGovernment.

e) Specialist services available evenwithout referral notes.

Weaknesses

a) No organised referral systemb) Poor have little or no accessibilityc) Rural population not well covered

by private health facilities.d) Facilities and services not

equitably distributed.e) Very much doctor centred, and is

therefore not affordable.

Financing Problems Encountered

a) Need to coordinate the chargingrates for healthcare services bothin the public and private sector ona standardised basis with a cappingformula to cover investment costand profits.

b) Private inpatients and outpatientscare as well as the GP care is

expensive, yet household healthexpenditure survey in 1996,showed higher levels of

expenditure.Misuse of Subsidies ... w

a) Rich patients over utilise outpatientservices and first class inpatientcare in the public sector.

b) Private hospitals refer patients topublic sector hospitals but payaccording to Fee Schedule 1982.

c) SOCSO instead of referring alltheir patients to their penal hospitalsand clinics, utilise public sectorfacilities and congest them.

-

d) Private hospitals continue totransfer poor inpatients to publicsector hospitals.

Government’s Predicament :’.’;. r

a) During 1950’s to 1980’s and early1990’s, economic growth couldspare MR 2 to 3 billion a year to

support the entire public healthservices of the country, with littleco-payment charged to theconsumers.

b) After 1983-84 global economicrecession, the demand for publicsector’s health provision increased,while the private health sectorattracted most of the experiencedpersonnel, leaving young doctorsand allied health professional staffto shoulder heavier responsibilitiesin the public sector.

c) The cost of healthcare in the

private sector was high but theperception of the people was forhigh quality compared to

government healthcare services.d) Underutilisation of clinics and

smaller hospitals all over in thecountry because of bypassingsyndrome led to wastage ininvestment and counter productiveto the public sector. However,subsequently, further developmentand upgrading of facilities and

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placement of specialists and seniormedical personnel led to overallincrease in healthcare cost.

e) Therefore, in 1983/84 a healthcarefinancing study was conducted.The study confirmed the costincreases, and recommended theestablishment of a National Health

Financing Scheme backed up by aNational Health Security Fund tofinance all consumers utilisingservices both in the public andprivate health sector.

f) In 1986 - 88 the feasibility studyto set up and manage a NationalHealth Security Fund and tooperate a national health financingscheme was conducted in 2

phases; however, the

implementation was deferred.g) In 1996 - 97, a national health

morbidity survey was completed.h) In 1996 - 99, a focussed study

encompassing the HouseholdHealth Expenditure (NHHES) wassuccessfully completed, whichrevealed heavy out of pocketexpenditure by consumers whichcould be put to better use if ahealthcare financing scheme wasin place.

i) However the Governmentcontinued to investigate andplanned for future healthcaredevelopment and financing.This decision was justified during

the Mid Term Review of 4‘’’ MalaysiaDevelopment Plan, which reportedthat the cost for financing medical andhealth services, particularly of patientcare services, had been increasingsubstantially. The rise in expenditurewas mainly due to the increasednumber people seeking treatment,costlier medical technology, changesin the pattern of diseases in the countryand the rising expectations of the publicon the quality of medical care services.These developments had to bereviewed against the background of theability of the country to finance thesubstantial growth in health

programmes. Increasing demand bythe public, therefore, would need to bematched by a greater willingness toincur the costs of enjoying more andbetter health services. Towards thisend, a health financing study wasundertaken by the Government toformulate an appropriate scheme for

financing medical and health services,commensurate with the level of

development and the socio-economicobjectives of the nation&dquo;.

Subsequently, the findings of thehealth financing study was approvedby the Government and in 1986-88, afeasibility study to establish the nationalhealth financing scheme and a healthsecurity fund (NHSF) to support thescheme was undertaken. The

feasibility study on the establishmentof the NHSF was continued during theperiod in order to determine its viabilityand practical application, the

acceptance of consumers towards thescheme, the basic package of healthservices and other componentsrendered, as well as the legal provisionto enforce and implement the NHSF,was also examined in detail.

Following those developments, itwas reported after the feasibilityanalysis on the proposal, to establishthe NHSF and the Scheme in order,&dquo;to increase the efficiency of servicesand to retain qualified and experiencedmanpower, the corporatisation andprivatisation of hospitals as well asmedical services would be undertaken

during the Plan period. TheGovernment would gradually reduceits role in the provision of healthservices and increase its regulatoryand enforcement functions. A health

financing scheme to meet health carecosts would also be implemented.However, for the low income group,access to health services would beassured through assistance from theGovernment. This was to take placein the form of global budget from theFederal Treasury to the proposedfinancing of NHSF under the MOHto finance the needs of the low-income

group. Therefore, the premium forlow-income group would be paidannually through the global budget. Inaddition, the global budget was alsoavailable to finance promotive,preventive and rehabilitative healthservices as well as public healthservices and manpower training,research and development.

Further to the above move, the

planning and development processreviewed the Private Hospitals Act,1971 to enable private hospitals toprovide comprehensive and affordablequality care, and facilities for all. This

Act was revised comprehensively,and passed in the Parliament in 1998,as Private Healthcare Facilities andServices Act, 1998 (Act 586),encompassing all clinics and

hospitals under the private sector tofall under the purview of the Ministerof Health to ensure quality, cost,licensing, credentialing of healthpersonnel and accreditation of healthfacilities. This aptly conforms to theconstituencies of the proposednational health financing scheme andformula which includes integration ofservices with standards and

guidelines to provide quality servicesfor value of money.

Presently, the 8,h MalaysiaDevelopment Plan (2001-2005) is

currently being implemented. In this

course, the Plan has outlined that&dquo;....... a suitable mechanism toinstitute and manage a healthcare

financing scheme will be implemented.This process will include the institutionof a national health account for thehealth sector as a whole, and theimplementation of commercial

accounting in all public hospitals&dquo;.Currently the implementation of theabove plan is underway. This has beenpartly achieved through a proposal toset up a National Health FinancingAuthority (NHFA) which will beappropriately placed as a mechanismto institute, operate, regulate andenforce implementation of the

financing scheme. The NHFA isproposed to be under the MOH, andnot to be privatised. The MOH, withhands on experience is the most

appropriate national agency to houseand implement the scheme. Parallelly,the national health accounts study isunderway which will beinstitutionalised under the proposedNHFA to take stock of all sources ofincome and expenditure, and draw upnational account balances for the healthsector on an annual basis. In the

meantime, to make public sectorhospitals accountable for the allocatedglobal budget expenditure, recovery ofbills, and production or balance ofaccounts, the commercial accountingprocess and its operation are underway. Therefore, all these processeswill put in place, an appropriate nationalhealth financing scheme for

implementation.

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Justification to Develop and

Operate a National HealthcareFinancing Scheme

The implementation of the

privatisation of the medical stores,pharmaceutical l supplies, themaintenance and operation of thehospital facility engineering services,biomedical equipment servicing, thelaundry and clinical waste disposalfunctions and privatization of themonitoring and screening the foreignworkers health and the corporatisationof UM Teaching Hospital and the IJNhad increased the overall operatingbudget for the public sector.

On the other hand, uncollectedhospital bills in public sector wasgrowing upwards. There was noincentive for the hospital accountingofficers to chase up and collect the

unpaid and unsettled bills. Even if therecovery was efficient, the collected billswill only account for 30% of the totaloperating cost. The subsidy for allclasses of inpatient services was highand the Fee Schedule was yet to berevised. On the other hand, theoutpatient patients were only chargedMR 1 per visit, and MR 5 for specialistclinics follow up visit. The foreignworkers who were admitted alsodefaulted in the settlement of bills, eitherby themselves or by their employers.

Therefore, instead of revisingevery aspects of billing, the collectionmethods and the recovery ratio, its wasopportune to overhaul the entiresystem by developing and installing afeasible national healthcare financingscheme and place it under the proposedNational Health Financing Authority,within the ambit of the MOH. Thisscheme is proposed to be financed bythe Federal Treasury (to continue toprovide a global budget to finance therecurrent expenditure) topped by thepremiums (to be set and collected)from all the employed and the selfemployed, and further topped up by theEPF(Account III), as well as part ofSOCSO contributions, and any thirdpayers such as the insurance agencies.The Proposed Model (Figure 1)

Enabling Legislation

The NHFA is to be established legallyby enactment of the Act of Parliament

Figure 1. The proposed model , ,

including its regulations. This willfacilitate smooth enforcement and

management.

Avoiding Abuses

Utilisation review protocols, comprisingof random checks of case notes to

capture problems such as over

utilisation, over prescription, andpractice of defensive medicine will beenforced. The enforcement of

protocols for Quality Assurance, Rightto Practice and Certificate of Needwill also be deployed to ensureequitable distribution of facilities andservices.

Diagnostic related group and casemix principles will be monitoredintensively to check charging rates byprofessionals for consultations,medication and treatment while

hospital and clinic authoritiesthemselves will have to institutesuitable mechanisms for their charges.

Composition of the NHFA (TheBoard Members)

To be reflective of the role of publicand private sectors, the providers, theconsumers including insurance and

pharmaceutical sectors, appropriaterepresentatives will represent in theBoard of NHFA.

Strengths of the Proposed NationalHealth Financing Scheme (NHFS)

The NHFS would help to integrate allsources of income and expenditurecarefully collected, managed andregulated, and allow all consumers toobtain services based on need andvalue for money. In the meantime, theservice providers both in the public andprivate sectors adhere to the agreedprinciples of DRG and case mix, thecharging rates, prospective andretrospective budgeting andreimbursement principles in distributionof allocation.

As for the consumers, they aresecured an accepted package ofservices, made available at the nearestauthorized clinic or hospital. Theclinics and hospitals under the purviewof the NHFS will be accredited andthe accreditation certificate would berenewed annually based an UR andQA protocol checks. This will ensuredelivery of quality care based on needand eliminate all forms of abuse and

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misuse of resources and services.Clinicians who wish to open up

new practices would obtain clearanceof the NHFA which will advice on

location, type of practice andreimbursement methods. The

practitioners would also be willing tofollow instructions and locate their

practices as advised because ofassurance of incentives and paymentsfor all cases attended to. Theconsumers will also be satisfiedbecause of their closeness to clinicsor hospital location be it the public orprivate sector, which meet their need.

External Factors

Globalisation, liberalisation of tradeand implementation of AFTA would

have their effects on healthcare

delivery, the healthcare system and itsfinancing. In the short term, the effectsneed to be evaluated and strategicplanning should be undertaken toaddress arising issues in the long term.

Private sector as the engine ofgrowth would continue to affecthealthcare financing. This would

particularly be focused on the healthinsurance market and free practiceoutside the purview of the NHFA.Therefore, standard form of feeschedules has to be in place forpurposes of monitoring.Conclusion

All factors analysed above would

justify the establishment and operationof a healthcare financing mechanismas the feasible option to financehealthcare needs for the consumers in

particular and secure a package ofservices for the affordable range of

payment in an accepted form ofhealthcare financing in Malaysia. Sincethe scheme and the proposed fundwould be in place within the ambit ofthe MOH, the NHFA would be vestedwith powers to guard and providequality services equitably, be it in publicor private sector. Above all, the publicsector is not a profit-making concern.On the other hand, the contributors ofpremium would continue to have astake in the decision making process.

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