This article first appeared in The Edge Malaysia Weekly on October 21, 2024 - October 27, 2024

Funding for Malaysia's healthcare system is currently under significant strain, with annual medical inflation rates of 12%, one of the highest in Southeast Asia. In July 2024, in response to the systemic issue of high medical inflation, Bank Negara Malaysia introduced new co-payment regulations, while the health minister has urged private hospitals to explore pay-for-outcomes models.

“Pay-for-outcomes” is part of a larger framework called “value-based healthcare”, or VBHC. In this article, we examine VBHC as a partial solution to medical inflation, explore best VBHC practices globally, and propose how to implement VBHC in Malaysia to improve patient outcomes and manage costs effectively.

Traditionally, private healthcare in Malaysia operates on a fee-for-service (FFS) model (doctors are paid for each service they perform). In this FFS model, doctors and hospitals are incentivised to increase clinical activities, rather than quality and cost-effectiveness.

VBHC takes a different approach. At its core, VBHC shifts the focus from the quantity of services to the quality and effectiveness of services. VBHC defines “value” as the “outcomes experienced by patients compared to the costs of achieving those outcomes”. In other words, VBHC is “pay-for-performance” instead of “fee-for-service”. The four key principles of VBHC are:

•     Patient-centric care: VBHC puts the patient at the centre of healthcare decisions, ensuring that care aligns with their needs and preferences;

•     Integrated care delivery: VBHC incentives and systems are arranged to better coordinate doctors, nurses, pharmacists and other healthcare providers to work in a "one patient, one team" model. This is in contrast to the currently fragmented model where doctors, nurses, therapists, pharmacists and other professionals are not systematically working with each other;

•     Outcome measurement: VBHC systematically collects and analyses data on patient outcomes; and organisations such as the International Consortium for Health Outcomes Measurement (ICHOM) offer standardised frameworks to measure outcomes, ensuring consistency and comparability between doctors, hospitals and countries; and

•     Higher rewards for better outcomes: VBHC payments reward high-quality service and good outcomes. In contrast, fee-for-service models encourage more volume of services without necessarily increasing quality, while capitation models may lead to undertreatment.

The transition to VBHC in Malaysia presents three unique challenges. One, shifting from FFS to VBHC requires a significant change in mindset, processes and financial arrangements between healthcare providers, payers and regulators. In other words, the legal and administrative processes must change for the entire health system, although the process can be gradual, over five to eight years instead of one sudden Big Bang.

Two, shifting from FFS also requires upfront investments in health information systems to collect and analyse data on outcomes and support new payment structures. These new health information systems are more complex than “just electronic medical records”, as VBHC requires new methodologies and frameworks to capture cost data, time-stamps data, diagnostic-related groups, patient-reported outcomes and standardised clinical outcomes.

And three, regulatory support is essential to establish new standards for outcomes measurement. Currently, there are several imperfect ways to measure “did a patient recover from an illness” and “did a patient receive high-quality care”. To measure quality, we can use clinical measures (such as “X-ray shows that pneumonia has resolved”), process measures (such as “less than 10% of patients are readmitted within seven days after a surgery”) or patient-reported outcomes (such as the Health-Related Quality of Life questionnaire). Everyone must mutually agree on what common standards will be used, and it is easy to see how insurance companies, doctors, patients, health economists and regulators will immediately have different views.

Working hard to achieve common standards is worth the agony, because the potential benefits of implementing VBHC are substantial. First, by focusing on prevention and chronic disease management, VBHC can enhance healthcare quality and patient outcomes, particularly in addressing the prevalent non-communicable diseases (NCD) in Malaysia. Second, by linking payments to outcomes rather than services rendered, VBHC can mitigate risks of fraud, waste and abuse, encouraging efficient resource use and accountability. Third, a long-term focus on health outcomes can encourage preventive care and better management of chronic diseases, resulting in a healthier population. Finally, VBHC can foster the development of new and more effective treatments, technologies and healthcare delivery models, as providers are motivated to achieve better outcomes.

Several successful VBHC models from around the world may provide valuable insights for Malaysia:

ChenMed in the US is a senior-focused primary care network, established in the 1970s. It operates under a global capitated payment model with tiered reimbursements based on patient risk levels. ChenMed focuses on preventive care and chronic disease management for underserved populations. In 2022, the network achieved impressive outcomes, including a 30% to 50% reduction in hospitalisations, 22% fewer strokes and a 70% drop in heart failure admissions. Patient satisfaction rates are in the 90th percentile, highlighting how VBHC effectively rewards keeping patients healthy and out of the hospital.

Diabeter in the Netherlands is a specialised clinic network for Type 1 diabetes in the Netherlands, operating since 2006. It uses a bundled payment model that covers all care costs over a set period. Diabeter’s multidisciplinary teams are held accountable for patient progress, driving better outcomes. Fifty-five per cent of patients under 18 years old maintain HbA1c levels below 7.5%, compared to the national average of 31%. These results showcase the clinic’s success in providing superior diabetes care through its innovative payment model.

Santeon is a network of seven teaching hospitals located in the Netherlands, founded in 2010. Through value-based contracting, it has improved patient care and generated financial savings. By implementing pay-for-performance and bundled payment contracts with health insurers, Santeon enhanced outcomes while reducing costs. Between 2017 and 2019, it earned an additional €1.8 million in income, with 22% from meeting value-based KPIs and 78% from increased patient volume via performance-based adjustments. This demonstrates Santeon’s effective use of VBHC to drive improvements.

Closer to home, Singapore’s HealthierSG is a VBHC initiative launched in July 2023. It focuses on preventive care and chronic disease management, with family doctors coordinating each patient’s care. Family doctors work with a network of specialists, nurses and other providers to ensure seamless healthcare delivery.

The three main lessons from these success stories are a gradual approach (rather than a dramatic Big Bang), a strong health information system that tracks metrics and outcomes, and innovative adaptations of VBHC principles to each unique country and circumstance.

We recommend four practical steps to get VBHC started in Malaysia. First, the Ministry of Health (MoH) could lead the setting up of a working group focused on improving patient outcomes through more integrated care, working with public hospitals, private clinics, insurers and patient advocates. This group should work on aligning goals, improving access to preventive care and ensuring healthcare providers focus on long-term results. This will require investment in expertise, funding for pilot projects and strong government backing.

Second, MoH and private hospitals can implement pilot projects that focus on preventive care for chronic conditions such as diabetes or high blood pressure. These projects should focus on getting different healthcare providers to work together as teams and incentivise them to focus on keeping patients healthy over the long term. To make this work, we will need good data systems, training and community outreach.

Third, all hospitals and clinics can build additional modules for their existing health information systems (instead of replacing them with brand-new systems). Monitoring and tracking metrics is important, with regular evaluation of pilot projects based on real-world results helping to identify potential ideas that can scale nationwide.

Finally, centres of excellence such as the US Center for Medicare and Medicaid Innovation, Sweden's SVEUS and Singapore’s MoH Office of Healthcare Transformation offer valuable lessons in setting up dedicated agencies for VBHC initiatives. Malaysia, too, may use our own agencies such as the Health Transformation Office and ProtectHealth supported by Malaysian Health Technology Assessment Section (MaHTAS) to explore new payment models and enhance public-private partnerships.

It is important to recognise that VBHC is not a singular, all-or-nothing proposition, requiring large-scale transformation efforts. It is a collection of principles and practices that can be implemented gradually and tailored to different settings, allowing healthcare providers, payers and policymakers to start small and scale over time.

Of note, IHH Healthcare Malaysia has a Value-Driven Outcomes (VDO) initiative that involves establishing performance metrics for each procedure, including adherence to clinical guidelines. This initiative has led to better outcomes. For example, in its colonoscopy procedures, IHH reports a 50% polyp detection, with an adenoma detection rate of 27%, exceeding international benchmarks of 40% for overall polyp detection and 25% for adenoma detection (disclosure: none of the authors work for IHH or hold IHH shares).

Value generation in healthcare is about achieving optimal health outcomes while managing costs. Embracing VBHC offers Malaysia the chance to transform its healthcare system, ensuring every ringgit spent delivers real value. By focusing on patient outcomes, VBHC promises better care, enhanced satisfaction and reduced costs, leading to a more sustainable and effective healthcare system.

Dr Na Wei Lun has a Master's in Healthcare Management and is completing a Doctorate of Business Administration (DBA). Dr Ginsky Chan has a Master of Public Health. Dr Roslina Abdul Manap is a chest physician and scribe of the Academy of Medicine Malaysia. All three are Certified VBHC Greenbelts by VBHC Center Europe. Dr Khor Swee Kheng is CEO of Angsana Health and specialises in health systems.

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