KUALA LUMPUR (April 16): The government will implement the diagnostic-related group (DRG) payment system only for new basic health insurance and takaful products, instead of changing the entire private healthcare payment model, according to Hong Leong Investment Bank (HLIB) Research.
The DRG payment system is a method where hospitals are paid a fixed amount for each patient case based on diagnosis and procedures, no matter the actual treatment cost. The DRG payment model has been touted as the solution to escalating private healthcare charges and high medical costs.
In a note on the healthcare sector with a focus on the rollout of the DRG system, the research firm said it was positive on the targeted implementation of DRG as it widens access to people who are currently priced out of existing insurance and takaful plans, while preserving the commercial viability of the private healthcare sector.
An earlier plan announced in December 2024 required amendments to Private Healthcare Facilities and Services Act 1998 (Act 586), to replace the current fee-for-service model with DRG-based payments.
“Those who can afford comprehensive coverage are likely to retain their existing plans to access premium benefits and branded hospital networks, rather than being limited to mid-priced or non-profit providers,” HLIB Research said.
Health Minister Datuk Seri Dr Dzulkefly Ahmad explained in a column in the March 24 issue of The Edge Malaysia weekly that the new basic health insurance and takaful products mooted by the ministry, Bank Negara Malaysia and Employees Provident Fund (EPF) will serve as default options for Malaysians seeking access to private healthcare.
While available to all, the plans will primarily target private sector employees and will adopt the DRG payment model for provider reimbursement.
The scheme will leverage an extensive provider network, including mid-priced private hospitals, non-profit hospitals, and Rakan KKM facilities.
HLIB Research expects participation by mid-priced private hospitals to be voluntary, as there are currently no legislative changes planned for Act 586 to mandate involvement.
The firm said that from a financing standpoint, Malaysians will be able to use savings from their EPF Account 2 to purchase these plans through the existing i-Lindung platform.
The implementation timeline, however, has not yet been announced.
According to HLIB Research, which engaged Malaysia’s first Professor of Health Economics University Kebangsaan Malaysia Professor Datuk Dr Syed Aljunid in March to share his expert insights on the DRG system, Malaysia has already developed a DRG grouping logic that is tailored to the country’s healthcare needs.
The development of Malaysia's MY-DRG system began in 1995 with a research team from the Ministry of Health (MOH), Universiti Kebangsaan Malaysia (UKM), and other universities.
By 2002, the system was completed, with the UKM Medical Centre becoming the first hospital to adopt it. In 2010, the MOH launched its own MyCasemix System (MyCMX) in six public hospitals, expanding it to all 149 MOH hospitals by 2023.
While similar to MY-DRG, MyCMX focuses only on inpatient acute cases, while MY-DRG covers outpatient, sub-acute, and chronic conditions.
The MyCMX system is used mainly to monitor hospital efficiency rather than for budgeting or payments.
However, the MOH still relies on a historical budgeting approach due to limited digital infrastructure, with only 14.7% of public hospitals having electronic medical records as of January 2025, which can lead to potential data errors in DRG classifications.
HLIB Research has an ‘overweight’ call on the healthcare sector for this year, with a preference for the hospital segment.