KUALA LUMPUR (Sept 19): Sunway Healthcare Holdings Bhd, which is seeking a listing on the Main Market of Bursa Malaysia to fund an expansion worth over RM1.6 billion, has flagged a major regulatory risk — the impending diagnosis-related group (DRG) payment model, which threatens to cap revenues from high-cost procedures that underpin its profitability.
The system, the government's plan to overhaul the private healthcare billing system, could reshape revenue models for private hospitals, it warned in its draft prospectus filed with the Securities Commission Malaysia.
Under the DRG framework, hospitals would be reimbursed based on predetermined amounts tied to diagnosis categories and medical needs, regardless of actual treatment costs. This differs from the current fee-for-service system, under which private hospitals bill patients or insurers according to the actual procedures, treatments and resources used.
The Ministry of Health had initially targeted a mid-2025 rollout, but the implementation has been delayed to 2027 to allow time to finalise the cost model, develop the DRG algorithm and build an integrated hospital information system, with pilot tests to be conducted beforehand.
Sunway Healthcare said the system, aimed at enhancing price predictability and controlling rising healthcare costs, could add compliance obligations, increase operational costs and most critically, cap revenue from complex, high-cost procedures.
Talent shortage, rising costs and heavy reliance on Sunway Medical Centre
The prospectus also revealed a web of other structural challenges that may affect the growth of the group, which is aiming to more than double its capacity to over 3,400 beds by 2032.
These include dependence on attracting and retaining doctors and nurses amid a nationwide talent shortage, with over 90% of its 457 consultant specialists engaged as independent contractors rather than employees.
Sunway Healthcare also remains heavily reliant on its flagship Sunway Medical Centre in Subang Jaya, which accounted for 71% of group revenue and 74% of profit in 2024. Any disruption at the flagship hospital, whether operational, reputational or regulatory, would have a disproportionate impact on its earnings.
Besides that, the group carried RM1.59 billion in borrowings as at June 30, 2025, and faces rising costs for pharmaceuticals, medical consumables and construction materials. A weak ringgit, coupled with exposure to imported medical supplies and equipment, may add further strain.
Beyond DRG, Sunway Healthcare must also contend with regulatory reforms such as price display rules for drugs, new co-payment features in insurance products, and the extension of sales and service tax (SST) to services for non-Malaysian patients from July 2025, which could dent the medical tourism segment.
Nearly half of its revenue is paid through private insurance, with the top three insurers alone accounting for over 40%, leaving the group highly exposed to pricing negotiations and policy changes.
Sunway Healthcare has filed for a Main Market listing to fund its RM1.6 billion expansion drive, which includes a RM766 million 401-bed hospital in Iskandar Puteri, Johor, and upgrades to existing facilities costing nearly RM850 million.
The IPO, which offers up to 17% in the group to investors, involves an institutional offering of 1.63 billion shares and a retail offering of 345 million shares, with pricing to be determined later.
Existing shareholders Sunway Bhd (KL:SUNWAY) and Singapore’s sovereign wealth fund GIC will be selling part of their existing shares via the listing, with GIC's 16% stake in Sunway Healthcare being trimmed to 7.5% post-IPO.