The risks you face in ‘commoditising’ healthcare


With the growing need for a more efficient healthcare system to ensure sustainable economic growth, technology-enabled care solutions may help fill the gap.

With the growing need for a more efficient healthcare system to ensure sustainable economic growth, technology-enabled care solutions may help fill the gap.

Countries around the world have recognised the need for a robust healthcare system for sustainable growth and development. Recent data shows that the US spends about 17.2% of its GDP on healthcare, while the average spending by Canada, Germany, Australia, the UK, Japan, Sweden, France, the Netherlands, Switzerland and Denmark was around 10.7% of their GDP in 2016.

Meanwhile, the average healthcare expenditure by emerging markets is about 6% of GDP. Malaysia’s healthcare spend is around 4% of GDP in 2015. The drivers for higher healthcare expenditures are an increasing population, longer life expectancy and growing affluence, which create long-term demand for higher quality healthcare.

The private healthcare system is likely to benefit more than the public healthcare system.

Demand for private healthcare will expand as a rising uptake of private insurance improves the affordability of the more advanced medical procedures available in the private healthcare system. At the same time, a greater number of price-sensitive medical tourists, who may be attracted by the fact that Malaysia’s prices are lower than those of its main competitors, are flowing in.

Medical costs are expected to rise further across the globe. The average global medical inflation should increase by 7% to 7.5% in 2018 from 6.8% in 2017, way higher than average headline inflation projected at around 3.1% in 2018 from 2.8% in 2017. Expectations are that the medical costs would remain on an upward trend going forward.

There seems to be no light at the end of the tunnel for now.

Upwards pressure on medical costs comes from:

* rising administrative costs which account for about 25% of total cost; > unreasonable high drug costs; > doctors adopting defensive medicine to avoid getting sued by ordering multiple tests despite knowing the diagnosis for certain; > costly mix of treatments like heavy utilisation of specialists and technology such as MRIs, mammograms, etc; and > prestigious brand medical institutions that tend to name equally “prestigious” prices.

Higher medical costs are also driven by:

* aging baby boomers with more health needs > social and lifestyle factors like economic stability and education which influence utilisation patterns and care; > poor lifestyle habits that fuel poor wellness and prevention habits; > new medical technology and innovation to improve outcomes and patient satisfaction; > specialty drugs and gene therapies (though used on a small segment of the population, still fuels costs); and > the move from social healthcare programmes to employer-sponsored healthcare which raises employers’ costs and complexities with lower employee productivity.

The healthcare inflation in Malaysia on average is the highest in the Asia-Pacific region, followed by India, China, Taiwan and Thailand, implying higher healthcare costs. Malaysia’s medical inflation is on the rising trend and is projected to hover around 10% – 15% going forward.

In 2018, the forecast medical inflation is around 13.2% from 12.6% in 2017, compared to 2018’s headline inflation projected at 1.5% (3.8% in 2017). Hence, the net medical cost after deducting the headline inflation is 11.7% in 2018 (8.8% in 2017).

Question of affordability

Despite rising healthcare costs, the healthcare industry will be one of the top growth sectors in Malaysia going forward. Part of the reason is that it is driven by the rising affluent class and a growing upper middle income population who have better private health insurance coverage with an increasing demand for better healthcare services.

Besides, Singapore, the leader in the Asia-Pacific region and once a favourite among medical tourists, is facing stiff competition due to rising costs and demand from Thailand and Malaysia.

In the case of Malaysia, medical tourists predominantly are from Indonesia with the rest from Bangladesh, China, India, Japan, the UK and increasingly the Middle East (Saudi Arabia and the UAE).

The broad availability of halal food, halal medicine and treatments, and prayer spaces give Malaysia an edge over Thailand when targeting the Middle Eastern market. Also, government-to-government agreements have been signed with Kazakhstan, Libya and Oman to send patients to Malaysia.

In 2017, Malaysia’s total healthcare industry spending was RM52bil, and is projected to reach about RM80bil by 2020. Rising demand for healthcare services, emergence of new care models beyond traditional hospital settings, and increased consumer sophistication in relation to healthcare related technologies are the key drivers.

However, rapid development in technology presents both challenges and opportunities to industry players, including pharmaceuticals, diagnostics, medical technology manufacturers, digital health vendors and healthcare service providers. Healthcare companies need to have a technology strategy. Areas of investment they can consider are supplement technology to support their resources to do things more efficiently, investment on human resources to train employees to work with the new technologies and investments in reaching out to consumers.

From a revenue point of view will be on pharmaceutical and biotechnology industry and followed by medical devices and patient monitoring. In the meantime, there are doubts on the affordability of private healthcare for the general population. The present model appears to benefit those in the upper-middle income, the affluent and medical tourists.

The less privileged still rely on public medical care which is their backbone. Private healthcare is increasingly turning into a “commodity” – one that is supported by the society that can afford to buy it.

On that score, income plays a key role in determining the ability of an individual to spend on private healthcare. This means there is a growing risk for the gap to widen between the lower-middle income group and those in the upper-middle income and affluent bracket.

Those in the lower-middle income bracket remain vulnerable due to their limited ability to save and be prepared for rainy days.

For this lower-middle income bracket group of people, affordability will be the key factor in all their decision making to spend which includes spending for private medical treatment. Owing to the high opportunity cost in seeking private medical attention, they tend to delay their visit until the symptoms of the illness become chronic. Under such circumstances, seeking a quick treatment from private healthcare will inflate their medical bills which in turn will drain their already weak finances, and drag their work productivity. The situation worsens if they are from rural areas where accessibility to private healthcare is limited since it is mainly concentrated in urban areas.

Ensuring equitable access

Our hybrid health system provides healthcare coverage and outcome levels that approach those of OECD countries. Public healthcare is heavily subsidised and paid for through taxes and government bodies, including the Health Ministry and other federal agencies.

The government’s provision of healthcare services takes into account of both primary care and some advanced tertiary care treatments like heart surgery and patented drugs for cancer treatment.

However, some of these treatments are rationed due to their high costs.

Thus, the accessibility to more advanced care has therefore driven the demand for private healthcare services financed with a combination of out-of-pocket (OOP) payments and private insurance, as high spending on medical bills can lead to financial ruin for some patients with chronic illnesses.

Additionally, private insurers may also limit coverage for patients due to their age or to pre-existing conditions, thus placing the burden of healthcare costs squarely on these individuals.

Growing technological innovations in healthcare as well as healthcare trends, which resulted to rising healthcare inflation, suggest that the focus is leaning towards those beyond the affordable level. As such, it is time to look into a strong potential market in the growing lower-middle income bracket that requires assistance in prioritising health and containing the rising healthcare costs.

Insurers are currently selling the advantages of private medical plan, arguing that government hospitals are unable to cope with the overwhelming number of patients. However, not everyone can afford to subscribe a private medical plan. One way is to introduce social health insurance to ensure that people across all economic groups have equitable access to healthcare. It would act as a social safety net, particularly in ensuring quality medical treatment for the elderly and those with lower incomes.

However, the barriers to this would be insufficient government spending on public healthcare and the number of medical professionals.

With the growing need for a more efficient healthcare system to ensure sustainable economic growth, technology-enabled care solutions may help fill the gap. The use of mobile technology to overcome infrastructure and technical barriers in fragmented healthcare systems, and connect pharmacies, physicians and patients, will be good.

Users of this platform could enjoy discounts on medication, have a better haunderstanding of their health conditions and receive reminders to refill prescriptions. It will help improve their medical observance and health outcomes.

The regulatory role of the government should be strengthened further to create an environment that takes into account efficiencies in the healthcare and discourages abuses by commercial entities that resort to maximise profits.

Clear rules of accountability, transparency and governance have to be put in place to ensure that standards are maintained, conflict-of-interest issues are checked and that healthcare continues to remain accessible to everyone.

Anthony Dass is the group chief economist of AmBank.

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