When TPAs start telling doctors what to do

While TPAs ease the processes of administering health benefits between various stakeholders, incentivising them to manage medical costs aggressively is starting to interfere with doctors’ decisions for their patient’s health.

Third-party administrators (TPAs) sit in an increasingly powerful – and increasingly scrutinised – position within Malaysia’s private healthcare ecosystem.

They are not insurance companies: they do not underwrite risk, price premiums or sell policies.

Instead, they manage the operational machinery of health benefits on behalf of insurers, takaful operators and corporate employers.

Their work includes processing claims, issuing guarantee letters (GLs), adjudicating bills, negotiating provider networks and running cost-containment programmes.

In theory, this division of labour is sensible.

Insurers focus on product design and capital management; TPAs specialise in operations and cost control.

In practice, the boundaries between financial management and clinical influence have begun to blur.

Headlines over the past few months have highlighted serious concerns among clinicians and patients that TPAs are intruding into medical decision-making, dictating how doctors should treat patients and using administrative tools to override clinical judgment.

The debate is not merely administrative.

It touches the core of the patient experience, i.e. who ultimately decides what happens when someone is in pain, in crisis or on an operating table.

How TPAs operate

A TPA’s revenue structure differs fundamentally from that of insurers.

While insurers earn premiums and shoulder underwriting risk, TPAs are typically paid administrative fees, either per member or per claim.

Some TPAs in Malaysia have moved beyond flat administrative fees and are increasingly incentivised to manage medical costs aggressively, raising concerns that cost-containment objectives may influence clinical reimbursement decisions.

This might include challenging codes (i.e. the classification of a medical condition), revising charges, recommending cheaper options or auditing for perceived overuse.

This kind of incentive can be problematic.

A model where profitability improves when claims are reduced or denied, risks creating a financial motive to intervene in treatment or impose hurdles on clinicians.

Instead of purely assessing whether a bill aligns with policy terms, some TPAs may be tempted to influence how care is delivered in the first place.

When properly managed, TPAs are beneficial.

They bring administrative efficiency and economies of scale.

They allow insurers and employers to offer “cashless” admissions, streamline GL issuance and ensure consistent claim processing.

They also help reduce fraud, negotiate tariffs with providers and generate data analytics on utilisation trends.

These contributions are not insignificant.

With medical inflation continuing to rise and premiums under pressure, TPAs provide important infrastructure that helps keep private coverage accessible.

TPA controversies

The problem arises when cost containment becomes clinical interference.

In Malaysia, several recent cases have heightened anxieties.

Professional bodies, such as the Malaysian Medical Association (MMA), strongly criticised a circular issued by a TPA instructing healthcare providers on the choice of anaesthesia and the classification of certain procedures as either day care or inpatient cases.

Clinicians argued that such directives oversimplify complex medical decisions and risk patient safety.

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Similarly, concerns were raised over a TPA’s instruction requiring doctors to prescribe chronic medications using only generic names.

This is a move doctors perceived as enabling backdoor substitution and overriding professional judgment (it is worth noting that this is not an argument against the use of generics, but rather against a blanket rule dictating choice of medication as opposed to tailoring treatment to an individual patient).

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Doctors have also reported GL delays and sudden revocations or denials for what they consider medically necessary investigations or treatments.

Some oncologists have described cases where life-prolonging cancer medications faced administrative pushback despite international guidelines supporting their use.

This issue is not unique to Malaysia.

In the United States, several high-profile lawsuits allege that large insurers used algorithmic tools to deny claims at extraordinary speed.

For example, the American multinational insurance company Cigna faces a class action lawsuit claiming its PxDx system denied more than 300,000 claims in a two-month span, averaging just 1.2 seconds per review.

Meanwhile, UnitedHealth, also an American multinational insurance company, is under scrutiny for its nH Predict algorithm, developed by its now-subsidiary NaviHealth.

The complaint says nH Predict had a 90% appeal-reversal rate, suggesting substantial error in coverage decisions.

These cases illustrate a global trend: financial intermediaries increasingly use data, algorithms and administrative levers to influence care in ways that may not align with clinical best practice.

Regulator response

These controversies have triggered strong reactions from Malaysian authorities.

Bank Negara Malaysia (BNM), which regulates insurers and takaful operators, but not TPAs directly, has emphasised publicly that insurers and TPAs are not authorised to direct clinical care.

Their role, BNM stressed, is limited to assessing claims against policy terms and accepted treatment guidelines.

The central bank has called in insurers and TPAs to explain allegations of interference, including GL denials, restrictions on investigations and attempts to dictate treatment modalities.

BNM has also supported the reactivation of a health-insurance grievance committee to give patients and providers a formal avenue for dispute resolution.

ALSO READ: When patients need to complain

The Health Ministry (MOH) has been even more explicit.

The Health director-general warned that payers who interfere with clinical decisions may be in breach of the Private Healthcare Facilities and Services Act (Act 586).

Clinical decisions, MOH stated, must remain the sole responsibility of licensed medical practitioners, and financial entities have no authority to impose clinical directives.

The Finance Ministry reinforced this in Parliament, clarifying that insurers and TPAs have no power to make patient-care decisions.

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These signals are unambiguous.

Yet, they also highlight a regulatory vacuum: TPAs sit in a space central to private healthcare operations, but are not formally regulated as healthcare entities, nor subject to the same transparency and accountability frameworks as insurers.

Fixing the system

Malaysia now has an opportunity to realign the industry before mistrust deepens.

First, TPAs need to be placed on a clearer regulatory footing.

A licensing and oversight framework jointly developed by BNM and MOH should set standards for governance, mandate transparency and explicitly prohibit clinical directives.

TPAs should not determine anaesthesia choices, prescribing patterns or treatment modalities.

Second, incentives must be redesigned.

Contracts that reward TPAs purely for reducing bills risk distorting behaviour.

Instead of emphasising savings, fee structures should incorporate service-level standards, turnaround times, appeal-resolution quality and provider satisfaction.

Third, transparency must be strengthened.

Insurers and TPAs should be required to publish data on GL denials, delays and appeals, as well as the proportion of denials overturned.

Sunlight would help distinguish responsible actors from problematic ones.

Fourth, grievance mechanisms need to become truly independent.

A health-insurance ombudsman, with representation from regulators, providers and patient advocates, could help resolve disputes more fairly and consistently.

Finally, clinical autonomy must be protected in law and contract.

No financial intermediary – whether an insurer or a TPA - should be allowed to overrule a doctor’s professional judgment within accepted clinical standards.

TPAs were created to ease the system, not distort it.

They can continue to play a valuable role, but only if their incentives, authority and accountability are properly aligned with the fundamental purpose of healthcare: to serve the patient, not the balance sheet.

Dr Helmy Haja Mydin is a consultant respiratory physician and Social & Economic Research Initiative chairman. For further information, email [e-mail]. The information provided is for educational and communication purposes only. The Star does not give any warranty on accuracy, completeness, functionality, usefulness or other assurances as to the content appearing in this column. The Star disclaims all responsibility for any losses, damage to property or personal injury suffered directly or indirectly from reliance on such information.