Controlling rising healthcare costs is not a magic solution


  • Vital Signs
  • Thursday, 12 Sep 2019

IF we imagine the Federal Budget as a family budget, we can learn some common-sense lessons from Malaysian families.

When facing financial constraints, families will combine four steps: guarantee a steady income, control costs, try to get more value for any spending, and raise more income.

In a previous article, we’ve already guaranteed a predictable multi-year funding for the Health Ministry (MOH).

Now we’ll look at ways to control healthcare costs in Malaysia through three Cost Control columns, to help the rakyat manage costs.

To begin, the over-arching aim is affordable healthcare access and not controlling costs in itself.

Cost control is only one lever to achieve affordable access, and it’s not even the best or most important lever.

We must also reform the health system organisational structure, improve the payment mechanisms for hospitals and doctors, implement strategic purchasing, and so on.

Controlling costs may be emotionally and politically satisfying, because we have a “common enemy” to blame.

If public debate focuses only on controlling costs however, we’ll lose other options that are more effective and sustainable.

Cost controls alone will see Malaysia forever playing catch-up, because rising costs – like death and taxes – are inevitable in our world.

With all that being said, appropriate cost controls are still a crucial policy instrument, and this week, we’ll explore the causes of rising healthcare costs, provide helpful context, and examine why rising costs may not be a completely bad thing.

This sets the stage for a basket-of-solutions to reduce unnecessary healthcare demand and to control costs where it’s most impactful.

Many causes and costs

Malaysia’s rising medical costs are multi-factorial: a bigger, older and sicker population consuming more healthcare.

More healthcare is defined as higher “care intensity” (e.g. more services and medicines) and higher “cost intensity” (e.g. more expensive services and medicines). In the Cost Control series, we’ll discuss mostly cost intensity.

In the lived experience of the rakyat, there are four main complaints about cost intensity: three relating to the private sector and one to the public sector.

In the private sector, the rakyat grouses about expensive private hospital bills, medical insurance premiums and cost of medicines.

In the public sector, unsubsidised medicines and devices hit the “sandwich class” badly.

Each of these four complaints has its own set of causes.

Let’s imagine a patient’s journey. After being diagnosed with a disease, a patient is usually prescribed medical (e.g. biologics injections), surgical (e.g. laparoscopic surgery) and/ or non-medical (e.g. physiotherapy or special diet) treatments, all of which are costly.

There are other indirect costs, like transportation to the hospital or childcare. The patient may need to take time off work (absenteeism) or work less efficiently despite being physically present at work (presenteeism), leading to lower income.

Patients may also have medical insurance for which they have been paying monthly premiums.

That illustrative journey gives us the cost categories. A non-exhaustive list consists of fees to the doctor and other healthcare professionals, hospital charges for overnight stays, payments for blood tests and scans, payments for medicines (to the manufacturer, distributors, middle-men and agents), indirect costs, and so on.

All this may be mitigated by insurance claims (if the patient has personal or company insurance), but is aggravated by loss of income if they are self-employed or run out of paid leave days.

Despite the multitude of cost categories and all the rhetoric about cost controls, the government is only controlling private doctors’ fees.

The Private Healthcare Facilities and Services Act 1998 specifies standalone general practitioner fees in Schedule 7 and specialist fees in Schedule 13, but they were last amended in 1992 and 2013 respectively.

There has been recent talk about including a price cap on medicines, but no implementation mechanism has been proposed.

Any mechanism would be mathematically difficult to calculate, administratively difficult to enforce, and is already being challenged by pharmaceuticals, pharmacies and private hospitals; so it is unlikely to even come to pass.

Let’s set aside the fact that cost controls are implemented on only one category (physician fees), and ignore its effectiveness and fairness.

It’s hard to imagine that the government would be able to control all possible categories of healthcare cost. The administrative complexity of such an undertaking would require another 1.6 million civil servants!

We need better solutions.

The context of costs

Before proposing solutions, we must understand five contexts to cost control.

Firstly, the over-arching aim is Universal Health Coverage (UHC), which means that everyone should get the care they need without going bankrupt.

That doesn’t mean that we have a right to the most expensive and latest technologies possible, and it doesn’t mean completely free healthcare.

Also, cost control is only one tool to achieve UHC, not the target itself.

Secondly, the discussion on controlling healthcare costs generally focuses on the private sector in Malaysia, specifically private hospital bills and medical insurance premiums.

The public sector is not immune though, with the sandwich class paying for some medicines (like cancer therapies) and devices (like stents) because the public system simply cannot afford to provide these items for free.

Thirdly, cost control is predictably sensitive. Too much control on the private sector and the government will be accused of being insensitive to the plight of doctors or “not business-friendly enough”.

Too little control, and the government is accused of not caring for the rakyat or profiting from its indirect ownership of private hospitals.

Fourthly, the government must try to control all the multiple categories of rising costs. Missing one category will invite profiteers and rent-seekers.

Inevitably, each of these categories has its own vested interests and lobby groups, and “blames” the other categories for rising costs.

Finally, underlying these micro-decisions are the Big Questions of Society.

Examples include the role of the State vis-à-vis the private sector – if we should allow profit-making in healthcare and by how much, the right level of interventionism, and which instruments to use (e.g. structural reform, policies, laws or budgets).

Answering these macro-questions make our micro-decisions coherent, not knee-jerk reactions.

Not a magic solution

Controlling costs is mostly desirable, yet it is not a magic solution to achieve affordable healthcare access. There are limits to cost controls, no matter how effective they are.

Firstly, volume and demand are as big a problem as unit costs.

Imagine if we force the price of a medicine down from RM300 to RM100 per dose. Instead of (correctly) prescribing to one patient, a doctor may just (unnecessarily) prescribe it to three patients just to make ends meet.

Multiply this scenario across all cost categories, and it’s clear that we must address demand and volume too.

Secondly, no matter how well-intentioned, cost controls are very blunt instruments. They can be arbitrarily set, reviewed too infrequently, and endanger healthy competition.

The government self-imposes administrative and enforcement costs, and imposes often-unnecessary compliance costs, especially to small-and-medium enterprises (SMEs).

Cost controls are also out of MOH’s expertise and enforcement, requiring complex inter-ministry collaborations.

Thirdly, this interventionist stance will lose a lot of political support, expend a lot of the government’s energy, and provide little effective return.

Price controls bring about issues of fairness, effectiveness, accuracy of controls and the role of governments in regulating the private sector; all of which are natural and perfectly fair issues.

It’s worth repeating that cost controls are important and necessary.

However, these limits and contexts mean that we cannot depend solely on cost controls and must implement all other options.

Rising costs are good?

Could rising healthcare costs be a good thing? Let’s end this week’s column with a counter-intuitive case, using three facts.

Firstly, we’ve always believed that Malaysia has been under-spending on health compared to our peers.

Secondly, we must obviously eliminate rampant profit-seeking, unnecessary treatments, inefficient and rent-seeking middle-men, and corruption, wastage, fraud and abuse – but all these feature in all health systems in all countries, with the difference being only in the degree.

Thirdly, the Malaysian Department of Statistics shows that between June 2018 and June 2019, the Consumer Price Index grew 1.4% on average.

Food (+2.4%), utilities (+1.9%), alcohol/ tobacco (+2.3%) and communications (+2.1%) grew faster than the average.

Spending on health grew lower than the average, only 1.3%.

In other words, the rise in healthcare costs is definitely cause for concern and action, but isn’t as alarming as we think.

It’s possible that these rising healthcare costs are a natural and organic rise to an appropriate spending level for an upper-middle-income country.

So, in a paradoxical way, we’re lucky to have this problem!

Dr Khor Swee Kheng has postgraduate degrees in internal medicine and public health, and has worked in five health sectors across three continents. He is currently specialising in health systems and policy in a public university and a local think tank. The views expressed here are entirely the writer’s own.

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