More study of DRG payment model needed

KUALA LUMPUR: IHH Healthcare Bhd believes that the diagnostic-related group (DRG) payment model is not suitable to be implemented in local private hospitals and feels that further studies are needed before considering its adoption.

Group chief executive officer Dr Prem Kumar Nair said DRGs are very difficult to implement in private hospitals.

He explained that the DRG system was originally designed to fund public healthcare through a single-payer model.

Under the framework, inpatient cases are grouped into categories based on clinical similarity and expected resource use, allowing payers to reimburse hospitals with a fixed rate per case rather than through itemised billing.

“Each procedure is paid at a fixed rate regardless of the level of service, but in private hospitals, where patients often pay for differentiated services, for example from basic rooms to premium suites, its makes the standardisation problematic,” Prem Kumar said during a media briefing after the group’s 15th AGM here, yesterday.

He noted that Malaysia began exploring the DRG model as a potential solution to curb medical inflation a while back.

However, after consultations with private-healthcare providers, insurers and consumer groups, the government decided to pilot the system only in public hospitals.

Prem Kumar also cited Singapore’s experience as a reference point.

“The original plan in Singapore was to implement DRG in both public and private hospitals. But after a thorough study of Australia’s case-mix classification system, they concluded it wasn’t suitable for the private sector,” he noted.

While Malaysia’s Health Ministry has not ruled out the DRG approach for private hospitals, Prem Kumar said he is of the view that it would require more in-depth studies before any broader rollout could be considered.

As an alternative, he said IHH Healthcare manages medical inflation through coordinated sourcing and procurement strategies.

“One of the things that we are doing as a large group is global procurement, driving down prices of consumables, medical devices and equipment across all our hospitals,” he said.

He emphasised the group’s use of its value-driven outcomes (VDO) framework to improve operational efficiency and patient outcomes.

“For example, total knee replacement procedures under the VDO model have shown that standardised care protocols can reduce hospital stays and complications.

“By improving efficiency and standardising care components, we can bring down expenses without compromising on quality,” he said, adding that the focus is not just on reducing costs but on improving how resources are managed to benefit patients and insurers alike.

Additionally, Prem Kumar also identified medical tourism as an important area for IHH Healthcare’s growth, citing Malaysia’s regional position and currency competitiveness.