In a previous article, I discussed the concept of a National Base Plan Insurance regulated by Bank Negara Malaysia (BNM). This plan would act as a base-tier insurance option within the private healthcare system. I am pleased to note that this idea is now being actively explored, with Diagnosis-Related Groups (DRGs) proposed as a central component of its rollout.
However, the Association of Private Hospitals Malaysia (APHM) has raised an important concern: using mean DRG values for standardised procedures may result in payment rates that do not reflect the true cost of care, especially for hospitals using advanced equipment or more expensive consumables.
For instance, a high-end institution may use a 3T MRI machine, compared to a 1.5T MRI in a smaller facility. Similarly, some hospitals perform laparoscopic appendectomies, which are more costly than conventional procedures. These variations are not adequately accounted for in the standard DRG model, such as the one currently used in Indonesia, which includes over 1,200 DRG codes.
Given these complexities, it's understandable that implementation of the National Base Plan across Malaysia’s private hospitals has been delayed. A major concern for APHM hospitals is ensuring that, after accounting for all acceptable costs, a reasonable profit margin, mutually agreed upon by BNM and insurers, is included in each DRG payment.
To address the limitations of a single “mean” DRG value across institutions, I propose the development of a new model: the Itemised DRG.
Instead of using a flat average, this model would involve:
Reviewing each hospital’s itemised billing
Standardising the actual cost of each line item
Adding an agreed profit margin for each standard procedure
This Itemised DRG would reflect real-world variations in costs, such as equipment use, facility overhead, and consumables, and would be agreed upon by insurers, hospitals, specialists, and BNM. Once a total cost is agreed for a procedure at a specific hospital, it would be coded into the system, and insurers would reimburse according to that code.
Such a model would eliminate disputes over billing and reduce instances of out-of-pocket payments by patients when insurers contest certain charges. Currently, some line items are marked up by 100% to 500%, which contributes to public frustration and financial strain.
The Itemised DRG model would also allow for annual adjustments to account for medical inflation, using actual supplier prices and micro-costing data.
In conclusion, adopting an Itemised DRG model even in a hybrid form could resolve current issues surrounding the DRG framework. By coding DRG rates based on individual hospital costs rather than a national mean, this approach offers a transparent, sustainable way to contain costs while preserving care quality and ensuring fair reimbursement.
Dr. John George is the former National Chairman of the Government Doctors (SCHOMOS) and submitted the proposal for limited private practice to JPA, which was approved in 2000, leading to the development of UMSC. He was also a former Professor and Head of Musculoskeletal Radiology at UMMC. Currently, he is a Radiologist at the National Sports Institute and Beverly Wilshire Medical Centre in Kuala Lumpur. His publications can be found on ResearchGate by searching for "Dr. John George." You can contact him via email at msk.rad@gmail.com.
Please note that the views expressed in this article are those of the author and do not necessarily reflect the opinions or positions of Vital Signs.
