Malaysia’s health system needs social market reforms

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By Professor Geoffrey Williams

Fundamental reform of resources, management and above all governance will be needed for Malaysia to have a world-class health system after the Covid-19 crisis.

Three things are clear from Malaysia’s battle with Covid-19.

First, Malaysia’s frontliners have a world-class commitment to this fight.

Second, under-resourcing of healthcare has been exposed to public scrutiny and concern.

Third, the relationship between the public and private sectors has fallen short of expectations and the leaders have resorted to public bickering in the midst of a global health crisis.

Malaysia needs and deserves a world-class, universal health system which should provide comprehensive, high-quality treatment, free of charge at the point of need, to everyone who needs it, when they need it. Currently the funding, management and governance of healthcare in Malaysia is not fit-for-purpose in delivering this aim.

Many people are not aware that almost half of Malaysia’s health spending comes from private sources. Out-of-pocket expenses account for around 38% of spending according to Ministry of Health data but private insurance accounts for only 7% and charities and private companies add another 4%.

This heavy reliance on private, out-of-pocket spending is problematic from an economic perspective. Contrary to popular opinion, healthcare is not a public good because people can be denied access because of costs and the constraints on resources. Economists say it is excludable and rival in consumption which is the exact opposite of a public good.

Healthcare is formally a, “merit good” or, a private product provided through public means because it is beneficial and would be under-provided by the market if the private sector was left to its own devices.

Healthcare is also subject to multiple cases where the market fails to provide adequate or equitable coverage for people who need treatment. Private insurance for example excludes people with costly long-term chronic illness or prior conditions. This in itself justifies public healthcare.

Other important causes of market failure in the private healthcare system include the problem of uninformed consumers. Patients are not able to judge whether the treatment recommended is necessary, or of the right type or is being charged at the right price so they can’t make a proper decision as to whether they should buy it or not.

This also leads to a form of “moral hazard,” where unscrupulous private hospitals can take advantage of patients. Unnecessary treatments or tests are recommended because doctors and hospitals earn money from them and the “doctor knows best” imbalance puts vulnerable patients at a disadvantage.

Private health providers push curative rather than preventative healthcare because they don’t get paid so much if they prevent you from getting sick. They under-provide unprofitable healthcare such as physiotherapy and particularly long-term residential care which accounts for less than 0.1% of private spending.

Overcharging is endemic because patients do not know the true price of treatment or whether it is necessary. Brand name medicines are overused because they have a bigger profit margin to generic medicines.

Private hospitals deny overcharging but during this pandemic a private hospital in Kuala Lumpur was fined RM200,000 for an offence under Section 11 of the Price Control and Anti-Profiteering Act 2011 when it charged RM11.20 for face masks which should cost only RM1.50.

Part of this failure arises because of the management culture, mostly run by clinicians without management qualifications. We would not expect an accountant to perform a successful tonsillectomy so why would we expect an ENT specialist to be a good financial manager?

Systemic management dysfunction is common including “accidental managers,” where medical specialists become managers only for career progression. “Group think,” causes resistance to innovation and growth. Key functions and intuitions can be captured by special interest groups.

A lack of diversity across age, gender, specialism and aptitude can lead to, “grumpy old men” syndrome that excludes important stakeholders such as women practitioners.

Most importantly patients, the largest and most important group of stakeholders, are actively excluded from healthcare management. If this happened in another industry we would shocked.

Poor management and leadership exacerbates the problems of market failure and leads to rigid, unresponsive management and poor resource decisions which damage patient confidence in the long-term.

These ideas are well understood by economists, especially with the social market economy framework which provides solutions based ongood governance of private markets. The principle of liability within the social market ensures that there is a balance between buyers and sellers and the principle of public provision of merit goods and the principle of solidarity ensures that no-one is excluded due to market or management failures.

In terms of governance, many recent cases in the public domain show how dangerous the private healthcare market can be for patients. A prominent lawyer from Penang is suing 3 hospitals, 8 doctors over wrong cancer diagnosis. International media reported that a highly-regarded Malaysian journalist was assaulted by a doctor in a private clinic. An award-winning regional news-portal has reported multiple issues of malpractice among a group of Malaysian doctors at a local private hospital.

A Federal Court decision of September 2017 means that private hospitals are not generally liable for negligence by the independent medical practitioners who practice there. The lawyers who won this case for the hospital celebrate the decision and the RM100,000 in legal cost awarded in their favour but for patients the effects of this decision are chilling.

First it denies them any general claim against hospitals for negligence and malpractice by the doctors they recommend and credentialise.

Second, it encourages a moral hazard in which private hospitals can reduce the monitoring of doctors because they are protected from legal liability when the doctors misbehave.

Third, for international medical tourists in particular, it signals that patients are on their own if anything goes wrong because the private hospitals will not look after them.

The public sector is also not immune as recent cases of abuse of female doctors by male superiors and the abuse of junior housemen reveals. There appears to be a systemic governance problem in the medical profession which harms the customers of medical services and exacerbates market failure.

Cover-ups by the Malaysian medical fraternity have been widely reported by leading local and regional investigative journalists. Even a former President of the Malaysian Medical Council (MMC) has publicly called-out mismanagement and conflicts of interest in the governing body of the Malaysian medical profession.

Given this background the need for a national discussion on the economics, management and governance in Malaysian healthcare has never been more urgent. Above all, the statutory, civil law and regulatory protection of patients as customers in the private healthcare market denudes them of feasible remedies at law.

This is made worse by the governance system within the MMC, particularly the private sector members, which protects doctors at the expense of patient welfare as a matter of standard practice so that the private system is not properly regulated within a social market framework.

Kuala Lumpur 9 May 2021

(The views expressed are those of the contributor and do not necessarily reflect the views of Rebuilding Malaysia.)

Professor Geoffrey Williams is an economist at Malaysia University of Science and Technology both based in Kuala Lumpur. The views expressed here are his own.

Watch the webinar of the issues raised in this video on YouTube.

Rebuilding Malaysia

1 Comment

  • Paul Wolfobitch says:

    “well understood by economists, especially with the social market economy framework which provides solutions based ongood governance of private markets”

    The learned professor is talking through his arse.

    Use the case of Britain and tell us how the above-quoted remark rings correct.

    And tell us, too, how many economists failed to “understand, blah” the quoted blah like our good professor does, the article is one freaking waffle, sorry.

    If I hadn’t seen the esteemed qualification, I’d have thought the article was by some student from one of those bog standard Malaysian universities with bog standard local and foreign staff!

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