KUALA LUMPUR, June 21 — Malaysia is set to adopt the Diagnosis-Related Group (DRG)-based hospital payment system in a bid to make healthcare more efficient, transparent and sustainable.

It joins a growing list of nations that have overhauled hospital funding models to control escalating costs and incentivise better patient care.

Originally developed in the United States in the early 1980s, DRG systems assign hospitals a fixed reimbursement rate based on a patient’s diagnosis, rather than the number or type of services provided.

This helps discourage unnecessary procedures and encourages shorter hospital stays.

Here’s how countries across the globe have implemented and adapted a DRG approach to suit local needs:

Malaysia — End 2025

Malaysia’s dual healthcare system consists of a heavily subsidised public sector and a fee-based private sector. The DRG system will introduce fixed, standardised pricing for treatments regardless of actual costs.

The government plans to roll out its DRG system in phases starting at the end of this year, beginning with minor ailments in public hospitals. Health Minister Datuk Seri Dzulkefly Ahmad said the move is expected to drive innovation and transparency, while reducing overall costs.

"DRG implementation is a long-term process, but we’re beginning with minor cases before moving on to more complex treatments. Our goal is to establish a well-designed system that works specifically for Malaysia,” he said on Wednesday.

United States — DRG pioneer (1983)

The United States was the first to introduce DRGs, launching them in its Medicare system in 1983. Hospitals were reimbursed a fixed amount rather than issuing itemised bills, pushing them to become more cost-efficient.

Australia — 1992

Australia implemented its own version, the Australian National DRG (AN-DRG), in 1992 based on a modified US model. In 1998, this was replaced by the Australian Refined DRG (AR-DRG), tailored to local clinical and administrative needs.

Following the 2011 National Health Reform Agreement, Australia adopted activity-based funding nationwide, aiming to increase transparency and improve resource allocation in public hospitals funded jointly by the Commonwealth and state governments.

Sweden, Finland, Norway — Mid-1990s

These three Nordic countries adopted modified DRG systems in the mid-1990s to align with their respective healthcare structures.

Germany — 2000

Germany formally adopted DRG systems under the Social Health Insurance Reform Act of 2000. Based on Australia’s AR-DRG model, the German system is overseen by its Institute for the Hospital Remuneration System (InEK).

By 2003, DRG systems were mandatory in all hospitals. InEK continues to manage coding, pricing and classification updates to ensure the system keeps pace with clinical and economic developments.

Estonia — 2001

After the Russian financial crisis of 1999, Estonia faced long wait times and tight hospital budgets. In 2001, it replaced its fee-for-service (FFS) model with DRG-based payments, improving cost predictability and reducing delays in care.

Croatia — 2002

Croatia’s Health Insurance Fund began adopting DRGs in 2002 via a system known as Plaćanje po terapijskom postupku (PPTP). The aim was to shorten hospital stays, improve patient turnover, and optimise resource use. Over time, DRGs helped rationalise services and improve access to key procedures.

Thailand — 2003

Thailand incorporated DRGs into its Universal Coverage Scheme (UCS) in 2003, initially covering inpatient care for 49 million people. Previously based on FFS, the scheme saw fewer unnecessary treatments and better budget control post-DRG.

Over time, DRGs expanded to include subacute and psychiatric services. Thailand’s other two public healthcare schemes — the Social Security Scheme and the Civil Servant Medical Benefit Scheme — also adopted DRGs by the late 2000s.

China — 2009

China’s healthcare system uses DRGs in various forms across provinces. In 2011, Beijing introduced DRGs under its Urban Employee Basic Medical Insurance (BJ-UEBMI). Today, three DRG systems are in use:

• C-DRG for pricing and payments
• CHS-DRG for insurance reimbursements (launched nationally in 2020)
• CN-DRG for hospital performance evaluation

By 2021, DRG reforms were piloted in 30 cities, with a nationwide rollout planned under the National Healthcare Security Administration.

South Korea — 1997 to 2013

South Korea began DRG pilots in 1997, targeting specific diseases. A voluntary phase followed, gaining broad uptake.

By 2012, DRGs were mandatory for small clinics, and by 2013, tertiary hospitals joined. This helped reduce overtreatment under the FFS model and introduced more consistent pricing.

Philippines — 2013

The Philippine Health Insurance Corporation (PhilHealth) began shifting from FFS to case-based payments in 2014 with the All Case Rates (ACR) system.

The 2019 Universal Health Care Law reinforced this approach, mandating PhilHealth to strengthen financial risk protection and further refine DRG-based mechanisms.

Indonesia — 2014

Indonesia launched its national health insurance programme, Jaminan Kesehatan Nasional (JKN), in 2014 alongside its DRG system, INA-CBGs.

Both inpatient and outpatient services are reimbursed using standard tariffs set by the Ministry of Health. This model has helped keep JKN financially sustainable and scalable.