SEPTEMBER 18 — The RESET strategy, a co-ordinated reform framework to overhaul the private healthcare system and curb soaring medical inflation, and announced in June by Bank Negara Malaysia needs a serious rethink and might itself need a revamp.
Short for Revamp, Enhance, Strengthen, Expand, and Transform, RESET, at the time of its presentation, comprises five strategic thrusts and 11 key initiatives.
It includes a basic, standardised medical and health insurance/takaful (MHIT) product, emphasis on price transparency for medicines and procedures, building a common digital health infrastructure towards adoption of national electronic medical records, and a public–private hybrid care model.
Most importantly, it envisages hospital payments migrating away from the current often costly fee-for-service (FFS) approach to diagnosis-related group (DRG) bundled models.
Reform is certainly needed as medical inflation, which has gone unchecked for years and is currently estimated to be at least 15.6 per cent and as high as 18 per cent, continues to erode affordability and access, especially to private healthcare services.
In comparison, Malaysia’s headline inflation only averaged 1.4 per cent for the first seven months of 2025. The country’s double digit medical inflation rate is among the highest in the Asia-Pacific region.
It is increasingly becoming a situation where many of us will be pressing our faces to the windows of our world class private hospitals, being proud of their existence but unable to access them as the costs involved are increasingly beyond the affordability of many.
Yet, it is also a fact that our private health facilities are considered best value for money with medical tourists and their families coming from all over the world.
RESET aims to slow unsustainable cost growth, make coverage more affordable for Malaysians, and improve efficiency and accountability in the healthcare system.
The direction and intent are good and right. Yet, RESET faces at least six shortfalls that could blunt its impact on medical inflation, or even cause it to fail in execution.
1. The legal pathway remains unclear
As it stands, Malaysia cannot legally implement or impose a DRG regime for the private healthcare system.
Act 586 (Private Healthcare Facilities and Services Act 1998) will need amendments to mandate DRG data submission, define payment rules across private health providers, and even permit moving away from itemised billing towards bundled packages.
There is still no clear indication as to whether an amendment is being planned, or most importantly, consultations especially regulatory impact assessments (RIA) are being conducted.
Without legal clarity, private hospitals and insurers will continue to rely on the current fee-for-service basis.
2. Rolling out DRG without robust local cost data invites failure
DRG can curb “do-more-bill-more” behaviour, but only when calibrated with quality, realistic Malaysia-specific cost and clinical data, with proper risk adjustments. Inadequate data will raise the possibility of ineffectiveness, fraud and failure.
Even in jurisdictions such as Taiwan which has implemented DRG for more than a decade, upcoding (a type of medical fraud), early discharges, and being selective over which and what patient to admit, have been found to occur. Strong controls are necessary.
In the United States, studies have shown that DRGs could even have the reverse effect: causing inflation through payments dependent on case-based coding, resulting in millions of dollars in extra payments.
It must be understood from the onset that the DRG model does not freeze or prevent the growth of medical cost or expenditure.
3. Transparency is necessary but lacks ability to address inflation
One of RESET’s strategic pillars hinges on price transparency for medicines, procedures, and hospital services.
US studies suggest that though transparency can reduce prices for laboratory, diagnostic or imaging processes which a patient can shop around to compare, it has limited effects on total health spending.
In Malaysia, hospital services, medical consumables, investigations that form between 60-70 per cent of the private hospital bill are currently unregulated.
Prior to hospitalisation or outpatient treatment, patients will not likely know which medication or drugs they will need during the course of their treatment, rendering the requirement for price lists of drugs to be displayed limited in their usefulness.
It is also highly unlikely for those undergoing inpatient care to fill their prescriptions outside of the hospital where they are being treated.
Malaysia’s approach is to insist on the drug price list to be printed and hope that transparency reduces prices.
Observations at private clinics and hospitals will likely reveal that barely any patient glances at the printed list or tablet much less compare prices and demand for cheaper drugs.
They trust their health provider to know what drugs work best and the appropriate course of treatment.
4. Base MHIT product will likely have low participation
RESET’s base MHIT aims to provide “standardised premiums” with “essential” coverage, supposedly targeting the middle class.
This is similar to what was previously attempted under Perlindungan Tenang which provided insurance and takaful products covering events like death, accidents, or fire for lower income recipients.
However, MHIT products are more costly and broadening the risk pool will be critical. Tenang depends heavily on government subsidised vouchers, while this base MHIT product will not likely have that benefit.
Due to its voluntary nature, most in the M40 target group will likely opt out and be reluctant to utilise already drained EPF savings for the purpose of insurance, through the i-Lindung facility.
The median of EPF contributions is currently at RM 11,000. Tapping retirement savings to finance premiums is a bad idea, particularly for EPF members with contributions at rock-bottom levels. This base MHIT product will likely need subsidies or mandates to broaden the risk pool.
5. GPs as gatekeepers will be publicly opposed
RESET proposes GPs as the first point of contact, curbing self-referral to specialists which might be unnecessary and inflate costs.
This is a good and sensible idea. But for this to work, there must be proper recognition and addressing of the problems currently plaguing private primary care providers with consultation fees stuck for more than three decades, and ongoing requirements for itemised billing which is contradictory to bundled payments such as DRGs.
Failure to do so could result in GP practices thinning out or shortening consults to survive, signing off patients over to hospital outpatient departments, after five minute consultations.
Patients will also oppose the gatekeeper role as they will insist on the right to go straight to a specialist for treatment, especially if they have already invested heavily in health insurance.
Gatekeeping by GPs could end up being tokenistic or reduced to a concept described on paper.
6. Absence of national health insurance
In many countries which properly utilise DRGs, the existence of a national health insurance framework as a single payer is a powerful factor, especially in imposing DRGs and managing costs.
Malaysia currently does not have this advantage. Instead, it has multiple payers from government to insurers, takaful and individuals. Having DRGs without national health insurance will cripple their ability and effectiveness.
A national health insurance framework covering both public and private healthcare would act as serious competition to private insurance and takaful providers.
Healthcare does not cost RM1, even in public healthcare and it must be properly financed to ensure that we get the right treatment and care needed and not depend on what the government or insurer can afford.
Introducing national health insurance provides a way forward to address current treatment and care gaps.
Conclusion
A joint ministerial (Ministry of Health – Ministry of Finance – Bank Negara) committee to oversee the implementation of RESET is a positive step.
However, execution hinges on consistent cross-ministry alignment, disciplined timelines, and strong technical capacity in a multitude of areas, especially health economics, even at the hospital level.
As we have seen from the policy shifts last year intended to emphasise on co-payment and deductibles, as well as the interim controls introduced to cap rising premiums until 2026, the public, insurance and takaful operators, private hospitals and private clinics may or may not co-operate or play along with Bank Negara’s modelling or projections.
It is important to recognise that. There is a limit to what Bank Negara can do in healthcare.
Unfortunately, payers such as insurers and third-party administrators are now starting to impose limits to coverage which might interfere or affect the standard or level of care as determined by the healthcare provider such as restricting reimbursements to generic or biosimilar medicines.
RESET is the most serious attempt in years to tackle the structural drivers of Malaysia’s medical inflation. We need it to succeed.
However, it should not be a race to the bottom where we compromise on standards, care and quality, in the process of trying to make healthcare cheaper.
Malaysia is about to become a high income economy, and it is time that we properly increase our investment in the healthcare system to ensure that it is future-proofed for the decades ahead.
* Azrul Mohd Khalib is chief executive officer of Galen Centre for Health and Social Policy.
** This is the personal opinion of the writer or publication and does not necessarily represent the views of Malay Mail.
