The state and healthcare in Malaysia: Provider, regulator, investor

Despite underfunding the public healthcare sector, the state in Malaysia has managed to operate a fairly successful public healthcare system since the country became independent in 1957. But the state is also a preeminent investor in private commercial hospitals. The multiple and conflicting roles of the state coupled with moves to corporatise the public healthcare sector and a proposal for a national health insurance scheme threaten to hasten the emergence of a full-fledged two-tier health system.

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Universalistic entitlement to public sector healthcare

WHILE healthcare is not inscribed in the Malaysian constitution as a human right, Malaysian citizens have become accustomed to a de facto entitlement to tax-funded, publicly provided healthcare since decolonisation in 1957. 

Chan Chee Khoon

Presently, employees and pensioners in the public sector enjoy practically free access to government healthcare as an employment benefit. For non-civil servants, outpatient primary care in the urban areas entails a nominal payment of 1 Malaysian ringgit ($0.27) which covers consultations, necessary investigations and medicines. In the rural areas, there are no charges for government-provided primary care. 

Patients who are referred to government specialist clinics are charged 5 ringgit for each outpatient visit. Inpatient care at government facilities is also highly subsidised, accounting for 74% of hospital admissions in 2008.

Almost 90% of the Malaysian population live within 5 km of a primary healthcare facility.  In addition to vaccinations, pre-natal and post-natal care, maternal and child health programmes, primary medical care with referral backup, health awareness and promotion, and vector control of communicable diseases, the Rural Health Service also covers potable water supply, sanitary latrines, environmental hygiene, and food and nutritional supplements. 

An underfunded public healthcare sector

This extensive coverage and universalistic entitlement1 to publicly provided healthcare has benefited a large fraction of the Malaysian population. But the modest expenditures also impose limits on the level, timeliness and (perceived) quality of care that can be delivered, and furthermore translate into modest staff salaries in the public healthcare sector.

In 2009, government healthcare expenditures amounted to 2.71% of gross domestic product (GDP), while private spending added another 2.25%. Overall, user charges for the government-provided services amount to 2-3% of the Health Ministry's actual expenditures. Notwithstanding these modest health outlays, life expectancy in 2012 was 75 years, and the under-five mortality rate was 9 per 1,000 live births.

At the present time, the government healthcare sector receives a yearly infusion of newly graduated doctors who are required to serve a four-year mandatory national service inclusive of the internship period. 

As a result of push and pull factors, there is a perennial exodus of senior experienced staff from the public sector. The outflow of government doctors, nurses, specialists and technicians sets off a vicious cycle, as the understaffing translates into heavier workloads for those who remain, thereby further reinforcing the push factors. Meanwhile, the unrelenting promotion of medical tourism since the late 1990s adds to the lure of private practice which increasingly services a clientele that is regional in scope.

Corporatising the public healthcare sector

In 1999, the Malaysian government announced a plan to corporatise its hospitals and other healthcare facilities, in part to stem the outflow of health professionals. The corporatised institutions would remain publicly owned but would be vested with more managerial discretion in matters of salary scales, patient fees, procurements, and responsiveness to market demand and clients' preferences. Coming in the wake of the outsourcing of hospital support services and pharmaceuticals supply, however, it aggravated public anxieties that clinical and hospital services would in due course be privatised too. This quickly became an emotive issue in the run-up to the general elections of November 1999, and was eventually shelved.

Eight years passed before the issue re-emerged in the form of opportunities for limited private practice in government hospitals. Selected public hospitals with treatment facilities for liver-related illnesses, hand surgery, breast cancer and endocrine diseases began to offer to 'full-paying patients' preferential access to consultation and treatment by specialists of their choice, in an executive or first-class facility, and to be charged accordingly. 

The Coalition Against the Privatisation of Health Services2 has consistently opposed such arrangements for private wings or private patients on the grounds that:

 only 30% of specialists were employed in the government sector, but they served 70% of hospital admissions throughout Malaysia

 in addition to their clinical and ward duties, specialists had teaching, training and mentoring responsibilities towards their junior colleagues in the public hospitals

 the full-paying patient scheme would unavoidably claim disproportionate attention and priority and would compromise further the quality of services received by the regular patients, overburdened as the system was by chronic understaffing  of specialists in the government sector.

Interestingly, the Association of Private Hospitals of Malaysia (APHM) was also opposed to the private wings proposal, perceiving a threat of price competition from a subsidised and publicly owned service that was not solely intent on maximising profits.

Equally interesting was the ambivalence of the health insurance industry vis-…-vis private healthcare providers. Deteriorating public hospitals reinforce people's felt need for private health insurance, but health insurers also complain endlessly about moral hazard and price gouging by private providers so much so that they make incentive payments to policy holders to access the public hospitals when in need of care. Going by their rhetoric, they want low-cost, no-frills, 'medically necessary', evidence-based care, which sounds engagingly like the original progressive vision of managed care. Under certain circumstances, they might even be supportive of subsidised, publicly provided healthcare with moderate user charges or co-payments.

The state as entrepreneur in healthcare

In 1979, the corporate arm of the provincial government of Johor state launched its first commercial hospital.  Over the next 25 years, this inaugural venture grew into the largest chain of private hospitals in Malaysia, KPJ Healthcare (26 hospitals in Malaysia, with another two in Indonesia). Indeed, KPJ is now a public-listed healthcare conglomerate which offers not just inpatient care but a diversified portfolio of services including hospital management, hospital development and commissioning, basic and post-basic training for nurses and allied health professionals, laboratory and pathology services, central procurement and retailing of pharmaceutical products, healthcare informatics, and laundry and sterilisation services.

Meanwhile, the federal government's sovereign wealth fund Khazanah Nasional began acquiring domestic and foreign healthcare assets in 2006. By 2012, its healthcare subsidiary IHH Healthcare had emerged as the second-largest listed healthcare provider in the world (by market capitalisation, $8.06 billion), after the Hospital Corporation of America (HCA). With its 37 hospitals and 6,000-plus beds (2014), IHH has expanded beyond its home markets in Singapore, Malaysia and Turkey to China, Hong Kong, India, Brunei, Vietnam, United Arab Emirates, Macedonia and Iraq as well.

Domestically, these developments mean that the Malaysian government, in concert with government-linked companies (GLCs)3 at both federal and state levels, effectively own or operate three parallel systems of healthcare providers in Malaysia:

 the regular Health Ministry facilities

 corporatised hospitals (National Heart Institute, university teaching hospitals)

 a huge 'private wing': the KPJ and IHH chains of commercial hospitals.

The ambiguity of public and private

This fusion of state and capital in the healthcare sector is rife with conflicts of interest as the state - wearing multiple hats - attempts to reconcile sometimes divergent priorities in the public and private healthcare sectors. As Khazanah comes under pressure for instance to secure commensurate returns from its costly acquisition of private healthcare assets, will the public sector suffer from a benign neglect? Will the poaching of public sector staff by the private sector continue unabated, or will it be subject to some restrictions? What safeguards will be put in place for impartial regulation, given the potential for regulatory conflicts of interest in the healthcare sub-sectors?

The attempted acquisition of Institut Jantung Negara (IJN, National Heart Institute) by Sime Darby Ltd in 2008 is a revealing instance of these disparate interests.

In 1992, IJN was hived off from the Kuala Lumpur Hospital and corporatised as a government-owned referral heart centre. One of the missions of this 430-bedded hospital was to provide high-quality services in cardiovascular and thoracic medicine at medium cost. The federal government would continue to subsidise IJN although not to the extent of 90-95% as was commonly the case for the regular Ministry of Health facilities.

The intention was that IJN should also act as a price bulwark, i.e., a more affordable fallback option which could help restrain escalating charges at private hospitals such as the Subang Jaya Medical Centre (SJMC). 

In December 2008, Sime Darby, the controlling stakeholder of SJMC and one of the largest GLCs in Malaysia, submitted a proposal to the Ministry of Finance to acquire a 51% stake in IJN. The federal cabinet initially responded positively towards the proposed acquisition, despite widespread apprehension. 

An investigative report by The Star (18 December 2008) duly noted that IJN charges for procedures such as coronary bypasses and angio-plasties were 25-50% lower than the corresponding charges at SJMC.

Evidently, Sime Darby, by acquiring IJN, hoped to establish a commanding presence in a lucrative medical specialty, and at the same time to absorb and thus neutralise a lower-priced competitor.

Amidst mounting public opposition, the proposal was eventually dropped by the cabinet.

Targeting: The persuasive face and generic template for privatisation

As Malaysia's government-linked entities built up their stakes in the commercial  healthcare sector, a succession of health ministers have argued - using a rhetoric of targeting - that Malaysians who could afford it should avail themselves of private healthcare services (suitably encouraged thus with income tax rebates). This would allow the government to target its limited healthcare resources at the 'really deserving poorer citizens'. Seen in that light, 'targeting' can therefore also be the persuasive face and generic template for the commercialisation of essential social services.

This intuitively appealing logic however ignores the consequent poaching of staff from the public sector, which exacerbates the already burdensome workload of its remaining staff, thus feeding into a self-reinforcing downward spiral. Identifying and tracking the 'targeted eligibles' (means testing etc) would furthermore entail administrative and transactional costs that are unnecessary with a policy of universal entitlements.  Most importantly, a policy of selective targeting would detach a politically vocal, well-connected and influential middle class from any remaining stake in public sector healthcare, hastening the arrival of a rump, underfunded, decrepit public sector for the marginalised classes.

National health insurance?

Is there an alternative to this emerging two-tier healthcare apartheid? The Malaysian government's answer to this is a proposed national health insurance scheme designated as 1Care. This would entail mandatory employer and employee contributions to a publicly managed health insurance fund, along with patient co-payments and supplementary federal allocations, which would finance a defined benefits package.  Among other things, 1Care was envisaged as a vehicle which could open up access to underutilised capacity and specialist expertise in the private health sector, subject to a standard fee schedule applicable to all providers. Would private facilities and private practitioners be allowed to opt out of the scheme, if they chose to concentrate on more lucrative niche markets (e.g., affluent patients and medical tourists)? Or would they be prevailed upon to undertake their 'national service', given the pervasive public ownership of the for-profit healthcare sector?

An alternative scenario, which relies on more progressive taxation regimes to improve universal access to quality care on the basis of need, which dispenses with much of the administrative and transactional costs of managing 1Care's eligible pool of beneficiaries and its provider payment systems, is notably absent from the options under consideration.

Regulatory environment

Given the dominant presence of GLCs in the commercial healthcare sector (accounting for more than 40% of private hospital beds), the independence and impartiality of state regulatory agencies in this sector may be challenged. 

The Medical Act (1971), which created and empowered the Malaysian Medical Council (MMC) to register accredited medical professionals and to oversee standards of professional practice, also designates the Director-General of Health as the chair of the MMC. Because the current regulations do not bar retiring senior government officials from taking up positions in organisations over which they exercised regulatory authority, two retired D-Gs of Health have gone on to be presidents of private medical universities in Malaysia. Indeed, one of them also chairs the board of directors of IHH Healthcare.

Other retiring senior officers have taken up leading executive positions at agencies which monitor the performance of concessionaires which have been awarded outsourcing contracts for hospital support services.

Notwithstanding the Health Ministry's regulatory powers over the location of new private hospitals (Private Healthcare Facilities and Services Act, 1998), it has yet to exercise this discretion to prioritise underserved areas to improve the spatial dimension of health equity. 

This Act also empowers the Health Minister to regulate professional charges for consultations and procedures performed by doctors, but not the charges levied by private hospitals for usage of ward, operating theatre, other institutional facilities, nursing time, medical disposables and treatment accessories. Hospital charges are exempted from the goods and services tax (GST) introduced in 2015, unlike the professional fees of (non-salaried) attending doctors. Hospitals also receive 10-15% of the professional charges as an administration fee.

Conclusion

The Malaysian state has an unusual characteristic born of its recent history. In 1970, in the wake of post-election ethnic rioting and a brief period of emergency rule, a New Economic Policy  (NEP) was promulgated with the twin goals of reducing poverty and reducing inter-ethnic disparities, most notably between the predominantly Malay indigenous (bumiputra) community and a sizeable ethnic Chinese minority. One of the indicative targets of the NEP was to increase the bumiputra ownership of incorporated share capital from 2.4% in 1970 to 30% by 1990.

Given the small size of the Malay business and shareholding class at the time, this ambitious task of restructuring share ownership inevitably fell to the state. Bumiputra trust agencies were duly created to acquire and to manage massive holdings of corporate equities, from which were spawned unit trust funds which could reach a broader base of eligible bumiputra beneficiaries. In parallel with these initiatives were efforts to foster the emergence of a bumiputra commercial and industrial community (BCIC, i.e., a Malay bourgeois elite) which could take on leading roles in a diverse range of government-acquired or government-spawned commercial enterprises.

Within two decades, Malaysian government trust agencies and GLCs had acquired sizeable if not controlling stakes in the commanding heights of the national economy (finance and banking, plantations and agribusiness, oil and gas, heavy industry, media and broadcasting, infrastructure and construction, power generation and distribution, postal services and telecommunications, transportation, leisure and hospitality, among other sectors).

In this manner, the Malaysian state, going beyond its more traditional welfarist and developmentalist roles, took on the character of an entrepreneurial state as well. 

In this article, I have described in some detail the state's ventures into for-profit healthcare by governmental entities at both federal and state (provincial) levels. The salient points which have emerged are the following:

 The state is juggling multiple hats: (i) as funder and provider of public sector healthcare, (ii) as regulator, and (iii) as pre-eminent investor in for-profit healthcare, along with the inherent conflicts of interest.

 Public sector healthcare is woefully underfunded and is plagued by a chronic shortage and continuing outflow of senior experienced staff, thus affecting the quality of its care and its ability to restrain the escalation of charges in the private sector.

 Whether there is a de facto policy of benign neglect of the public sector is unclear, but a succession of health ministers have argued that those who can afford to should avail themselves of private healthcare, so that the government can conserve its modest resources for the 'truly deserving poor'.

 This seductive logic (of the targeted approach) will hasten the arrival of a two-tier healthcare system: deluxe priority care for the rich, and a rump, underfunded public sector for the rest.

 The alternative scenario, a more progressive taxation regime to improve universal access to quality care on the basis of need, seems to be off the radar screen (hobbled in part by public scepticism over the unaccountable stewardship of public financial resources).

 The potential for regulatory conflicts of interest (regulatory capture, the 'revolving door') has not been addressed.

 There is little evidence that the state is exercising its ownership prerogatives in commercial healthcare enterprises to pursue a balance of social vs. pecuniary objectives (e.g., cross-subsidies, playing a price-restraining role in the manner envisaged for IJN) beyond cosmetic 'corporate social responsibility' initiatives.

It is far from clear that these developments amount to a progressive 'nationalisation' of private enterprises in essential human services, rather than an infusion of the ethos and logic of capital into the institutional dynamics of the state.

While there is considerable room for improvement in Malaysia's public healthcare system, its widely accessible services are nonetheless a remarkable and underrated achievement in Malaysia's developmental history. Amidst the shifting patterns of ownership and clienteles of this healthcare system (the ascendant role of GLCs in commercial healthcare, the possible emergence of social health insurance, the push for medical tourism, etc.), however, it is likely that a pluralistic healthcare system will continue to exist into the foreseeable future. A crucial role for government must therefore also include the oversight and regulation of an evolving system of healthcare provision and financing such that all Malaysian citizens (and other eligible beneficiaries) continue to enjoy access to equitable healthcare on the basis of need, not on the basis of ability to pay (at the point of service), i.e., a de facto human right to (medically necessary) healthcare.4    

Chan Chee Khoon is a health systems and health policy analyst at the Centre for Poverty & Development Studies, Faculty of Economics & Administration, University of Malaya. He has contributed and reviewed chapters for Global Health Watch.

Endnotes

1   Malaysian citizens may or may not avail themselves of this universalistic entitlement, but even those who do not do so benefit from its second-order effects, insofar as the availability of subsidised publicly provided healthcare (of a certain quality) acts as a fallback option - a restraining price bulwark - which helps to keep private healthcare charges within a more affordable range.

2   A coalition of 70 non-governmental organisations that came together in 2005 to campaign against the privatisation of publicly provided health services.

3   GLCs are defined as companies that have a primary commercial objective and in which the Malaysian government has a direct controlling stake (i.e., ability to appoint board members and senior management, make major decisions for the GLCs including contract awards, strategy, restructuring and financing, acquisitions and divestments etc.) either directly or through government-linked investment companies.

4   The right to health in a national context often translates into citizen entitlements. This leaves migrants and refugees falling through the cracks, in a region (South-East Asia) which is home to major labour-exporting and labour-receiving countries. This is a major issue of regional social policy which requires sustained regionally coordinated advocacy to advance migrants' and refugees' rights to health and well-being.

*Third World Resurgence No. 296/297, April/May 2015, pp 34-37