Draining The Healthcare Swamp

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A false narrative is emerging in the healthcare costs debate in Malaysia, largely driven by those who benefit most.
The story goes that premiums and fees are rising because the price of new treatments, medicines, high-cost technologies and a growing burden of non-communicable diseases is pushing up private medical costs which must be passed on to vulnerable patients.
Even if this is partly true it does not explain why medical costs in Malaysia are rising at 15% compared to 10% in comparable countries which buy the same medical equipment, medicines and supplies from the same sources.
It also does not explain why costs are different between patients with insurance and those paying out-of-pocket.
Many claims made by private hospitals are simply misinformation. Private hospitals often claim that investment in new technologies is expensive and they have no choice but to push the costs to patients in order to recover their investment.
Actually new technologies improve diagnosis and treatment and reduce costs and time in hospital.
Private hospitals raise prices to pay for the technologies but do not lower prices when the technologies have already been paid for and their continued use reduces treatment costs per patient.
There is something else going on which is at the root of the systemic exploitation of vulnerable patients and behavioural economics can help us understand some of this.
First, limited information and misinformation to patients about the need for treatment and the availability and costs of different options creates uninformed consumers who are easily cheated.
Doctors who have to repay student loans and cover expensive liability insurance have an upper hand in this bad bargain, especially when people are sick and vulnerable.
Second, commercial medical providers have no incentive to contain rising costs which increase their revenues.
If they can maintain profits they are unaffected by higher costs to patients. Even if they have fewer patients, the ones they retain pay more and are likely to be lower risk, so again the profit per patient improves.
Third, there is an unhealthy relationship between private hospitals and private insurers who depend on each other for their business model.
Most patients cannot afford complex private healthcare without insurance and if there were no private hospitals there would be no private insurance market and vice versa.
Another reason often overlooked is that medical costs are rising because of higher compensation in medical negligence claims.
Insurers have to cover this risk and due to a recent judgement by the Federal Court private hospitals are now also liable for negligence of doctors who practise in their facilities. Previously they were not.
So costs to insurers and hospitals are rising due to legal costs from negligent doctors as well as treatment costs.
Rather than improve regulation of errant doctors to reduce negligence private hospitals and insurers simply pass on the cost of the risk to policyholders.
From an economics perspective these issues are just the tip of the iceberg and there must be a thorough investigation into why costs are rising more in Malaysia than in other countries.
This is likely to be because of behavioural failures in the Malaysian private health eco-system which is over-prescribing, over-treating and overcharging because it is badly regulated.
One reason for this is that the regulatory system is run by the medical providers themselves especially the Malaysian Medical Council (MMC) which has recently argued in the Court of Appeal that it is immune from judicial oversight.
From an economics perspective if private medicine markets fail they must be independently regulated but so long as the regulators are self-interested doctors you will never have that. - FMT
The views expressed are those of the writer and do not necessarily reflect those of MMKtT.

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