Hidden costs of healthcare law for medical facilities

There has been much public discourse following the marked increase in premiums for private health insurance in the past year (2024).

According to insurance broker Aon, the average annual increase in the medical inflation rate in Malaysia is 10-15%.

Insurance companies, non-governmental organisations (NGOs), individuals, politicians and Bank Negara have taken private hospitals, their specialists, and even general practitioners (GPs) to task.

In the public debate about rising private healthcare prices, there has been no discussion about the high costs due to compliance with private healthcare laws, which this column seeks to redress.

Healthcare laws

Private healthcare is one of the most heavily-regulated sectors in Malaysia.

There are specific healthcare and other laws enacted by Parliament and the common law.

A search on the Health Ministry’s website reveals 41 Acts, Regulations and Orders within its purview.

These laws can be categorised as:

• Governance of healthcare professionals, i.e. Medical Act 1971, Dental Act 1971, Nurses Act 1950, Midwifery Act 1966, Registration of Pharmacists Act 1951, Optical Act 1991, Traditional and Complementary Medicine Act 2016, Medical Assistants Act 1977, Allied Health Professions Act 2016 and Estate Hospital Assistants (Registration) Act 1965
• Related to medicines, i.e. Poisons Act 1952, Sale of Drugs Act 1952, Dangerous Drug Act 1952, Medicines (Advertisement and Sale) Act 1956
• Related to healthcare practices, i.e. Penal Code, Human Tissues Act 1974, Atomic Energy Licensing Act 1984, Prevention and Control of Infectious Diseases Act 1988, Mental Health Act 2001, Child Act 2002, Medical Device Act 2012, Food Act 1983 and Hydrogen Cyanide Fumigation Act 1953.

There is also the Private Healthcare Facilities and Services Act (PHFSA) 1998, the objectives of which are to ensure minimum standards in private healthcare facilities and services, ensure professionalism of all healthcare professionals, ensure integrity among healthcare, ensure quality of healthcare facilities and services, and address social and national interests.

The main focus of the PHFSA is to safeguard patients’ interests and ensure patients receive safe treatment.

In addition, private healthcare facilities have to comply with laws of other governmental agencies, like the Environmental Quality Act 1974, Fire Services Act 1988, Uniform Building By-Laws 1984 and Factories and Machineries Act 1967.

Regulatory compliance costs

Regulatory compliance costs (RCC) refer to all expenses incurred to adhere to laws and standards.

The components of RCC include labour and administrative costs; costs of technology, equipment and external services, e.g. professional services; and opportunity costs, i.e. value of time and resources that could have otherwise been spent on providing healthcare.

Its impact includes financial burdens and impact on productivity.

Additionally, there is a disproportionate effect on smaller healthcare facilities.

In 2014, the Malaysia Productivity Corporation (MPC) issued its report titled Reducing Unnecessary Regulatory Burdens in Business: Private Healthcare.

Among the regulatory burdens identified by the MPC were licence renewal for private hospitals, planning approval for changes to facilities, quality of medical professionals and control on business advertising.

The MPC proposed the abolishment of annual practising certificate renewal applications, planning approval for renovations, approval for advertisements and regulated medical fees.

It also suggested reducing the burden of hospital licence renewals and reviewing the PHFSA.

The MPC sought commitment from the public and private sectors to remove unnecessary RCC and administrative burden while enhancing regulatory consistency.

Not much has changed since then.

A maze of requirements

The MPC Private Healthcare Productivity Nexus 2023 report stated that the regulatory burdens of the PHFSA “may arise based on the number of interactions (dealings with regulators) and the difficulty experienced; the cost of each interaction (direct cost, overhead and opportunity costs); and the waiting time (delays and their consequences). …

“Documentation requirements include occupational licensing for healthcare professionals in the form of annual practising certificates (APC).

“These requirements have to be cleared first by the various boards, registrars and councils.

“Should there be a delay in any of them, the licensing process is delayed.

“Compounding this burden is submitting the licensing application at least six months before the current licence expires (explicitly stated in PHFS Regulations 138/2006) – a delay in submission results in a heavy fine.

“The occupational certificates need to be collected and duplicated (three copies), and each page needs to be certified as a ‘true copy’ by senior management and then collated for submission. …

“Licensing issues involve the need for the licensee to interact with different units, divisions and regulators within the Health Ministry throughout the licensing process.

“On top of that, the licensee must also engage with other regulators from other ministries, such as local authorities, Department of Safety and Health (DOSH) and Department of Rescue and Fire.

“The roles of all these players are explicitly or implicitly specified in the governing regulation.

“These fragmented processes create enormous burdens for private hospitals.

“The approval for any changes in existing facilities (renovation or upgrading) or expansion of facilities (extension or addition of new facilities) is of concern to private hospitals as the process takes too long with too many interactions.

“There is no differentiation between minor and major changes, as the principal regulator treats all approvals equally.

“When the waiting time for approval takes too long, with an uncertain lead time, it would adversely impede the hospital planning efficiency.

“Process uncertainty and unreliability will unavoidably give rise to unnecessary burdens for private hospitals”.

The Association of Private Hospitals of Malaysia (APHM) Factbook 2024 titled Evolving Landscape of the Private Healthcare System: Contributions, Challenges, and Recommendations reports on the bureaucratic maze of regulatory burdens, including approvals from at least 10 governmental agencies.

The Health Ministry’s handbook titled Submission Process & Harmonisation Of Technical Requirements for private hospitals lists eight processes for establishing a private hospital.

The Health Ministry’s Guidebook On Setting Up & Running Private Medical Clinics In Malaysia estimates the cost of setting up a clinic to be RM190,000-220,000 and the monthly expenses as RM37,000-45,000.

GPs also have the financial burdens of RCC.

For example, the laws related to medicines require constant updating of various registers, which require equipment and staff costs.

Unlike hospitals that can depend on shareholder funds, GPs have to fund their clinic expenditures from their paltry consultation fees, which have been regulated and unchanged since 2006.

Take RCC into consideration

The private healthcare sector receives no subsidies or tax incentives.

The costs of compliance with the requirements of the various laws have to be borne by patients or their payors.

Hospital care is the largest contributor to medical inflation, yet private clinics have drawn much of the ire.

The Federation of Malaysian Consumers Associations (Fomca) claimed in a press release that “Malaysian employer-insured patients between 2016 and 2019 saw consultation fees jump by 113.9%, while medicine costs and volumes dropped – suggesting practitioners were shifting profit strategies in opaque ways.”

However, Fomca did not produce any evidence to substantiate its claim.

This is unhelpful and borders on defamation.

To address medical inflation in Malaysia, all contributing factors have to be considered and this includes RCC, which is substantial.

Yet it appears that RCC has, to date, been ignored by policymakers.

Decision-making has to be based on data and that data has to be comprehensive.

Policies based on skewed data cannot address the problem of medical inflation.

Dr Milton Lum is a past president of the Federation of Private Medical Practitioners Associa-tions and the Malaysian Medical Association. For more information, email [email protected]. The views expressed do not represent that of organisations that the writer is associated with. The information provided is for educational and communication purposes only, and it should not be construed as personal medical advice. Information published in this article is not intended to replace, supplant or augment a consultation with a health professional regarding the reader’s own medical care. The Star disclaims all responsibility for any losses, damage to property or personal injury suffered directly or indirectly from reliance on such information.