Dr Kumar: Health Care Model neo-liberal to the core

Health Financing Reform

The Consultant’s Interim Report 

Dr Kumar of PSM (right bottom) has been in the forefront of the struggle for a just public health care system for all Malaysians. He has a strong view on the Consultant’s Interim Report – Health Financing Reform. Please take to time to read his in-depth report.



The study commissioned by the EPU and the Ministry of Health with financial sponsorship from the UNDP appears to progressing on schedule. An Interim Report was released in August 2006, and another updated 250* page Interim Report was released in February 2007. There have also been meetings of a “Steering Committee” which has representatives from the Doctors Associations, the Insurance Association, the Association of Private Hospitals and other bodies. Sadly, the government has not seen it necessary to invite any of the consumer bodies in the country to sit on this committee. Neither have health advocacy groups such the Citizens Health Initiative or the GMPPK (Coalition Against the Privatisation of health Care) been invited, although the latter has been most pro-active in presenting ideas regarding Health Care Reform. The Final Report is expected in May 2007.


What is the thrust of the Consultant’s recommendations? Will the recommendations lead to an amelioration of the problems besetting our Health Care System? Or do we have cause to be worried?

The Consultant’s Main Recommendations 

The Consultant, Karl Karol from Australia, has done a thorough review of the various studies and surveys that have been done prior to this, and to his credit, has summarized the major findings of these previous studies clearly. However he has then has gone on to endorse the Government’s conception of the future Health Care Model for Malaysia, with only a few minor refinements. The main features of the model being proposed are neo-liberal to the core in that

         the funding for health care is to be from the people and not from general taxation;.

         government hospitals are to be corporatised so that they will function like companies, so that they may be rendered more efficient through market discipline;

         there will be integration of the primary care sector, the government hospitals and the private hospitals under this scheme;

         the “internal market”, financial incentives and the profit motive shall be the main driver of the system;

The diagram below summarises the main features of the model proposed by the consultant.

Health Financing Model; The Consultant’s Proposal 







The main features of the Health Financing Model proposed by the Consultant are

1. A National Health Financing Fund that will be owned by and controlled by the government through the “National Health Financing Authority” that will be set up by Parliament.

2. This Fund will receive income from an “ear-marked” VAT (Value Added Tax or GST). It may also receive some input from General Taxation especially in the initial period.

3. The National Health Fund will pay for all treatment of the illnesses listed under the Essential Health Care Benefit (EHBP) with the proviso that the patients must first go to the GP he is designated to. If Specialist Referral or Hospital admission is required it must be done by the patient’s GP. The fund will not pay up if the patient by-passes the GP and goes straight to the specialist or hospital himself.

4. All GPs in the country will be brought under the scheme, and they will all be allocated a certain number of patients. The GPs will be paid a capitation sum based on the number of patients registered under them. They will get the same income per patient whether the patient comes to their clinic 10 times in a year or not at all. They have to treat the patients registered under them for free.

5. Government Hospitals will no longer get an annual budget. They will be paid by the amount of clinical service they provide. All illnesses listed in the EHBP will be classified as Diagnosis Related Groups (DRGs). Each DRG will be rewarded a certain payment that will be specified in the EHBP. For example, treatment for Appendicitis may be RM 1000, and this will be irrespective of whether there are any complications or the length of the hospital stay. APrivate
Hospital that handles an appendix case will also get the same payment from the National Health Fund. The idea is that this competition with Private Hospitals will help make Government Hospitals “leaner” and more “efficient”.

5(b) To prevent over investigation and treatment by the Specialists, the Model envisages that the GPs will become “Fund Managers” for the initial part of specialist care for the patients registered under them. In other words each GP will be given a fund for referring patients to specialists. If they stay within their budget, the GP will get a hefty bonus. If the GP exceeds this referral budget, he may face a financial penalty! The purpose of this mechanism is to make GPs efficient Gate-Keepers and to prevent abuse of the system by both patients and the specialists!

6. Private Insurance will be allowed for illnesses that are not covered by the EHBP as well as to cover specialist costs that are not through the proper GP referral system.

GMPPK Critique 

The GMPPK is strongly against several aspects of the Health System Model proposed by the Consultant. Our reasons are –

A. The GST is a regressive tax. 

Income distribution in Malaysia is getting increasingly skewed in favour of the rich in all communities. At present the richest 20% of the population get more than 50% of the National income whereas the bottom 40% only gets 12.5%. A GST would further worsen the situation because a GST burdens the poor proportionately more.


Table One: Impact of GST of 10%

Economic Class

% of Income spent

% of income invested or saved

% of income taxed by GST

Richest 10%




Poorest 40 %




Poorest 10%



As illustrated in the table above, a GST would widen the income gap between the rich and the poor.


The GMPPK therefore calls for

         no new taxes on ordinary citizens;         Increase of the health allocation from the current 2% of GDP to at least 3%.         Siphon RM 5 billion from Petronas profits to the Health Budget every year. (Petronas profits were some RM 80 billion in 2006)         Channel a portion of the RM 2 billion worth of levy collected from foreign workers to the Health Budget and give all foreign workers subsidized health care at the same charges as Malaysian citizens;         Stop all out-sourcing or privatization of health care delivery.   

B. Using the National Health Fund to subsidise treatment in Private Hospitals will aggravate the Brain Drain.  

            Table Two: Distribution of Specialists in Malaysia 1999



Table Two above highlights one of the key problems affecting the Public Health Sector now – the depletion of the specialist pool who are drawn to the private hospitals which are able to offer incomes that 5 to 10 times higher than the government sector. Using the National Health Fund to subsidise treatment in Private Hospitals will expand the market as now more patients can afford going to the private sector. This will aggravate the brain drain and might lead to the collapse of the public hospitals.  

However we must not forget the crucial role of the Public Sector in the over-all health system

         not only does it now cater for 70% of the in-patient load in

         it is the training ground for housemen, junior specialists as well as paramedical staff;

         the distribution of government hospitals is much wider and much more equitable compared to Private Hospitals;

         Treatment costs are much cheaper because staff are salaried and not paid fee-for–service as in the private sector.

The GMPPK therefore calls for

         using the 60% increase in funding to rehabilitate the Public health sector;         setting up of a separate Service Commission for the Public Health Sector staff.         A Moratorium on building or expanding the Private Hospitals.         Shelving of Health tourism. 

C. Creating financial disincentives to discourage consultation/referral by the Family GP 

The GMPPK agrees that good Primary Health Care will help cut over-all costs and that patients should be encouraged to seek treatment with family doctors first before going to  specialists. However the creation of “fund-holding” mechanisms and financial penalties for referring too many patients will undermine the patient-doctor relationship and may lead to delays in referral.

“Homo Economicus” : Over-Reliance on Economic Incentives. 

There is an over-emphasis on economic incentives and “market discipline” in the model proposed by Mr Karl Karol. This appears to be based on the following beliefs which are shared by neo-liberal economists and planners

         People respond best to monetary incentives.

         Ordinary men and women pursuing their self-interest in maximizing earnings will result in the efficient delivery of a public good, in this case Health Care.

         The role of government in society should be reduced for it impairs the allocative efficiency of the free-market.

         A corporatised government hospital operating like a private company will perform more efficiently than centrally funded government hospitals that exist now.

         Creating an “internal market” within the health care system will help allocate resources in a more efficient manner, and will lead to better output.

However in the consultant’s own report there is an awareness that relying on financial incentives and market mechanisms will make the main players more money minded. This in turn may lead to abuse and over-use of the system. Therefore there is a need to create safeguards. For example, the proposal that GPs should become “fund-holders’ for specialist treatment rises out of an explicitly stated perception that specialists will otherwise over-investigate and over-treat!

To counter these perceptions the GMPPK would like to point out that

1. Doctors and other health staff have been working sincerely in the public hospitals for the past 50 years and more. Many doctors and other health staff work past their official hours as they want to get the job done. Financial reward is not the only motivation for work. People take pride in their work, in improving their skill and competence, and in solving problems. Peer recognition and patient satisfaction are also important incentives. Of course people like to get a decent income, and the GMPPK wants a review of the pay-scales for public sector health staff. But this is far removed from the consultant’s thrust to revamp the entire system to make it run on the financial incentive alone.

2. The Public Health care System in
Malaysia has performed fairly well up till now. We have achieved a reasonably high of health care at fairly low costs – 2% of GDP is really very good – compared to 9.8% of the GDP in the UK and 14.5% of GDP in the
US! The weaknesses that have developed in the welfarist model were not internal to the model, but were brought on by the promotion of for-profit private hospitals on a large scale since the 1980’s. This is what led to the exodus of experienced specialists and trained staff from the public sector, and this is the main cause of the perception that treatment in government hospitals is inferior to that in the private sector. It is indeed ironic that free-market solutions are being suggested to solve problems that arose in the first instance from the implementation of free-market policies in the health care sector 25 years ago!

3. Health care is a “merit good”. The medical treatment of an individual leads to benefit for the community through

– decreasing the risk of transmission in the case of infections;

– decreasing the dependency ratio by getting the individual back on his feet;

– reinforcing a sense of social solidarity through sharing the risks associated with ill-health.

For the above reasons the GMPPK proposes the following –

1. It is the responsibility of the Government to ensure that all citizens and other residents of
Malaysia have equitable access to safe and adequate health care. No one must be denied proper care because of lack of means.
 2. The Government Health Budget must be increased to 3% of the GDP. Currently it is barely 2%. This increase should come from General Taxation as well as from Petronas Revenue. There should not be any GST or Special Pay-roll taxes to supplement the Health Budget as such taxes are not appropriate given the deterioration in the Malaysian Gini Coefficient.  3. The Public Health Care System must be strengthened as it is both cost-effective and equitably distributed. The measures that the Government should implement to achieve this area/ Set up a separate Service Commission for Health Personnel so that they remuneration can be improved.b/ Allocate a larger budget to offset co-payments that are now being borne by patients, the degree of subsidy depending on the economic status of the patient. c/ Freeze the development of Private Hospitals – Do not permit the setting up of any more new private hospitals and control the expansion of the existing hospitals.d/ Do not promote Health Tourism. The main focus of our health sector should be to cater to the health needs of our population, and not to bring in foreign exchange. e/ Implement schemes whereby the expertise in the Private Sector is drawn to teach the young doctors and other paramedical staff.    4. A team of independent academicians should be set up to evaluate the cost effectiveness of the privatization exercises involving the Public Health Sector. The findings of this team should be made available to the Malaysian Public so that we can make an informed decision whether we wish to have any further privatization of the Health Services in this country. 5. Until such time the above study is released to the Public, there must be a strict Moratorium on all further privatization and/or “outsourcing” of components of the Public Health Care Sector. 6. A National Health Financing Over-sight Committee must be set up to ensure that the funds allocated to Health Care are properly utilized. Adequate funds should be made available for this committee to perform its watch-dog function effectively. The SUHAKAM model of staffing and funding can be considered, but at least 50% of the members of this committee should be elected by the public. It should be mandatory that Parliament allocates time to debate the annual report of this committee.  7. The Health Status of the 2 million foreign workers in
Malaysia should be of concern to us all. The Government must reverse the current policy of charging these patients higher rates when they come to government health facilities, as this will lead to delays in diagnosis and treatment. A portion of the RM 2 billion levy collected from foreign workers should be channeled to the Public Health Sector, and foreign workers should be charged no more than our citizens. 
  8. Any future reform of the Public Health Care System must only be undertaken after informing and getting the feed-back of the Malaysian public. 



Jeyakumar Devaraj


Dr Jeyakumar Devaraj is the secretary of the Coalition Against the Privatisation of Health Services.


One Response to “Dr Kumar: Health Care Model neo-liberal to the core”

  1. KS Tan Says:

    GST is crap!

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