In transition: The system prepares for change as part of the move towards universal coverage

Under Malaysia’s 2012 budget, the health services sector was allocated RM15bn ($4.8bn) for operating expenditure and RM1.8bn ($580.6m) for development expenditure. The total budget for 2011 was RM15.2bn ($4.9bn) and for 2010, it was RM14.8bn ($4.7bn). Malaysia spends 4.1% of its total annual expenditure on the public health care sector, making it the third-lowest spender among ASEAN countries, above Myanmar and Laos. Thailand tops the list with 14% and Singapore spends 7.8% of its total expenditure on public health care. Government health spending increased 10% in 2011, but the overall share, as part of GDP, is still comparatively low. This is offset by a large private sector and relatively high out-of-pocket health spending.

SOLID SYSTEM: A large majority of experts, from the World Health Organisation to the World Bank and the OECD, have agreed for some time that the Malaysian health system is comparatively solid, improving in terms of results and delivering good quality care at relatively low costs. The government therefore is likely to keep sharing the burden of health spending with the private sector (out-of-pocket, insurers, service providers, investors and charitable organisations) as Malaysia’s health sector seems to be on the right track. Conscious of its strategic advantages in this field, the government has developed policies designed to capitalise on the health sector for economic development, as well as keeping the system’s excellent overall rating intact for the population and health workers. Health care is identified by the government as one of the 12 National Key Economic Areas (NKEA) under the Economic Transformation Programme. The health care NKEA is expected to generate gross national income (GNI) of RM42.2bn ($13.6bn) by 2020. To date, 13 entry-point projects (EPPs) have been identified under the NKEA: private health insurance for foreign employees, a supportive ecosystem to grow clinical research, generics export, reinvigorating health tourism, creating a diagnostic service nexus for telemedicine, developing a campus for health care and bioscience, tapping into the fast-growing invitro diagnostics market via academic-industry partnerships, creating the next generation of single-use devices, building a centre for high-value medical device contract manufacturing, creating clinical devices champions, orchestrating the contract manufacturing supply chain, developing a medical equipment refurbishment centre, and building a medical hardware and furniture manufacturing cluster.

Malaysia’s total (private and public) spending on health care was estimated at 4.4% of its GDP in 2011, unchanged from 2010. The public sector’s share of total expenditure on health is also stable and hovering around the 54-56% range since 2007. Private sector services account for most of the health care industry in Malaysia, in terms of number of hospitals, but not in terms of number of beds, as government hospitals tend to be larger than private ones.

Estimates from Frost & Sullivan forecast private sector revenue would reach RM13.8bn ($4.5bn) by 2015, up from RM7.5bn ($484m) in 2011. Typically skilled, and in high demand domestically and on the global market, health personnel are important to the government’s plans to save the country from the middle-income trap. Over 260,000 new jobs are due to be created through the healthcare NKEA by 2020.

UNIVERSAL INSURANCE & COVERAGE: Currently, 40% of Malaysians (10.8m people) are medically insured through complementary or full private policies. Private health insurers accounted for 12.7% of total health spending in 2009, three times its share from a decade earlier. Most Malaysians with private insurance are covered by job benefits. The remaining 60% of Malaysians are not covered, but can access free care by attending Ministry of Health centres.

The increasing availability of tailored medical insurance packages in Malaysia, and the raised awareness of the urban population on the value of private health insurance has led to more Malaysians taking out policies. There are 27 registered medical insurance providers operating in Malaysia, nine out of which also provide life insurance. In 2010 the written premium for general medical insurance was estimated at RM643.5m ($207.5m) and is forecast to grow to RM1.5bn by 2016.

In a move to improve access to care, clinics are being established in a number of urban areas to provide fast and cheap treatment for disadvantaged and geographically isolated citizens. Part of the government’s 1Malaysia plan, some 119 1Malaysia Clinics have been opened to date. The clinics are staffed by experienced assistant medical officers and nurses. Out-of-pocket cost for treatment is symbolic – just RM1 ($0.32) – to ensure that financial barriers are as low as possible. Mobile 1Malaysia clinics are also being deployed in rural areas where coverage might otherwise be inconvenient. Some 175 new clinics were expected to open by the end of 2012.

HEALTH METROPOLIS: The Universiti Malaya Health Metropolis, which is expected to be fully operational by early 2016, will potentially contribute RM986m ($318m) in GNI and create an estimated 10,400 new jobs by 2020. Construction works on the metropolis are expected to start in 2013 in Petaling Jaya; the RM1.25bn ($403m) investment being 90% private and 10% from the government’s Economic Planning Unit’s (EPU) facilitation fund. The health metropolis brings together health care education and research, working in close collaboration with health care providers and industry. Interested parties include universities like MAHSA University College, medical centres like Pantai Group, International Specialist Eye Centre (ISEC), Kumpulan Perubatan Johor (KPJ), Gribbles and Forest Medical Centre, as well as American multinational General Electric. Grants from the Ministry of Higher Education will be complemented by tax breaks from the Ministry of Finance for firms that qualify under the health metropolis status.

For infrastructure development to start, zoning permission and construction plans must be greenlit by municipal and state authorities, which has so far delayed the project by about a year. The Land Transport Commission is also expected to build a mass rapid transit station, provide public transport and approve the construction of new car parks in the health metropolis by 2015.

PUBLIC, PRIVATE & PPP PROVIDERS: There are in effect five types of Malaysian hospitals: public sector; for-profit and non-profit private sector; corporatised (formerly public sector and non-profit, but now fully government-owned but profit-oriented); and for-profit “private sector” hospitals partially or fully-owned by the government.

Public hospitals and primary care clinics, i.e. directly run by the Ministries of Health, Defence, Higher Education and Women, Family & Community Development and other public entities, currently account for 70% of the Malaysian health system. In its 2012 budget, the health ministry allocated RM15bn ($4.8bn) for health services operations and RM1.8bn ($580m) for development. Strong government commitments to provide uninsured Malaysians with health services are evident, but also depend on a dynamic private sector to care for the insured and the growing number of health tourists. Including not-for-profit faculties, there are almost twice as many private hospitals as public ones, but public hospitals are usually larger with higher occupancy.

Sizeable “private sector” for-profit hospitals that are partially or fully-owned by the federal or state government include the KPJ hospital chain, which is owned by the Johor Corporation, itself an arm of the Johor State government. KPJ, which operates 21 hospitals across Malaysia, accounts for 22% of the national private health care services market.

The chain’s net profit was RM142m ($45.8m) in 2011, up 20% from 2010. Six hospitals at various stages of completion will become operational between end-2012 and 2015. It also invests in human capital development through its KPJ International University College of Nursing and Health Sciences (KPJUIC). This allows KPJ to better mitigate staffing issues on its health services component.

A new KPJUIC Bukit Mertajam campus and Nilai branch expansion are under way, an investment of RM120m ($38.7m) that should see student intakes topping 10,000 by 2017, quadrupling current numbers. IHH Healthcare, another provider, launched its initial public offering on the Kuala Lumpur and Singapore markets in mid-2012, raising over $2bn. Initially a PPP, IHH is majority-owned by the Malaysian sovereign wealth fund Khazanah Nasional; other notable shareholders include Japan’s Mitsui and Dubai’s Albraaj Capital. The company has a staff of 24,000 in 30 health care centres in Malaysia, as well as China, Singapore and Turkey.

Looser government regulation since the 1990s also saw the emergence of private for-profit hospital chains, such as IHH-majority-owned Pantai Hospitals, Sunway Medical Centre and Gleneagles Malaysia. Gleneagles is expanding its hospitals in Kuala Lumpur and Penang from 380 to 2000 beds by 2020. Foreign service providers are also making an appearance, turning Malaysia into a key regional health care player (see analysis).

HEALTH PROFESSIONALS GETTING BETTER: In 2011 there were 3000 registered nurse positions advertised in the public sector alone. The Ministry of Health estimates that 16,000 additional nurses would be required to reach the nurse-to-population ratio of 1:200, another goal set for 2020. Currently, there are 75,000 nurses working in the private and public health sector. Malaysia currently has 33 medical schools, producing about 3500 graduates per year, according to the Ministry of Health. In 2011 some 21,747 of the 33,000 doctors licensed to practice in Malaysia worked in the public sector.

The government’s goal is to reach 85,000 doctors by 2020, but most Ministry of Health facilities are still short of doctors, particularly specialists, who are few in number and likelier to be snapped up by the private sector or go overseas. This is even clearer in more rural regions: in Sarawak, only 151 out of 169 vacancies for medical specialists in the state had been filled. Numerous schemes have been introduced to incentivise work in public health, such as allowing locums, establishing private wings in public hospitals and direct salary increments. The difference with private sector remuneration remains considerable, but has narrowed, slowing the “internal brain drain” from public to private facilities that was evident a few years ago.

BRAIN DRAIN: Recent speculation on a forthcoming glut of doctors notwithstanding, Malaysians are increasingly attracted by the medical profession. The Malaysian Medical Association estimated that there were around 15,000 medical students (all cohorts, institutions and specialties combined) in Malaysia, but at least 25,000 Malaysians are currently studying medicine abroad. These overseas students’ rate of return to Malaysia is thought to be quite low.

Brain drain from the public sector remains a serious issue for the country’s health system, particularly for non-bumiputera (indigenous Malaysians), who are overrepresented among emigrating Malaysians. The World Bank’s Malaysia Economic Monitor estimated that 81% of migrants from Malaysia in 2011 were ethnic Chinese. The Malaysian diaspora is now approximately 1m strong, one-third of who are skilled or highly skilled, and 57% of who are residing in Singapore.

PRODIGAL CHILDREN: The Malaysian Talent Corporation, set up by the government, incentivises expatriate Malaysians back to their home country with its Returning Expert Programme, a package of tax breaks and facilities for family settlement. Though data are scarce, it appears that some return-migration has started to take place, particularly among doctors, as pay, as well as living and working conditions have become more attractive over the past few years, particularly since the 2008 global economic crisis.

Until 2011, there were four teaching hospitals in Malaysia, all of them public: International Islamic University Malaysia Teaching Hospital, Hospital Universiti Sains Malaysia, Universiti Kebangsaan Malaysia Medical Centre and Universiti Malaya Medical Centre. But growing demand for skilled health workers means more of these institutions, with public or private, are needed. The new Perdana University Hospital, a 600-bed, RM2.5bn ($806.5m) project, was launched as a private-public partnership and is due to be fully operational by 2014. It will have a 1000-strong medical student body, which will be 90% Malaysian, and is expected to become the largest medical teaching facility in the country.

HEALTH TOURISM GROWTH: For the past decade, health tourism has boomed in Malaysia, growing by 20% every year in 2009-12. Malaysia’s target is to reach RM9.6bn ($3bn) in revenue from 1.9m foreign patients by 2020. The Malaysia Health Care Travel Council (MHTC), established under the Ministry of Health, is the primary agency to develop and promote health tourism. To better promote Malaysia as a medical tourism centre, the government offers tax incentives, including 100% income tax exemption on revenues from foreign patients. Malaysian Customs now allows foreign patients easier access and means to be granted visas upon arrival at airports or borders, in case of a medical emergency. The MHTC recently reviewed its 2012 revenue and patient number projections to take into account the success of the previous year. In 2011, revenue from health tourism grew 34.5% and patient numbers ballooned 47.2% from 2010 to just under 580,000, outperforming initial projections by 180,000. The MHTC forecasts that gains will be built on this year, and that patient numbers should break the 600,000 mark. Revenue in 2012 is expected reach RM548m ($176.8m), an increase from RM509.77m ($164.5m) in 2011 and RM299.1m ($96.5m) in 2008.

Health tourists are overwhelmingly from ASEAN countries (85-90 % of patients). Other patients come from Japan, Australia, the Middle East and Europe. The MHTC is reaching out to new markets, such as Bangladesh, India and China, where Malaysia’s cultural and linguistic commonalities, coupled with its proximity, competitive costs and high standard of care are most valuable. Foreign patients most often come to Malaysia for highly specialised treatment in cardiology, orthopaedics, IVF and oncology, but demand for cosmetic surgery and dental treatment has also been increasing. The opportunities in traditional and homeopathic medical tourism are also high. “Malaysia has great potential as a strategic location for alternative medicine due to its positioning between India and China,” Dr Zainuddin Wazir, the president of Allianze University College of Medical Sciences, told OBG. “The country’s intimate knowledge of alternative complimentary medicine such as homeopathy, naturopathy, ayurvedic, and traditional Chinese medicine puts Malaysia in a category of its own.”

A KEY PLAYER IN HEALTH SERVICES: The BP Healthcare Group is becoming one of Malaysia’s private health care services giants, but focuses on more specialised services than KPJ or Gleneagles. Carving out its own niches, the group now boasts 70 laboratories, 50 diagnostic centres, 50 hearing aids centres, 50 dispensaries and pharmacies, 50 food and industrial testing centres, three specialist dental clinics and five specialist day care centre. It is becoming a leader in health. It is becoming a leader in health product distribution and retail beyond the borders of Malaysia. “Our main focus is on the domestic market, but we have expanded our operations to Indonesia. We are set to open our Indonesian branch by the end of 2012,” Chevy Beh, BP Healthcare Group’s director for investment and finance, told OBG. “We opened 18 new centres in 2011. We have changed our model and are achieving growth by opening more outlets, increasing traffic flows and number of services available in each one, as well as bringing our costs down.” Because they already have experience in organising dispatch and delivery logistics through their lab testing and diagnostic operations, BP Healthcare has followed the bricks and clicks model for their other products, especially pharmaceuticals, which is widening their customer base to online retail. BP benefits from strong economies of scale with 300 logistics staff crisscrossing Malaysia, now with medicines as well as blood samples. Beh stated that BP’s direct online sales have doubled from 2010, and that the lab testing and diagnostics divisions grew 40% and 45%, respectively, in the same timeframe. The group is the largest player in the local hearing aids market, which is still relatively untapped, as BP estimates that up to 30% of the population could use a hearing aid. Unlike socially acceptable glasses and contact lenses, the main stumbling block is to get people with hearing loss to admit they have a condition and to wear an aid. This is especially true for younger people, although after the iPod years, hearing loss is now fast becoming a major public health issue.

Building on its existing strength, BP Healthcare Group is already looking at the next decade and opportunities in research and development partnerships. “We would like to find some university partners to help them with commercialisation. Right now, we collaborate with them on research on three fields: hearing, radiology and eye examinations,” Beh told OBG. So far, commercialisation of Malaysian products has remained elusive, however, the government, the private sector and the universities are certainly working towards achieving this goal.

PHARMA RESEARCH: The Ministry of Health forecast that Malaysia’s burgeoning pharmaceuticals industry would export RM610m ($196.7m) of medicines in 2012, a year-on-year growth of 8%. Exports in palm oil-based medicinal products were worth RM600m ($193.5m) in 2011. Domestically, the Malaysian Organisation of Pharmaceuticals Industries (MOPI) estimates that the Malaysian pharmaceuticals market grew 10% per year over the past decade. The market for traditional medicines, and health and food supplements is estimated at a RM3bn ($967.8m). It is a completely liberalised market: herbal/traditional and medical products manufacturers, distributors and retailers are not subject to any government price controls. Local companies are joined by two big pharmaceuticals multinationals producing in Malaysia, GSK and Ranbaxy, as well as German drug and medical devices manufacturer B. Braun AG. According to the Association of Malaysian Medical Industries, Malaysian exports of medical devices are projected to attain RM12.5bn ($4bn) in 2012, up from RM11.7bn ($3.8bn) in 2011.

Pharmaceuticals companies have started to conduct clinical trials in Malaysia, particularly over the past decade. But progress needs to be increased if Malaysia is to become one of the region’s primary medical centres. The government’s Economic Transformation Programme laid out a path for developing clinical research in Malaysia using the following strategies: 1) Corporatise Clinical Research Malaysia (CRM), the Ministry of Health’s contract research unit, to improve cooperation and coordination of the industry-sponsored clinical research industry. CRM acts as a clearing house for research funding and provides assistance in business development, training and marketing. 2) Increase clinical research sites in public, teaching and private hospitals. 3) Create a pool of investigators and site coordinators. 4) Provide solutions to patients looking for clinical trial opportunities and meet the patient requirements of the industry. With 45m outpatient visits and over 3m hospital admissions, the multi-ethnic Malaysian nation has many potential patients to recruit for trials. 5) Improve ethical guidelines and ease the regulatory processes. 6) Attract more international and domestic investors to conduct trials in Malaysia. 7) Increase contract research organisations (CROs) and site-management organisations, particularly local CROs that focus on non-communicable diseases, cardiovascular diseases and tropical infectious diseases. 8) Build Malaysia's reputation as centre for clinical trials. The CRM conducts domestic and international marketing campaigns to profile Malaysia’s suitability for medical research. 9) Expand the scope to conduct early study phases and trials. 10) Facilitate bioavailability and bioequivalence development.

ON TRIAL: According to the Centre Watch Clinical Trial Listing Service, there are 46 clinical trials currently under way in Malaysia. Some are being undertaken by global leaders: French pharmaceuticals and vaccine maker Sanofi Pasteur is conducting phase-three trials for its promising dengue fever jab in Malaysia (along with nine other Asian and Latin American countries). Malaysia has established a good track record for phase-three and -four trials. Other clinical trials are being funded by other sectors of the economy, such as the current research undertaken by the University of Malaya on preventive drugs using palm oil derivatives, which is financed by the Malaysian Palm Oil Board. The expansion in biotechnology is starting to foster more skilled researchers, a crucial part of the ecosystem for domestic drug development. Another key human resource, pharmacists, had until recently been required to do three years of compulsory service in the public sector before they could attain their degree. In late 2011 the Ministry of Health lowered the length of service to one year. Although done with the interest of research and private sector growth in mind, the idea caused a temporary oversupply of pharmacists in 2012. Critics also point out that less-experienced pharmacists may not be the best way to address the lack of skilled labour decried by many in the high-tech and research sectors.

To incentivise the Malaysian pharmaceuticals industry to be more proactive in exports, the 2011 Pharmaceuticals Off-Take Agreement-Government Procurement for New Local Manufactured Pharmaceuticals” scheme enables the Ministry of Health to procure locally manufactured medicines and medical devices for a set timeframe. For the contract to be renewed, firms have to register products abroad before the first limited-time contract is due.

FOREIGN DOCTORS: Private health care facilities employ 2000 of Malaysia’s 5000 specialists, although some may be recruited overseas (from Indonesia and India in particular), as living standards and earning potential is higher in Malaysia than some other countries. Doctors may be hired by the facility operator itself, but more often act as independent consultants within the hospital and pay rent for hospital space for their practice, all income being derived according to the medical procedures performed. This model is good for the facility operator, which is able to limit personal liability and maintain a steady income.

Some doctors, however, claim that this increases their workload and responsibility to very high levels. Compensation, however, was not keeping up. Doctors’ and specialists’ fees were set in 2002 by the Regulations of the Private Health Care Facilities and Services Act. In July 2012, the government announced that it would raise the fee limit by 14% for the first time in 10 years. The figure was deemed too low by the Malaysian Medical Association and too high by consumer groups. The hike was expected to be effective by end-2012. Combined with increasingly attractive public sector working conditions and pay, this explains why there now seems to be fewer doctors “draining” into the private sector.

OUTLOOK: Growth prospects for Malaysia’s health care sector are good. More hospitals are being built and more doctors and nurses are being trained to staff them. Government and private spending is increasing, but with room to rise further, in comparison with neighbouring countries. On the other hand, research and clinical trials are still too limited, universal coverage has become over-politicised and health personnel are still attracted to jobs abroad.

By 2015, at least 17 new private hospitals are expected to open their doors and add 4500 beds. Expansion plans at three other hospitals are to create an additional 770 beds. Total investment in private hospitals is estimated at RM4.8bn ($1.5bn), and the sector is expected to be worth RM14bn ($4.5bn) by 2015. Internal demand is unlikely to let up, given that Malaysia’s economic growth is coupled with its demographic transition. There were 1.4m elderly Malaysians in 2000, but that figure is forecast to reach some 3.4m by 2020. Out-of-pocket disbursements, historically 70-75% of total private health care spending, are not about to stop. Supported by an expanding economy and rising demand, the sales of prescription drugs and over-the-counter medicines are expected to reach $2.45bn in 2015. Also in the sector, drug research, manufacturing and clinical trials have been benefitting from government attention, particularly in the last couple of years.

So far, it is hard to gauge if the policies implemented to support the sector have been completely successful, but the government has set the scene for long-term growth. In mid-2012, the minister of health signed a memorandum of understanding with Swiss pharmaceuticals giant Novartis to establish the Novartis Venture Fund, which will give $700m to creating more health care start-ups in Malaysia. Drug development takes time and effort before returning a profit, but Malaysia is well on that path.