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The DRG system categorises hospital services based on patients’ clinical diagnoses and applies fixed rates for treatment, aiming to better control healthcare costs and standardise reimbursement rates. – Bernama photo

KUCHING (Jan 3): The proposal for a diagnostic-related group (DRG) system will offer a clinically meaningful framework for grouping patients with similar characteristics and resource consumption patterns, enabling more efficient hospital payment structures.

According to Bank Negara Malaysia (BNM) and the Ministry of Finance (MOF), approximately six out of ten revised medical and health insurance and takaful (MHIT) policies experienced premium increases of up to 20 per cent in 2024.

The rising utilisation of treatments in private hospitals continues to drive the escalation of MHIT claims, further straining policyholders and insurers.

As private healthcare costs increase, many individuals are expected to shift their reliance to government health facilities, further stretching overcrowded public hospitals.

To address the rising MHIT claims, the MOH has proposed the adoption of a DRG system. This case-mix complexity framework categorises hospital services based on patients’ clinical diagnoses and applies fixed rates for treatment, aiming to better control healthcare costs and standardise reimbursement rates.

By implementing this approach, the MOH seeks to balance cost management while maintaining quality healthcare delivery, commented researchers with Public Investment Bank Bhd (PublicInvest Research).

However, if DRGs lack homogeneity in resource use, the research firm said performance comparisons may become unreliable, leading to over- or under-reimbursement for a significant number of patients.

“We believe the implementation of the DRG system is still at its infancy stage in Malaysia, given the challenges in capturing detailed cost and pricing data,” it said in an analysis.

“A well-maintained DRG system is critical for balancing cost control with equitable hospital funding and patient care.

“Furthermore, successful adoption requires policymakers, hospital management, and clinicians to thoroughly understand the DRG system, with comprehensive training to enable stakeholders to interpret DRG-based performance indicators and adapt internal processes accordingly.”

To recap, DRG was first introduced in the US, starting in New Jersey in 1980 and later adopted federally for Medicare in 1983. Many countries have since incorporated DRG into their healthcare systems to control costs, improve efficiency, and standardise reimbursements.

Hospitals currently utilising the DRG system to classify patients into distinct groups based on clinical relevance and similar resource consumption patterns, enabling more standardised and efficient payment structures.

Each DRG is assigned a specific cost weight or tariff, calculated using average treatment costs from prior data across hospitals.

Depending on the system, hospitals receive either DRG-based case payments or budget allocations. Under this model, hospitals bear financial risk for costs exceeding the set rate but benefit from cost savings.

This incentivises hospitals to lower costs per admission and potentially increase admission volumes.

“The DRG system faces several challenges, including concerns about shortened hospital stays, early discharges compromising patient care, and a shift away from personalised medicine due to standardised patient categorisation,” said PublicInvest Research.

“While it promotes cost-effective technological innovations, it discourages adoption of costlier advancements unless payment frameworks are updated.

“Moreover, private hospitals under fixed payment models may prioritise simpler cases, transferring high-risk or complex patients to public hospitals.

“Patients with diagnoses not within DRG categories may also be redirected to public facilities, further straining the public hospitals with longer waiting times and reduced overall treatment quality.”

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DRG system to address healthcare challenges from policy premium increases

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