KUALA LUMPUR (June 18): The Ministry of Health (MOH) has reaffirmed that private healthcare providers will still be required to implement the diagnosis-related group (DRG) system, although the initial rollout will be limited to selected public hospitals.

Health Minister Datuk Seri Dr Dzulkefly Ahmad said the official implementation timeline for the DRG system — a diagnosis-based fixed payment mechanism — will be determined by a newly established joint ministerial committee, co-chaired by the finance and health ministers, alongside Bank Negara Malaysia (BNM) and private sector stakeholders.

“DRG is a diagnostic-related group system, a remuneration system that is meant for both public and private healthcare providers — though more crucially, the private sector,” Dzulkefly told reporters after concluding a panel session at the Sasana Symposium 2025, hosted by BNM.

“This is the most standardised, fair, and equitable system — one that ensures transparency and helps prevent overcharging ... it categorises treatment based on diagnosis, procedures, and complications," he said. 

Dzulkefly emphasised that containing medical cost inflation, especially within the private sector, is a key objective of the reform. “The question is how and when we will implement it. That is not a decision for MOH alone — it involves collaboration with the Ministry of Finance (MOF) and BNM.”

“There will be three parties involved in executing this — MOH, MOF, and BNM — because health financing reform is not something MOH can undertake alone,” said Dzulkefly during the panel session on Rising Cost, Rising Stakes: Expediting Reforms to Address Medical Inflation. 

The newly established joint ministerial committee will be tasked with accelerating reforms under Malaysia’s broader Reset agenda — a coordinated strategy to address rising medical costs and improve health system sustainability through structural transformation.

Separately, Finance Ministry secretary general of Treasury Datuk Johan Mahmood Merican said that key elements of the Reset strategy, including the rollout of a base medical insurance product, are expected to be piloted by 2026. This will form a foundational layer to support DRG-based payments and ensure coverage for essential services, he noted. 

Johan added that the committee will also explore co-financing models involving the Employees Provident Fund, private insurers, and other payers to make healthcare more affordable without over-reliance on public funds. Among the instruments being considered are tiered pricing mechanisms, public-private hybrid facilities, and broader use of digital records to reduce cost duplication.

“Our goal is to ensure access, affordability, and sustainability — but we recognise that no single ministry can fix this alone. Reform must be whole-of-government and whole-of-nation,” he said during the same panel session.

The health minister also acknowledged that containing private sector medical inflation is a core objective of the reform, and that DRG provides a more equitable, predictable, and standardised payment mechanism compared to the current fee-for-service model.

“When you group procedures and diagnoses into fixed categories with defined payment rates, there is no room for overcharging. DRG establishes fairness — both for patients and payers,” Dzulkefly said. 

He also noted that DRG forms part of the ministry’s broader shift towards value-based healthcare, where providers are reimbursed based on outcomes and cost-effectiveness rather than volume of services. 

Private healthcare operator IHH Healthcare Bhd (KL:IHH) has previously told The Edge that the implementation of the DRG system that includes private entities had been delayed due to challenges in adapting the fixed-rate model to private hospitals. 

In a nutshell, the DRG system categorises patients based on classifications of diagnoses and procedures. The patients are charged fixed rates based on those classifications, regardless of the final cost of treatment.

The DRG rollout is meant to be a follow-up to BNM’s temporary measures, such as a three-year cap on medical insurance premium hikes.

The government originally planned to launch DRG by mid-2025, conditional upon amending the Private Healthcare Facilities and Services Act 1998 to mandate the payment model. 

Updates to the Act are yet to be made. It is unclear if the amendment will be tabled in the upcoming Dewan Rakyat session, scheduled for July 21 to Aug 28.

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