There is an over-emphasis on economic incentives and “market discipline” in the health care financing scheme proposed by Australian consultant Karl Karol, points out Jeyakumar Devaraj. Instead of going down Karol's path, the government should improve state-run hospitals, which have been undermined by the promotion of for-profit private hospitals since the 1980s.
The Coalition Against Health Care Privatisation (GMPPK) is strongly against several aspects of the health system model proposed by the consultant. Our reasons are outlined below.
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 per cent of the population get more than 50 per cent of the national income whereas the bottom 40 per cent only get 12.5 per cent. A GST would further worsen the situation because such a tax would disproportionately burden the poor.
As illustrated in the table below, a GST would widen the income gap between the rich and the poor.
Table One: Impact of GST of 10%
% of Income spent
% of income invested or saved
% of income taxed by GST
Poorest 40 %
The GMPPK therefore calls for
• No new taxes on ordinary citizens;
• An increase in the health allocation from the current 2 per cent of GDP to at least 3 per cent;
• The channelling of RM5 billion from Petronas profits to the national health care budget every year. (Petronas profits were some RM80 billion in 2006);
• The channelling of a portion of the RM2 billion worth of levies on foreign workers to the health care budget and the granting of subsidised health care for all foreign workers (at the same charge as Malaysian citizens);
• An end to all out-sourcing or privatisation of health care delivery.
B. Using the National Health Fund to subsidise treatment in Private Hospitals will aggravate the Brain Drain.
One of the key problems affecting the public health sector now is the depletion of the pool of specialists, who are drawn to private hospitals, which are able to offer incomes that are five to ten times higher than those in the government sector. Using the National Health Fund to subsidise treatment in private hospitals will expand the market as now more patients will be able to afford going to the private sector. This will aggravate the brain drain and might lead to the collapse of the public hospitals.
We must not forget the crucial role of the public sector in the overall health system. Not only does it currently cater for 7 per cent of the in-patient load in Malaysia, it is the training ground for housemen, junior specialists and paramedical staff. Also, the distribution of government hospitals is much wider and much more equitable compared to private hospitals. Moreover, treatment costs in the public sector are much cheaper because staff are salaried and not paid fee-for–service as in the private sector.
The GMPPK therefore calls for:
• the 60 per cent increase in funding to be used to rehabilitate the public health sector;
• the setting up of a separate Service Commission for the public health sector staff;
• a moratorium on the building or expansion of private hospitals;
• the 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 overall costs and that patients should be encouraged to seek treatment with family doctors first before going to specialists. But 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 maximising earnings will result in the efficient delivery of public good or service, in this case health care;
• The role of government in society should be reduced for it impairs the allocative efficiency of the free market;
• Corporatised government hospitals operating like private companies will perform more efficiently than the centrally funded government hospitals that exist now;
• The creation of an “internal market” within the health care system will help allocate resources more efficiently and lead to a better output.
In the consultant’s own report, however, 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 arises out of a stated perception that specialists will otherwise over-investigate and over-treat!
To counter these perceptions the GMPPK would like to point out that:
• 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 skills 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.
• The public health care system in Malaysia has performed fairly well up till now. We have achieved a reasonably high level of health care at a fairly low cost – 2 per cent of GDP is really very good – compared to 9.8 per cent of GDP in the UK and 14.5 per cent 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 1980s. 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 originated from the implementation of free-market policies in the health care sector 25 years ago!
• Health care is a “merit good”. The medical treatment of an individual leads to benefits for the community by:
> decreasing the risk of transmission in the case of infections;
> decreasing the dependency ratio by getting the individuals back on their feet;
> reinforcing a sense of social solidarity through sharing the risks associated with ill-health.
The GMPPK’s proposals
For the above reasons, the GMPPK proposes the following:
• 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;
• The government health care budget must be increased to 3 per cent of GDP. Currently, it is barely 2 per cent. 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 Gini Coefficient for Malaysia;
• 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 are:
> Set up a separate Service Commission for health care personnel so that their remuneration can be improved.
> 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.
> 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.
> Do not promote health tourism. The main focus of our health care sector should be to cater to the health needs of our population, and not to bring in foreign exchange.
> Implement schemes whereby the expertise in the private sector is tapped in the teaching of young doctors and other paramedical staff.
A team of independent academicians should be set up to evaluate the cost effectiveness of the privatisation 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 privatisation of the health services in this country.
Until 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.
A National Health Financing Over-sight Committee must be set up to ensure that the funds allocated to health care are properly used. 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 per cent of the members of this committee should be elected by the public. It should be mandatory for Parliament to allocate time to debate the annual report of this committee.
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 for treatment, as this will lead to delays in diagnosis and treatment. A portion of the RM 2billion in leives collected from foreign workers should be channeled to the public health sector, and foreign workers should be charged no more than our citizens.
Any future reform of the public health care system must only be undertaken after informing and getting the feed-back of the Malaysian public.
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