Room for more hospitals

Saturday March 14, 2009
Room for more hospitals
By TEE LIN SAY


THE healthcare business offers good money. That much is very clear today, but two decades ago, the private sector did not quite see things that way. Initially, private hospitals had not been seen as ideal investments; it had often taken up to 10 years before the operators saw profits.

However, with the Government overwhelmed by the demand for medical services, there was a move to encourage the growth of the private healthcare sector.

The number of private hospitals has been rising rapidly, from about 20 hospitals with 1,171 beds in 1980 to 209 hospitals with 11,689 beds last year. There is room for more. Although they employ some 40% of the country’s doctors, these hospitals only account for about 25% of the hospital beds.

Recently, the Government approved licences for 45 new private hospitals and this will grow the number of beds in the private sector to 15,178.

The growth is not without some pain to the consumers. It is common to hear complaints of private health providers overcharging and overprescribing. Who should be blamed – the doctors or the hospital operators?

It is said that the bulk of a hospital’s revenue goes to doctors. Charges to doctors alone take up a hefty 30% to 35% off the hospital’s total revenue. After the hospital pays for costs such as building and maintenance, salaries, equipment and drugs, it is left only with a profit margin of some 5% to 10%.

Association of Private Hospitals of Malaysia (APHM) president Datuk Dr Jacob Thomas says private hospitals had been hesitant in sharing their financial results in the past, but this has changed in recent years and today there is much more benchmarking of the various performance indicators.

Sometimes, the numbers are indeed intriguing. For example, for its financial year ended December 2008, main board-listed KPJ Healthcare Bhd made a net profit of RM78.45mil on the back of RM1.27bil in revenue. This translates to a margin of only 6%.

Slim margins or not, there is always the worry that the private sector is overly focused on the bottomline.

Says ex-director-general of health Tan Sri Dr Abdul Khalid Sahan, “It’s almost a certainty that private hospitals are business entities run to have as short a break-even period as possible. The focus is on profitability and thus, decisions made are very likely on income-generating tendencies.”

Dr Chan Chee Khoon, professor and convenor for health and social policy research cluster at Universiti Sains Malaysia, points out that doctors are not angels. Some are noble and compassionate, while others are corruptible and prone to temptation in an environment of incentives.

“If a private hospital has invested millions in an MRI (magnetic resonance imaging) machine, and it has patients who will do its bidding, there’s a strong incentive to be liberal in ordering MRI scans even when the need may be minimal or the benefit marginal,” he says.

In medical practice, the vendor usually tells the customer what the customer should buy. Health economists call this information asymmetry, a serious market failure according to conventional micro-economic theory.

Thomas of APHM explains that running a private hospital has many parallels to running a hotel. “Hospitals need to renovate and refurbish their facilities from time to time, but unlike hotels, hospitals do not get any tax exemption or rebate for such expenses,” he says.

He adds that Malaysian doctors are competent, and Malaysian hospitals are as modern as the best hospitals in some neighbouring countries.

“We’ve got a fantastic system. Do you know that our infection rates are less than 1%, and are a lot better than hospitals in developed nations?” he argues.

“Our charges are also reasonable. A bypass here for instance, costs RM30,000, compared to S$30,000 in Singapore. And Malaysian doctors are not inferior to Singaporean doctors. Most doctors in Singapore are Malaysians. Our hospitals are also accredited, which means patients are getting quality treatment for a very reasonable price.”

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