Malaysia's healthcare expenditure to 'increase considerably' in short term despite reforms: report

MALAYSIA's public healthcare expenditure is expected to "increase considerably" in the short term despite reforms to secure its financial sustainability, according to Fitch Solutions report.

Fitch Solutions analysts are expecting healthcare expenditure to accelerate to 9.6 per cent year on year this year, reaching RM 69.2 billion (S$22.4 billion), outpacing last year's growth rate of 6.9 per cent.

By 2025, healthcare expenditure could see a 5-year compound annual growth rate of 7.6 per cent in local currency terms and 8.9 per cent in US dollar terms, reaching RM 91.1 billion, the analysts said.

Malaysia's healthcare system came under severe strain with the spread of the Delta variant this year, and bed utilisation was consistently beyond 100 per cent at the peak of the outbreak in August this year. This led to the construction of field hospitals.

With the coronavirus becoming endemic, Malaysia is looking to reform its healthcare system, with plans to invest in regional disease centres and vaccine development while getting a better understanding of communicable diseases.

Even though government spending on healthcare as a percentage of the country's gross domestic product (GDP) has been on the rise over the years, the World Health Organization (WHO) still considers this to be below global and regional standards, Fitch Solutions analysts noted.

The Covid-19 pandemic has thus underscored the need to increase healthcare funding to improve facilities and working conditions for staff, and Finance Minister Tengku Zafrul Aziz also signalled the country's intention for a medium to long-term reform of the sector.

Fitch Solutions analysts were sanguine about the Malaysian government's commitment to do so, noting that the healthcare sector has seen an improvement in recent years.

For example, the PeKa B40 healthcare scheme is expected to improve healthcare access to the country's lowest income groups.

Still, the country's rising disease burden, increasing healthcare costs and lack of financial stability will pose significant challenges, Fitch Solutions analysts pointed out.

"We remain sceptical over the progress of the reforms and any alteration to the funding structure of the healthcare system will require a revision of our healthcare expenditure forecast," the analysts said.

"We will not incorporate this into our forecast until the reforms are officially approved and we note that it is likely that the funding structure will change."

While expenditure is likely to increase considerably in the short-term, the analysts' longer-term outlook is that growth in spending could decelerate as "cost-containment measures will inevitably be introduced to maintain sustainable levels of funding".

Much like its Asean neighbours, healthcare expenditure is likely to be driven by measures to improve cost-efficiency.

"Moreover, in light of the economic fallout from the pandemic, we expect these pressures to significantly impact the public healthcare budget in the coming years, necessitating further repression of public healthcare expenditure in the medium-to-long term," Fitch Solutions said.

"The government's sustained focus on cost-containment will continue, hindering drugmaker revenue earning opportunities."