Wrestling with managed healthcare

I SUPPORT Dr Steven Chow’s views on the medical middlemen, “Cut out the middlemen for better GP care” ( The Star, May 25).

The concept of managed care originated in the United States. In their infancy, managed care organisations (MCO) were a cooperative group of people, each contributing a certain fee to contract the medical service of doctors. During the Great Depression in the 1920s, healthcare insurance was provided by employers as an incentive for their workers.

In 1973, Paul M. Ellwood Jr who is often called the father of the health maintenance organisation (HMO), a form of MCO, convinced President Richard Nixon to enact the Health Maintenance Organization Act of 1973. This Act opened the employer-based market to the HMOs and fuelled the rapid growth of for-profit HMOs in the US.

Soon, a plethora of MCOs was flourishing in America, differing only in their modes of payment and operational details. Following the international expansion of insurance giants, the concept of MCO spread to many parts of the world.

The HMOs grew rapidly by controlling the funding and capital of medical care. Together with traditional insurers, they achieved virtual monopoly of the market, reaped profits and grew faster than any other business.

The next phase of corporate mergers and acquisitions pushed the market value (capital cost for newcomers) ever higher and the cost of medical care spiralled out of proportion to the market inflation rate. The golden age of medicine in the US from the late ‘70s to the mid-90s resulted in mind-boggling profits and stupendous salaries for HMO executives. “Hundreds of times better than KFC,” proudly declared one executive.

Meanwhile, the earlier idealistic non-profit organisations that endeavoured to enhance healthcare for patients while controlling costs were lost. In their place emerged the infamous “medical-industrial complex” of a plethora of insurers and MCOs and groups of medical practitioners all seeking a higher profit share.

By 2017, healthcare cost in the US had exceeded US$2.2tril or nearly 22% of GDP while quality of care ranked between 25 and 30 among the 35 Organisation for Economic Co-operation and Development (OECD) countries. A large portion of this “most expensive medicine in the world, double the payment, half the quality” was due to the forces of this pseudo-free market.

The medical profession had become a maleficent threat to people’s life and wellbeing. Yet President Donald Trump’s first executive order was to abolish the Obama Affordable Healthcare Act, which endeavoured to control the insurance and MCO industries.

In Malaysia, private medical care is fast heading towards the US route. From independence to the early 1980s, the medical professionals were a happy lot. Although they were “conscripted workers” (compulsory service under the Essential Powers Act) with the lowest hourly pay rate in the civil service, their spirit of constructive cooperation built up the entire medical service such that within 20 years, Malaysia had become a role model in the developing world.

There was an extensive network of general practitioners (GP) across the country but not one GP became a multi-millionaire by medical practice alone.

In 1996, the government introduced personal tax relief for purchase of health insurance, and there was also a proposal to allow EPF withdrawals for this purpose. The following year, Bank Negara also loosened the restriction on life insurers selling health insurance.

The insurance association started the Sihat Malaysia scheme products managed by certain MCOs, and the market was opened for the entry of private insurers and MCOs into healthcare. From 2009 to 2014, total private health insurance (PHI) premiums increased at an annual rate of 12.5%. By 2015, PHI had covered approximately one-third of the Malaysian population and accounted for 23.6% of total expenditure (National Health and Morbidity Survey data).

Corporate mergers and acquisitions soon resulted in private hospitals and insurance market acquisitions. In the last 10 years, two private hospital groups have gone on to control over 80% of private hospital beds and the top three insurers are now accounting for more than 50% of the healthcare premium collection. Besides this high capital expenditure of market games, there is also the high operating expenditure of 20%-25% of gross revenues.

Expertise in health financing, however, did not catch up. The insurers then relied on MCOs, which are mainly third party administrators, to reduce administrative costs and curb rising claims by exercising some control over the use of healthcare services by policy owners. The MCOs then rose to become significant market players particularly in the group health insurance sector.

The business relationship between MCOs and insurers lacked transparency, with both sides denying vicarious responsibility of the other while joining forces to fight the private hospitals and doctors.

Doctors and patients became victims of this incessant growth in profit extraction to maintain the profit margin of insurers and MCOs. Shamefully low consultation fees payment and a variety of other charges were imposed on doctors, particularly the GPs. The introduction of a defective fee schedule under the Private Health Facilities and Services Act (PHFSA) in 2006 further empowered the MCOs.

On the patient front, unfair co-payments and deductibles, delays in admissions and discharges, poor quality generic drugs and myriads of regulations and exclusions are common.

So long as profit remains the primary motive of the medico-industrial complex, complaints and retaliation against the MCOs will continue. This is also happening in other countries, including the US and Singapore. On the other hand, equal if not even more complaints from MCOs about indiscriminate charges and the behaviour of doctors will continue to plague the medical profession, leading to the ultimate demise of altruistic idealism and public trust.

Yet, removal of either party is unthinkable in healthcare provision. There is no doubt that regulatory control must be imposed.

The Health Ministry must seriously study the public-private cooperation strategy which it has propounded in every strategic plan for the past 20 years. The first step in this difficult task requires the restoration of the spirit of partnership and cooperation among all stakeholders towards public good. This can be achieved by establishing a platform of communication among stakeholders with regular discussions on issues. Fair and meaningful regulations can then be imposed wherein the responsibility and operational details of each party can be defined. Fairness and justice must be the foundation upon which any negotiation is based. Such a platform will, in the long run, ensure the affordability and sustainability of healthcare and fairness to all.