Amongst All Other Consumer Inflation, Healthcare Inflation Is Perhaps the Highest Amongst All
To grapple with the consequences of healthcare inflation, “Public-Private-People” approach is the best way forward
Over the last 30 years, consumer prices have rarely risen faster than healthcare inflation, from doctor visits to surgeries and prescription drugs. In fact, the inverse has typically been the case, particularly during economic downturns: after the 2008 financial crisis, for example, overall inflation slowed to almost nothing while medical prices continued to grow at a 2 to 3 percent rate. Today, inflation in the United States has reached rates not seen in decades: from December 2020 to December 2021, the overall inflation rate (Personal Consumption Expenditure Price Index) was greater than 5.8 percent. It is only a matter of time before prices for healthcare catch up to this increase. Much higher prices are only being delayed by the unique features of the healthcare industry. In healthcare services, prices, reimbursement rates, labour contracts (which are typically indexed to consumer price inflation), and several other input factors are set two to three years in advance. So, while healthcare delivery systems are facing higher costs—primarily increases in areas with shortages such as nursing and supplies, there will likely be a lag before consumers experience the same pressures. Closer to home in Malaysia, according to Aon's 2022 Global Medical Trend Rates report, the current medical inflation rate in Malaysia is 12.0%, which is six times higher than the annual general inflation rate. This also single out that Malaysia healthcare cost is one of the highest around ASEAN region. In another recent report by Willis Towers Watson 2022 Global Medical Trends Survey, the global average medical trend rate is projected at a much higher rate for later this year, due to the rescheduling of elective medical procedures previously postponed due to the pandemic, as well as the increase of medical tourism after the international travel ban is lifted. Medical inflation can be referred to as the increase in the costs of medical treatment over time, and also the increase in the unit cost of medical services. With the rise of new technologies, medication, and treatments, all of these innovations in healthcare are what cause the medical inflation rate to increase.
Image via National Cancer Institute
Here is why medical inflation happens: 1. Medical advancement Thanks to new technology and medication, the quality of healthcare has improved significantly. However, it also means higher medical costs, in order to fulfil the demand for qualified health professionals and medical instruments. 2. Increased utilisation of health services More people are using healthcare services more frequently, which could be due to the fact that non-communicable diseases are on the rise in Malaysia. Plus, there is a higher demand for medical treatment from older people, as illnesses and disorders become more common. 3. Unhealthy lifestyle choices Non-communicable diseases due to occupational health problems, sedentary lifestyles, and bad eating choices are costly to treat, and may require long-term treatment.
4. Home-based therapies
These therapies are undertaken by the community at an individual level. People are now seeking home-based remedies at an individual level, a service usually offered with higher fees.
5. Specialist preferred
Consumers these days preferred to consult specialists over general practitioners even for basic medical services, leading to higher prices. This has led to specialists controlling prices in the market. A system level outcome has been the proliferation of private health institutions, bringing marked spike in the cost of services compared to services rendered by public hospitals and clinics in the past.
6. Seeking treatment elsewhere
While Malaysia is an attractive destination for medical tourism, affluent Malaysians namely T20 or M40 group would still prefer to seek medical treatment in neighbouring countries e.g Singapore, Thailand etc due to a myriad of factors.
A substantial proportion of the population is struggling to achieve socio-economic and good health, i.e., the low-income groups (B40). The low-income group in Malaysia might bear a higher burden of out-of-pocket health expenditure (OOPHE) and health challenges, mainly related to non- communicable diseases (NCD). The costs are sometimes high enough so that households cannot recuperate them from existing resources and lead them to financial problems.
Our world today faces a host of complex healthcare issues making health access a defining challenge facing 21st-century governments. COVID-19 has killed millions around the world and brought entire economies to a halt. But even before the pandemic, slower-moving crises like non-communicable diseases and ageing populations threatened to strain national healthcare budgets and limit the length and quality of human lives.
3 Ps (Public-Private-People)
Massive challenges like these require a “whole of society” approach. They are too large and too complex for either the public or the private sector to address alone, and thus it is essential that the public and private sectors address them together. Public-private partnerships - once thought of as financing tools best suited for infrastructure projects - have started to emerge as innovative solutions for expanding and improving health access. I would argue to add in “People” as the third Ps to firm up the equation. Why ? Hospitals and medical centres are built, not to reduce the number of car accidents, instead it is the individual behaviour that can reduce the number of car accidents. Increasing medical infrastructures, in the long term, does not reduce medical costs or reduce mortality, instead it is the people’s behaviour that can reduce sickness. All of us is better than anyone of us.
At their best, PPPs leverage the strengths of the public, private sectors and people simultaneously. They can create economies of scale and expand access to care to underserved populations. And they can create sustainable returns for the private sector without compromising cost-effectiveness to the public sector. But PPPs are complex structures. Each one is different, and each must be adapted to the problem it attempts to solve. As such, they require a nuanced approach - one that balances the interests of both sectors, ensures a workable method for sharing decision-making authority, and encourages accountability from both parties. As such, developing an effective, sustainable healthcare PPP is no small task. “If you think wellness is expensive, try sickness.” – this phrase cannot be more true in this context.
The future is PPP collaboration
Of course, no set of “best practices” will be able to successfully change our world’s approach to public-private-people partnerships without skilled professionals who are empowered to apply them. Professionals in all sectors must be armed with the analytical frameworks and skills that enable them to create and maintain real-world PPPs at scale. And therefore, capacity-building must take place. Executives must be trained. Dialogues must be fostered. And new partnerships must be supported institutionally, so that we can learn from every success and failure.
The potential for PPPs to improve health access has never been more apparent. With a new set of “best practices” and a highly engaged and motivated set of public-private-people as partners, the path forward for increasing health access through cross-sector collaboration is clearer than ever.
I remain confident and hopeful.
Y.Bhg Dato' Sri Dr. Kris See KS
Medical Director, Chief Clinical & Innovative Scientist
1. Singhal, S. and Krishna, A., 2022. Consumer prices are rising fast, and healthcare isn’t far behind. [online] Available at: <https://www.mckinsey.com/industries/healthcare-systems-and-services/our-insights/consumer-prices-are-rising-fast-and-healthcare-isnt-far-behind>
2. Tradingeconomics.com. 2022. United States Personal Consumption Expenditure Price Index - February 2022 Data. [online] Available at: <https://tradingeconomics.com/united-states/pce-price-index>
3. Aon. 2022 Global Medical Trend Rates Report. [online] Available at: <https://insights-north-america.aon.com/research/2022-global-medical-trend-rates-report>
4. Willis Towers Watson. 2022 Global Medical Trends Survey report. [online] Available at: <https://www.wtwco.com/en-MY/Insights/2021/11/2022-global-medical-trends-survey-report> [Accessed 19 March 2022].
5. Aziz, S., 2022. What Is Medical Inflation And How Does It Affect Your Insurance Premium? Find Out Here. [online] SAYS. Available at: <https://says.com/my/lifestyle/what-is-medical-inflation-how-it-affects-insurance-premium>
6. Said, R., Isamail, N., and Ismail, N. W. (2020). Determining Factors Influence Out-of-Pocket Health Expenditure among the Low-Income Group in Malaysia. International Journal of Academic Research in Business and Social Sciences. 10(10), 292-311.