A strange thing happened on the way to the market: a quarter century of
privatization in Malaysia and its effects on the healthcare system
Kai-Lit PHUA
School of Medicine and Health Sciences,
Monash University (Sunway Campus),
Jalan Lagoon Selatan,
46150 Bandar Sunway,
Selangor, Malaysia
Abstract
The policy of privatization was introduced into Malaysia in the 1980s. This
article analyzes the effects of privatization on the healthcare system both in
terms of intended consequences and unintended consequences. One major
unintended consequence is the outflow of experienced specialist doctors
from the public sector to the private sector. Another major unintended
consequence appears to be the emergence of a two-class system of
healthcare in Malaysia.
Keywords: Privatization; effects on healthcare system; Malaysia
Introduction
In 1983, then Prime Minister, Dr Mahathir Mohamed introduced the policy
of privatization into Malaysia. It is very likely that he was inspired by the
example of the United Kingdom under the leadership of Margaret Thatcher
and her ruling Conservative Party which came into power in 1979 (Phua
2001). The pursuit of privatization has continued under subsequent
Malaysian Prime Ministers, i.e. Abdullah Badawi and Najib Abdul Razak
(Economic Planning Unit, 2010).
The Economic Planning Unit (EPU) – an influential agency of the Prime
Minister’s Department – defined “privatization” as “transfer to the private
sector of activities and functions which traditionally rested with the public
sector” (quoted in Phua, 2007).
The initial goals of privatization were declared as the following:
 promote efficiency
1
 induce corporations to expand through greater utilization of growth
opportunities
 relieve the administrative and financial burden of the government
 increase Bumiputera (i.e. Malays and other indigenous peoples)
participation in the corporate sector
Later on, the following goals were also added:
 encourage foreign investment
 reduce the size and involvement of the public sector in the Malaysian
economy
It should be noted that in the Malaysian context with respect to privatization,
there is also a less drastic form called “corporatization” or the incorporation
of public hospitals as government-owned but profit-oriented entities and a
change in the status of their personnel such that they are no longer
considered to be civil servants (Barraclough, 1997).
In this article, I will analyze whether the government has been successful in
meeting these six goals (intended consequences) – not withstanding the
merits or demerits of these goals. There will also be a discussion of the
unintended consequences that have resulted.
Goal 1: Promotion of efficiency
“Efficiency” can be measured in two ways, i.e. technical efficiency or
allocative efficiency. Technical efficiency refers to the maximization of
outputs for given inputs while allocative efficiency refers to the production
of the best possible mix of healthcare goods and services.
In 2000, the World Health Organization came up with a comparative study
of the efficiency of the healthcare systems of various nations (Evans et al.,
2000). Using data extracted from this study, one can compare the efficiency
of the Malaysian healthcare system with those of other nations with
comparable Gross National Income per capita.
2
Table 1: Relative Efficiency of the Health Sector, Countries with
Comparable Gross National Income Per Capita (Purchasing Power Parity
International Dollars), 1993-1997
Country
Chile
Turkey
Malaysia
Argentina
Mexico
Source: Evans et al. 2000
Efficiency/Performance Index
(higher score means higher
efficiency)
0.884
0.858
0.751
0.779
0.789
From Table 1, we can see that the Efficiency Index (Performance Index) for
the Malaysian healthcare system is below that of Chile, Turkey, Argentina
and Mexico. The data cover the years 1993-1997, i.e. ten years after the
introduction of privatization into Malaysia.
The WHO study also included developed nations such as the United States.
The Efficiency Index for the USA was 0.774 and this was higher than that
for Malaysia (0.751). Hence, the efficiency of Malaysia’s healthcare system
was even lower than that of the USA, the latter of which has one of the
developed world’s least efficient healthcare systems.
Goal 2: Induce corporations to expand through greater utilization of
growth opportunities
Privatization in Malaysia saw the emergence of formerly public sector but
now corporatized, government-owned but profit-oriented hospitals (such as
the Institut Jantung Negara or the National Heart Institute; the University of
Malaya Medical Centre; and Hospital Universiti Kebangsaan Malaysia or
the National University of Malaysia Hospital).
Loosening of government regulation also saw the emergence of for-profit
hospital chains in the private sector, e.g. Pantai Holdings, Sunway Medical
Centre, and Gleneagles Malaysia. In the past, private hospitals were mostly
non-profit and were either philantrophy-based or affiliated with religious
organizations (Barraclough, 1997; Chee and Barraclough, 2007).
3
In Malaysia, there is also the curious phenomenon of “private sector” forprofit hospitals partially or fully-owned by the federal government or the
state governments, e.g. the KPJ chain of hospitals that are owned by the
Johor Corporation (which actually belongs to the Johor state government).
Another major investor in the private sector is Khazanah Nasional Berhad,
the investment arm of the federal government.
Thus, in Malaysia, there are essentially four types of hospitals – public
sector; for-profit private sector; corporatized (formerly public sector and
non-profit, but now fully government-owned but profit-oriented); and forprofit “private sector” hospitals partially or fully-owned by the government!
Therefore, the traditional public/private dichotomy is becoming more and
more blurred in Malaysia.
With privatization, private sector “hospital support service” providers have
also grown and prospered. These providers earned RM2.7 billion from
providing services to public healthcare facilities during 2006-2008 (author’s
calculation based on data from Ministry of Health, 2009).
Goal 3: Relieve the administrative and financial burden of the
government
The Malaysian government claims that “rising healthcare costs” is a major
challenge to public finances. This claim has been used to justify
corporatization and privatization of public facilities such as the Institut
Jantung Negara (National Heart Institute) and the University of Malaya
Medical Centre or UMMC. To determine if privatization has actually helped
to reduce the financial burden of the government, one can look at trends in
public expenditure on health, e.g. the annual budget of the Ministry of
Health.
4
12000
10000
8000
6000
4000
2000
20
06
20
04
20
02
20
00
19
98
19
96
19
94
19
92
0
19
90
Millions of Malaysian Ringgit
Allocated Budget of the Ministry of
Health, 1990 – 2007
MOH budget (nominal $)
Source: Ministry of Health, Health Facts (various years)
At first glance, it appears that the annual budget of the Ministry of Health (in
nominal Malaysian ringgits) increases relentlessly and in an exponential
fashion over time. However, when the MOH budget is considered as a
percentage of the total government budget (see chart below), one can see
that it remains relatively stable and ranges between approximately 5.5% to
8% of the total national budget. Therefore, in my view, this trend of a rising
MOH annual budget is not a significant problem since the total national
budget from which it comes is expanding over time. It is also quite likely
that the stability of the MOH budget – in terms of its percentage of the total
national budget – is due to bureaucratic politics and the politics of public
finance (Phua, 2007).
5
9
8
7
6
5
4
3
2
1
0
19
90
19
91
19
92
19
93
19
94
19
95
19
96
19
97
19
98
19
99
20
00
20
01
20
02
20
03
20
04
20
05
20
06
20
07
Percent
But … the MOH Budget
is Stable as % of National Budget
MOH budget as % of national budget
Source: Ministry of Health, Health Facts, various years
How does Malaysia compare to other nations in terms of spending on
healthcare? Is Malaysia spending much more when it is compared to other
nations of comparable wealth?
Table 2: Total Health Expenditure as Percentage of Gross Domestic Product,
Nations with Comparable Gross National Income Per Capita (Purchasing
Power Parity International Dollars), 2007
Country
Total Health Expenditure (as % of
GDP)
Chile
6.2
Turkey
5.0
Malaysia
4.4
Argentina
10.0
Mexico
5.9
Source: World Bank 2010 (World Development Indicators Database)
The figures in Table 2 show that Malaysia actually does not spend very
much on healthcare. In 2007, total health expenditure as a percentage of the
Gross Domestic Product was only 4.4 %.
6
Table 3: Government Expenditure on Health as % of General Government
Expenditure, Nations with Comparable Gross National Income Per Capita
(Purchasing Power Parity International Dollars), 2008
Country
General Govt Health Expenditure (as
% of General Govt Expenditure)
Chile
19.8
Turkey
10.3
Malaysia
6.9
Argentina
14.3
Mexico
15.0
Source: World Bank 2010 (World Development Indicators Database)
Furthermore, the figures from Table 3 reinforce the point by showing that
government health expenditure as a percentage of general government
expenditure was only 6.9% in 2008. This is much lower than in countries
such as Chile, Turkey, Argentina and Mexico.
Goal 4: Increase Bumiputera participation in the corporate sector
After the racial riots of May 1969, Malaysia introduced its New Economic
Policy (NEP). One aim of the NEP was to raise the economic lot of the
Bumiputera (Malays and other indigenous ethnic groups) and a major tool
for this was strong affirmative action. Hence, when the policy of
privatization was announced, one of its goals was to increase Bumiputera
participation in the corporate sector.
Over the years in Malaysia, privatization has evolved into a mechanism that
often occurs to the benefit of both Bumiputera as well as non-Bumiputera
business people (through the awarding of lucrative contracts) who have
connections to the political elite, i.e. leading politicians from the ruling
Barisan Nasional (National Front) coalition of political parties. More often
than not, these privatizations degenerate into outright rent-seeking capitalism
(Jomo, 1995; Gomez and Jomo, 1997). “Economic rents” are created
through the establishment of a monopoly situation by governmental fiat, e.g.
after the Government Medical Store was privatized, public hospitals could
only purchase drugs and medical supplies from a new private sector
company called Pharmaniaga.
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It has been alleged that sometimes, those who receive lucrative privatization
contracts are actually proxies acting for powerful politicians from the
Barisan Nasional (Wain, 2010). Privatization has definitely benefited
Bumiputera business people because the dominant political party in the
ruling coalition – the United Malays National Organization (UMNO) – is a
Malay nationalist party that claims to protect the interests of the Malays and
other indigenous ethnic groups.
Goal 5: Encourage foreign investment
The opening up of the Malaysian healthcare sector has also benefited foreign
investors. For example, Parkway Holdings from Singapore partially owns
the Gleneagles hospital chain. American multinational corporations have
also invested in the Malaysian healthcare sector. These include Healthcare
Management International (HMI) and the Columbia Group (Chee and
Barraclough, 2007). Multinational pharmaceutical companies have long
been established in Malaysia. These include companies such as
GlaxoSmithKline.
Goal 6: Reduce the size and involvement of the government in the
Malaysian health sector
Another stated goal of the government is to reduce its involvement in the
health sector. We can determine if this has occurred by looking at the
government as funder and the government as service provider in the health
sector.
Table 4: General Government Expenditure on Health as Per Cent of Total
Expenditure on Health, 1995-2008
Year
1995
1996
1997
1998
1999
2000
General Government Expenditure on
Health as Percent of Total
Expenditure on Health
47.3
50.7
49.4
50.9
51.2
52.4
8
2001
2002
2003
2004
2005
2006
2007
2008
Source: WHO National Health Accounts
55.8
55.4
56.4
50.0
44.8
44.6
44.4
41.1
The data in Table 4 show that government expenditure on health as a
percentage of total expenditure on health increased between 1995 and 2003
but decreased between 2003 and 2008. However, the difference between the
figure for 1995 (47.3%) and 2008 (41.1%) is not very big.
We can also gain an idea of the government’s involvement as service
provider by comparing the number of hospital beds in the public sector (such
as MOH hospital beds) versus the number of hospital beds in the private
sector.
Table 5: Number of Ministry of Health (MOH) Hospital Beds as Compared
to the Number of Private Hospital Beds
Year
No. of MOH
Hospital Beds
No. of Private
Hospital Beds
Ratio of MOH
Beds to Private
Hospital Beds
1995
26,896
7,192
3.74 : 1
2000
29,117
9,547
3.01 : 1
2005
30,021
10,794
2.78 : 1
2006
30,969
11,637
2.66 : 1
2007
32,149
11,694
2.75 : 1
Source: Ministry of Health, Health Facts, and author’s calculations
We note that the majority of hospital beds remain in the public sector, with
the ratio of MOH hospital beds to private hospital beds at 3.74 : 1 in 1995,
2.78 : 1 in 2005, and 2.75 : 1 in 2007.
We can also look at how many doctors are employed in the public sector as
compared to the private sector.
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Table 6: Number of Doctors in the Public Sector as Compared to the
Number of Doctors in the Private Sector
Year
No. of Doctors in No. of Doctors in Ratio of Public
the Public Sector the Private Sector Sector Doctors to
Private Sector
Doctors
1995
4,412
5,196
0.85 : 1
2000
8,410
7,209
1.17 : 1
2005
10,943
9,162
1.19 : 1
2006
13,335
8,602
1.55 : 1
2007
14,298
9,440
1.51 : 1
Source: Ministry of Health, Health Facts, and author’s calculations
Again, we note that the majority of Malaysian doctors are employed in the
public sector, with the ratio of public sector doctors to private sector doctors
increasing from 0.85 : 1 in 1995, 1.19 : 1 in 2005, and 1.51 : 1 in 2007. It
should be pointed out that this trend is probably due to the increase in the
number of newly graduated doctors (as a result of the proliferation of
medical schools in Malaysia) who are doing their two years of compulsory
service in the public hospitals.
When we compare the number of nurses in the public sector to the number
of nurses in the private sector, we can see that most nurses are employed in
the public sector:
Table 7: Number of Nurses in the Public Sector as Compared to the Number
of Nurses in the Private Sector
Year
No. of Nurses in
the Public Sector
No. of Nurses in Ratio of Public
the Private Sector Sector Nurses to
Private Sector
Nurses
1995
14,614
5,442
2.68 : 1
2000
20,914
6,322
3.30 : 1
2005
23,255
7,874
2.95 : 1
2006
32,580
11,540
2.82 : 1
2007
34,598
13,044
2.65 : 1
Source: Ministry of Health, Health Facts, and author’s calculations
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In fact, the ratio of nurses in the public sector as compared to nurses in the
private sector has not changed very much, i.e. 2.68 : 1 in 1995 and 2.65 : 1
in 2007.
Hence, we can conclude that government involvement as a funder and
service provider in the Malaysian health sector has not changed very much
in spite of privatization.
Unintended consequences of policy of privatization
Privatization in Malaysia has also given rise to unintended consequences.
One of these unintended consequences is the movement of experienced
specialist doctors from the public hospitals to the more lucrative private
sector hospitals (FOMCA, 2009). It has been noted that only 30% of
specialists work in the public sector but they tend to 70% of all hospital
admissions (Chan, 2010). The response of the government to this is to
introduce commercial private wings (CPW) and full paying patients (FPP)
into the public sector hospitals so that the specialists can earn more and
therefore be influenced to stay within the public sector. These have been
heavily criticized by the consumer movement in Malaysia (SM Mohamed
Idris, 2010). One of the dangers is that this will result in neglect of regular
patients by specialists in preference to CPW and FPP patients. Another
danger is that there will be “queue jumping” by CPW and FPP patients.
Paradoxically, at the same time, the public hospitals may become flooded
with newly graduated and relatively inexperienced non-specialist doctors
doing their compulsory two years of service for the government.
The privatization of higher education has been accompanied by a
proliferation of private medical schools. There were 10 public and 13 private
medical schools in December 2009 for a Malaysian population of only 27
million (Mohd Ismail Merican, 2009). The increase in the number of private
medical schools in Malaysia has translated into higher numbers of new
doctors every year. In fact, a leading politician from the government named
Dr Chua Soi Lek – a former Minister of Health – says that with 4,500
doctors graduating per year beginning from 2011, there will be an
oversupply of doctors in Malaysia by 2015 or 2016 (Star, 2010, June 2).
Drug prices have also risen for the MOH after the privatization of the
Government Medical Store and the awarding of a contract to supply drugs
and medical supplies to a private sector company called Pharmaniaga. There
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was a 3.3 fold increase in drug prices a few years after privatization (Chan,
2003). Babar and his colleagues (Babar and Izham, 2009; Babar, Ibrahim,
Singh and Bukhari, 2010) found that due to the absence of regulation of drug
prices in Malaysia, the prices for innovator brands as well as generic drugs
were generally high in the private sector, i.e. retail pharmacies as well as
dispensing doctor sector (DDS) GP clinics. In the procurement for public
sector (PPS), the prices for innovator brands were high. As for generic drugs
supplied to public clinics and hospitals, the prices were more reasonable but
these drugs were often not available while their high-priced innovator brand
equivalents were available.
Summary and Conclusions
In this article, I set out to analyze if the policy of privatization has managed
to meet its six goals (intended consequences) with respect to the healthcare
sector, i.e. promote efficiency; induce corporations to expand through
greater utilization of growth opportunities; relieve the administrative and
financial burden of the government; increase Bumiputera participation in the
corporate sector; encourage foreign investment; and reduce the size and
involvement of the public sector.
One can argue that privatization has been a “success’ in the sense that more
private corporations have appeared in the healthcare sector (such as forprofit, private hospital chains), Bumiputera participation has increased, and
foreign investment has increased in the healthcare sector of Malaysia.
However, it is highly doubtful that allocative efficiency has been promoted
when we witness the unintended consequence of a continuing outflow of
experienced specialists from the public sector to the private sector while, at
the same time, the public sector is becoming flooded with newly graduated
and relatively inexperienced non-specialist doctors doing their compulsory
two year service for the government. Many specialist positions are unfilled
in the public sector hospitals. Meanwhile, the remaining specialists are
increasingly overworked while being subjected to financial conflicts of
interest with the introduction of commercial private wings and full paying
patients into public hospitals. Drug costs have also risen for the Ministry of
Health after the privatization of drug and medical supplies procurement.
Government spending on healthcare continues to rise (while remaining a
relatively stable percentage of the annual national budget). There has been
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little reduction in government involvement in the healthcare sector of the
Malaysian economy – the majority of doctors, nurses and hospital beds are
in the public sector. Also, there is the phenomenon of disguised involvement
of the government in the “private sector”, e.g. the corporatized hospitals
(former public hospitals that have now been corporatized into governmentowned but profit-oriented entities) and relatively new, for-profit “private
sector” hospitals that are wholly or partially owned by state governments or
the federal government.
Finally, there appears to be the emergence of a two-class system of
healthcare in Malaysia, i.e. a heavily-subsidized public sector that provides
affordable care but is facing an outflow of experienced specialists (thus
affecting quality of care) coupled with expensive, inadequately regulated
private sector hospitals staffed by specialists who spend a lot of time treating
relatively minor ailments of better-off patients. There is the likelihood that
this situation will be further worsened with the active promotion of health
tourism by the Malaysian authorities (including the Ministry of Health!).
I will conclude this paper with a quote from the Director-General of the
Ministry of Health (i.e. the top civil servant in the MOH):
“The exorbitant fees now charged by private hospitals has (sic) been
brought to my attention many times … (I will) call for a meeting soon with
the MMA to develop a comprehensive fee schedule that was (sic) acceptable
to all” (Star, 2010, June 7)
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