RECENT news flows on a diagnosis-related group (DRG) financing system’s implementation here will ultimately benefit hospitals and patients, in RHB’s view.
However, while it could reduce unnecessary procedures and optimise hospital resource allocations, it also adds a layer of uncertainty in terms of the extent of implementation.
“Hence, we advocate investors to switch to IHH, given its diversified asset base that enables it to better navigate the local regulatory uncertainties,” said RHB in the recent Malaysia Sector Update Report.
DRG is a healthcare payment system that specifies a fixed amount based on the complexity of a case rather than conventional fees-for-services. Hospitals receive a predetermined price between the payer and themselves.
Hospitals will then have to manage resources within that budget by focusing on cost-effective treatments, that is the patient outcome, streamlining unnecessary procedures, and over-prescribing medication.
“We understand the insurance industry has been pushing for private hospitals to move from fee-for-service payment models to DRG or value-based healthcare since 2023,” said RHB.
Concurrently, hospitals under their coverage, IHH and KPJ Healthcare (KPJ), have already embarked on advocating value-based healthcare.
“We think DRG’s implementation still requires extensive study and engagement with various stakeholders, given the complexity of each medical procedure and their underlying costs,” said RHB.
Ultimately, DRG is not a price-capping mechanism, but could be viewed as a cost-discipline approach on streamlining patient care.
“We think DRG benefits both hospitals via optimising resources and efficiency, and patients through better medical outcomes,” said RHB.
RHB views the recent sell-downs as potential buying opportunities, as they may be driven by short-term uncertainties surrounding the transition.
They believe the sell-off could present an attractive entry point for investors who understand the long-term structural changes occurring within the healthcare industry.
“Once the transition to DRG is successfully navigated, we expect both hospitals and patients to gain from a more efficient, cost-effective, and outcome-focused healthcare system,” said RHB.
Should DRG rates turn out to be unfavourable, RHB believes Sunway with its exposure to data centre construction, property development, and hospitality should be able to cushion the potential impact to its healthcare unit.
“We maintain our overweight sector call with IHH as sector Top Pick, given its diversified asset base, which enables it to better navigate the regulatory uncertainties here,” said RHB.
Key downside risks identified by RHB include higher-than-expected operating costs, lower-than-expected patient visits and revenue intensity growth, and unfavourable regulatory risks associated with DRG systems. —Dec 13, 2024
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