KUCHING: Better treatments, stubborn productivity constraints and insurance incentives are among the forces pushing medical costs higher, making healthcare inflation different from increases in ordinary consumer prices.
World Bank Lead Economist for Malaysia Apurva Sanghi said medical inflation was rising in Malaysia, in line with a pattern seen in many countries where healthcare costs outpace average inflation.
In a post on X, he highlighted three reasons for the difference, starting with advances in medical technology.
New cancer drugs, robotic surgical systems and gene therapies can improve treatment but are often expensive when first introduced.
“Some of the ‘higher cost’ is actually the price of buying better healthcare,” Sanghi said.
Healthcare also faces productivity constraints that differ from those in manufacturing.
Sanghi said a factory equipped with better technology may be able to produce twice as many cars per hour, bringing down the cost of each car.
“The same relationship does not necessarily apply to healthcare,” he said.
Better technology does not necessarily allow a surgeon to perform twice as many operations, while doctors and nurses must still spend time examining and caring for individual patients.
“Some of it is because you can’t immediately make healthcare more productive,” he said.
Insurance adds another dimension by weakening the price signals faced by patients.
Sanghi said patients become less sensitive to the cost of additional tests, scans or treatments when an insurer or the government pays most of the bill.
“Deductibles reduce such incentives, but do not eliminate them,” he said.
Providers can face incentives of their own, including to offer additional services.
“Like it or not, healthcare consumption & provision are not immune to incentives,” he said.
Sanghi said the three factors help explain why higher medical costs require a more nuanced interpretation than ordinary inflation.
“Some of the ‘higher cost’ is actually the price of buying better healthcare. Some of it is because you can’t immediately make healthcare more productive. Some of it is just good, old-fashioned incentives,” he said.
He stressed that these factors were separate from any pricing power enjoyed by healthcare oligopolies.
“That is a different story for a different day.”
