HLIB Research anticipates that the proposal may face challenges and may not be feasible to implement post deeper discussions among stakeholders.
PETALING JAYA: The implementation of the proposed diagnostic-related group (DRG) payment system could potentially reduce profit margins in the healthcare sector, according to Hong Leong Investment Bank (HLIB) Research.
It has had the most significant market impact, as reflected by the negative reaction of share prices among hospital players, the research house noted.
HLIB Research anticipates that the proposal may face challenges and may not be feasible to implement post deeper discussions among stakeholders.
If the DRG system’s benefits, such as standardised pricing to control medical inflation, cannot be fully realised within the existing private healthcare system, the transition could result in unnecessary costs being borne by taxpayers, it said.
The research house believed the government will continue with the planning and development of the DRG payment system to align it with the future rollout of the National Health Insurance (NHI) scheme, as outlined in the Health White Paper in line with global practices.
However, the timeline and execution of the NHI remains uncertain at this stage, it added.
HLIB Research has an “overweight” rating on the healthcare sector for 2025, with IHH Healthcare Bhd
as its top pick, setting a target price of RM9 per share.
The research house highlighted the long-term growth drivers for the sector, underpinned by the re-rating from upcoming initial public offerings (IPOs).
These include the IPOs of Asia One Healthcare (formerly known as Columbia Asia Healthcare) and Sunway Healthcare Group, both of which are expected to be listed in 2026 or earlier.
HLIB Research believed IHH Healthcare’s share price has strong upside potential, especially in the event of an IPO-led re-rating.
This is driven by the company’s Malaysian operations, which are among the best-performing hospital assets in the region and comparable to Sunway Healthcare in terms of operating and financial metrics.
In response to the 12.6% medical inflation in 2023, a series of initiatives were proposed and implemented in the second half of 2024, including the introduction of co-payment features, a proposal to mandate a “Price Display Mechanism” and the DRG.
HLIB Research said the average revenue per inpatient for IHH Malaysia (up 3.4%) and KPJ Healthcare Bhd (up 7.1%) in 2023 grew at a much slower rate compared to overall medical inflation rate of 12.6%.
