The Rising Cost of Healthcare: How Alternative Financing Can Help
Healthcare costs are rising globally, making medical treatment increasingly unaffordable for many individuals and families. While access to quality healthcare is a fundamental necessity, the financial burden associated with medical expenses can be overwhelming.
Seven years ago, RM25 billion was allocated for healthcare in the Federal Budget. By 2024, this amount had increased to RM41.2 billion, yet it remains insufficient to meet actual needs. To achieve the target of 5% of GDP for healthcare funding, at least RM85 billion would be required today—more than double the current allocation and accounting for 22% of this year’s total federal budget. However, this level of investment remains unlikely.
The Growing Cost of Healthcare
Healthcare expenses in Malaysia have surged over the years, with medical cost inflation reaching 15% in 2024—significantly exceeding the global and Asia Pacific average of 10%. In the next three years, 64% of insurers expect medical costs to rise globally, with a more pronounced trend in the Asia Pacific region, where 76% foresee higher or significantly higher medical expenses.
Figure: Global Medical Trends 2023-2025
Key Drivers of Medical Cost Trends
1. Rising Demand for Mental Health Services
The COVID-19 crisis throughout 2020 altered this trend. Surveys of OECD populations overwhelmingly indicated a decline in mental health during March-April 2020. The decline in mental health across 2020-21 has underscored the critical need for a strong and effective mental health system. Over the next three years, one-third (33%) of insurers anticipate significant cost increases of 15% or more per person for mental health services. This trend is expected to be most pronounced in Europe, where 44% of insurers foresee such rises, followed by approximately 25% in the Asia Pacific region and 23% in MEA.
2. Rising Pharmacy Costs Expected
The Malaysian Pharmacists Society (MPS) warns that the prices of medicines and pharmaceuticals could increase by 5% to 10% due to the ringgit’s depreciation and the absence of a price control mechanism. Previously, reports indicated that medical costs in Malaysia rose by 12.6% last year, significantly surpassing the global inflation average of 5.6%. This surge was driven by an additional 600,000 adults requiring treatment for non-communicable diseases in 2019, along with rising medicine prices contributing to higher overall treatment costs.
3. Ongoing Demand for Advancements in Medical Technology and Infrastructure
Malaysia’s medical technology market is witnessing growing demand for advanced imaging equipment and telemedicine solutions. The advancement of new medical technologies and pharmaceuticals is a key factor contributing to the rising cost of healthcare. Globally, nearly 69% of surveyed insurers identified these technological expenses as the primary driver of increasing medical costs.
4. Increasing Strain on Private Healthcare Providers
Over half (57%) of insurers cite declining public healthcare quality or funding as a key driver of rising medical costs. This issue is most pronounced in Europe, where 75% of insurers attribute cost increases to the weakening public health system. In the Americas, 46% of insurers highlight this as a major factor, while 41% in the Asia Pacific region report similar concerns.
Why Medicals Should go for alternative financing
Medical providers should consider alternative financing for several key reasons:
1. Bridging Cash Flow Gaps
Hospitals, clinics, and healthcare providers often face delayed reimbursements from insurers and government programs. Alternative financing solutions, such as invoice financing and credit lines, can help maintain steady cash flow for operational expenses.
2. Upgrading Medical Equipment & Technology
Investing in state-of-the-art medical technology is essential but comes with high upfront costs. Alternative financing options, such as leasing or equipment financing, allow providers to access advanced technology without straining capital reserves.
3. Expanding Healthcare Services
For medical institutions looking to scale up—whether by opening new branches, adding specialised services, or upgrading facilities—traditional bank loans may not always be feasible. Alternative financing provides flexible funding options with quicker approvals.
4. Managing Rising Operational Costs
With medical cost inflation on the rise, covering expenses like staff salaries, medical supplies, and facility maintenance can be challenging. Alternative financing offers solutions such as working capital loans to help providers sustain operations without disruption.
5. Enhancing Patient Financing Options
Many patients struggle with out-of-pocket medical expenses. Offering financing solutions, such as installment payment plans or medical credit programs, enables more patients to afford quality healthcare while ensuring providers receive timely payments.
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