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Borrowing From the Managed Care “Toolkit” To Increase

Efficiency in Public Hospitals






Phua K.L.

International Medical University
















Address all correspondence to:


Phua Kai Lit, PhD

Community Medicine Section

International Medical University

Plaza Komanwel, Bukit Jalil

57000 Kuala Lumpur






Borrowing from the Managed Care “Toolkit” To Increase Efficiency in Public Hospitals





Bilangan Organisasi Perjagaan Terurus (Managed Care Organisation) terus meningkat di Malaysia walaupun konsep perjagaan terurus masih lagi sesuatu isu yang controversial. Artikel ini tidak akan membincangkan isu perjagaan terurus tetapi akan menyentuh tentang inovasi-inovasi pergerakan perjagaan terurus yang berpotensi untuk dijadikan alat berguna bagi meningkatkan produktiviti dan keberkesanan di hospital-hospital awam. Peralatan yang di maksudkan merangkumi kedua-dua pihak permintaan dan pembekal. Peralatan pihak permintaan boleh direkabentuk bagi mengubah perangai para pesakit (pengguna perkhidmatan kesihatan) manakala peralatan pihak pembekal boleh direka bagi mengubah perangai dan tingkah-laku para doctor dan hospital (pembekal perkhidmatan kesihatan). Peralatan pihak permintaan merangkumi promosi kesihatan, penjagaan diri, perkongsian kos pengguna, pengurusan kes dan sebagainya. Peralatan pihak pembekal pula merangkumi panduan praktis klinikal, kawalan ke atas perolehan dan pengunaan teknologi mahal, formulari dan drug generic, pengkajian semula utilisasi, pemprofilan praktis perubatan, pendapat kedua, pengunaan perkhidmatan pegawai-pegawai bukan klinikal, “teleconsultations” dan sebagainya. Pada dasarnya, cabaran bagi melaksanakan pengunaan peralatan-peralatan ini di hospital awam bergantung kepada sama ada insentif untuk meningkatkan  kecekapan mencukupi dan sama ada panduan Kementerian Kesihatan Malaysia membenarkan inovasi dilakukan pada peringkat hospital individu berkenaan.  





Although the concept of managed care is controversial, the number of MCOs (Managed Care Organisations) is steadily increasing in Malaysia. This article will not deal with managed care per se but with innovations arising from the managed care movement that are potentially useful tools for increasing productivity and efficiency in public hospitals. These tools include demand side as well as supply side interventions. Demand side tools are designed to change the behaviour of patients (“health consumers”) while supply side tools are designed to change the behaviour of doctors and hospitals (“health providers”). Demand side tools include health promotion, self-care, increase consumer cost-sharing, case management and so on while supply side tools include clinical practice guidelines, controls on acquisition and use of expensive technology, formularies and generic drugs, utilization review, medical practice profiling, second opinions, increase use of non-clinician providers, teleconsultations etc. Ultimately, of course, much depends on whether incentives to increase efficiency in the public hospitals are adequate and whether Ministry of Health guidelines are sufficiently flexible to permit innovation at the level of the individual hospital.


Keywords: Hospital efficiency, managed care tools and innovations   



Managed Care, although a controversial concept, has arrived onto Malaysian shores. “Managed Care” can be defined as a system of organizing and financing healthcare services which incorporate active measures to influence the behaviour of both patients (“healthcare consumers”) and doctors (“healthcare providers” – besides doctors, providers include hospitals, nursing homes and so on). Managed Care Organisations (MCOs) use economic and non-economic incentives and disincentives to:


  1. Influence healthcare consumers to seek care appropriately
  2. Influence healthcare providers to provide care efficiently


Thus, MCOs will attempt to reduce unnecessary visits to the doctor and discourage visits to the specialist made without referrals from a GP (General Practitioner) “gatekeeper” on the part of healthcare consumers. Similarly, MCOs will attempt to reduce overtreatment or undertreatment on the part of healthcare providers, i.e., only medically necessary and cost-effective care is supposed to be provided to patients.


This paper will not deal with managed care per se. Instead, it will deal with innovations arising from the managed care movement that are potentially useful tools for increasing productivity and efficiency in public hospitals (Flynn et al., 1997).


Demand side tools include providing preventive care to the people living in the hospital “catchment area” through outreach programmes, strict enforcement of referrals for seeking specialist care at hospitals (except for emergency or other justifiable cases), increased consumer cost-sharing, teaching of self-care to patients and their close relatives, case management/care coordination of those with chronic conditions and those with diseases which are expensive to treat (both during hospitalization and after discharge from the hospital). All these demand side tools are meant to discourage unnecessary care-seeking at the hospital, avoid unnecessary hospital admissions and to reduce the number of readmissions (McCleave, 1999; Robinson & Steiner, 1998).


Supply side tools include outpatient treatment in contrast to inpatient treatment whenever possible (e.g. preadmission and preoperative diagnostic testing on an outpatient basis, day surgery without any overnight hospital stay), prevention of unnecessarily prolonged hospital stays, clinical practice guidelines and protocols for hospital doctors, controls on acquisition and use of expensive medical technology, formularies and generic drugs, second opinions, teleconsultations, avoidance of “heroic medicine” or “futile care”, easily accessed and on-line patient medical histories and records, utilization review, medical practice profiling and increased use of non-clinician providers such as medical assistants and experienced nurses (McCleave, 1999; Robinson & Steiner, 1998).


Hospitals can also find other ways to improve their efficiency – both technical efficiency (more output per ringgit spent, i.e., “more bang for the buck”) and allocative efficiency (how to allocate the hospital’s resources between different programmes so as to maximize desired results). Examples would include outsourcing and contracting out of the hospital’s “hotel services”, establishment of step-down facilities so as to shorten hospital stays, reduction of hospital infection rates (nosocomial sickness) and iatrogenic illnesses etc.


The above demand side tools, supply side tools, and “new public management/hospital management” tools can perhaps be grouped into categories such as “possible to implement”, “difficult to implement” and “impossible to implement” because of various reasons ranging from resistance from hospital doctors, resistance from patients and their families, to difficulty in obtaining permission from Ministry of Health officials to introduce innovations at the level of the individual hospital.


Demand Side Tools


These are tools designed to reduce the demand for care at the hospital (including the demand for outpatient treatment, specialist care at the hospital, hospital admissions and so on). One way to do this would be for the public hospital (together with the Ministry of Health) to introduce outreach prevention programmes to the people living in the hospital’s catchment area so that disease incidence is reduced and therefore, less people would seek care at the hospital. Examples would include nutrition programmes, health education programmes, vaccination programmes, antenatal care programmes and so on. The public hospital would need to coordinate closely with the state and district health authorities in order to have effective programmes along these lines. Unnecessary care-seeking at the hospital can be discouraged by higher levels of consumer cost-sharing (if the Ministry of Health permits it) for patients with trivial complaints that should have been presented at the klinik desa or GP clinic instead. Thus, the patient will have to pay a higher registration fee and bear a higher percentage of total costs incurred (i.e. the public subsidy is reduced) if care-seeking at the hospital is deemed to be inappropriate. Perhaps patients can also be required to obtain a referral letter from a GP clinic or a klinik desa before he or she can seek treatment at the public hospital.


Patients with long term illnesses such as diabetes can be taught to practise proper self-care (for the feet etc.) so that their need for hospital treatment of complications can be reduced. Their close relatives can also be taught at the same time to get them to make sure that the patient practices a healthier lifestyle and to ensure better medical adherence (compliance). Furthermore, for patients with long term illnesses or for those with medical conditions which are expensive to treat, case managers or care-coordinators can be assigned in order to prevent duplication of care, e.g., wasteful duplication of diagnostic imaging and laboratory tests, prevention of adverse drug interactions because of polypharmacy and so on. The case manager will help to tackle the problem of fragmented care in the hospital.


In the case of discharged patients with chronic conditions, case management needs to be continued through home visits and so on in order to prevent costly readmissions to the hospital. Thus, the case manager’s job does not end with the discharge of the hospitalized patient (Hosp Case Manag (no author listed), 1999). 


Supply Side Tools


These tools are meant to change the behaviour of providers in the hospital so that they will practise more cost-effective medicine and provide only medically necessary care. Clinical practice guidelines are one way of doing this. Clinical practice guidelines and protocols will also encourage the practice of evidence-based medicine (Layton et al. 1998). The Ministry of Health can lower supply side costs by strict controls on the acquisition of expensive new technology by the public hospitals. There is certainly no need to “reinvent the wheel” here: the health authorities and academics in North America and Western Europe have developed considerable expertise in evaluation of new medical technology. Thus, the Ministry of Health can make use of their research findings to decide if specific, expensive new medical technology should be allowed into this country. At the level of the individual public hospital, the use of expensive technology such as magnetic resonance imaging also needs to be controlled in order to control overall health care spending.


As part of cost-effective health care, public hospitals can rely on drug formularies (drawn up by the Ministry of Health using those from the World Health Organisation, UNICEF etc. as a guide) in order to reduce the use of expensive, branded drugs and to promote the use of generic drugs (those of proven bioequivalence in their therapeutic effects as compared to branded drugs). Clinician effectiveness in the public hospital can also be promoted through the use of new information system technology, e.g., through the use of “smart cards” or through the installation of on-line medical history and medical record systems. Doctors can also be encouraged seek second opinions while managing patients through an effective teleconsultation system. 


Whenever possible, patients should be treated on an outpatient basis rather than on an inpatient basis. For example, preadmission testing and preoperative diagnostic testing should be done on an outpatient basis whenever possible (McCleave, 1999). “Clinical observation units” can also be established to prevent questionable admissions and short inpatient stays (Lenox and New, 1997). This will reduce the rate of hospital admissions, free up more hospital beds and increase the efficiency of the public hospital. Positive steps can also be taken to avoid unnecessarily prolonged hospital stays for inpatients, e.g., active monitoring of the status of hospitalized patients and empowering doctors on weekend duty to discharge patients. “Step down” facilities can also be utilized so that recovering patients can be moved out of the hospital to these cheaper facilities. Step down facilities would include social service organizations in the community.


“Heroic medicine” or “futile care” should be actively and strongly discouraged (McCleave, 1999). Such care not only helps to run up costs but may also prolong unnecessarily the suffering of patients with incurable or terminal conditions. For such patients, quality care would be palliative care, pain and discomfort management and helping the patient to die with dignity inside the hospital or outside in a hospice or at home.   


The public hospital can also institute a system of utilization review to cut down on inappropriate and inefficient use of resources. This would include the following: pre-admission review of non-emergency hospital admissions, concurrent review, and retrospective review of hospital admissions. Medical practice profiling can also be introduced (in a tactful way such as private and confidential feedbacks to an individual doctor which compares the doctor’s practice profile to average figures) to induce doctors to practise medicine in a more standard way (Robinson and Steiner, 1998).


Another way to optimize the use of scarce healthcare resources is the substitution of lower skilled health personnel for highly skilled personnel in the treatment and management of simple or routine cases whenever possible. Thus Medical Officers, medical assistants and public health nurses can be used to handle such cases in place of senior doctors and the highly-trained specialists. The increased use of medical assistants and public health nurses (i.e. if the health authorities permit this) will help to lessen the burden on the doctors in the public hospitals. Countries such as the United States have nurse-practitioners and nurse-midwives who actually treat patients and deliver babies under the supervision of doctors. There is no reason why Malaysia cannot upgrade the status of nurses and introduce these new kinds of “physician extender” health personnel into our public health system. 


New Public Management/Hospital Management Tools (Crainer, 1996)


Public hospital managers can also borrow tools from the “new public management” movement. This movement attempts to introduce private sector management techniques and tools into public management and the Government services in order to increase efficiency. Concepts such as “outsourcing” and “contracting out” are part and parcel of the new public management movement. Thus, if “hotel services” which used to be provided by in-house staff such as food service, laundry and housekeeping can be provided more cheaply and efficiently by outside private contractors, then this course of action should be pursued. Besides hotel services, certain medical services can also be contracted out, e.g., diagnostic and laboratory services.


Public hospitals can also adopt Total Quality Management techniques to ensure continuous improvements in quality of service (both therapeutic services as well as “hotel services”), e.g., by reducing unnecessary variations in the provision of care (McLaughlin and Kaluzny, 1997; Monane et. al., 1996). TQM action plans can also be introduced to reduce hospital infection rates (nosocomial illnesses) and iatrogenic cases.  Reduction of hospital acquired-infections and iatrogenic illnesses will improve the quality of medical services provided by the public hospital. Quality Control Circles (QCC) can be set up to suggest ideas to deal with these and other issues. A quality improvement team can also be established to identify the most common reasons why discharges are delayed and to come up with action plans for these (McCleave, 1999).


If the public hospital is ambitious enough, it can also come up with indicators to measure its efficiency vis-à-vis national and international figures and benchmarks. These include: average length of stay (ALOS), staff per bed, bed occupancy rate (BOR), bed turnover rate (BTO) and so on. ALOS which are too high and BOR which are too low suggest inefficiencies which can be improved upon.




Public hospital administrators, as dedicated civil servants empowered to provide certain medical services to the public so as to promote their welfare, can borrow various tools from the managed care movement and the new public management movement to utilize public resources more efficiently. The main goal is to use these tools to provide inpatient and outpatient as well as outreach services of reasonable quality in a cost-effective manner. Tools that are potentially useful for public hospital administrators include demand side tools, supply side tools and new public management tools and concepts. As mentioned earlier, these tools and strategies can be classified into “possible to implement”, “difficult to implement” and “impossible to implement” taking into consideration existing realities such as resistance from healthcare providers, opposition of healthcare consumers as well as the rules and regulations of the Ministry of Health. Whatever the case may be, tools and strategies that fall into the first two classifications can certainly be used to increase efficiency at the level of the individual public hospital.   































Crainer, S. 1996. Key Management Ideas. London: Pittman Publishing.


Flynn, K., McGlynn, G. & Young, G. 1997. Transferring Managed Care Principles to VA. Hosp Health Serv Adm, Fall, 42:3, 323-38


Hosp Case Manag (no author listed), 1999. Hospital Brings Social Work into Case Management Fold. Hosp Case Manag, Feb., 7:2, 33-4, 39


Layton, A., Moss, F., & Morgan, G. 1998. Mapping Out the Patient’s Journey: Experiences of Developing Pathways of Care. Quality in Health Care, 7(Suppl): S30-S36


Lenox, A.C. & New, H. 1997. Clinical Observation Units Help Manage Costs and Care. Healthcare Financ Management, April, 51:4, 88-89 


McCleave, S.H. 1999. Tips for Making Inpatient Care More Efficient. Family Practice Management, March


McLaughlin, C.P. & Kaluzny, A.D. 1997. Total Quality Management Issues in Managed Care. J Health Care Finance, Fall, 24:1, 10-16


Monane, M., Kanter, D.S., Glynn, R.J. & Avorn, J. 1996. Variability in Length of Hospitalization for Stroke. The Role of Managed Care in an Elderly Population. Arch Neurol, Sept, 53:9, 875-80


Robinson, R. & Steiner, A. 1998. Managed Health Care: US Evidence and Lessons for the National Health Service. Buckingham and Philadelphia: Open University Press.