Located in the heart of Southeast Asia, Malaysia’s 21 million inhabitants are a diverse mix of ethnic Malays, Chinese, and Indians. Until mid-1997, Malaysia was one of the region’s fastest-growing economies – average annual GDP growth was well above 8%, manufacturing was moving away from traditional industry (rubber and tin) to high-tech industry (semiconductors and microchips), unemployment was low and stable at around 2.6%, and GDP per capita was one of the highest in Southeast Asia (see Figure 1). Malaysia’s government fostered growth through liberal foreign investment policies, including generous tax deductions for companies and complete and partial deregulation of such important sectors such as finance, telecommunications, transport, energy, and broadcasting. Indeed, in 1996 the Heritage Foundation ranked Malaysia tenth among the world’s most open economies.
Figure 1. GDP Per Capita in Southeast Asia, 1997
Measured in US$ and converted for Purchasing Power Parity
|GDP Per Capita
Source: CIA World Factbook 1998
When the currency crisis struck Asia in mid-1997, however, the sharp decline in local currency and stock markets forced Malaysia to announce tough cost-cutting measures – on top of a contractionary budget – to further reduce the current account deficit to 3% of GDP in 1998 from 5.5% in 1997. As a result, government spending was slashed by 20%, imports fell, and large-scale infrastructure projects were put on hold. The government also responded with capital controls to maintain stable interest and exchange rates – but while these controls protected the country from further speculative pull-outs, the country’s stock market and investor confidence only plunged further. As a result, Malaysia’s economy contracted more than 6% in 1997 – 98.
Fortunately, intensive reform efforts since 1998 have raised projected GDP growth estimates to 2% for 1999 and 3 – 4% in 2000. This is a far cry from the 8 – 9% annual growth the country enjoyed before the crisis, but a high level of foreign reserves, a highly skilled workforce, continued inflow of direct investments, and a rebounding manufacturing sector (after 12 months of decline, Malaysia’s Industrial Production Index rose 3.9% year-on-year in February 1999) will provide the platform for economic recovery. These positive forecasts have also allowed Malaysia to renew its efforts at economic deregulation, removing many of the artificial controls it imposed during the crisis and thereby encouraging private sector growth.
II. MALAYSIA’S HEALTHCARE SYSTEM
Breakdown of Malaysia’s Healthcare Facilities
Both the public and private sectors are important players in Malaysia’s healthcare delivery system. About 80% of healthcare services are provided by the public sector, which is still considered one of the best in the region. The public sector is heavily subsidized and focuses on healthcare promotion as well as rehabilitative and curative care at the primary, secondary, and tertiary levels. The rapidly-growing private sector, on the other hand, offers mainly curative and rehabilitative services, and is financed strictly on a non-subsidized, fee-for-service basis.
Figure 3. Public and Private Hospital Growth in Malaysia
Source: Health Industry Manufacturers Association, 1996
There are three types of public hospitals: 1) general hospitals; 2) district hospitals; and 3) special medical institutions (SMIs). Each of Malaysia’s sixteen state capitals has a general hospital, which average between 600 to 700 beds each and provide a full range of healthcare services. Because of their size and comprehensive range of care, general hospitals are the most preferred public hospitals in Malaysia. District hospitals, which are much smaller, average between 250 to 400 beds each and provide more basic diagnostic and curative services. Finally, SMIs are dedicated to the treatment of specific diseases, such as leprosy and tuberculosis. A network of health clinics provides primary healthcare to the population and a comprehensive referral system providing secondary and tertiary care is also in place in district and urban hospitals. Generally, the majority of big hospitals with 100 beds or more are concentrated in urban areas.
Figure 4. Government Healthcare Facilities in Malaysia
|Beds in SMIs
|Government Dental Clinics
|Maternal & Child Clinics
Source: U.S. Department of Commerce, March 1997.
While private hospitals, on the other hand, only account for 20% of the country’s hospital beds, they employ 54% of the nation’s doctors. A rapidly growing private healthcare system, fueled over the past ten years by the rise of employer-paid private insurance benefits and rising per-capita income, is expected in the next 15 years alone to raise Malaysia’s health expenditure from 3% of GDP to 6% of GDP.
Trends in Malaysia’s Healthcare System
However, there is increasing concern over whether the government can continue to sustain the country’s rising healthcare costs. In 1990, healthcare expenditures were close to RM1.8 billion (US$426 million), and almost doubled by 1997 to RM$3.4 billion (US$805 million). Rapid investment in the private healthcare sector lightened some of this burden, but suffered a blow after the economic crisis struck in mid-1997 – causing business in private hospitals to fall 18-20% and imposing a 3 – 4 year delay in the development of new private hospitals (including plans for 14 new private establishments in the next two years). With the ringgit’s depreciation, the cost of imported drugs and technology has also gone up. Since the beginning of the crisis, private hospitals have had to bear additional 20 – 120% drug costs and a 30% rise in surgical costs.
Alternatives to the Current Healthcare System
Due to the rise in healthcare costs and subsequent concern about its ability to cover the entire population, the government has been searching for new and alternative methods to national healthcare. The government’s Seventh Malaysian Plan (1996 – 2000), for example, plans to initiate healthcare reform and cost-cutting through corporatization – gradually running state hospitals like companies, while maintaining government control of those institutions. Among other things, the ability to fire and hire staff as a corporate body, as well as more flexibility and efficiency in day-to-day operations, will be introduced. And along with providing more efficient care, government officials hope that corporatization will also staunch the flow of experienced staff into the private sector.
With corporatization, however, medical costs are still likely to escalate. Thus, many Malaysians, particularly the poor and average wage earners, might be denied access to healthcare. At the newly corporatized University Hospital in Petaling Jaya, for example, charges for basic diagnostics such as blood tests and x-rays have shot up by as much as 150 – 200% since the crisis struck in mid-1997.
As a result, the government is also planning to implement a new National Health Insurance (NHI) scheme after corporatization is in full swing. Contribution to the NHI scheme will be required for all workers who will then pay for public healthcare, which is currently provided free of charge or at minimal prices at government hospitals. To supplement the NHI program, 44 locally-owned Malay insurance firms under the National Insurance Association of Malaysia (NIAM) are planning to introduce a nationwide medical insurance scheme by July 1999. The new program, called Sihat Malaysia, will initially provide hospitalization and surgical coverage, and will likely be expanded later on to include clinical coverage. Sihat Malaysia is targeted at citizens 28 years or older, who have families, and are in the low- to middle-income income range. Participating companies hope to obtain special rates from hospitals, clinics and medical professionals under the scheme, thereby passing these benefits onto customers. The scheme will also allow small players that otherwise lack the expertise and facilities to pool their resources and penetrate the medical insurance business. However, given NIAM’s Malay membership, foreign-controlled insurers in Malaysia will be excluded from the Sihat Malaysia scheme.
Despite the debilitating effects of the Asian crisis on private hospital growth, the private healthcare industry has escaped stagnation due to the nation’s growing private health insurance market. Between April and October 1998, for example, about two to three dozen private insurance groups have been actively promoting various health insurance schemes targeted towards individuals, families, and corporations. Despite some obstacles (legal loopholes that prevent enforcement, and Malaysians’ tendency to have direct access to medical specialists), there are now seven Managed Care Organizations (MCOs) in Malaysia.
Ultimately, as Malaysia’s economy regains strength, the healthcare market will also rebound. There are already significant signs of recovery – in early 1999, for example, the government actually increased the allocation for public health and medical services for the year to RM4.51 billion (US$1.1 billion), from RM3.49 billion (US$827 million) in 1998. And with the government’s new efforts to streamline and improve the delivery of healthcare services through corporatization, Malaysia’s healthcare market should emerge stronger than ever in coming years.
Figure 5. Healthcare Professionals By Category, 1990 – 2010
|RATIO TO POPULATION
|ALLIED HEALTH PROFESSIONALS
|Public Health Inspectors
|Medical Assistants and Laboratory Technologists
Source: Seventh Malaysia Plan, 1996-2000
III. ORGANIZATION OF THE MINISTRY OF HEALTH
Malaysia ‘s Ministry of Health has the following structure:
As can be seen above, there are two main components to the Ministry of Health (MOH): Administrative and Professional. Administrative services are divided into Management and Finance, while professional services are divided into Medical Services, Public Health Services and Research and Technical Support Services. Between the three professional services groups, there are 11 subdivisions whose functions are listed below:
1) Medical Development Division
- Plans and develops medical and specialist services.
- Conducts research and formulates policies related to medical services and technology.
- Provides consulting services to agencies both within and outside the MOH.
- Promotes intersectoral collaboration in healthcare delivery.
2) Medical Practice Division
- Formulates and updates medical laws pertaining to medical services.
- Manages the licensing of private hospitals.
- Identifies the needs and coordinated the acquisition of equipment and medical financing.
3) Dental Services Division
- To provide public dental health services to the population (the private dental sector is mainly concentrated in urban areas).
4) Disease Control Division
5) Family Health Division
6) Health Education Division
7) Food Quality Control Division
8) Medical Research Division
- Conducts research in various “priority areas” (including biochemistry, biotechnology, endocrinology, epidemiology, hematology, immunology, nutrition, and virology) to assist managers and administrators in the formulation, implementation and evaluation of programs and activities for the diagnosis, prevention and control of major diseases in the country.
- Raises awareness and basic knowledge of lesser-known diseases.
9) Pharmacy Services Division
- Plays a major role in developing policies for and approving all domestically-produced and imported pharmaceutical products in the country.
- Monitors hospital pharmaceutical activities, production and store management, and procurement and distribution.
10) Engineering Services Division
- Plans, implements, monitors, and coordinates preventive health programs through the application of public health engineering principles and methods.
- Provides technical assistance, advisory and training services to federal, state, and local governments and government agencies in public health engineering and hospital engineering.
11) Planning and Development Division
- Plans and develops appropriate health facilities based on changing health needs and technology advancement.
- Improves management capability and skills to fulfill the needs of planning, implementation, monitoring, and evaluation of programs.
IV. PHARMACEUTICAL REGULATIONS IN MALAYSIA
In 1998, Malaysia’s Drug Control Authority (DCA) registered 22,085 drugs and traditional medicines out of about 40,000 applications received. Of the total number of registered products, 8,187 were prescription drugs, 5,415 over-the-counter (OTC) drugs, and 7,819 traditional medicines.
Over 65% of Malaysia’s pharmaceuticals are imported, in part because most doctors are reluctant to switch to local brands as they prefer the higher quality of imported drugs. Thus, compared to imported drugs, most local drugs are common/general pharmaceuticals such as painkillers and antibiotics since it is not economically feasible to target a specialized segment.
Recently, the Pharmacy Board of the MOH has been encouraging additional improvements in the dose drug distribution system, clinical pharmacy component, total nutrition services, and patient medication counseling. It is also trying to increase the purchases of pharmaceutical preparations in the market, reduce the manufacture of pharmaceuticals in hospitals, and implement Good Manufacturing Practices (GMP) in hospital manufacturing laboratories.
V. MEDICAL DEVICE REGULATIONS IN MALAYSIA
Since the early 1990s, Malaysia’s medical device market has been growing at 15 – 20% annually. The country’s medical device market is currently worth about $300 million, with imports accounting for more than 90% of this total. Because of the significant ringgit depreciation from the crisis and the subsequent increase in import prices, Malaysia’s medical device market suffered a setback between 1997 and 1998. However, the economic recovery in Malaysia has rejuvenated import growth (particularly for electronics and high-technology products), and thus the outlook for medical device imports – especially high-technology equipment – is positive.
There are currently very few trade barriers or regulations for imported medical equipment in Malaysia. Only latex rubber products (i.e. condoms, surgical gloves) require certification by the Ministry of Health, and the government also maintains some safety-related regulations on certain devices – for example, it is government policy not to buy used/refurbished medical equipment, or allow new, experimental products into the country without FDA or other international standard approval.
Under the country’s Atomic Energy Act (which among other things requires radiation-emitting equipment to be handled by authorized persons only), any x-ray equipment must be specially examined and approved by the Ministry of Health before being used by doctors and radiologists.
The Ministry of Health (along with the Association of Malaysian Medical Industries) is drafting a more comprehensive regulatory framework for medical devices that should be implemented by 2002. Reasons for this decision include the government’s growing concerns over the quality of imported devices as well as the urgency of meeting the European Union’s new CE Mark approval standard for all medical devices in the EU (the destination for 39% of Malaysia’s total medical device exports).
Among other things, the proposed framework will:
- cover the registration of medical devices;
- regulate compliance of Good Manufacturing Practice (GMP) for local and imported medical devices;
- regulate the importation of medical devices and the use of certain types of medical devices in terms of their usage, maintenance, and personnel;
- and regulate the sale of medical devices, as well as monitor and implement an effective system for customers to file complaints.
Accredited laboratories will also be appointed to ensure that medical devices meet the new standards, conduct tests as needed, and issue certificates for medical devices.
Regulations on Public and Private Sector Medical Equipment Purchases
In the public sector, health equipment purchases are classified into two groups – those over and under RM50,000 (US$11,800).
For purchases greater than RM50,000 (which make up the majority of public medical device acquisitions), the MOH will issue a tender that is advertised in local newspapers. Distributors are then requested to provide specifications and prices for their products.
Once tenders are closed, an evaluation board (made up of one member of the MOH and at least two other members that are usually heads/department heads of the purchasing institutions) will consider the bids. In purchases less than RM50,000, hospitals and public institutions will call for and consider tenders on their own.
In the private sector, tender processes tend to work somewhat differently. Where healthcare chains are the purchasers, equipment will be procured through a procurement arm or an equipment consultant firm. In this case, the equipment consultant will be a storehouse of information for their client and thus provide an important link for the supplier to access the market. Alternatively, they may allow their component hospitals to purchase equipment individually, with a member of the central office on the individual hospital board. Thus, the manufacturer and/or its distributors would be better off communicating with the department heads of the individual hospitals as well as the equipment divisions of the central office.
Public and private hospitals, while using different methods to procure medical equipment, maintain relatively similar standards for their purchases. While price is very important (and has played a greater role recently due to the ringgit’s depreciation), the most important factor is still quality and the equipment’s specifications. After-sales service (i.e., maintenance and training) offered by a firm is also very important, especially for purchases of electro-medical and other high-tech equipment. Finally, both sectors tend to favor local distributors and local companies registered with the Malaysian Department of Treasury in cases where prices are similar. Thus, if a foreign firm wants to concentrate on the public sector, it might consider aligning itself with a listed distributor that has extensive sales offices and maintenance facilities in the country.
VI. INTELLECTUAL PROPERTY PROTECTION
The Malaysian government plans to implement new measures in the enforcement of intellectual property rights, including the creation of new legislation and conducting reviews of existing legislation. These actions are intended primarily to conform to the Trade Related Aspects of Intellectual Property Rights (TRIPS) Agreement implemented by the World Trade Organization in 1995. They are also in response to growing concern over the widespread production, distribution and use of illegally produced software and technology.
The implications of TRIPS for Malaysia are:
- Stimulating an increase in cross-border trade and investment as well as technology transfer.
- Improved confidence would create a more favorable trading and investment environment in Malaysia.
- Changes will needs to be made to Malaysia’s existing IP laws.
- New IP laws will need to be created.
- Increase in budget allocation for personnel and improved technology.
Government measures planned or currently underway are:
- The recent transition from the United Kingdom Designs Protection Act 1949 to the Industrial Design Act 1996 ( Malaysia).
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- Reviewing section 42 of the Copyright Act 1987 in an effort to establish a more practical method for proving copyright ownership, as well as making it easier to initiate legal action against copyright pirates.
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- Establishing an independent Intellectual Property Training Center in Malaysia designed for recognition and use by all ASEAN member countries.
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- Amending the Trademarks Act 1976 and Patents Act 1983.
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- Creating a new law specifically to protect layout designs of integrated circuits, geographical indications and plant varieties.
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- The implementation of recent “cyberlaws”: the Telemedicine Act 1997, the Computer Crimes Act 1997, the Digital Signatures Act 1997, the Communications and Multimedia Act 1998.
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- Implementation of the Technology Action Plan for industrial development programs: installing a document imaging system (DIP) to increase the efficiency of search and examination functions.
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The current legislation governing patents is the Patents Act (Amended) 1983. This legislation currently requires that anyone applying for a patent must do so through a patent agent. The patent agent takes care of all the necessary paperwork, however, the “inventor” must fill out an Authorization of Agent Form to empower the patent agent to act on behalf of the applicant.
The application goes through several stages of examination, and it generally takes between 3 – 5 years before the patent is approved depending on the complexity of the invention. Once approved, the protection period for the patent is for 15 years from the date of patent approval. The patent owner has exclusive rights to exploit, assign or transmit as well as conclude license contracts in relation to the patent. This includes making, importing, offering for sale, selling, or utilizing the invention.
A “utility innovation” is defined as “any implement, tool, product or process which is of practical utility by reason of its form, configuration, construction or composition.” A utility innovation does not have to fulfill the same requirement of inventiveness as a patent. Therefore, any invention that does not meet the inventiveness requirement may have the item registered instead as a utility innovation.
The application process for obtaining a Utility Innovation Certificate is the same as that for a patent. The certificate provides the same protection as that of a patent, but is only valid for 5 years from the date of approval.
Trademarks must be registered through the same application process as a patent, utilizing a patent agent. There is a three-stage approval process, which can take from 3 – 5 years. Currently, once registration is approved, trademark protection is granted from the date of filing for a period of 7 years, after which it is renewable for 14 years. The Trade Marks (Amended) Act 1994, which has not yet gone into effect, will extend the initial protection period to from 7 years to 10 years. The registered owner of the trademark has the exclusive right to utilize the mark in relation to the goods for which it is registered.
An industrial design only refers to the shape, configuration or pattern that has been applied to a particular article, not the article itself. In order to be registered, the design must be able to be “judged solely by the eye”. The design must not have been used or published prior to the submission of the registration application.
Previously, industrial designs were covered under the United Kingdom Designs Protection Act 1949. However, the Industrial Design Act 1996 ( Malaysia) will now allow applicants to file directly with the Malaysian government. Protection is extended for three consecutive (renewable) five-year terms, after which, anyone can use the design.
Although Malaysia suffered many setbacks from the crisis, recovery is underway and the country’s markets will emerge stronger and more efficient in the coming years. Despite the temporary controls imposed by the government between 1997 – 98, Malaysia has reinstated its program of deregulation and is once again on its way to being one of the most open economies in the world. Foreign medical manufacturers can therefore remain optimistic of their opportunities in Malaysia.
However, foreign medical manufacturers should also keep in mind the many changes that are occurring in Malaysia’s pharmaceutical and medical device markets – particularly the latter. In an effort to make healthcare provision more efficient, Malaysia’s favorable foreign investment policies have been increasingly matched by an emphasis on quality and safety, which foreign companies should keep in mind when developing their product and approval strategy in the country. New regulations are being drafted for medical devices, which should be implemented by 2002, and some changes in the pharmaceutical approval structure are also being debated. New intellectual property laws are also being considered. Ultimately, foreign medical companies can take advantage of many growing opportunities in Malaysia, but they must keep abreast of the many regulatory changes to come.