Kenya gears up for major health sector reforms

Slow pace of policy implementation is hampering the flow of private capital into public hospitals, dashing the hopes of private equity funds transforming the public healthcare system to make it more affordable to millions of low income earners in Kenya.

While the country’s public private sector policy (PPP) framework passed by the Cabinet in 2008 clearly outlines rules of engagement between government institutions and private entities, experts say the health sector is yet to adopt the law limiting the role that the private sector can play in financing public health facilities.

“The donor funding channels are drying up and the African governments need to open up their health sectors to private capital,” said Mr Scots Featherston, a Nairobi based official of the International Finance Corporation (IFC), the World Bank’s private sector arm.

The IFC, Africa Development Bank, the Bill & Melinda Gates Foundation and DEG have been promoting a new healthcare financing model in which private equity funds inject cash in start-up or established health institutions in exchange for stakes that allow them influence management decisions.

The model aims at employing corporate-style management systems in running health institutions to make them profitable and affordable to majority of the citizens.

At the Agoa forum held in Nairobi last August, experts from across Africa discussed and endorsed the model as the continent’s next bet as donors continue to divert their funds to other priorities like combating climate change.

“We initially hoped to set up our own health facilities in Africa but later decided to enlist the services of private equity fund managers to reach the highest number of people at the bottom of the pyramid with affordable quality healthcare while ensuring good returns on investment in the institutions,” said Mr Featherston

In June last year, IFC and its partners set up a Sh7.6 billion ($100 million) Africa Health Fund (AHF) and appointed a British private equity fund, Aureos Capital, to identify health institutions in Kenya, Tanzania, Nigeria, Rwanda, Ghana, and Cote d’Ivoire in which the money could be invested on a pilot scheme.

AHF seeks to make investment of between Sh3.8 million and Sh3.8 billion per institution and a total of up to 30 health institutions in each of the participating countries.

In Kenya, slow implementation of the PPP framework has made the going very difficult, with Aureos’s six-month search yielding only one institution so far - the Nairobi Women’s Hospital (NWH).

In January this year, Aureos announced an investment of Sh199.5 million ($2.66 million) in Nairobi Women’s Hospital, providing capital that is needed to expand the facility of the low cost hospital to offer services to citizens from across the East African region.

“We are delighted to have NWH as the first investment because its growth strategy closely reflects the objectives of the AHF which seeks to support robust businesses that have a distinct goal of increasing the availability of quality healthcare to a broad population that has previously had limited choice,” said Mr Shakir Merali, the Aureos Partner leading the transaction.

Largely celebrated as the first Gender Violence Recovery Centre in East Africa, NWH provides inpatient, outpatient and specialised services, including antenatal, gynaecology, obstetrics, breast cancer detection and surgery healthcare services to women and children.

A proportion of the sum invested in NWH will be used to help fund a management buyout, with the balance going to the expansion of facilities such as clinics, beds, ambulances and operating theatres in the East Africa Region.

“Many of the causes of the high costs and inefficiencies of the healthcare sector in Africa are essentially business issues that we hope the Fund, and the input of Aureos executives, will help to resolve,” said the Aureos’ CEO, Mr Sev Vettivetpillai