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

He added, “We are delighted to have completed this investment in NWH and look forward to helping them reach a larger portion of the underserved population in East Africa.”

Health financing experts say Kenya may lose out in the initial phase of implementation of the cheap healthcare financing model if it does not fix its regulatory landscape in time.

The Kenya Private Health Sector Assessment Report published by USAID in September last year recommends the formation of a PPP unit within the health ministry to create an enabling environment for private sector’s investment in health services.

The report calls for the review of the national health policy framework and the harmonisation of key health laws in order to integrate PPP partnerships in improving availability and accessibility of healthcare.

Health burden

Healthcare financiers also recommend the integration of the private sector into the National Health Insurance Fund pilot financing of out-patient services and the introduction of low-cost insurance products in the country.

Available statistics indicate that the private sector is already the leading contributor of the $16 billion spent on health in Africa every year.

According to the Business of Health In Africa Report published in 2007, at least 50 per cent of the total health burden is settled as an out of the pocket expenditure by the private sector compared to 40 per cent public funding of state and five per cent paid by companies on behalf of employees.

Experts say efforts at making healthcare available and affordable to majority of the population in the low income bracket will only be sustainable if it stretches beyond prudent management to address personnel shortage within the sector and high fees demanded by doctors.

“The cost of medical services in the country is way off the mark but can be reduced significantly if doctors are prevailed upon to lower their fees which currently constitute the biggest component of the cost for specialised treatment,” argues the NHIF CEO, Steve Kerich,

According to the World Health Organisation, the shortage of human resources for health has replaced financial issues as the most serious obstacle to implementing national treatment plans in developing nations.