Small companies and start-ups join the ranks of private providers

As Kenya’s long-underfunded health sector strives to boost access to quality care, the private sector’s role in provision has expanded, with most health care facilities now run by donors and private firms. The health care sector has seen growing investment from foreign firms, as well as increased participation by small and medium-sized enterprises (SMEs), especially in mobile health services. With an emphasis on delivering cost-effective solutions to remote or under-served areas, SMEs now represent the most significant growth channel for private health care services. Recent moves to improve access to credit, moreover, should see SME activities rise in the coming years.

Prominent Role

Consistent underfunding for public health care has helped the private sector gain a prominent role in service delivery. The number of health facilities reached 9448 in 2013, and the public/private ownership balance has shifted in its favour: 53% of all health care facilities in the country are now privately owned. As the national government grapples with huge challenges related to the “devolution” of health care services, in which counties unable to absorb their new responsibilities are to receive budgets in excess of KSh50bn ($570m) a year for the next several years, the private sector’s role should broaden even further.

The largest contributors to health funding in the country are consumers, who represent about 35.9% of total spending, followed by government and donors at just under 30% each, according to a 2013 report by KPMG entitled “Devolution of Health Care Services in Kenya: Lessons learnt from other countries”. Kenya’s high proportion of out-of-pocket spending has been criticised as unduly burdensome to low- and middle-income families. Meanwhile, the government’s shift towards universal health care, including the introduction of free maternal and public clinic services, has put heavy strain on clinics and hospitals, and quality of care still suffers due to ongoing financial constraints.

For these reasons, the private sector is widely seen as the most feasible channel for expanding service provision. According to a 2013 report by Open Capital Advisors (OCA), private spending on health care in Kenya will range between $1.8bn and $3.1bn by 2025, translating to more than $1bn of needed capital. As the report, “The Next 33 Million”, notes, investors have already moved to cash in on rising demand: investments in medical insurers, facilities and health care firms have all risen in recent years. At the same time, government reforms have built a framework for private investment, opening doors for future inflows. Large foreign firms have made several multimillion-dollar investments, while a significant number of emerging health care players classified as SMEs represent a promising private growth channel for health care in Kenya.

A new law to promote public-private partnerships (PPPs) was promulgated in 2013, containing provisions to boost private investment in the health sector. Through the Ministry of Finance, the lead agency in charge of implementation, and a PPP unit established within the department of policy and planning at the Ministry of Health (MoH), the act enables regional government entities to engage with the private sector to purchase health services and goods. “The health sector in Kenya is largely underfunded,” Lily Koros Tare, CEO of Kenyatta National Hospital, told OBG. “The new PPP Act should help in this regard, as the ministry can engage the private sector to address our key issues in capacity.”

Clinics & Facilities

The OCA report reckons that private health spending will continue to outpace public, with $3.1bn of $4bn in expected annual health spending coming from private sources by 2025. As an area for future growth, the agency points to investment in clinics and hospitals, which have not kept pace with demand. While in Nairobi high-level care is available at the Kenyatta National Hospital and private institutions such as Aga Khan University Hospital, Nairobi Hospital and Karen Hospital, outside the capital few top-tier facilities exist. Indeed, many Kenyans travel to India or South Africa for high-quality care. Health care provision in Kenya is dominated by dispensaries and clinics, which make up 77% of all facilities, according to OCA. These often lack sufficient quality and capacity, and are run by under-trained health workers. Only 21% of clinics can provide a full package of basic services, including for children, family planning and sexually transmitted infections. A further 42% do not have the equipment to provide disinfection.

Part of the problem is that many SMEs, including small clinics and hospitals, have limited access to credit. Such shortfalls pose a major challenge for hospitals. A patient who visits a dispensary or clinic is likely to simply be referred to a higher-level facility. In other cases, patients self-diagnose and seek formal hospital treatment for minor ailments, which further exacerbates capacity constraints. According to OCA, some 15% of hospital admissions are attributable to malaria, which in most cases does not require hospitalisation.

Public Invstment

The government has taken many steps to upgrade public facilities. In 2013 it put KSh2bn ($22.8m) toward a new health care facility and medical college in Machako City, and KSh1.9m ($21,660) in April 2014 toward new equipment for the Msambweni Referral Hospital. According to the 2014/15 budget statement, between 2011/12 and 2012/13 the state invested KSh4.2bn ($47.88m) to build 210 health centres (one in each constituency); spent KSh350m ($3.99m) on endoscopy and cancer treatment kit for the Kenyatta National Hospital; and bought 43 ambulances for county governments. In the 2014/15 budget, KSh3bn ($34.2m) is earmarked to equip 94 hospitals and another KSh300m ($3.42m) to upgrade health facilities in slum areas. Meanwhile, the Kenya Health Sector Strategic and Investment Plan (KHSSP) aims to procure equipment for 2000 dispensaries, 500 health centres and 200 hospitals for the counties by 2018.

Quality of service, however, remains poor, and there is increasing recognition that private investment is the best way to expand services. This principle is highlighted in the state’s list of priority PPPs, which includes the supply, installation, commissioning, operation, maintenance and transfer of 22 oxygen-generating plants in 11 hospitals, and development of an IT platform at Kenyatta National Hospital, with modules to manage financial, procurement and drug supply services, as well as patients and records.

Private Invstment

The private sector has thus moved to make major investments in Kenyan health care. In November 2011 Aureos Africa Health Fund invested $2.5m in the Avenue Group, a Kenyan hospital and health insurance firm offering affordable coverage and a 70-bed hospital in Nairobi. In November 2013 Swedfund, the Swedish state’s venture capital company, partnered with the Africa Health Fund through the UAE’s Abraaj Group to invest $6.5m in the Nairobi Women’s Hospital, the largest foreign direct equity investment in private health care that year. More recently, the Kisumu county government partnered with the Lions Club International Foundation to invest KSh280m ($3.19m) in a modern eye hospital in February 2014.

SME Solutions

The most promising potential for solving Kenya’s health care challenges lies in SMEs, which comprise some 80% of employment in Kenya and are more adaptable, flexible and quick to adopt the latest technologies in service delivery.

Health care start-ups are a rapidly expanding segment, particularly in mobile, or “m-health” services. Mobile phones are already used to provide microinsurance health policies at larger companies, and some stakeholders forecast that further expansion of mobile health services will help improve service delivery, especially in rural areas. The m-health revolution has already begun to affect the sector, with an estimated 45 mobile health projects ongoing or completed in Kenya – more than in any other country, according to the mHealth Alliance. Mobisure, for example, offers micro medical insurance schemes to low-income families, delivered via mobile platforms at a cost of $0.40 a day. Another locally developed mobile application, Integrated Disease Surveillance Response, is used to track the spread of diseases across remote rural areas. The system was initiated after a $1.9m deal with India’s Bharti Airtel fell through at a fraction of the original expected cost.

Other start-ups are using a grassroots approach and flexible funding systems to improve service delivery. Penda Health is a social enterprise providing health services for low- and middle-income women in Kenya. Its first clinic opened in February 2013 and within six months it had expanded its network to nearly 1000 clinics, earning revenue through an income-based tariff system, as well as advertising.

Recognising the importance of SMEs in health care innovation and service delivery, the US Agency for International Development announced in January 2014 that it had partnered with General Electric (GE) and the Kenya Commercial Bank (KCB) to make up to $10m in local financing available to SMEs for developing private health facilities. This risk-sharing agreement will allow the KCB to take additional lending risks for clients to purchase GE equipment, helping it offer long-term loans and competitive interest rates that will see their contribution to the sector expand in the medium term.