Key findings and recommendations

First, the financing arrangements for public facilities vary considerably across counties and levels of care, namely hospitals, health centers and dispensaries. This is especially the case with budgeting and planning processes, sources of funds, and flow of funds for public hospitals, which differ from one county to the next. In contrast, these processes are more standardized for health centers and dispensaries across counties. To set the stage for enhanced learning and diffusion of best practices, further analysis of the implications for how these varying arrangements impact facility performance, as well as inter-county dialogue, is needed.

Second, counties rely on user fee collections at public hospitals as an important source of county own-source revenue. This exposes county residents to out-of-pocket expenditure that exacerbate inequalities in accessing health care services and compromise financial risk protection in the face of the country’s stated commitment to achieve UHC. However, some counties have invested in supporting public facilities to participate in national programs to replace user fees with government payments to facilities. This brings in more revenue into the county health system while reducing burdensome out-of-pocket payments. A few counties have also launched their own prepayment schemes that allow residents to access services at public hospitals without having to incur out-of-pocket payments. This has resulted in public health facilities receiving additional revenues to strengthen delivery of health services.

Third, health centers and dispensaries have some degree of financial autonomy across most counties, whereas public hospitals do not have managerial and financial autonomy in some counties. In the immediate aftermath of devolution, many counties began requiring public hospitals to remit all their revenue from user fees and insurance reimbursements to the county treasury, based on their interpretation of the PFM Act. This “recentralization within decentralization” weakened hospital management, damaged staff motivation, and compromised service quality. In contrast, health centers and dispensaries receive funds from county governments that are financed by the national government and external partners as part of the user fee removal policy. They use these funds to finance immediate operating costs with a degree of flexibility and speed that hospitals, which are dependent on county spending procedures, are denied.

More recently, some counties have allowed hospitals to retain their revenues in their hospital account and to spend these funds at the hospital level, like health centres and dispensaries do. With support from the national government, more counties are developing legislation to enable financial and managerial autonomy for hospitals. Ideally, county governments ought to pay attention to how these new laws are operationalized and implemented to ensure that they solve for the right problems and enable direct facility financing, instead of introducing more bureaucratic procedures that further complicate and delay the flow of funds to public hospitals.

The way forward

These key takeaways offer important lessons for how health financing structures can support the efficient and effective operation of public sector health facilities across Kenya. By highlighting how national and county governments can learn from the diversity of facility financing arrangements across Kenyan counties, remove their reliance on user fees, explore additional sources of funding for service delivery, and reform PFM arrangements to enhance the flow of funds to facilities, Kenya will strengthen its health systems and tread closer to its goal of achieving quality coverage for all.