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Financing of Public Health Facilities in Kenya’s Devolved System

29 November 2021

This piece originally appeared in P4H here.

Written by Angela Kairu (Research Officer, KEMRI Wellcome Trust), Marissa Maggio (Communications Specialist, ThinkWell), Nirmala Ravishankar (Program Director, ThinkWell) and Edwine Barasa (Director, KEMRI Wellcome Trust).

Public sector health care facilities are a major avenue for the delivery of key health interventions in many low- and middle-income countries (LMICs) and, as such, how they are financed is critical for determining their performance for serving communities. As Kenya forges a path towards the goal of universal health coverage (UHC)—a vision whereby all people can receive first-rate health services without suffering financial hardship—health facility financing mechanisms in the public sector must be strengthened to ensure equitable access to care, while also safeguarding individuals from burdensome out-of-pocket costs.

The COVID-19 pandemic has further underscored the importance of ensuring that resources flow smoothly and rapidly to frontline providers, enabling them to respond appropriately to unprecedented health crises. As Kenya works to enhance health system resilience, improving financing arrangements for public sector health facilities has emerged as an urgent priority.

Facility financing in Kenya underwent a dramatic change in 2013, when Kenya transition to a devolved system of government. While the national government retained the function of policy-making and regulatory oversight, responsibility for service delivery was shifted to 47 newly formed county governments. Simultaneously, user fees in public health centers and dispensaries were abolished, and the national government established a mechanism to reimburse facilities for lost revenue via conditional grants to the counties. How those funds are managed is up to the county. Consequently, anecdotal evidence points to significant variation across counties in facility financing arrangements.

In a newly published study, KEMRI Wellcome Trust and ThinkWell report findings from an assessment of resource flows to public health facilities in five counties. The study provides critical insights for public finance management (PFM) practices and health financing arrangements in Kenya, as well as lessons for other LMICs exploring ways to enable direct facility financing.

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.

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