By Nirmala Ravishankar, John Kinuthia, Agnes Gatome Munyua, Boniface Mbuthia, and Anne Musuva

The Facility Improvement Financing (FIF) Bill unveiled by the Government of Kenya in August 2023 is a win for health facilities in the public sector. If passed, the FIF Bill will allow them to directly receive funds and spend them on some operating costs. How big of a win the legislation will be depends on how easy (or complex) it is for facilities to use the funds. The FIF Bill is a step in the right direction, but some of the specifics remain to be fine-tuned.

Devolution and its implications for facility financing arrangements

Kenya shifted to a devolved system of government in 2013. This proved to be a turning point for facility financing arrangements in the country. Prior to 2013, health facilities retained and spent revenue from user fees, health insurance, and other payment schemes. Following devolution, the newly formed county governments asserted control over all revenue in the county.

To substantiate their control, the counties cited the Public Financial Management (PFM) Act of 2012 to require facilities to remit their revenue to a county revenue fund. While the PFM Act does describe this as the default position, it also allows county governments to authorize entities like health facilities to retain their revenue. But many county governments asserted control over all facility revenue, which hampered the latter’s ability to function effectively.

Some counties have tried to rectify the problem using different approaches, resulting in considerable variation in facility financing arrangements across Kenya’s 47 counties. While 10 county governments have passed laws or adopted practices to grant financial autonomy to facilities, 21 counties still claim all facility revenue. In the remaining 16 counties, facilities have access to some of the funds they collect, while the rest goes to the county. Among these 16 counties, 10 have created a central, special purpose “FIF fund” to hold all facility revenue. Through this fund, a county retains a percentage of the funds to cover its administrative costs and transfers the rest back to the facilities; however, county-level structures and processes to administer the fund typically result in a delay in fund flow.

Restoring autonomy to health facilities

The FIF Bill corrects for several things.

1. First, it states unequivocally that health facilities can retain all revenue they generate in their own accounts, restoring to facilities autonomy that they had before devolution in Kenya. This is especially important for the 21 counties where facilities presently cannot retain any of their revenue. It also rules out the continuation of county-level “FIF funds” to pool facility revenue.
2. Second, the bill stipulates that facilities can retain any unspent funds at the end of the fiscal year. This prevents county treasuries taking back all unspent funds. Having residual rights over its revenue will hopefully create incentives for a facility to use its funds judiciously.
3. Third, it does away with the need for each county to pass enabling legislation to grant facilities financial autonomy. Having such laws passed and implemented has proven arduous and time-consuming. Indeed, several counties have enacted laws, but not operationalized them.
4. Fourth, the bill calls for the integration of facilities into the Government’s financial management information system and routine budget implementation reports. This will give facilities greater legitimacy within Kenya’s PFM architecture and enable greater visibility over facility revenue and expenditure.
5. Fifth, the bill emphasizes ongoing monitoring of its implementation. In so doing, it sets the stage for greater learning and knowledge-sharing about best practices.

How the bill could be improved

While the bill empowers facilities to retain their revenue, the processes described for them to spend these funds seems unnecessarily bureaucratic. As is standard practice for government entities in Kenya, health facilities must prepare annual budgets for approval by the county government and receive an “authority to incur expenditure” (AIE) from the county government on a quarterly basis to spend their money. But the bill stipulates that, even after receiving AIE, facilities must raise vouchers for approval by the county department of health accountant. Then the subcounty accountant, who is a co-signatory on the facility account along with the facility in charge, must authorize the transaction. The number of steps needed by various government officials for the facility to merely spend funds in its account against its approved budget seems excessive. Moreover, these provisions go beyond what is current practice in many counties, meaning some health facilities will have less flexibility than they presently enjoy.

It is also interesting to note the comparison between the health and education sectors in this area. Schools receive public funds from the national government on account of education not having been devolved. Each school has a management board comprised of officials from the school and community members, which approves its budget. The school in charge is the accounting officer for the school’s accounts and can spend funds as per the school’s approved budget after receiving the quarterly AIE from the county department of education. In contrast, the FIF Bill stipulates that health facility budgets must be approved by the county. The county chief officer for health is the accounting officer for health facilities. And the county health accountant must approve each transaction. In other words, even after the bill, it seems health facilities will have less autonomy than public schools presently enjoy in Kenya.

When it comes to public moneys, authority to spend must be balanced against financial controls. While the FIF Bill reflects this imperative, it seems to err on the side of more rigid control. The process seems especially onerous given that county governments will continue to pay for big expenses (like worker salaries, infrastructure, and most drug costs), while facility funds will pay for relatively small operating costs. The over-prescription of process will erode the very autonomy that the bill aims to establish. Correcting for this—in the implementation regulations if not in the bill itself—will ensure that this important piece of legislation leads to meaningful change.