Revealed: How greedy medics have exploited a broken system

When President Uhuru Kenyatta signed the Finance Bill, 2018 into law, Kenyans were enraged with the new punitive taxes.

But what they did not know is that the new law also sought to give some reprieve to Kenyans suffering from high blood pressures, asthma, obesity, colds and allergies by zero-rating four medicaments.

These new exemptions add to a host of tax reliefs that healthcare products enjoy regardless of the tight cash position of the government as indicated by its desperation to raise more tax revenue.

From the thin tube inserted into a patient’s vein to administer medication to material that dentists use to restore a patient’s loose tooth to the millions of antibiotic pills that will be popped by end of today, healthcare is just a tax-free business.

And the tax-relief does not end there.  Virtually all hospitals- public, private and mission- get to keep all the money they make—and they make billions— in the guise of operating as non-profit making organisations.  Yet the cost of medication has continued to go up, pushing several Kenyans into destitution, with many parting with family assets to settle inflated bills.

Despite spirited fund-raising efforts, most Kenyans have watched helplessly as their houses have been auctioned. Massive claims have left most insurance companies on the verge of collapse, as medical providers inflate their margins.

Even the few Kenyans with medical insurance are never too far from the ignominy of fundraising. Spending five days in one of the major private hospitals is enough to burst an In-Patient cover limit of Sh2 million, leaving you poorer and the insurance company in the red.

An unbridled greed by some healthcare providers and a blissful ignorance by purchasers have conspired to ensure that patients do not only buy more drugs than they need but also pay for them expensively, in some cases 33 times the international retail price.

This is the sad story of Kenya’s broken healthcare market. The Government is but a silent bystander.  And the reason, as Dr Nelson Gitonga, a health economist puts it, is that walking into a hospital to seek treatment is like getting into a supermarket not knowing the items you need. Not only will the store manager decide the items you need and their prices, he is also the one that will pocket the money.

So you helplessly watch as he drops item after item into the trolley. Before long, your shopping bag is brimming with all kinds of items. You have a gut feeling that you will not need some of the items. Moreover, some of the items are just too lavish for your liking. But what do you know when you have no expertise too rule out what you are being offered as it might decide your chances of survival?

Because doctors have so much information than the patient, the healthcare market in Kenya has failed terribly with one party to the transaction enjoying immense advantage over the other. Physicians have not only prescribed more drugs than the patient needs- what is known as polypharmacy-they have also varied the price of their services with utter impunity.

‘First, do no harm’- the Hippocratic Oath medical students take as an important step to becoming a doctor has turned into a ‘Hypocritic’ Oath, with the priestly and altruistic origins of Medicine giving way to economic pressures to maximize profit and minimize cost.

Whereas doctors, in keeping with the Hippocratic Oath, are required to urgently attend to patients in need of emergency services such as being placed under Intensive Care Unit (ICU), the Financial Standard found that most hospitals apart from public and missionary facilities have insisted on the patients depositing a certain amount of money as a pre-condition to being treated. They have blamed this on the increasing cases of default.

An Investigation done last year by the Financial Standard established that there is a huge demand for deposit across all the major hospitals.  At Nairobi Hospital, the deposit required for ICU stands at about Sh600,000, the same as for Mater Hospital, while MP Shah’s stands at Sh450,000.

Bed charges at the ICU facilities per day range between Sh35,000 and Sh45,000. At the Kenyatta National Hospital (KNH), deposit for high Dependency Unit (HDC) stands at Sh200,000, while bed charges per night stand at Sh15,000. Deposit for normal admission at its private wing stands at Sh150,000 where bed charges per night are Sh4,000.

More often, and particularly in private hospitals, the drugs doctors have prescribed have tended to be expensive, especially, imported original brands.

Yet, official numbers show that 70 per cent of these drugs have their locally manufactured versions, which are cheaper and just as effective.

In the big private hospitals, almost all of the drugs being prescribed are imported original brands.

Prices of such original brands retail at 11 times the international reference prices, according to a study by NGO Health Action International (HAI).

The study looked at prices and availability of locally produced and imported medicines in Kenya.

The study by Health Action also found that the price of Albendazole tablet which is used to treat certain infections caused by worms such as pork tapeworm and dog tapeworm, can be 22 times the international price.

Dr Elijah Matolo, Head of Provider Partnerships at Jubilee Insurance, says they have noticed a trend where private hospitals are increasingly prescribing expensive, imported branded drugs rather than cheap locally made generics.

“Internationally, nine out of 10 drugs used are generic. However, in Kenya it is three out of ten,” says Dr Matolo, noting that for Out-Patient claims, drugs constitute 55 per cent of their total expenditure. Studies after studies have established that generics work just as fine as original brands. There is a gulf between the price of original brands and generics.

Drugs are generally expensive, but some policies have aggravated it. For example, registering just one brand of a drug will cost a pharmaceutical company $1,000 (Sh100,000), says  Dr Gitonga.

And then the manufacturer, distributor, wholesaler and the retailer, hospital or chemist, will each add a markup to the price of the drug.

The recommended markup is 30 per cent, which is too high. An official from the Ministry of Health told Financial Standard that there are plans to have it pushed down to 15 per cent. But it gets even higher. According to HAI study, the markup between patient price and mission hospitals key suppliers-- Mission for Essential Drugs and Supplies (MEDS)-- for locally produced drugs was 343 per cent, while that of imports is 257 per cent.

Dr Matolo says analysis they have done has shown that mark-ups might range between 10 to 80 per cent in major hospitals. “There are also isolated cases where small providers can get as much as 300 per cent,” he explains.

These prices, he says, are inflated. “When you see a drug price that has a round figure like Sh12,000 that is an artificial price,” says Dr Matolo.

Poor clinical practices are also to blame for the country’s high medical inflation, which always outpaces general inflation.

Two pregnant women without complications can get into a hospital, be attended to by one physician, subjected to the same procedures, lab tests, imaging etc. However, the costs charged to the two will be very different.

It is this variation in cost that is sinking medical insurers. The country’s medical insurance firms have only made profit in two years out seven years. The rest of the years returns were negative. “Most insurers operate in the dark because of variability of price,” says Dr Gitonga.

The variation, experts say, is because doctors enjoy professional autonomy and attempts to standardise is often derided as ‘cook-book medicine.’ “They are allowed to make the judgment of their own,” But the problem with professional autonomy arises where there is a profit motive, like when the money the doctor charges will get into their pockets.

And this has become apparent in the increasing number of Caesarean Section (CS) deliveries. Dr Matolo says 46 per cent of deliveries in most hospitals are through CS. The accepted standard, he says, is 20-23 per cent.

The method of purchasing healthcare, fee-for-service, especially in the private sector, has also contributed to the high cost of healthcare.

This financing mechanism has led to perverse incentives. “We have motivated the provider to oversupply, resulting into what is known as supplier-induced demand,” explained Dr Gitonga. “The more the services they provide, the higher the reimbursement they will get,” notes Dr Gitonga.

Specialist doctors

The high cost of healthcare can also be viewed through the interplay of demand and supply. There is a shortage of specialist doctors and modern medical equipment, thus pushing up the cost of medication.

As of 2016, there were 382 health personnel for every 100,000 people. And most of this personnel are concentrated in major urban centres.

The number of doctors might have increased seven-fold from 1,466 in 1978 to 10,376 in 2016, but there are only 23 physicians serving a population of 100,000. This is against World Health Organisation’s recommended ratio of 44 physicians serving 10,000. “One reason India beats us is because of supply. They have many experts,” says Dr Gitonga.

In addition to shortage in specialists, the country does not have enough medical equipment.

Kenyatta National Hospital (KNH), the country’s biggest referral hospital has a few of such critical equipment. Unfortunately, more than half of them are defective.

Overall, the cost of healthcare, like the cost of many other goods or services produced in Kenya, has been hoisted up by steep production costs, including multiple licensing with providers expected to pay for as much as 13 licenses; power; transport; transactional costs, including corruption; and taxation. “Every regulatory body has levies, in addition to the normal taxes you pay,” says Dr Gitonga.

But as much as the Government has offered a lot of tax incentives to healthcare providers, it has taken with the other hand. Dr Gitonga says that there was a time when all medical equipment and devices were tax-free. Two or three years ago, lab equipment, X-Rays, CT Scan, MRI started being charged Valued Added Tax (VAT), a situation that has contributed to the rise in the cost of medication.

The Government, he says, even mooted doing away with tax exemptions on prescription drugs after other East African countries introduced VAT on medicines. There was intense lobbying and drugs in Kenya were not included in VAT bracket.

The Government way of dealing with the high cost of medication, as announced recently by the Cabinet Secretary for Health Sicily Kariuku, is control prices of drugs. But experts say price control will not work.  “We are tinkering around with uncoordinated, knee-jerk, short-term solutions,” says Dr Gitonga.

Controlling the price of drugs might help in outpatient where the cost of drug is the largest component, but for inpatient, the cost of is driven up by fees. “Even if you control cost without managing poly-pharmacy it is an exercise in futility. They will just increase the volume of drugs,” says Dr Gitonga.

Dr Gitonga says that the Ministry of Health has treatment guidelines as well as market recommended retail and wholesale prices. “But who educates the consumer?”

Many countries have treatment protocols, a formula that physicians follow. And should they deviate from the formulae then they need to explain why they had to do that.  “When people follow protocol, it is easy to price healthcare and even compare,” says Gitonga.

The country can also go for strategic purchasing of healthcare, where providers are paid according to outcomes, what they have been able to achieve, or quality. The country may look at capitation, a pre-paid amount to take care a certain group.

They can also look at bundle of services. “In India, you get a package, heart surgery is Sh500,000,” says Gitonga.

An official at the Ministry of Health, who did not want his name revealed as he is not allowed to speak to media, insisted that the market has been liberalised and so players are free to set their own prices, though he said the recommended markup is 30 per cent.

He also denied that the Government was trying to control the price of drugs, noting that the Government was only trying to regulate it, make it transparent.

“So that if you buy a drug at 30 cents, it does not make sense for you to add Sh5 as your markup,” he said.

 “We shall assess many factors, just as the Energy Regulatory Authority (ERC) does with petroleum, and then recommend a price,” said the official.

When a market suffers from asymmetry information as Kenya’s healthcare, the cure is always strong regulation from Government to prevent exploitation of buyers.

A well-organised public sector can go a long way in curing the  market imperfection.