Peter Morris, not his real name, was visibly agitated. He moved nervously from one corner to another as he waited for his turn on the queue to the cashier at Metropolitan Hospital in Nairobi.
A toddler, who seemed oblivious of the grown up’s concern, playfully tugged at his leg. Neither the grown-up nor the little boy looked sick. It later became apparent that Peter had brought the child for a jab.
But he was informed that his insurer, Madison General Insurance would not pay for it. That is why he was visibly agitated. “What is the point of having this if you can’t use it?” he blurted, waving his medical insurance card around.
“So many other insurance companies do not cover vaccinations,” the cashier told me when Peter had left, having paid in cash.
A few weeks earlier, Madison had hit the headlines, not because it had refused to pay for vaccination of another kid but for a different, albeit related reason. The insurer had said in a notice that all healthcare facilities would henceforth stop dispensing branded drugs touching off a raw nerve in the healthcare sector.
“All members insured under Madison Insurance will benefit from generic treatment with effect from January 7, 2019,” read the notice in part. John Muhindi, who authored the memo, said the cheaper variant of drugs had the same efficacy – the potency to treat illnesses – despite the pricing differences.
The two cases - excluding vaccination from the cover and insisting on the use of generic drugs - are part of concerted efforts by the medical insurance fraternity to contain a surging cost of healthcare which has bled the 29 medical insurers.
The industry has been grappling with losses occasioned by fraud and what economists call perverse incentives.
In other words, because a policyholder has an insurance card, they keep on checking in to a healthcare provider for flimsy conditions as common cold; the hospital, upon receiving the former extracts as much as it can from the card by bombarding patients with drugs and subjecting them to an array of lab tests.
The result has been heavy bleeding by medical insurers that have seen them report huge underwriting losses year in, year out.
Madison is just one of the eight medical insurers that made an underwriting loss - where claims paid out exceeded the premiums received by December 31, 2017. Other loss-makers during this period included AAR, Canon Assurance, First Assurance, Kenindia Insurance.
Pacis Insurance, Resolution Health and Sanlam also spent more on claims, commissions and other management expenses during this period.
For five years since 2013, Madison has been making losses. Things have been too hot that four insurers got out of medical insurance.
To stop the haemorrhage, medical insurers have now built up a thick layer of exclusions as a bulwark against the rising tide of claims. But the claims have continued to come thick and fast, voraciously eating into the billions of premiums they have underwritten.
In 2017, a good year for medical insurers after they registered an underwriting profit, massive claims blew up the Sh28 billion premiums they had received, leaving the industry with a tiny surplus of Sh82.5 million.
In the last seven years, medical insurance firms have only made underwriting profits in two years. Even after the players and the regulator came in hard against fraud, the problem has only scarcely subsided.
Reports estimate that as much as 50 per cent of insurance claims paid out are actually falsified. While the players resorted to technology such as biometrics to deal with impersonation, the Insurance Regulatory Authority (IRA) in partnership with law enforcement agencies - sought to break up a racket of falsified claims.
But genuine claims by policyholders continued rising unabated.
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.
However, because drugs take up over 40 per cent of the cost of treatment, Madison, and the insurance industry at large, has opted to start with the cost of drugs. Mr Tom Gichuhi, the chief executive officer of the Association of Kenya Insurers (AKI), a lobby group for the insurance companies, said the position of Madison is supported by all medical insurers.
Among the reasons generic drugs are cheaper is that the original manufacturer allows other manufacturers to use their chemical composition after recouping the investment in research.
Augmentin, prescribed an antibiotic to treat various bacterial infections, for instance, is manufactured by British pharmaceutical firm GlaxoSmithKline.
Several cheaper variants of the drug with the same chemical components are, however, widely produced and prescribed in its place.
“It should not be seen as a Madison issue,” he said, noting that Madison was only at the forefront. Indeed, in 2017, AKI had called for a legal framework that would ensure doctors did not prescribe brand name drugs.
In the same year, India’s Prime Minister Narendra Modi announced that there could be a law mandating doctors to prescribe medicines with their generic names instead of brand names.
Jubilee Insurance Regional Group Chief Executive Julius Kipngetich wants the State to borrow a leaf from India if it is to achieve universal healthcare championed by President Uhuru Kenyatta as one of his Big Four plans that also includes food security and nutrition, job creation and building of low-cost housing units by 2022.
Mr Kipngetich says the cost of medication has to go down if critical healthcare is to reach everyone. “If we want UHC, we must find a cheaper option for the poor,” he said.
Mr Gichuhi, for his part, believes going the Madison route is the cheaper option. “If there is an alternative of bringing down the costs and you still get the same end results, why not?” he posed.
“If the end result is to get the cure, why do you want to use very expensive drugs when there is a cheaper alternative?”
Mr Gichuhi thinks there is an obsession with brand value and not curative value. He admits that there are some original drugs that do not have their generic equivalent. “In such instances, people can be allowed to buy brand name drugs,” he said.
The push for the use of generic drugs to bring down the cost of healthcare resulted in a bizarre case in the US where doctors who frequently prescribed generic drugs were rewarded with cash incentive by two insurers.
All along, there have been efforts to limit the constant visits to hospitals by some medical insurers by requiring a policyholder to also share in the cost of medication, what is known as co-payment.
And even after screening you for a pre-existing condition, insurance companies will still require a policyholder to wait for a certain period before they can begin using the card to mitigate the risk of someone seeking insurance after falling ill.
But the drugs prescribed have continued to be a headache. More often than not, 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 analysts say are cheaper and just as effective.
Prices of such original brands retail at 11 times the international reference prices, according to a study by a lobby Health Action International. And that is why insurers are pushing for use of generics.
However, medical practitioners have rejected Madison’s directive, seeing in it as an attempt to stifle their autonomy. Physicians normally sneer at any attempts to standardise their work, derisively describing it as “cookbook medicine.”
The variation of care, experts say, is because doctors enjoy professional autonomy. “They are allowed to make the judgment of their own,” said Dr Nelson Gitonga, a health economist.
But where there is a profit motive, professional autonomy results in a perverse incentive. The healthcare provider has continued to enjoy the monopoly to information, while the patient and insurance companies have remained in the dark.
Thus, physicians have not only prescribed more expensive drugs than the patient needs - what is known as polypharmacy - they have also varied the price of their services with utter impunity.
The problem with variation is that it has become apparent in the increasing number of cesarean section deliveries, said Dr Elijah Matolo, Head of Provider Partnerships at Jubilee Insurance in an earlier interview with Financial Standard. 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, according to Gitonga. “Most insurers operate in the dark because of the variability of price,” says Dr Gitonga.
He says that it is this variation in cost that is sinking medical insurers, and thinks that effort to restrict cardholders to generics is but “a drop in the ocean.” Dr Matolo said that 46 per cent of deliveries in most hospitals in the country is through CS, against the globally accepted standard of between 20-23 per cent.
But it is the cut-throat competition for a small clientele has seen insurers undercut each other to win over clients but often the premiums are insufficient to cover benefits.
IRA Chief Executive Godfrey Kiptum, in an article in The Standard, blamed poor pricing in underwriting as the major hurdle for insurers.
“The claims have not become too much. The root cause is poor pricing. Arising from this, the premiums paid are not sufficient to compensate the risks underwritten,” he said.
Poor pricing has meant that few people, except those in the group, covers provided for by their employers, have a medical cover. Only nine million of the around 45 million Kenyans have a medical cover- most of them under the National Health Insurance Fund.
Mr Kipng’etich, while supporting the move to restrict policyholders to use of generics, wondered: “How many high-end clients do we have in the country?”
Companies such as AAR Insurance have come up with products that assure policyholders of pay-back on their unused in-patient premiums, as a means to discourage a constant visit to hospitals. Mr Kipng’etich noted that if the use of generic drugs was to be adopted, the Government had to deal with the menace of fake drugs which is making people fear generic drugs.
Insurance companies are also happy with the Government’s efforts at trying to introduce the recommended retail price for drugs, which had initially been misconstrued as a price control.
A source at Ministry of Health, who did not want his identity revealed as he was not authorised to speak to media, said the Government was only trying to regulate the price of drugs. “So that if you buy a tablet 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 does with petroleum, and then recommend a price,” said the official.