NHIF on shaky financial ground as unpaid claims shoot by Sh5bn

National Hospital Insurance Fund (NHIF) headquarters in Nairobi on February 9, 2022. [Boniface Okendo, Standard]

An audit has raised alarm over the financial state of the national health insurer amid revelations of loss-making schemes, fictitious claims and skewed tenders running into billions of shillings.

The report, prepared for the parastatal and obtained by The Sunday Standard, says the National Health Insurance Fund (NHIF) was struggling with a mounting pile of unpaid hospital claims, which shot up by Sh5 billion in the six-month period ending December 2022.

"Signs that the fund's solvency is deteriorating have started emerging include the unpaid hospital bills which increased by Sh5 billion from Sh10 billion to Sh15 billion over the six-month period," reads part of the report prepared by the fund actuary, Kenbright Actuarial & Financial Services.

The report, titled Actuarial Review of the NHIF Fund and dated February 28, comes at the time the national insurer is seeking a chief executive officer to replace Dr Peter Kamunyo, whose term is ending this Friday.

It reveals that the fund was at risk of sliding into real insolvency, from technical insolvency.

"The fund is about to transition from technical insolvency (as the Insurance Act) to real insolvency as per the Insolvency Act over the six-month valuation period ending December 31, 2022 and the unpaid premium increased by Sh7.5 billion from Sh4.7 billion to Sh12.3 billion," reads the audit report.

The new details are coming out at a time when President William Ruto's administration is banking on the fund to improve healthcare for Kenyans.

In October last year, President Ruto said the contribution structure for NHIF will be reviewed to put more money in the fund and at the same time ease the medical burden on Kenyans.

The President said in his administration's quest to ensure all Kenyans access affordable and quality medical care, the new model will pay focus on households rather than individuals.

Our investigation shows that NHIF has been reeling from the burden of fake claims and skewed tenders that have seen the fund sink into financial woes.

One of the tenders in the spotlight over pay outs, is the Road Ambulance Services, one of 10 benefits offered under the UHC Supa Cover and Enhanced Medical Schemes, and meant to be accessible to all NHIF beneficiaries under the Emergency Road Evacuation Benefit Package.

The road ambulance benefit was first offered to civil servants and disciplined forces through the Comprehensive Medical Scheme in the 2013/2014 financial year by then CEO Geoffrey Mwangi. It was later extended to all other schemes including Edu Afya and National Health Scheme from 2016.

The initial contract was procured at a capitation rate of Sh141 million annually before eventually being graduated to Sh693 million for 1,750,000 members in the FY2016/2017 to 2017/2018.

Between FY2018/ 2019 and 2019/2020, Sh782 million was paid out, despite registering less than 1,000 emergency evacuations annually.

With the entry of Kamunyo in 2020, NHIF signed a contract with E-Plus to include the National Health Scheme effective from October 1st -, 2020 for a three-year engagement.

The rates of this contract were calculated on a graduated scale, negotiated and based on actual number of active members.

According to sources, the retention rate of national scheme members stands at 14 percent, which would mean the number of members insured by E-Plus was grossly overstated.

For instance, capitation in the 2020-2021 contract was calculated at Sh16.50 per active member translating to Sh718 million for 4,067,351 principal members though less than 3,000 members were evacuated in the period according to the NHIF report.

The contract "for provision of emergency road evacuation services'' for NHIF Scheme under open tender number NHIF/001/2020-2021 advertised on 1st September 2020 was initially rejected due to the high quotation however direct procurement was granted to M/S Emergency Plus Medical Services under unclear circumstances on 30/09/2020 by the management contrary to PPADA 2015 section 104 (a).

However, the management based on their request to the provider to forward a proposal to cover 4,067,351 principal members, finalised the contracts, tabulation of figures and expediting payments totaling to Sh718 million.

In 2021/2022, they renewed the E-Plus contract for a further period of one year in absence of a negotiation committee and without performance appraisals as stipulated in the contract's conditions for renewal. In the period 2021-2022, an average 4,727,287 principal members were covered at a total cost of Sh936,002,947, yet less than 3,000 members used the ambulance services.

In 2022, the Funds Board recommended termination of the E-Plus contract owing to wastage of public resources however, NHIF renewed it for a further one year to September 30th 2023 with membership varied capitation of 6,990,603 principal members translating to a contractual obligation amounting to Sh1 billion.

It is not clear why the fund would cover 6,990,603 in the current financial year given that only 2,971 members utilised this benefit in the previous year.

On the insolvency, the audit noted that the voluntary national scheme dubbed Supa Cover where informal sector pay Sh500, caused NHIF a loss of Sh10 billion due to 'high lapses and anti-selection'.

The programme, the audit noted has been the largest contributor to the NHIF's deteriorating insolvency over the last five years.

"Of 8.1 million registered members as of 30 June 2022, only 1.6 million, a fifth, remain active. The remaining active group tend to be sicker and claims twice as much from the expected level.

It noted that NHIF has lost revenue of Sh39 billion due to these policy lapses and recommend a new law which cures this issue, be implemented urgently.

"The price of Sh500 per month is set in law and needs to be adjusted to factor for annual medical inflation. The new law which cures this issue needs to be implemented urgently," said the report.

During an interview with The Standard late last year, Kamunyo said NHIF was losing Sh10 billion annually through fraudulent claims including impersonation and fictitious claims by public and private hospitals, thus denying millions of deserving Kenyans quality health care.

He said they had discovered the fake claims by looking at some trends. He noted that of the Sh61 billion collected from formal, informal sector and sponsored members in the last financial year, more than 91 per cent was paid out to claims from hospitals amounting to Sh54 billion.

"The sad bit is that we lose 20 per cent of our collections from our members to fraudulent and fictitious claims. We already have 19 active cases in court for hospital owners and some people who were raising the fake claims," he said.

The national insurer has 7,666 healthcare providers including 5,833 government facilities which make up 75 percent of the providers, 1,619 private hospitals representing 21 per cent of healthcare providers, and 314 faith-based facilities (four percent).

NHIF operates 156 service points, comprising 70 branch offices, 33 satellite offices, and service desks and counters in all 53 Huduma Centres.

NHIF covers more than 23 million Kenyans, with 10.1 million being principal contributors and the rest being dependents including spouses and children. The contributions are from the formal and informal sectors, and sponsored members who have access to an elaborate healthcare package.

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