Hybrid model to tame rising health costs

Wednesday December 6 2017

Captain Beth Squire from the British Army examines Margaret Wairimu during the a free medical camp at Solo Settlement Scheme in Laikipia in 2015.

Captain Beth Squire from the British Army examines Margaret Wairimu during the a free medical camp at Solo Settlement Scheme in Laikipia County in 2015. PHOTO | FILE | NATION MEDIA GROUP 

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The health sector faces multiple challenges, including perennial strikes by public health personnel, escalating costs of treatment and drugs; inadequate universal health coverage; and a dilapidated health infrastructure. The rising prevalence of non-communicable diseases also poses a major threat to the health system.

Such constraints impose immense strain on our health system. As a result, a majority of Kenyans lack access to essential medicare.

This is unfortunate, considering that the Constitution guarantees every Kenyan the right to health services.

Resolving these crises requires going beyond obvious interventions such as improving workers’ terms and revamping health services.

There is an urgent need to tackle hidden constraints that increase the cost of treatment and care.


We need to reconfigure our health service delivery model, especially how we pay for services, ranging from treatment to care and medicines.

The burden often falls on the government, for public facilities, and on hospitals and medical insurers for private health services.

Depending on the agreed payment model, the burden and risks invariably end up on the shoulders of the health insurer.

There is a need for an innovative model that balances the interests of the patient, the care provider and the health service underwriter, be it government or private insurers.

This means adopting a health service payment model that encourages provision of quality services, while curbing fraud and other malpractices that inevitably push up costs.


There are various health service payment models, the two most prominent being capitation and fee-for-service. Capitation is where a doctor or health provider is paid a set fee for each patient they treat.

Whether the doctor treats less or more patients than the stipulated number, they are only entitled to be paid the agreed sum.

Under the fee-for-service model, payment is based on the number and type of procedures used to treat the patient. Each of these models has its benefits and drawbacks.

Whereas capitation is more predictable in terms of cost of treatment, it may lead to withholding of expensive but necessary procedures to avoid incurring losses by exceeding the pre-agreed fee. There is, however, no risk of cost overruns, minimising risks for the health insurance provider.


Fee-for-service allows health providers leeway with procedures, emphasising quality over quantity. However, it is prone to abuse, where health providers prescribe unnecessary procedures  to maximise revenue. It is also seen as an “excessive cost” system since it’s volume driven.

Should the health system adopt one or both? Fee-for-service works optimally where a majority of the population enjoys access to health insurance. This allows wider spreading of risk while ensuring quality treatment.

In Kenya, only a small fraction of the population has health insurance. To maximise revenue by offering services to this small group, health providers are often tempted to over-prescribe tests, procedures and drugs. Cases of inflated medical bills and fraudulent claims are rampant in the private health care system.

Curbing such risks requires a model that not only assures health providers that they will recoup their costs, but also incorporates a fool-proof system to weed out malpractices.

We should explore the option of having capitation as an effective way to check escalating costs while also giving room to health providers to prescribe necessary procedures subject to pre-agreed limits. We need a blend of both models as a solution to the constraints bedevilling the health system.

Ms Munene is the managing director, AAR Insurance Kenya Ltd. [email protected]