OKUMU: Public good doesn't have to be loss-making: Rethinking profitability in public hospitals

In Summary
  • Public hospitals can become hubs of medical innovation. Obtaining patents for these innovations can open up significant revenue streams.
  • Hospitals can establish endowment funds by reaching out to wealthy individuals, corporations and international donors.

A couple of weeks ago, I attended a groundbreaking ceremony hosted by the Tanzanian government. The event marked the commencement of a new building in Upperhill, Nairobi, which would serve as their chancery and a commercial enterprise.

This strategic move is expected to generate substantial earnings in foreign exchange for Tanzania. The event sparked a question in my mind: why are public hospitals in Kenya, particularly those in the public sector, essentially loss-making?

Consider this: According to a 2019 report, Kenyatta National Hospital reported a deficit of over Sh1 billion, highlighting the severe financial challenges faced by public hospitals in Kenya. This startling statistic underscores the urgent need to explore innovative solutions.

In exploring this question, it’s evident that public good does not inherently have to be loss-making. Here are some innovative ways public hospitals can achieve profitability while maintaining their core mission of providing accessible and quality healthcare.

Public hospitals can become hubs of medical innovation. By investing in research and development, hospitals can develop new medical technologies, treatments and pharmaceuticals. Obtaining patents for these innovations can open up significant revenue streams.

For instance, the Mayo Clinic in the United States generates substantial income from patents and commercialising its medical innovations. In 2022, Mayo Clinic Ventures reported over $700 million in revenue from licensing and royalties, demonstrating the financial potential of hospital-based innovations.

Collaborations with universities and private sector companies can further bolster these efforts, ensuring that innovations are not only medically beneficial but also commercially viable.

In Kenya, public hospitals could focus on innovations that address local health challenges, such as affordable diagnostic tools for common diseases or new treatment protocols for conditions prevalent in the region. Partnerships with local universities and international research institutions can provide the necessary support and expertise.

Establishing endowment funds can provide a sustainable financial foundation for public hospitals. These funds, typically supported by philanthropic donations, can be invested to generate a steady income stream. The interest earned from these investments can be used to cover operational costs, fund new projects and ensure the hospitals' financial stability.

For example, the Royal Melbourne Hospital in Australia, a public hospital, has an endowment fund that supports various initiatives, including research and patient care. As of 2021, its endowment fund was valued at approximately AUD 50 million (Sh4.3 billion), which significantly contribute to the hospital’s financial health.

In Kenya, hospitals can establish endowment funds by reaching out to wealthy individuals, corporations and international donors. Clear communication about the impact of their contributions and rigorous management of the funds will be crucial to gaining and maintaining donor trust.

A mix of private and publicly facing services can enhance profitability. Public hospitals can partner with private healthcare providers to offer premium services to those who can afford to pay, while still providing subsidised care to the less privileged. This model not only generates revenue but also ensures that quality healthcare is accessible to all segments of the population.

For example, in India, the Narayana Health system, which includes public-private partnerships, operates on a model where higher fees from wealthier patients subsidise care for poorer patients. This model has allowed the hospital to remain financially viable while treating thousands of patients at low or no cost.

Kenya’s public hospitals, such as KNH and Moi Teaching and Referral Hospital, can expand their private wings and invest in high-quality facilities and services to attract patients who can afford to pay more. This revenue can then subsidise care for the less fortunate.

Taking a cue from the Tanzanian government’s approach, public hospitals can explore commercial real estate ventures. Developing or leasing part of their property for commercial use can generate substantial income.

For instance, the National Health Service in the UK has utilised surplus land and buildings for commercial purposes, creating a new revenue stream without compromising healthcare services. The NHS Property Services reported that as of 2020, its commercial activities contributed approximately £100 million (Sh16.4 billion) annually to the NHS budget.

Kenya’s public hospitals could similarly develop parts of their properties for commercial use, such as office spaces, retail shops or even hotels for medical tourists and visitors. For example, the Nairobi Hospital has successfully leased part of its land for commercial purposes, generating additional income to support its healthcare services.

Kenya has the potential to become a hub for medical tourism, particularly through its larger public hospitals like Kenyatta National Hospital (KNH) and Moi Teaching and Referral Hospital (MTRH). These institutions already have private wings generating income, but further investment in improved facilities and higher standards of care is necessary.

Medical tourism not only brings in foreign exchange but also elevates the standards of local healthcare services. Thailand, for example, generated over $1.5 billion (Sh192.4 billion) in revenue from medical tourism in 2019, with public hospitals like Siriraj Hospital playing a significant role in this sector.

For Kenya to attract medical tourists, significant investments are needed to upgrade facilities, train staff and market the country as a destination for affordable, high-quality medical care. Additionally, focusing on niche areas like orthopaedic surgeries, which are already strong in Kenya, could make the country a preferred destination for specific treatments.

The digital revolution offers numerous opportunities for public hospitals to expand their services and generate revenue. Telemedicine and digital health platforms can provide consultations, follow-ups, and even remote diagnostics to patients, both locally and internationally.

By offering subscription-based services or partnering with technology companies, hospitals can tap into new revenue streams while improving accessibility to healthcare. The Apollo Hospitals in India, a mix of public-private partnerships, reported a 20 per cent increase in revenue in 2020 due to the expansion of their telemedicine services.

Kenyan hospitals can develop telemedicine services to reach underserved areas, offering consultations and follow-up care that might otherwise be inaccessible. This not only improves health outcomes but also creates a new revenue stream. For instance, the Ministry of Health’s eHealth strategy can be leveraged to support telemedicine initiatives.

Next week we will look at how to counter the challenges that may arise from the implementation of these solutions in the Kenyan context.

Orthopaedic surgeon and a 2024 Global Surgery Advocacy Fellow

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