Healthcare Financing and Financial Sustainability of National Referral Hospitals in Kenya
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Date
2024-10
Authors
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Publisher
Kenyatta University
Abstract
In the backdrop of the rising global burden of diseases, global economic uncertainties,
demographic transitions, and pandemics, most national referral hospitals in Kenya are
struggling to remain afloat. They are highly characterized by diminishing sources of
funding coupled with declining hospitals’ net margins and financial reserves. Their pre existing financial vulnerability was exposed during the coronavirus pandemic, which
almost pushed the entire public healthcare system into a near collapse. Most of them were
in dire need of government emergency bailouts to meet their short-term financial needs. It
is on this ground that this study strived to investigate the statistical relationship between
healthcare financing and financial sustainability of National Referral Hospitals in Kenya.
More specifically, it examined the statistical relationship between out-of-pocket
financing, government healthcare financing, donor healthcare financing, national health
insurance financing; and financial sustainability of National Referral Hospitals. It also
evaluated the moderation effect of financial leverage on the relationship between
healthcare financing and financial sustainability. The study hinged on resource
dependence, Musgrave, demand in healthcare, resource-based view and free-cash-flow
theories. Using a positivism philosophy and explanatory study design the study assessed
the relationship. It adopted a generalized least squares panel model with random effects
and used a census sampling design to sample all five National Referral Hospitals. The
study relied on quantitative secondary data for the period 2019-2021 obtained through a
secondary data abstraction tool from the hospital’s financial reports and other government
agencies. The study utilized both descriptive and inferential statistics to analyse the
collected data using EViews analytical applications. The study performed a number of
diagnostic tests that included tests on normality, multicollinearity, heteroscedasticity, and
stationarity. The findings revealed that out-of-pocket healthcare financing had a negative
and statistically significant relationship with financial sustainability of National Referral
Hospitals. The study found out-of-pocket to be regressive and resulted in inequity in
healthcare utilization and catastrophic healthcare expenditure that impaired households’
current and future abilities to meet their healthcare financial obligations. Based on this the
study recommended a set of ceiling caps on out-of-pocket expenditure in line with World
Health Organizations’ threshold of 10% of total healthcare financing. The study further
revealed that government healthcare financing had a strong positive and significant
relationship with financial sustainability of National Referral Hospitals. This emphasized
the indispensable role of government in healthcare financing of National Referral
Hospitals. The study recommends that the government should consider increasing the
amount of funds allocated to health sector to prevent a financial crisis in the healthcare
system. The statistical evidence further established that donor healthcare financing had a
strong negative and statistically significant relationship with financial sustainability as
compared to out-of-pocket financing; which can be largely attributed to diminishing
donor funding and overreliance of this form of financing that increase financial
vulnerability of these hospitals. The inference further indicated that National Health
Insurance Fund financing had a positive and most significant relationship with financial
sustainability. To alleviate healthcare financing disequilibrium and its subsequent impact
on financial sustainability of National Referral Hospitals, the study proposed a review and
realignment of the current healthcare financing policies, laws, and reforms. The study
recommends the establishment of a robust and optimal National Health Insurance Policy
and adoption of innovative sources of financing public healthcare, such as the use of
social impact bonds to finance various health programs with severe social impacts like
lifestyle diseases. However, more research on social impact bonds is required
Description
A Thesis Submitted to the School of Business, Economics and Tourism in Partial Fulfilment of the Award of Master of Science Degree in Finance of Kenyatta University October, 2024
Supervisors:
1.Caroline Kimutai
2. Nathan Mwenda Mutwiri