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Executive Interview

Why healthcare costs an arm and a leg

Nairobi Hospital chief says treating patients involves expenses just like other commercial ventures
emergency medical attention. When you leave this building and if you are knocked down, you want to believe that a local hospital can save you but without continued investment in local institutions and practitioners, the likelihood becomes frightening. Dr Mailu also questioned the tendency to refer patients to India for further treatment and attributed it to a phenomenon called referral preferences practised by local clinicians. Instead of sending you to a local doctor because they will lose you, they send you overseas so that you will come back to them, he said. He also suggested that insurance companies gain from this as they receive a commission on every overseas referral. Dr Mailu makes a strong case for supporting local institutions. The more beds that are full, the more cost-eective the services will be, he said. If the hospital is full, we can mark down costs. If the business is expanding, we can expand and take our services to other people. But if I treat the common colds, and then when there is a hip replacement the insurance company says go to India, will I break even? So if their beds are rarely full, where does Nairobi Hospital make its money from? Hospitals, Dr Mailu said, make money from the pharmacy, laboratory, radiology and x-rays, and surgery, which form the backbone of the business. This is where you can break even and support your costs. With consultation and bed charges, you cant make money. At the end, he says, all I want is my casualty full. He dismissed claims of polypharmacy, explaining that it only occurs when a doctor is unclear in his diagnosis and so oers multi-diagnosis trying to hit many things. Dr Mailu is as adamant about accusations that doctors at local hospitals are pressured to meet annual revenue targets. Maybe that can happen at a desperate centre. I dont have targets. I have a budget, he said.

r Cleopa Mailu, the Chief Executive of Nairobi Hospital, is a realist. He likes putting it in black and white. A doctor who has practised medicine for many years, he transitioned into hospital administration because he believed that managing the systems oered greater good than treating one person. As such, he cannot understand the noise about the unreasonable increase in health care costs. The healthcare industry is a business like any other, as much as we want to make it emotional, he says. We want to wear blinkers on what is happening. If we live in the real Kenya, the cost of everything has gone up. From fuel and labour to the cost of eggs and tomatoes all of which, he says, are crucial inputs in the business of running a hospital since it is as much about hospitality as it is about health. Health care providers rely on these factors to cost their service. Dr Mailu illustrated the strains he was facing: the eect of exchange rate on commodities such as drugs and medical equipment. What did they expect hospitals to do? he asked. If it (the cost) changes by Sh10, I pass it onto the consumer. The cost of travelling to Mombasa or to the Mara is between $350 and $400 per night, he noted, while a private room at the Nairobi Hospital is Sh9,000, which is about $100. On that bed youre occupying, youll have food, nursing care with an attendant and your bed will be changed three times a day. I have to wash that linen. In defence of the high costs, Dr Mailu

The healthcare industry is a business like any other, as much as we want to make it emotional
tried to distinguish the services that Nairobi Hospital oers compared to others. There is dierential care, he said. My care is superior and closer to what we want Kenyans to enjoy than other facilities. The best costs money. If you go to Intercontinental or Laico, the price of beer is higher. He said Kenyans take for granted the necessary ambience for healing, which costs money. His realism extended to what he calls the myth of India as a medical destination because patients are never miraculously healed after one trip. He said the actual cost of treatment in India is lower because of the advantage oered by its huge population (which is on average equivalent to Africa) that allows hospitals to make money from volumes rather than markups. He warned that the long-term eect of seeking treatment abroad would be Kenyan doctors losing experience, which may adversely eect the ability to oer follow up treatment or

| Nairobi Business Monthly July