The current trajectory of the health care sector is defined in large part by the potential offered by Nigeria’s demographics and income profile. However, realising that potential will necessitate major investment and reforms to ensure that both public and private infrastructure can keep pace with demand.
With a 184m-strong population growing at 2.7% per year, propelling the country to the upper ranks of the global population tables, the burden on public social services is great and growing. This is placing a strain on the under-resourced and underfunded public health system, but is also opening up the way for private providers. As the financing and insurance system improves, private players will have ample opportunities to meet the growing demand for services. Nigeria does not lack for quality personnel and procedures; the challenge is in ensuring the same level of service can be provided to the whole population.
State Of Play
Nigeria is struggling to improve its health indicators, as the system continues to tackle a wide range of issues. The country is experiencing the “double burden” of growing rates of non-communicable diseases – a phenomenon well established in high-income countries – in addition to the persistence of communicable diseases – a health profile associated with low-income economies. For example, according to a report on the Nigerian health sector by the Pharm Access Foundation, as of 2015 the prevalence of HIV stood at 3.1%, while the prevalence of diabetes was estimated at 4.04%. At the same time, both the under-five mortality rate and the maternal mortality rate, which stood at 1117 per 1000 live births and 560 per 100,000 live births, respectively, were higher than the average for sub-Saharan Africa. An estimated 12% of deaths were attributable to cardiovascular diseases in 2015, while the risk of getting cancer before 75 years of age stood at 10.4%.
The biggest challenge, however, is malaria. According to the charity Malaria No More, the disease accounts for 60% of outpatient visits, 30% of infant (under-five years old) hospitalisations and costs Nigeria an estimated $835m per year. Indeed, the country records 23% of all malaria cases, globally, and the disease accounts for a about a third of all deaths. Given the diversity and severity of the diseases present in Nigeria, it is hardly surprising that life expectancy is just 54 – four years lower than in the wider region, according to the World Health Organisation (WHO).
Currently, health infrastructure is not particularly well equipped for the demand placed on it by chronic and communicable diseases. The government has failed to meet many of its targets laid out in the National Strategic Health Development Plan 2010-15, including commitments to reduce under-five and maternal mortality, and increase immunisation rates. In terms of both prevention and treatment, Nigeria suffers from a lack of resources. For many basic services and preventative measures, such as contraception, measles immunisations and the percentage of births attended by skilled personnel, Nigeria falls below the regional average.
In 2004 Nigeria had 0.53 hospital beds per 1000 people, just above regional counterparts Senegal and Sierra Leone but below a number of much smaller economies on the continent, such as Sudan, Rwanda and Uganda. While this increased to 0.8 beds per 1000 people by 2014, according to data from US Department of Commerce’s International Trade Administration (ITA), it is still well below the African average. The staffing of such facilities also tells a similar story. The number of doctors in Nigeria has grown at a compound annual growth rate of 2.7% since 2009, totalling 66,555 physicians by 2014. However, this is in line with the country’s general population growth and, as such, the ratio of doctors per 1000 people has stalled at 0.4. The health care system is comparatively understaffed in the region, with 0.8 doctors per 1000 people recorded in South Africa, the second-largest economy on the continent. Nigeria also has too few nurses, with a ratio of 1.5 nurses per 1000 people. Additionally, there were just 3000 registered dentists in the country in 2014. Statistics such as these illustrate the significant lack of resources in the country, which hampers the provision of care. Nigeria ranks 187th out of 191 economies on the WHO’s index of global health systems. “We have good pockets of health care centres, but we do not yet have reliable systems. There is one good doctor here or one good doctor there, but the health care system as a whole is not reliable,” Charles Iwuala, clinical director of Reddington Hospital in Lagos, told OBG.
One of the most basic challenges for the sector is funding. Given difficulties in tax collection and developing the formal sector, the government has limited revenues with which to support social services. Indeed, at 9.7% of GDP in 2014, Nigeria ranked lowest in the world in terms of government revenue as a proportion of the size of the economy. It should come as no surprise, therefore, that government health expenditure represents just 1% of the country’s GDP. This is inadequate to meet the basic needs of the country’s health system.
MamaYe, a Nigerian advocacy programme funded by the UK’s Department for International Development, estimates that the government spent less than 40% of what was required per capita to provide basic universal health care in 2013. According to the programme, the government spent $31 per person when it needed to spend at least $86 just to meet the basic needs of universal coverage. This is unlikely to change anytime soon. The 2016 budget allots N1448 ($4.57 at the time of printing) per capita for health spending, a drop of 6.8% on 2015. It is also well below the WHO-recommended target of N6908 ($21.81) per capita. Indeed, health spending accounts for just 3.65% of the 2016 budget. Given inadequate public funding, spending on health is largely driven by individuals. According to the Pharm Access Foundation, 69% of expenditure came from out-of-pocket payments in 2013. While this represented a 1.3 percentage-point drop from 2009 levels, it is still very high and well above the OECD average of 14.07% for developed countries in 2010. Financing of health care remains a challenge in Nigeria, with the burden often falling on individuals with an inability to pay for services. As of 2013, less than 5% of Nigerians held health insurance policies to cover the cost of treatment.
The government is looking at measures to address these challenges and thus began a review of the national health policy in early 2016. The main tool to promote affordable and universal care at present is the National Health Insurance Scheme (NHIS). Launched in 2005, the NHIS sought to achieve universal coverage by 2015 but has not succeeded. Its failure is in part the result of the reticence of individual states to sign up to the federal scheme. However, the NHIS has had some success, with 60 health maintenance organisations (HMOs) currently licensed as part of the scheme and 7.2m Nigerians – the majority of whom are federal employees – registered.
The government has now set the target of achieving universal coverage by 2020. Under the NHIS, public sector employers pay 3.5% of an employee’s salary, while the employee pays a further 1.75% in premiums. In the private sector, the rates payable by employers and employees are 10% and 5%, respectively. In return, the NHIS pays capitations for primary care and fees for referred services through approved and accredited HMOs. Individuals and small businesses can also join the Voluntary Contributors Social Health Insurance Programme, which provides coverage for a one-off annual payment of N15,000 ($47.36).
“Competition in the health insurance industry is strong and gaining a lot of attention. In some cases, competition has led to price cutting,” Nick Zaranyika, CEO of Total Health Trust, told OBG. The NHIS also offers other schemes for students and vulnerable members of society, the latter being covered for free, with contributions from federal, state and local governments as well as other various donor agencies. In February 2016 Isaac Adewole, minister of health, told local media the government was looking to make the NHIS compulsory rather than voluntary in a bid to meet its goal of universal coverage. The NHIS receives 50% of the basic health care provision fund, established under the National Health Act of 2014. This legislation seeks to overhaul the health sector and provides for at least 1% of the Consolidated Revenue Fund to be directed to the new Basic Health Care Provision Fund. A further 45% of the fund’s revenue goes to the National Health Care Development Agency, which is responsible for the disbursement of funds to each state for the purchase of drugs and vaccines. The final 5% goes to the Federal Ministry of Health (FMH) to support basic health facilities.
Expanding Primary Care
In addition to improving the financing environment for health care, the government is also focusing on the provision of care. There is an effort to bolster primary care services to take the unnecessary burden off secondary and tertiary facilities, reduce health spending, and improve health outcomes and disease prevention. In February 2016 Adewole told local media that the federal government is committed to a target of one primary health care facility per electoral ward in the country.
As part of this strategy, the government planned to create 110 primary health care centres (PHCs) within three months. “The new model we are operating will also have villager workers who will oscillate between the facilities and the community,” Adewole told the press. “...We will promote ownership by telling them the facilities are theirs and not for the federal government or state... It belongs to them as a community.”
As part of the government’s target to bring free health care to 100m Nigerians within the space of two years, the new model for expanding PHCs has adopted a broad approach, incorporating community development and integration in an effort to encourage Nigerians in rural areas to frequent the facilities. “One of the things we want to do under the revitalised PHC programme is for each of these revitalised, reinvigorated PHCs to have an industrial borehole so that we can offer water to the people, clean drinkable water,” Adewole told the local press. “There will be solar electricity so we can have the ability to keep our vaccines in safe conditions. We will then use this new reinvigorated PHC for the focus of community development, nationwide.” The emphasis on the delivery of new facilities may begin to redress the balance between public and private care. In 2015 Nigeria had a total of 3534 hospitals, 26.9% of which operated in the public sector, according to the ITA. There were 54 federal tertiary hospitals in the country and as many as 2600 private hospitals and clinics. The FMH, during its last attempt to account for health care institutions back in 2005, estimated that there were around 9000 private health care facilities in Nigeria.
Despite efforts to expand public facilities, health care provision in Nigeria, as on much of the continent, is dominated by the private sector. With broad deficiencies in the public system, many Nigerians turn to low-cost private facilities. Furthermore, the proliferation of HMOs, largely attributable to the NHIS, has provided further opportunities for private care providers. The managed care services of HMOs, which offer a health plan with a designated network of providers giving care under a single system, offers private hospitals and facilities a reliable and constant volume of patients.
These plans are not only beneficial for cheaper private facilities, but also for more exclusive urban hospitals. For such facilities, financing in the sector has changed over the last five years. “With the advent of local health insurance and HMOs, things have changed. These seem to be the major source of patients now,” Iwuala told OBG. This represents a significant shift for a private hospital like Reddington. A decade ago, 40% of patients were paying out of pocket, but now that figure has been reduced to somewhere between 5% and 10%. For Reddington, HMOs make up as much as 55% of patients, while international insurance accounts for a further 30%. High-end private hospitals have always garnered business from expatriates holding international insurance plans, and a number of international insurers are active in the market, including Cigna, Aetna, Bupa and Allianz. However, the growth of HMOs illustrates the increasing opportunities for health care providers. It indicates a shifting market in which the targetable segment of the population is increasing substantially, with growth mainly driven by young professionals in the early part of their career, who are now within range of many leading private hospitals.
The average salary of patients patronising hospitals such as Reddington ranges from approximately N200,000 ($631) to N700,000 ($2210) per month. However, there are limitations on the reach of private care providers. “Because the premiums and capitations paid under the NHIS scheme are so small, such patients tend to qualify only for the lowest private hospitals,” Iwuala told OBG.
Cost Of Care
While the market for private providers is growing, it is also limited by the high costs incurred by private facilities. Substantial overheads and capital expenditure, from power costs to equipment prices, impact procedure pricing and limit how far down the income scale a hospital can go for patients. Nigeria remains a relatively expensive market when it comes to care. Despite this, many private providers are able to make attractive margins, particularly on technology-driven procedures. Insurance is still calculated on a procedural basis and does not take account of outcomes, which places care providers in a strong negotiating position with insurers.
While revenues can be strong in the upper segments of the market, private provision is not without its challenges, the largest of which is perhaps market entry. “Initial capital costs for tertiary care providers make initial entrance quite prohibitive,” Iwuala told OBG. “As funding and financing has mainly been through the banks, it is difficult.” With banks facing a rise in non-performing loans, largely driven by the energy sector, where low oil prices have led to defaults and loan restructuring, the lending environment is becoming more conservative (see Banking chapter). There has also been little appetite for investment in hospitals and health facilities from other forms of financing. Much of the attention of private equity funding entering the market appears to be focused on HMOs. For example, Satya Capital invested $18m in the HMO Hygeia Nigeria in 2009 before selling its 63.4% stake for $66.8m in 2016, while the UK asset-management company Duet Group invested in the HMO Expatriate Health International in 2011.
Seemingly, private investors are primarily interested in the volume-driven middle-income segment of the market. This is likely to be where the majority of growth will occur moving forward, as more Nigerians are brought into the HMO and insurance system. At the top end of the market, in which many patients pay out of pocket or are covered by international insurance firms, service providers suffer from reputational and cost issues. These institutions face stiff competition from outside the country.
Quality of care preoccupations mean that many Nigerians will travel significant distances for treatment. This not only means that private hospitals in Lagos can claim a catchment area that extends to the north of the country, but also that many patients go overseas for procedures. Every year, more than 30,000 Nigerians take trips to Europe, the US, South Africa, the UAE and India for medical procedures, including brain surgery, optometry care, oncology services, renal transplants and heart surgery. This capital flight costs the country an estimated $1bn each year and limits the amount the health care sector could potentially add to the country’s GDP. The sector’s current contribution is 5%.
Medical tourism is driven by several factors, including a lack of options for specialised care at home and concerns about the quality and cost of local care. India is a leading beneficiary of Nigerian health care spending, given its competitive pricing. There, it costs as little as $10,000 to get a heart bypass and $9000 to get a hip replacement, compared to figures of around $130,000 and $43,000, respectively, in the US.
While the private sector is a well-established component of health care delivery, it has yet to reach its full potential. Given the difficulties in the public system in terms of quality and reach of services, private providers play a crucial role in Nigeria, offering a range of services, from high-end tertiary care in Lagos to cheap private clinics in rural areas.
As such, the Nigerian market offers substantial opportunities for private investment, particularly in the growing middle-income segment. With the government focusing its efforts primarily on demand-side management through measures to improve financing with insurance, these opportunities are likely to grow. However, to fully capitalise, private providers will need to increase their competitiveness in terms of the breadth, quality and cost of services.
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