How Nigeria’s healthcare cost quietly drives inflation

Nigeria’s healthcare cost is a silent but significant driver of inflation that has not received much attention in recent times.

Consumer prices have continued to speed up in Nigeria and the effect of rising food prices has been extensively discussed overtime.

The cost of providing healthcare services in Nigeria has surged to unprecedented levels despite various strategic interventions by the central bank and the government to mitigate the effect of the covid-19 pandemic on the economy.

Data from the National Bureau of Statistics shows the composite consumer price index for health surged by 15.80 percent year-on-year and 1.10 percent month-on-month in May 2021 having reached a ten year high in April 2021 at 15.90 percent.

Urban health inflation also skyrocketed to 16.70 percent, while rural health inflation tallied behind at 15.10 percent for May 2021. The rise in the cost of pharmaceutical products, medical services, dental services, paramedical services, and hospital services have jointly accounted for the consistent rise in health care cost in the last 12 months ending May 2021.

According to Eniodunmo Olanike, a healthcare practitioner in Lagos, she identified exchange rate devaluations as a major cause of the sudden spike in the cost of health care services in Nigeria, which has consequently increased mortality rate in the country.

“Most of the equipment and drugs used in Nigerian hospitals are imported, and rely heavily on exchange rate. Recall that naira has undergone a series of devaluation in the past two years, currently trading around N410/$1 at the official window and N502/$1 at the parallel market”, she stated.

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She also highlighted that Nigerians are still very much afraid of visiting hospitals due to the covid-19 disease which broke out earlier in 2020, hence affecting the revenue of the hospitals, to the extent that they are downsizing staff and also raising prices just to breakeven.

“The implication of reduced patients in the hospitals is that those who eventually visit the hospital bear the financial burden of paying high cost, so as to cover for the lack of customers on the part of the hospitals,” she added.

According to the latest gross domestic product (GDP) numbers, the economic size of Human Health Care and Social Services is about N487 billion making up about 0.70 percent of Nigeria’s GDP. The sector also recorded a GDP growth rate of about 4.65 percent in the first quarter of 2021, ahead of the broader composite growth rate of 0.51 percent.

In a recent statement, the Governor of the Central Bank of Nigeria (CBN), Godwin Emefiele noted that a key factor that has impeded access to healthcare for Nigerians is the prevailing cost of healthcare services, amid the erosion of consumers’ purchasing power.

In the five years proceeding May 2020, the Health care sub-index of the core inflation grew at an average rate of 10.0 percent. Following the Foreign Exchange (FX) concerns in 2020, healthcare cost has been on the rise.

Nigeria continues to face challenges in the healthcare sector largely due to relatively low private and public sector investments, low density of medical personnel to population (1.95 per 1000) and weakening disposable income.

This appears to have inadvertently led to rising healthcare costs across the value chain.

According to the World Bank, Nigeria spends about 3.89 percent of its GDP on Health Care Expenditure, a significantly high amount when compared to the GDP of the Human Health Sector.

Nigerians pay for healthcare via private pockets, community funded programs, or via private sector or government-supported medical insurance via the NHIS or the 54 Health Maintenance Organizations (HMOs).

Unfortunately, the number of people who pay for health care via medical insurance is not enough to drive down healthcare costs, worsening an already bad situation.

To pay for their health care, most Nigerians often rely on self-medication in pharmacies and roadside chemists. Yet, it is these shops that have seen prices rise the most since the pandemic. Rich Nigerians on the other hand spend more abroad fuelling a growing medical tourism industry that gets more money out of Nigeria.

One of the major challenges in the overtime industry is the reluctance of the average Nigerian to take on health care insurance, as out of pocket payment constitutes 76.0% of total healthcare expenditure. As of Q1 2021, the health care sector contributed 0.7% of total Gross Domestic Product, which portends more room for improvement given how pivotal the strategy is to the economy.

A recent report from Knight Frank, a real estate consultancy, indicates Nigeria will need about $82 billion in investments to achieve the global average of 2.7 beds per thousand people or 386,000 additional beds.

Investment in healthcare soared in recent years particularly in Health-Tech with several Nigerian Startups attracting significant investments from foreign investors. Recent data reveals that Nigerian Startups raised about $29.3 million in Health-tech related fund-raising activities. This is however, nowhere close to the $82 billion required.

The Central Bank of Nigeria has also intervened in the form of concessionary targeted healthcare support funding. According to the Central Bank, under its N100 billion healthcare support intervention funds, N97.4 billion has been disbursed for 91 health care projects as of May 2021, 26 of which are pharmaceutical and 65 hospital services.

Also, a total of N232.5 million has been disbursed to 5 beneficiaries under the CBN health care grant for research on Covid-19 and Lassa fever. These are part of a series of interventions carried out by the apex bank taken to grow output and fasten Nigeria’s economic recovery.

The chief medical director at the Lagos State University Teaching Hospital, Adetokunbo Fabanwo, attributed the rising cost of healthcare to the limited number of health practitioners in the country.

He stated further that Nigeria needs 237,000 doctors to achieve Universal Health Coverage as of 2019. This shows a mismatch between demand and supply in the health care sector.

Meanwhile, at the conference themed: “Challenges of Inadequate Human Resources in The Health Sector,” the chairman of the Medical Guild, Saheed Babajide, said shortage of health practitioners in the country was caused by lack of decent treatment by their Nigerian employers.

“Increased infrastructure and increasing patient load require an increase in the number of health workers, but there is often an unwillingness to do this,” he said.

Health care analysts are of the opinion that cost, and accessibility of healthcare services in Nigeria must be an area of focus for the government and they believe that both public and private sector participation will also be required.