About 20 percent of Nigeria’s small and medium-sized private hospitals have shut down due to crippling operating costs that have boxed owners in a struggle to keep the lights on.
Most healthcare providers in this category could no longer cover the bare minimum expenses required to stay operational, such as rent, utilities like electricity, payroll for essential staff, and basic medical supplies, Adeyeye Arigbabuwo, the national chairman, Health Care Providers Association of Nigeria (HCPAN) Committee on NHIA Matters told BusinessDay.
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“Well, not only shutting down, some are even selling off. Some are hoping to see who will acquire the purchase. At least I know a couple of medical directors that have approached me. Some are looking for a merger. Some are also thinking of a lease, which invariably later will amount to a sell-off. And some are trying to divert their investment like going into the hospitality industry,” he said.
“We are thinking of many options, apart from those thinking of traveling out anyway. So both employers and employees are at the edge of each other.”
As of mid-2021, there were 40,368 hospitals and clinics in operation in Nigeria, split between 10,900 private facilities and 29,468 public facilities, according to data from the Federal Ministry of Health (FMoH).
However, about 70 percent of healthcare services are discharged by private hospitals, while government hospitals cover about 30 percent, private stakeholders say.
The unpredictable cost of medical supplies, driven by the impact of unstable foreign exchange rates on importation costs, has made it very difficult for hospitals to keep patients’ bills stable.
The challenge is worsened by high inflation, spiking electricity bills, expensive backup power, and the shortage of clinical staff including nurses and doctors leaving.
The Nigerian Electricity Regulatory Commission (NERC) this month raised electricity tariffs by about 300 percent.
Most Nigerian patients who are already stretched by high out-of-pocket medical expenses are aggressively negotiating pricing with hospitals that are still in business, challenging them to be more creative about preventing loss of profit margin.
Kehinde Oyesiku, the chief business officer, Evercare Hospital, Lekki told BusinessDay that the soaring of medical inputs has led to increases in the cost of treatment, and challenged the hospital’s goal to broaden access to high-quality care.
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The cost of powering its two 750 kilo-volt-amperes generators that are backup runs over N10 million in a month, despite having a direct connection with the Eko Electricity Distribution Company.
For a tertiary hospital that hosts sensitive facilities such as an intensive care unit, and a magnetic resonance imaging machine used for noninvasive imaging tests for internal body parts like organs, bones, muscles, and blood vessels, electricity consumption is always high and necessary.
“All our equipment is on an uninterruptible power supply (UPS) system. You cannot put them off. For example, you cannot put off an MRI machine; it has to be on. You can imagine that somehow that money has to be realised somewhere. So these things affect the cost of care,” Oyesiku said.
The hospital is surfing for a solution in solar energy but the potential is limited, the chief business officer said.
It is however exploring ways to ensure that the costs can be lowered sustainably and keep running the business cost-efficiently.
Ogechi Igbokwe, group hospital administrator, St, Ives Hospital, Ikoyi told BusinessDay that tariff increases occur almost every three months because of how the economy has played out.
It has affected the businesses and led to a decrease in early presentation from patients, she said.
She explained high inflation rates is a major challenge that has driven the cost of drugs and medical consumables to rooftops.
“It is quite disturbing that there seems to be no end to the whole thing. It keeps increasing. It makes it difficult to keep to a certain tariff. You just have to keep explaining to your clients because it is not easy and we feel for them. For some of the services they have been getting at a particular fee, they can’t get it again and everything keeps increasing,” Igbokwe complained.
Earlier this year, analysts predicted that service-based health companies, like hospitals, would face challenges staying afloat due to a combination of factors. These include high operational costs and economic headwinds, which the World Bank estimates have pushed roughly 24 million people into poverty.
Mergers and acquisitions led by health investment funds were expected to take over legacy hospitals.
Four months later, Oluwafemi Olaleye, head of Health Banking, FSDH Merchant Bank said this remains the most viable way out for small and medium hospitals to stay afloat.
He explained that the cost of running hospitals has gone up without a corresponding rise in the purchasing power of the majority of the population.
PricewaterhouseCoopers Nigeria economic outlook for 2024 projected that consumer spending may be pressured due to rising prices of goods and services coupled with lower disposable income.
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“The solution is for consolidation to happen. Small hospitals should sell. Medium-sized hospitals should look to be acquired so that instead of having mushroom hospitals all around, you can have one big hospital with more beds,” Olaleye told BusinessDay.
“The moment you have that in any sector of the economy, struggling alone, they will do better if they consolidate and there is adequate capital injected into that consolidation. They will have a stronger negotiating power with HMOs and render better quality of services.”
But the challenge is that most health entrepreneurs want to own 100 percent of the average price, Olaleye pointed out.
“The challenge is giving up ownership. That’s why you find that a lot of small hospitals have been small for a very long time.”
