Kenya is set to benefit from a new private sector-led initiative to increase the quality of healthcare in public hospitals and keep the cost of private medicare affordable to millions of low-income households. The project, hinged on a policy the Cabinet passed last year, will see Kenya benefit from the Sh22.8 billion that three private equity funds - the International Finance Corporation Fund, Investment Fund for Health in Africa and Africa Healthcare Fund - plan to invest in Africa's health institutions.

The choice of Kenya as a participant in the pilot phase of the project comes barely a year after a government health financing taskforce crafted a public-private partnership financing model that the country has been selling to its development partners as the preferred long-term solution to the deplorable state of healthcare facilities.

The policy is hinged on the injection of private sector discipline in the management of public hospitals and the provision of subsidies to institutions that train health professionals and in the procurement of equipment and drugs. "Financing the subsidy gap is good investment that will unlock the demand side obstacles to healthcare services in Africa," said Prof Eyitayo Lambo, the International Management and Health Consultants CEO who once served as Nigeria's Health minister.

Prof Lambo reckons that increased financing of health services must extend to provider networks, quality monitoring and education to encourage new enrolment. Under the new scheme, the private equity funds will pump billions of shillings into start-ups or help to expand established institutions in return for stakes that gives them management control over the health facilities.

All the participating private equity funds are under instruction to set low return expectations for their investments. The plan should, for instance, see the International Finance Corporation Fund buy a controlling stake in Kenyatta National Hospital and use that leverage to take charge of its management to improve the quality of services offered. It is expected that through management control, the private equity partners will exert positive influence in policy formulation, corporate governance and stop financial haemorrhage that has been the bane of health institutions in Africa.

Participation of private equity funds also offers the health institutions an avenue for raising additional low-cost capital for future developments. Dr Heather Sherwin, one of the architects of the model and a fund manager with South African private equity fund, Bioventures, says the rationale is to pass on all the savings made in the process to patients in terms of low healthcare costs.

Successful implementation of the plan is expected to culminate in efficiently run public health institutions that can compete effectively against private healthcare providers and bring down costs. In Kenya, this means that a number of private clinics, hospitals, diagnostic centres and laboratories that have been the preserve of those in the middle and high income groups could significantly lower their charges and become accessible to ordinary folk.

Also targeted in the campaign to lower the cost of healthcare are the numerous health management organisations and insurance companies, eye clinics, pharmaceutical chains, logistics companies, drug manufacturers and medical trainers. Currently, only a small fraction of the Kenyan population affords the high admission charges in private hospitals.

That privileged group is mainly made up of formal sector employees covered by employer-sponsored medical insurance schemes.

Healthcare specialists say the high cost of training personnel is partly to blame for scarcity of quality medical care and the resulting exorbitant charges.

It costs more than Sh1 million to train a medical student to graduate levels in local universities - a price that is beyond many households that constitute the 56 per cent of the population living below the poverty line.

The World Bank Group, African Development Bank Group (AfDB) and Agence Française de Développement Group are among the institutions that are participating in the project aimed at turning around healthcare system in the continent. Also participating in the consortium are the Development Bank of Southern Africa, European Investment Bank, the German Federal Ministry for Economic Development and Cooperation and the Islamic Development Bank Group.

The plan is to raise at least $15 billion in the next three years to finance the partnerships. Africa endorsed the plan during the African Growth and Opportunity Act (Agoa) conference in Nairobi last week. Sub-Saharan Africa accounts for 11 per cent of the world's population and 24 per cent of the global disease burden, according to IFC's 2007 report. "All these funds are still too insignificant to meet the huge demand for affordable healthcare services and will only make impact with significant upscaling of healthcare financing by African governments," Dr Sherwin said.

Kenya is participating in the pilot phase of the programme alongside Tanzania, Nigeria, Rwanda, Ghana, and Cote D'Ivoire as a beneficiaries of the Sh7.6 billion ($100 million) that the International Finance Corporation, the World Bank's private sector arm, is raising to help strengthen healthcare services in emerging markets. Ministry of Health officials said the bank has Sh4.3 billion ready for disbursement to beneficiaries upon completion of the ongoing vetting.

The funds are being managed by Aureos Capital, a British private equity fund that is charged with identifying suitable institutions and investing between Sh3.8 million and Sh3.8 billion in up to 30 health institutions in each of the participating countries. Kenya is also in the waiting list together with Nigeria, Ghana and Tanzania for the Sh7.6 billion that the Investment Fund for Africa, a Dutch initiative plans to invest in Africa's health facilities through PharmAccess.

FMO, a Dutch development bank, has mobilised Sh1.9 billion of the required funds, setting stage for the search for up to 15 health institutions in every country. The private equity fund plans to acquire stakes in suitable African health institutions at a cost of between Sh228 million and Sh760 million.

Kenya and Uganda are also the only East African states in line to benefit from the US-South Africa's Sh7.6 billion African Healthcare Fund that seeks to invest between Sh228 million and Sh760 million each in at least 15 institutions from a participating country. Donald Kaberuka, AfDB president says the model provides the best opportunity for Africa to fix its healthcare sector in the wake of the global economic slowdown.

Participants at last week's Agoa forum also asked African governments to liberalise national hospital insurance funds to allow private sector participation and extend their reach to the informal sector. "In Kenya, it is even possible to remit monthly contribution to the National Hospital Insurance Fund through mobile money transfer services like M-pesa and Zap if rules are changed," the Agoa forum was told.