The Kenyan government’s Ksh 104.8 billion Social Health Authority (SHA) has come under intense scrutiny following a damning report by Auditor General Nancy Gathungu, which revealed major procurement and governance flaws.
Despite the enormous public investment in the system, the government neither owns nor controls it, raising concerns over the safety of public funds and the sustainability of healthcare services.
According to the Auditor General, SHA contributions and healthcare facility claims will finance a system that remains outside state ownership. She warned that this arrangement exposes taxpayers to financial risks and could compromise the efficiency of service delivery.
Adding to the controversy, the system was procured without competitive bidding. Instead, the contractor was directly selected through a Specially Permitted Procurement Procedure, in violation of Article 227(1) of the Constitution, which mandates a fair, transparent, and competitive process in acquiring public goods and services.
“This method of procurement was unconstitutional, as it failed to uphold principles of fairness, equity, and cost-effectiveness in public procurement,” Gathungu noted in her report.
Further, the SHA project was not included in the government’s procurement plan or its medium-term budget framework, contravening Section 53(7) of the Public Procurement and Asset Disposal Act, 2015.
Questionable Revenue Model and Escalating Costs
The financing model for SHA anticipates generating Ksh 111 billion over the next decade, drawing funds from member contributions, healthcare facility claims, and charges from a track-and-trace system. However, the report highlighted the lack of a baseline study to validate these projections, raising doubts about the financial sustainability of the program.
Of particular concern is a provision allowing the deduction of 5% from claims made by healthcare providers. Gathungu pointed out that this effectively imposes an additional cost on citizens every time they seek medical services.
“The system’s design means that healthcare costs for the public will increase due to the service charges deducted from medical claims,” she warned.
Adding to transparency concerns, the contract mandates that all revenues collected be deposited into an escrow account either daily or weekly. However, the report found no disclosure on who has access to these funds, raising accountability questions.
Restrictions on Government Innovation and Dispute Resolution
The contract also contains clauses that prevent the government from developing or implementing a similar healthcare management system in the future. This limitation, Gathungu cautioned, could hinder Kenya’s ability to upgrade or adapt to changing technological and healthcare needs.
“The agreement explicitly states that neither the procuring entity nor government health agencies can access any part of the system to build a competing product,” the report reads.
Additionally, any disputes related to the contract will be handled by the London Court of International Arbitration, sidelining Kenya’s judicial system in resolving conflicts involving public resources.
Employment and Compliance Issues
Beyond procurement and contractual concerns, the Auditor General flagged serious governance gaps within the SHA, particularly in employment practices.
An audit of the payroll revealed that 386 employees were taking home salaries below the legally mandated threshold, violating Section 19(3) of the Employment Act, 2007, which states that employees must receive at least one-third of their basic salary after deductions.
Furthermore, the SHA has failed to meet the government’s requirement of reserving 5% of jobs for persons with disabilities, with only 2.3% of its workforce comprising disabled individuals.
A Call for Urgent Reforms
The revelations in the Auditor General’s report have raised serious concerns about the transparency, accountability, and sustainability of the SHA project. The findings suggest that without urgent intervention, the initiative could place an additional financial burden on Kenyans while locking the government out of future improvements in healthcare technology and service delivery.
With procurement violations, revenue uncertainties, and governance gaps now exposed, all eyes will be on government agencies and lawmakers to determine the next course of action to safeguard public funds and ensure the effective rollout of the Social Health Authority.
