SHA's 2 per cent hospital deduction sparks court battle over digital project

President William Ruto launches the national ambulance dispatch centre (NADC) at the SHA headquarters in Upper Hill, Nairobi. [David Gichuru, Standard]

Hospitals are challenging a two per cent deduction from their Social Health Authority (SHA) claims, which goes towards funding the Sh104 billion digital superhighway.

Sources told The Standard that the money is deducted from SHA claims before it is wired into providers’ accounts.

The deduction has triggered opposition from a section of hospitals and is now before the courts.

Three petitioners, Dr Magare Gikenyi, Eliud Karanja Matindi and Okiya Omtatah Okoiti, are challenging the legality of the deduction and how the money is being used.

The petitioners claim that the money is going into the pockets of illegal and fraudulent entities.

Additionally, the petitioners have raised an issue with double taxation, arguing that there is neither legislation nor statutory authority authorising the respondents to deduct the said two per cent Health Information Management System (HIMS) utilisation fee from the claimed amount, or outlining the purpose of the same.

They argue that there is no clear roadmap showing where the two per cent HIMS System Utilisation Fee goes, how it is budgeted and how it is appropriated.

The petitioners argued that the two per cent HIMS System Utilisation Fee is not based on any legislation.

Another official, and owner of a hospital, further questioned why the cost of maintaining digital infrastructure is being transferred to hospitals.

Health Cabinet Secretary Aden Duale said the deduction of two per cent for claims processing falls under SHA administration.

A source who sought anonymity said SHA should pay the Digital Health Agency (DHA) to collect the fee from hospitals.

“It does not make sense. There is no legal provision for SHA to collect the fee from hospitals on behalf of DHA. It is SHA’s problem. If it is using infrastructure developed on behalf of DHA, it’s SHA that should pay from administrative expenses,” added the source.

The source maintained that there is no provision for SHA to deduct money from hospital claims to pay for digital infrastructure.

According to Duale’s statement, the money goes to a public agency, DHA, and no direct company receives money owed to providers.

But hospitals maintained that they are not questioning who operates the bank account or where the money goes, but how much SHA is deducting.

They also want answers on how much has been transferred to DHA and the amount retained at the agency.

“Where is the money? How much has been deducted? Has the two per cent been deducted after collection from our invoices? How much is being transferred to DHA, and again, how much is DHA retaining?” questioned the source.

The Ministry maintained that the money goes to DHA, but remained silent on how much.

“We need answers on how much has been collected so far from the two per cent deductions, and how much has been sent to DHA, and how much DHA has paid consortiums (Safaricom consortium),” added the source.

According to SHA operationalisation, the Safaricom consortium has subcontractors, who contract more service providers.

The amount going to the operators has also not been announced.

“The way we understand it, the money starts from SHA claims, then gets to the DHA account, then consortium, and then to subcontractors,” explained a provider.

“This entire financial chain, we need to know how much money is moving from SHA to the consortium. If he says it’s public money, then there has to be full transparency around this,” he added.

Duale noted that there is a regulation that caps SHA claims deductions.

But even as the hospitals contest the deductions, under the Social Health Authority Act of 2023, the Digital Health Agency (DHA) should raise money for funding the system.

Annually, the DHA is expected to pay Sh11 billion to consortiums manning the system, a payment that should be made within 10 years.

“The two per cent is part of the revenue to offset Sh104 billion expected to run the digital system. The deductions are, however, not enough, as other taxation is expected,” said the source.

Deductions are made from the total hospital SHA claims.

The deduction is part of the 2025 regulations, passed by both the National Assembly and the Senate.

“Two per cent of services offered through Health Information Management Services (HIMS), provided that the amount charged shall not exceed Sh5,000,” reads a section of the regulation.

However, according to providers, assuming there is a regulation for DHA money, they further question what gives SHA the power to deduct the money, where SHA is getting that power, and which provision gives SHA the authority.

“It is not in the hospital contract. Even if it’s true there is a regulation, what regulation governs SHA deducting money? It is not in the contract; it’s nowhere,” questioned a provider.

“Is there a provision authorising SHA to deduct money from hospitals for DHA? There is no legal regulation,” he posed.

Hospitals further raised concerns about the DHA agreement on deductions.

They claimed that SHA is acting as DHA’s agent.

“It is like people who are Kenya Revenue Authority (KRA) agents. SHA is collecting money from hospitals, and if the agreement has been done by any agency, and even Parliament, this is dealing with public money. We need transparency,” added the provider.

The petition filed in court also raises questions on taxation.

Service providers insisted that the two per cent is a tax on hospital claims, with a cap of Sh5,000, and wondered why KRA has not been allowed to collect the same.

With the capped two per cent collection, providers allege SHA tariffs and benefits are misleading.

For example, if a procedure costs Sh100,000, a doctor cannot operate outside the tariff because it is gazetted.

Therefore, if Sh2,000 is deducted from the said tariff, the claim paid will be Sh98,000, meaning a patient will pay Sh2,000 out of pocket.

They argued that this means critically ill patients would pay higher charges because they require the highest-value procedures.

These include patients in need of surgeries, dialysis, cancer care and those in Intensive Care Units (ICUs), among others, who attract the highest cost of care.

“If the two per cent is applied, it means very sick patients are paying the highest amount to the DHA.”

“In other words, although tariffs are capped at Sh5,000, it means all high-value claims are less than Sh5,000. This is punishing the sickest patients,” added the provider.

Another hospital provider, who also represents an umbrella body of hospitals, said the court case questioning the two per cent has come too late.

“Hospitals could have challenged the illegality of the deductions,” said the source.

The source, who also owns a facility, said the move to have the two per cent deductions was an oversight that could have been contested before the deductions were approved.