14 February 2012

Kenya: KNH Announces Layoffs in Plans to Cut Budget Deficit

Kenyatta National Hospital has announced plans to lay off hundreds of workers to cut its rising wage bill and create room to hire specialised personnel.

The State-owned referral hospital says it is targeting to reduce its costs by 20 per cent or Sh1.3 billion, with the bulk of the savings coming from the reduced workforce - which stands at 4,800.

This will be realised through the automation of its operations including billing, procurement and back-office functions, effectively cutting back on paperwork and the numerous clerical staff.

Richard Lesiyampe, the chief executive of KNH, said the hospital has yet to establish the number of workers that will be affected by the reorganisation, but sources familiar with the plan reckon at least 1,000 workers could be affected over the next three years. "Some workers will lose their jobs after the automation, but we will make sure that we reduce the number of redundant people by retraining them to fit in other departments," said Mr Lesiyampe in an interview with the Business Daily.

KNH has long suffered from lack of equipment and specialised staff like doctors, despite employing hundreds of clerks to cater for an average 18,000 patients daily.

"We have a mismatch of skills, there are many people in departments that are not critical and less people in departments that need special skills," he added.

It is now seeking to cut its wage bill to free cash that will bridge its growing budget deficit and need for specialised staff. KNH employs about 200 doctors and 1,700 nurses.

KNH's annual costs stand at Sh6.8 billion against revenues of Sh5.3 billion, leaving it with a funding gap of Sh1.5 billion that is plugged by donors, according to Mr Lesiyampe.

Its wage bill is the largest cost item at Sh3.4 billion or half of its total annual costs. Of the Sh5.3 billion, KNH raised Sh1.8 billion from patient fees while Treasury allocated it Sh3.5 billion. The hospital is also reeling under the weight of billions of shillings in debt owed to them by defaulting patients who cannot pay for the services rendered to them.

The planned job cuts are likely to affect the unionisable employees and mid-level staff since KNH has already reorganised its executive team through the merger of key business units and redeployed at least 20 senior managers.

The referral hospital cut its business units from 45 to three -clinical, nursing and administrative services - that were put under deputy directors who report to the CEO.

The reorganisation of its management ranks was aimed at a lean executive team with fewer reporting layers to support the hospital's new growth drive. The planned layoffs are bound to open a fresh battlefront with the combative workers union that shepherded a raft of strikes in the quest for higher wages.

The referral hospital has made headlines for negative reasons such as congested wards, non-collection of medical bills and lack of medical equipment. It is now seeking to shed its old image with a spruced-up corporate centre for high-end outpatient clients - targeting employee medical schemes - who will ease the burden of non-payment by its low income patients.

Soaring costs

The CEO says the government is piling pressure on the hospital to be self-reliant. The reduction in spending on the side of Treasury has also seen other public health facilities across the country struggle to pay basic utility bills.

The government's lack of adequate funds last year exposed the facility to employee unrest, derailing the hospital's daily operations and denying patients appropriate care. The hospital is faced with a spiral in costs caused by a spike in food prices, high cost of utilities and the volatile currency - which has pushed the cost of drugs and medical equipment to record levels.

This has prompted KNH like other top hospitals including Aga Khan and Nairobi Hospital to increase their bed and consultation charges to cover the additional costs and boost their revenues. KNH increased the cost its services by between 15 per cent and 30 per cent and this is expected to deepen its debt collection challenges.

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