CHAPTER ONE

INTRODUCTION

1.1

Background of Study

A countries health care system is designed to promote healthy lives which are achieved through
efficient and effective provision of quality health care services. The provision and financing of
health care are basic issues that every country including Ghana must address. However,
financing health care has become a problem to many developing countries in Africa and beyond.
It is therefore challenging for developing countries to manage an effective health financing
system to the benefit of all citizens.

Ghanas health care system consists of both the public and private sectors, with the private sector
complementing public services. Many heath care facilities in the form of hospitals, clinics,
polyclinics, heath care centres are operated by the state with a few operated by private
individuals. These facilities are mainly financed from three main sources, Government Of Ghana
Subvention (GoG), Donor Pool Fund (DPF) and Internally Generated Fund (IGF). The state
therefore has the responsibility of providing health care. The private sector on the other hand is
categorised into private-for-profit, private-not-for-profit, and traditional systems (MOH, 1997).
The private sector is seen as a major player in Ghanas health care system. Private provision of
health care is important since it reduces the governments fiscal burden. It also encourages better
resource utilization thereby delivering better health care services at the same overall cost

(Bloom, 1998). It is responsible for about 40 per cent of total health care delivery and thus has
become the preferred alternative to the Public Healthcare system (Abekah-Nkrumah, 2006).

The main body that governs the private sector of the health industry in Ghana is the Private
Hospitals and Maternity Homes Board (PHMHB), established by Act 1958(No.9) of the
Ghanaian constitution. The main providers in the private sector are mission-based providers;
consisting of Christian and Islamic hospitals and the private medical and dental practitioners.
Hospitals run by religious groups make up 35% of Ghanas Health Care Sector (AbekahNkrumah, 2006). In addition, the private healthcare sector in Ghana is made up of diverse
healthcare providers ranging from the herbalist to practitioners of orthodox medicine. The formal
private sector comprises of privately owned medical facilities such as hospitals, clinics, and
maternity homes.

Health care is a very capital-intensive business and access to debt financing keeps health care
institutions in business. Health care financing refers to the resources used in providing health
care. These include money, and other resources such as labour, equipment and supplies
(Goodman and Waddington, 1994). As noted by Sussman and Jordahl (2010), health care
organizations have been struggling to keep up with demand for capital. In addition, aging
facilities, increasingly competitive markets, and new equipment and technology requirement has
created higher capital spending challenges. Even though the Government of Ghana provides
some support to the private not for profit providers there is no such support and/or partnership
arrangement with the self-financing private health care providers which is the focus of this study.
The contribution of the private health sector has grown rapidly in emerging markets, in particular

over the last two decades. Investors and financial institutions - which should constitute the major
financing sources for the health sector, often have limited knowledge of the opportunities and
risks pertinent to the sector. As a result, health care organizations, particularly small and medium
enterprises, have limited access to financing to expand and improve their operations (Ellena
2014).
Provision of health care comes with financial challenges in view of the difficult economic issues.
Thus, financing an efficient and effective health care system is of a major challenge confronting
Ghana. Private sector operational costs are financed mainly from patient payments, National
Health Insurance Scheme (NHIS) reimbursement and other Private Health Insurance Schemes.
Health Insurance is an alternative health care financing system which involves resource pooling
and risk sharing among members (Osei-Akoto, 2004). Funding healthcare in Ghana has been
made possible under the National Health Insurance Scheme as established by Act 650.

Private health care providers in Ghana remain underfinanced and constrained from achieving
their full potential since many financial institutions are often unfamiliar with their operations and
dynamics thus perceives it as a risky venture. In view of this, the study will determine how
private health care providers in Accra finance their health care services provided to clients.

1.2

Problem Statement

Globally the demand for private health care is increasing, signaling market opportunities for
investments in this sector. However, financing healthcare is a major challenge to all countries
especially developing countries such as Ghana. In many emerging markets such as Ghana,
private health care providers have difficulty obtaining access to financing. In Ghana, due to

declining economic trends, access to external capital has become more important than ever for
private health facilities. Many private health facilities are facing the challenge of securing
capital/merger partners in order to ensure continuing provision of services to their clientele. This
challenge is due to the problem of access, to capital, fewer borrowing options, higher cost of
capital, less flexibility, and higher risks of available borrowing options. Few private health
facilities are able to generate enough cash flow from their operations and reserves to fund short
and long-term strategic investments in employees, programmes, facilities, and technology.

For most private health care facilities, operating cash flow alone cannot support the required
capital spending. Competitiveness of private health facilities therefore depends on having
reliable access to debt at reasonable cost, terms, and risk (Sussman and Jordahl, 2010). However
many banks in Ghana do not lend to this sector often citing lack of market information, concerns
about risk, and the poor quality of loan applications received from private health care providers.
As a result many of these providers avoid banks loans and instead rely on self-financing through
personal savings, income generated through the business, or loans from friends and family. Thus,
without external financing these businesses will remain small and struggle to meet the growing
demand and market opportunities.

Furthermore, private health providers make little use of equity as a means of financing
investment. Their lack of skills and experience with these options, coupled with market
conditions for bank loans (interest rates, collateral requirements, and repayment periods) inhibit
their use. Thus for private health facilities to succeed, external capital is needed for payment of
staff, investment in information technology (IT), facility modernization and expansion, and other

initiatives. Until drastic interventions and policies are implemented to solve this challenge,
Ghanas vision of achieving the Millennium Development Goals especially in reducing maternal
and child mortality will remain an illusion.

1.3

Aims and Objectives of the study

This study assesses health care financing in the private sector with reference to private health
care facilities in Accra, Ghana. To achieve this, the study will address the following objectives:

1. To identify the various forms of funding available to private health care providers.
2. To identify the challenges faced by private health care practitioners in accessing external funds.
3. To assess factors that influence the choice of financing mechanism used by private health care
providers.
1.4

Research Questions

The above research objectives translate into the following research questions:
1. What are the challenges faced by private health care providers in financing health delivery?
2. What are the various sources of funding available to private health care providers in health
delivery?
3. What is/are the most preferable financing method being used by private health care providers?
4. What are the factors that influence the choice of financing mechanism used by private health
care providers?
1.5

Significance of the Study

This study will highlight the key role financing arrangements play in the private health care
sector in improving service delivery. Engaging the private sector in addressing Ghanas health
challenges adds improves the quality of health care services provided to clients. Thus the private

sector has a positive impact on health and the quality of life of Ghanaians. In addition,
Management of private health facilities will also directly benefit since the recommendations
when implemented will aid in acquiring funding strategies which will result in the improvement
of service delivery thereby ultimately resulting in improved performance. Patients/ clients will
also benefit through improved service delivery due to a better financing arrangements.
Furthermore, most studies especially in Ghana have focused on financing in the public health
sector. No study has extensively discussed the financing arrangements in the private health care
sector in Ghana. The study will therefore act as a body of knowledge which will engineer future
research in the subject area.

1.6

Scope and limitations of the study

The study is limited in scope to private health care providers in Greater Accra Region, Ghana.
The study is also limited to financing mechanisms in the private health care sector in Ghana. The
study does not seek to draw relationships nor does it seek to compare different private health care
providers. The findings will therefore not be general or representative to all private health care
providers in Ghana. It is only concerned with describing the views and the experiences of the
Heads of Finance working in these facilities. Another limitation of this study is that comparison
of financing mechanisms will not be made with the public health care providers. In addition,
financial and time constraints are strong factors in focusing on only ten private health care
providers in Accra, Ghana.

1.7

Research Methodology

To achieve the objectives of the study, the research methodology will be used in gathering data,
analysing the data gathered and making relevant conclusions and recommendations based on the
findings. This section presents the research approach, research design, research strategy, sources
of data, the sample population, sampling technique and instruments for data collection. The
concluding section presents the primary and secondary sources of data and data management/
analysis.

This study will employ both the quantitative and qualitative research approach. As pointed by
Auerbach and Silverstein (2003), qualitative research entails the analysis and interpretation of
texts and interviews in order to discover meaningful patterns. Quantitative approach on the other
hand entails the collection of numerical data (Bryman 2004). Quantitative data for the study will
be collected using semi- structured questionnaires which will be distributed to the Head of
Finance of private health care providers. In addition, qualitative data will be sourced through
interviews.

1.7.2

Research Design and Strategy

According to Aaker, Kumar and Day (2004), research design is the detailed blue print used to
guide the implementation of a research study towards the realisation of its objectives. This study
will employ a descriptive research approach to examine and analyse financing of private health
care providers and their effect on health care delivery in Ghana.

1.7.3

Sampling Technique and Population

Sekaran (2003) defined sampling as involving any procedure that utilizes a small number of
items or a proportion of a population, to arrive at a conclusion regarding the whole population.
The study will use a non-probability sampling design specifically purposive sampling technique
to sample twenty (20) private health care facilities within the Greater Accra Region, Ghana. In
addition, purposive random sampling technique will be employed in sampling the Heads of
Finance of these facilities. The purpose for using this sampling method was due to them (that is,
Heads of Finance) having the required data on funding mechanisms available and being
employed by their respective companies and the challenges being experienced.

The research population for any study is the complete list of all the cases in the population from
which the sample would be drawn. Thus the research population for the study encompasses
private health care providers operating in Greater Accra Region, Ghana. The choice of the region
is due to the abundance of numerous privately owned health care facilities.

1.7.4

Data Sources

Two sets of data will be used for the research which is primary and secondary data. Primary data
refers to data collected directly from a source. Thus, primary data consist of data collected for the
purpose of this work. Data from primary sources will be collected using semi-structured
questionnaires and interviews. Secondary data comprise data that were originally collected for
some other purpose. Secondary data denotes empirical data that has been collected for another
purpose and is collected from the internet, previous studies and literature (Lewis et al. 2000). For
this study, information from secondary sources will emanate from published and unpublished
books, scholarly journals, the internet search engines and organisation / financial reports.

1.7.5

Research Instrumentation

According to Emory and Cooper (1995), two primary types of data collection methods can be
distinguished namely: interviewing and self-administered questionnaires/surveys. This study will
employ the use of semi-structured questionnaires and interviews for collection of data. Semistructured questionnaires will be made up of both open-ended and close-ended questions. Openended questions according to Kotler (2000) allow respondents to answer questions in their own
words. Interviews afford researchers to gather in-depth views, explanations from respondents.
Interview guide also offers an opportunity for the researcher to probe for detailed information
through follow up questions.

1.7.6

Data Analysis and Presentation

Data collected will be analysed with the aid of Statistical Package for Social Scientist (SPSS)
software. Descriptive statistics will then be used to summarize and present the information in the
form of frequency tables, pie charts and bar charts.

1.8

Organization of the Study

The study will cover five chapters. Chapter One is the introductory part of the study. This
includes the background information of the research study, problem statement, objectives,
research questions, significance of the study, the scope and limitation of the study. Chapter Two
will review related literature on financing of private health care providers. The theoretical and
conceptual issues of the research study will be discussed in this chapter. Chapter Three presents
the methodology to be used in gathering data. This focuses on the research strategy, research

design, source of data, data collection instrument, data management/ analysis and presentation.
Chapter Four will present and discuss data gathered from the field. Due to the different methods
used in capturing data, findings will be presented in graphs and frequency tables. Chapter Five
focuses on the summary, recommendations and conclusions of the study.

CHAPTER TWO

LITERATURE REVIEW

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2.1

Introduction

The study discusses health care financing arrangements in the private sector in Ghana. This
chapter provides a brief overview of the health care system in Ghana with reference to health
sector reforms and organization of the health care system. The chapter also discusses various
health care funding mechanisms available to governments which include Direct Taxation, Health
Insurance, Medical Savings Account, Out of Pocket Payment (Cash and Carry) and Loans,
Grants and Donations. The chapter finally presents empirical literature of health care financing
mechanisms in Africa and Ghana for both the public and private sector.

2.2

Overview of the Health Care System in Ghana

During the pre-colonial era, the health of the people of Ghana was maintained by traditional
health practitioners (including herbalists, healers, soothsayers, spiritualists, midwives, etc). The
system in place was such that the health of the individual was the responsibility of members of
the family. In addition, the community also showed concern for the sick (Kunfaa, 1996).
According to Akazili (2010), the history of colonial and post-colonial health care system in
Ghana is inseparable from the history of colonial control of power and resources. The colonial
health care system which was mainly curative had health care facilities established in the urban
centres (Cape Coast, Accra, Kumasi) where colonial authorities resided to the neglect of the rural
inhabitants (Kunfaa, 1996). Hence according to Arhin-Tenkorang (2000), the health care system
was biased towards the delivery of health care to the small elite group of colonial authorities
(that is administrators and their assistants) and formal sector employees (especially mine
workers). Health care was thus restricted to the Europeans and later extended to include the
servants who worked for the Europeans. During the colonial period, access to health care was

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mainly through direct payment at the point of service consumption (Akazili, 2010). Thus, this
limited access to health care to few individuals who had the means to pay.

Immediately after independence in 1957, the government attempted to eliminate all barriers to
access to health care for the citizenry. This resulted in the abolishment of user fees thus resulting
in free universal access to social services including health care which was funded through taxes
and donor support (Nyonator and Kutzin, 1999). The governments health goal was to address
inequities in geographical distribution of health care services. The focus was geared towards
developing a wide range of primary health care facilities across the country (Akazili, 2010). The
government therefore built hospitals all over Ghana.

However, in the 1980s Ghana experienced severe macroeconomic problems which led to slow
economic growth. In addition, the Structural Adjustment Programmes (SAP) required
government to reduce expenditure and to implement a cost sharing strategy. This meant the
introduction of user fees for health care usage. This situation made it extremely difficult for the
country to maintain the free health care services due to the limited resources (Akazili, 2010). All
these developments resulted in the growth of the private sector which previously was limited or
non-existent.

2.3

Organisation of the Health Care System in Ghana

In Ghana, there are four main categorization of health care delivery system namely the public,
private-for-profit, private-not-for-profit and traditional system (MOH 2011). Three key players in
the Ghanaian health care system also include the Ministry of Health (MoH), the Ghana Health

12

Services (GHS) and Christian Health Association of Ghana (CHAG). The MoH is responsible for
policy formulations and all stakeholders in the health sector are ultimately responsible to the
MoH. In formulating these policies, MOH collaborates with various Miniseries, Departments and
Agencies (MDAs) and other partners and stakeholders in the health sector (Abeka-Nkrumah,
2005). Policy implementation is achieved through the public, private and traditional sectors.

The MoH is also responsible for monitoring and evaluation of progress in achieving sector
targets (MOH 2011). The health system revolves around the Ministry of Health which has a
hierarchical organisational structure. Services are delivered through a network of facilities, with
health centres, polyclinics and district hospitals providing primary health care services. Regional
hospitals provide secondary health care services whiles the four teaching hospitals provide
tertiary health care services. The teaching hospitals are also responsible for teaching of health
professionals and conducting research (medical and public health research).

The Ghana Health Service (GHS), Teaching Hospitals Board (THB) and the Quasi-Government
Institution Hospitals (QGIH) are the implementing agencies of the MOH. The GHS which is
responsible for the organization and management of health service delivery was established by
the GHS and Teaching Hospital Act 525, 1996. GHS is responsible for all state health facilities
except teaching hospitals and those owned by the military (Ministry of Health 2006). The
creation of GHS in 2001 was intended to enable decentralization of planning and management
and to give more authority to the Regional and District Health Services (GHS 2012). The THB is
the institution responsible for the implementation of governments health policy and regulation at
the teaching hospital level. The GHS and Teaching Hospital Act 525 is also responsible for

13

implementing and regulating hospitals owned by quasi government institutions (AbekaNkrumah, 2005). CHAG on the other hand acts on behalf of 16 Christian churches who are
involved in the provision of health care.

2.3.1

Policy Framework

The policy framework of the national health care system is focused on the core health problems
of Ghana. The government is determined to improve access and equity to essential health care
and ensure that the health sector plays an essential role in the national Poverty Reduction
Strategy. The strategic objective is to improve geographic, financial and socio-cultural access,
particularly to vulnerable groups, to quality health care services (GHS 2012).

2.3.2

Public

Functionally, GHS is organized at five Levels. The highest at the apex being the tertiary hospitals
and the lowest are the community clinics.

2.3.3

Private

The private sector is a major player in Ghanas health sector contributing to about 40 per cent of
total health care delivery (Abeka-Nkrumah, 2006). The Private Hospitals and Maternity Homes
Board (PHMHB) established by Act 1958 (No. 9) is the main regulatory body for the private
sector. The main providers in the private sector are the mission-based providers consisting of
Christian and Moslem health facilities. Churches play a major role in service provision. Christian
Health Association of Ghana (CHAG) coordinates its programmes with the MoH and GHS.
CHAG predominantly focus on the poorest and vulnerable groups who are mostly in the rural

14

areas (GHS 2012). CHAG plays a complementary role to the MOH and the GHS and is the 2 nd
largest provider of health care services in Ghana. It is estimated that approximately 42% of total
health services in the country are provided by CHAGs member institutions (GHS 2013). Other
private health care providers include for-profit clinics which provide just 2% of health care and a
significant number of chemical sellers and traditional healers which are mostly patronized by the
poor in rural areas (MOH 2011).

2.3.4

Health Facilities

In Ghana, health facilities are public, private not for profit e.g. CHAG, and private selffinancing. Public facilities include the teaching hospitals and all GHS facilities (hospitals,
polyclinics, health centres, health posts, CHPS compounds, small clinics), including the 10
regional hospitals (GHS 2012). Private facilities include hospitals, maternity homes, clinics and
chemical sellers. In the private sector, Greater Accra Region has a quarter (24.8 per cent) of all
private health care facilities, with the Ashanti Region following with 20 per cent (MOH 2011).
There are more health facilities (over 60%) and beds (over 70%) in Ashanti, Eastern, Volta,
Western and Greater Accra Regions than the rest of the regions in the country and this is due to
the large population sizes in these regions (GHS 2005).

2.4

Health Care Funding Mechanisms

For any country in the world, identifying a sustainable and effective source of financing health
care has become a major challenge for health care organisations, stakeholders and government.
There exist five different forms of health financing available to any country (Mossialos et al.,
15

2002). These are taxation; social health insurance; medical savings accounts, voluntary and
private insurance; cash-and-carry; and donations. The following section discusses these forms of
health financing arrangements.

2.4.1

Direct Taxation

Taxation is considered the most popular method of mobilising revenue for the purposes of
financing various sectors of a country including the health sector. Many governments for
example in Belgium and United Kingdom etc finance health care through direct taxation. Thus
health care services are paid by government through general tax. McIntyre (1997) indicated that
taxation is important in the funding of preventive, environmental and other health care services
which are considered as having public good characteristics.

In addition, Mossialos et al., (2002) noted that, regional or local taxes are the main sources of
financing health care in Bulgaria, Denmark, Finland, Norway and Sweden. Even though,
financing health care using taxation is seen as a stable, regular and reliable source of revenue
generation, it could become subject to annual public spending negotiations since other sectors of
the economy compete for limited funding available (Mossialos, 1997). In addressing this
challenge, governments need to separate health care financing from public spending through
earmarked budgets. General tax is broadly grouped into direct and indirect tax.
Direct taxes are taxes levied on individuals who earn an income which includes personal income
tax (PIT) and company income tax (CIT). In addition, individuals and organisations having
wealth are liable to pay property tax (PT). Direct tax such as PIT is mostly progressive in nature
which implies that the more income an individual earns the more tax he/ she is liable to pay

16

personal income tax. However Akazili (2010) noted that, the degree of it being progressive
varies amongst countries and this depends on the nature of the structure and rates of the tax.

Also according to Wagstaff, van Doorslaer et al. (1999), direct tax progressivity is also
dependent on the proportion of the population falling within each taxable income stratum. For
example in Bangladesh which is a low income country the poorest 20% of households are not
made to contribute to direct taxes. However, the richest fifth contribute more than 90% of the
direct tax revenue (O'Donnell, van Doorslaer et al., 2008). This makes the direct tax progressive
in nature. Poor and low income countries such as Nepal, Bangladesh etc., makes less use of
direct tax compared to richer countries such as Hong Kong, Taiwan and South Korea due to the
narrow tax base (EQUITAP 2005).

On the other hand, indirect taxes are taxes levied on consumption goods. Examples include sales,
value added taxes (VAT), excise, and import taxes. Indirect taxes are regressive which implies
that the burden of the taxes is concentrated on low-income groups. This is so because, since lowincome groups spend more of their income on consumption than high-income groups, their tax
payments are also proportionally higher (Gottret and Scheiber 2006). Portugal and Spain have a
progressive indirect tax since these two countries have relatively high tax rates on luxury goods,
which are mostly consumed by the privileged (Akazili, 2010). In another study of Asian
countries by EQUITAP (2005) all the countries in that continent except Japan had progressive
indirect taxes. The reason for the significant progressivity of indirect taxes in these countries is
as a result of exemption of food from tax.

17

The extent or degree of progressivity of general tax depends on the progressivity of its
component parts (that is direct and indirect taxes) and their relative contribution to total tax
revenue. For example, if direct tax, which is often typically progressive, forms a large
component of overall tax, then general tax can be progressive (Akazili, 2010). On the contrary if
indirect tax, which is regressive in nature, is given stronger emphasis in the overall tax system
then the tax burden can be regressive (Ciss, Luchinia et al. 2007; O'Donnell, van Doorslaer et
al. 2008). For high income economies such as Norway, Sweden the general tax system usually
tends to be a progressive source of health care financing. Thus, general tax as a health care
financing mechanism is a means through which universal access to health care can be achieved.
In these countries, the poor are protected from financial shocks associated with large health care
costs through general tax financing (Bennett and Gilson, 2000).

2.4.2

Health Insurance

Health insurance is used to describe a form of insurance that makes payment for medical
expenditures consumed by clients. Ghanas Ministry of Health (2003), defines health insurance
as an alternative health care financing system which involves resource pooling and risk sharing
among members. It provides security against loss by illness or injury, financial protection against
health related expenses and coverage for out-patient and in-patient care and other specialised
services (Kwarteng, 2011). It is provided using a social insurance programme and private
insurance providers which may be purchased on a group basis (e.g., by a firm to cover its
employees) or purchased by individual consumers (Kwarteng, 2011). The covered groups or
individuals are required to pay premiums or taxes to help protect themselves from high or

18

unexpected healthcare expenses (Kwarteng, 2011). There exist two major types of health
insurance namely private health insurance and public health insurance.

Private Health Insurance

Saltman (2004) defines private health insurance as a mechanism for individuals to make
financial contributions to protect themselves from the potentially extreme financial costs of
medical care if they become severely ill, and ensure that they have access to health care when
needed. Private Health Insurance (PHI) is a voluntary pre-payment system in which individuals
make an individual premium payment, usually risk-related (Obermann, Jowett et al., 2006;
Pauly, Zweifel et al., 2006). This implies that individuals in high risk groups (who are most often
in the low income bracket) pay more than those in low risk groups (Akazili, 2010). PHI is thus
one of most regressive health care financing mechanisms (Carrin and James, 2004).

PHI protects individuals from catastrophic health expenditure. Also, proponents of PHI believe
that this financing mechanism could help free up government resources that hitherto would have
been consumed by those in the PHI (World Bank 2004). The freed resources can be used to
provide and improving primary health care which is used by the majority of poor people
(Akazili, 2010). However despite the benefits of PHI, it is generally confined to a relatively elite
group due to insufficient ability to pay for PHI in most low and middle income countries. In
Ghana, a few PHI schemes exists which covers less than 1% of the population (Akazili, 2010).
According to McIntyre and Gilson (2002), in South Africa, with gross disparities between
income groups, higher income groups have long depended upon PHI.

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Public Health Insurance

PHI are publicly funded health insurance scheme, where the residents of the country are insured
by the State and social health insurance, where the whole population or most of the population is
a member of a sickness insurance company (Kashner, Muller, Richter, Hendricks, & Ray, 1998).
The publicly funded health insurance is financed through taxation. Kwarteng (2011) indicated
that when taxation is the main means of financing health care, everybody receives the same level
of coverage irrespective of their ability to pay, their level of taxation, or risk factors. Most
developed countries currently have partially or fully publicly funded health systems. Examples
are United Kingdom's National Health Service (NHS), or the Medicare systems in Canada and in
Australia (Kashner, et al., 1998).

Social Health Insurance (SHI)

Another mechanism for financing health care is through social health insurance which entails
contributions to a health fund. SHI is financed through a (government-mandated) social
insurance programme which is based on the collection of funds contributed by individuals,
employers and government subsidies (Kwarteng, 2011). Social Health insurance (SHI) has a
legal requirement for people to become members and benefit from a package of health care
services (Akazili, 2010). SHI systems are characterized by the presence of sickness funds which
receive a proportional contribution of their members wages. Hence with these insurance
contributions, these funds pay medical costs of their members (Kwarteng, 2011). Affiliation to
such SHI funds is usually based on professional, geographic, religious/political and/or nonpartisan criteria (Saltman, 2004).

20

SHI is based on risk-sharing and a spirit of solidarity. The argument for social health insurance is
that mechanisms for collection of health insurance funds are more transparent and better
protected from political interference, since budgetary and spending decisions are devolved to
independent bodies (Jesse and Schaefer, 2000). SHI is a new phenomenon in sub-Sahara Africa
(SSA) (McIntyre, Doherty et al., 2003). Kenya and Tanzania were the first and second countries
respectively in SSA to introduce some compulsory health insurance in the form of SHI. Ghana
also introduced a compulsory health insurance to the formal sector and has extending it to the
informal sector through a network of district mutual health insurance schemes throughout the
country (McIntyre, Gilson et al., 2005).

There exist many reasons for the interest in SHI as an alternative health care financing strategy.
First of all, many countries have introduced the SHI as a means of generating additional revenue
to augment the shortfall in tax based funding in health care (McIntyre, Doherty et al. 2003;
Schneider 2005; World Health Organization 2005). In addition for SHI, individuals are more
willing to contribute to the scheme since they see the benefits to be derived from contributing to
the scheme. Clients rights as consumers of health care services are also greatly enhanced under
SHI as compared with the tax financing system since with tax financing, health care is often
viewed as being offered free to the point that providers sometimes feel they are doing patients a
favour (Obermann, Jowett et al., 2006). However, with SHI system, service providers tend to
respect patients as customers. SHI also promotes equity and sustain the financing of health care
services.

Community Based Health Insurance (CBHI)

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CBHI is a scheme formed usually by a community, mission facility, or a donor with the aim of
providing risk pooling to cover part or all of the cost of health services of its members (Bennett,
2004; McIntyre, Gilson et al., 2005). Many of these schemes are based in the rural areas, where
there is limited financial risk protection (Baltussen and Bruce, 2006). An example of such a
CBHI in Ghana is the Nkoranza scheme which was establishment by the mission hospital
(Witter, Arhinful et al., 2007).

As cited by Criel, Atim et al., (2004), the premiums of CBHI are usually based on community
rating. The community therefore share risks associated since the community members pay
premiums according to the average risk of the community (Akazili, 2010). Premium
contributions are also often made on an annual basis which normally coincides with the time of
harvest of crops when community members have a higher propensity to make payment. Unlike
SHI, CBHI provides cover for the informal sector employees. CBHI therefore provides a
mechanism for insured members to access services without paying at the point of access to
service (Criel, Atim et al., 2004; Ekman, 2004).

There exist various advantages of CBHI. CBHI mitigates the worst equity effects of user fees
(Dong, Kouyate et al., 2003). This is achieved by spreading contributions between the healthy
and the sick, the wealthy and less wealthy, the young and the old and allowing people to spread
their contributions over time in a more predictable way rather than pay at the point of access
(Bennett, 2004; Criel, Atim et al., 2004). CBHI offers some level of financial safety to insured
members and so improves on the accessibility of health care services to those who need it
(ADong, Kouyate et al., 2003; Balabanova and McKee, 2004; Poletti, Balabanova et al., 2007).

22

However, there exist some disadvantages with CBHI. CBHI generate very limited resources as
premium payments are usually small and so without donor or international support, many CBHIs
cannot survive on their own contributions (Bennett, 2004; Criel, Atim et al., 2004).

In addition, geographical inequities exist in CBHIs where members who are closer to the health
care facilities utilise more services than those living in remote areas (Akazili, 2010). The flat rate
as opposed to sliding scale premiums often required makes it difficult for CBHI to adequately
target the poor. Another related concern is the fragmentation and low population coverage of
CBHI, such that risk pooling, financial risk protection and cross subsidisation is limited (Atim,
Grey et al., 2001; Aikins, 2003; Ekman, 2004). For example, in Ghana in 2002, there were 159
CBHIs having a total membership of only a little over 220,000 (Atim, Grey et al., 2001;
Ministerial Task Team, 2002). Another challenge with CBHI is that, the very poor are usually not
covered (Ekman, 2004; Preker and Carrin, 2004). Even though some CBHI schemes try to
provide exemptions to the very poor and indigent, these exemptions are often not only difficult to
implement but constrained by limited resources available to the schemes themselves (Akazili,
2010).

2.4.3

Medical Savings Account

Medical savings account is another mechanism for funding health care. In this system,
individuals contribute a proportion of their monthly income into their health accounts. This
funding mechanism is practiced in only few countries including Singapore, US and China

23

(Addae-Korankye, 2013). In Singapore, medical savings accounts are complemented by

mandatory insurance which requires premium payment. In addition, public fund set up pays for
citizens with low incomes (Hsiao, 1995). In the United States, medical savings accounts are
combined with deductible health plan that insures against medical costs. Massaro and Wong
(1995) argued that medical savings account in the absence of other funding mechanisms does not
offer any risks protection against future medical costs.

2.4.4

Out of Pocket Payment (Cash and Carry)

Out of pocket-payment (OOP) or cash and carry is another mechanism of health financing
which requires direct payment for cost of services by clients at the point of service delivery. Outof-pocket financing of health care is a most regressive way to pay for health care (Vrk et al.,
2010; Hopkins and Cumming, 2001; Arhin-Yardima et al., 2010; Xu et al., 2009). An increasing
reliance on out-of-pocket payments by individuals will lead to a burden for clients who mostly
utilise health care services. OOP is a significant health care financing mechanism in the USA and
parts of Latin America and Asia (WHO 2004). OPP which amount to a high share of private
expenditure especially in many low and middle income countries represent a high burden for
some households.

According to Addae-Korankye (2013) out-of-payment for services occurs in three forms namely
1) payment for services which are not covered by any form of insurance; 2) payment for services
not fully covered under health insurance benefit package; and 3) payment for services that are
fully funded from pooled revenue but demands additional payment. In Africa, a common form of
OOP payment is user fees which are payments at public facilities and private providers such as

24

the occasional purchase of medicine from informal drug sellers and traditional healers (McIntyre,
Gilson et al., 2005).

SSA experience of user fees began in the early 1980s, when due to severe macroeconomic
problems such as increasing indebtedness, poor or negative growth, lack of resources etc,
international organizations most especially the World Bank and IMF prescribed through
conditions of their loans, various economic and health reforms (Structural Adjustment
Programme-SAP) including user fees to be implemented as a means of granting loans (Adams,
Darko et al., 2002). Ghana was the first country in SSA to implement in totality the Breton
Woods structural reforms (Creese, 1991). Other countries including Kenya, Tanzania, Uganda,
Nigeria, etc subsequently introduced user fees in public health facilities (Creese, 1991).

Proponents of charges for services argue that user fees enable the raising of supplementary
revenue for the health care system. Akazili (2010) noted that the introduction of user fees in a tax
financed system can promote equity. The implementation of user fees in selected health facilities
could redirect the public subsidy to the rural poor (DFID Health Systems Resource Centre 2002).
Further, under a user fees system, providers would be more responsive to clients thus will
provide quality health care. However, all these arguments for the implementation of user fees
have failed to achieve the desired results in almost all countries.

In SSA, household incomes are low thus not making it possible for these households to generate
the needed financial resources to access primary health care services (Russell, 2004; Gilson and
McIntyre, 2005; Chuma, Musimbi et al., 2009). Thus poor households delay in attending the

25

health facility to seek health care services until the medical condition becomes serious and this
further worsens their illness. User fees have therefore made the direct cost of health care
unbearable to poor households. User fees therefore undermine obtaining universal coverage of
basic health services (Arhin-Tenkorang, 2000; Gilson and McIntyre, 2005; Yates, 2009). A study
by Arhin-Tenkorang (2000) indicates a decrease in utilisation of health care services wherever
user fees were implemented. For example, the reduction in utilization was a third in Zambia,
50% percent in Kenya and as much as two thirds in Ghana (Akazili, 2010). Various studies
(Russell and Abdella, 2002; WHO 2004; Xu, Evans et al., 2006; Ciss, Luchinia et al., 2007)
have investigated the effect of user fees on households. These studies concluded that user fees
had a negative impact on households.

Because OOP require payment at the point of health care service use, the poor, who often have
the greatest disease burden, pay substantially for health care services (Ciss, Luchinia et al.,
2007). Unlike health insurance, OOP payments lack a risk pooling mechanism and other
essential elements that could make it an equitable health care financing mechanism (Kutzin,
2001). A study of health care financing in nine European countries and the USA revealed that
OOP payments were regressive in all countries except Spain (Akazili, 2010). The USA and
Switzerland had the most regressive OOP payments and this was because co-payments were paid
by all irrespective of ones income levels (Akazili, 2010). However, a comparative study of
health care financing in Asian countries showed that OOP payments were concentrated among
the higher income groups.

26

Since user fees have negative equity implications; there is a general call for them to be replaced
by a more humane health care financing mechanism (WHO 2004; Gilson and McIntyre, 2005;
World Health Organisation, 2008). Even though some countries (eg., Uganda and South Africa)
have taken steps to remove user fees fully or partially (McIntyre, Gilson et al., 2005), user fees
continues to be a significant health care financing mechanism due to the substantial resources
required to meet the cost of increased utitlisation. Ghana is currently implementing SHI which is
aimed at replacing user fees but the government needs over US$13 million per annum to replace
user fees (Ministerial Task Team 2002).

2.4.5

Loans, Grants and Donations

Another health care financing is loans, grants and donations. These are usually predominant in
particularly low and middle income countries. Grants are mostly from international nongovernmental organizations, bilateral and multilateral donor countries (Addae-Korankye, 2013).
According to Schieber (1997) in Africa, donor assistance averagely account for almost 20 per
cent of health care expenditure and, in several countries, more than 50 percent. Criticisms against
this form of financing is that long term financial sustainability of health care system cannot over
depend on donor assistance since donor priorities also change. In addition, grants have to be paid
hence puts financial burden on future governments and generations (Addae-Korankye, 2013).
2.5

Health Care Financing in Africa

African countries are confronted with a number of key challenges which includes 1) low
investment in health; 2) low economic growth rates; 3) lack of comprehensive health financing
polices; 4) extensive out-of-pocket payment; 5) limited financial access to health care services;
6) limited coverage by health care insurance; 7) lack of social safety nets to protect the poor; 8)

27

inefficient resource utilisation; 9) ineffective aid; and 10) weak mechanisms for coordinating
partner support in the health sector (WHO, 2006).

In an attempt to solve the above-mentioned challenges, African countries have been exploring
various financing mechanisms, for example, taxes, health insurance for formal sector employees,
social health insurance, private health insurance, community-based health financing (CHF), and
external donations (Nsiah-Boateng, 2010). According to Preker (2001), some of the financing
mechanisms adopted by many African countries have increased government funding for health
care. Health insurance is therefore seen as the long-term solution both as a way of augmenting
resources available and is a means of better linking health demand to the provision of services
(Nsiah-Boateng, 2010).

Whiles health care financing mechanisms for Europe focused on containing costs, in developing
countries especially Africa, health care financing reforms were due to increasing demand for
better health care coupled with deteriorating macroeconomic indicators. In SSA, health care
financing reforms is classified into three strategies namely 1) raising revenue through cost
recovery techniques (e.g., user fees, community-based social financing), 2) improving allocation
and 3) management of existing health resources.
Due to the inadequate and declining government financial support to health care system, many
countries in SSA have focused their health care financing reforms on the first strategy, which is
raising revenue through cost recovery techniques (Addae-Korankye, 2013). In implementing this
system, Ministries of Health have used the cost recovery approaches for public health services
using user fees (Langenbrunner et al., 2001). According to Addae-Korankye (2013), other

28

techniques practiced include community based health insurance, pre-payment plans and private
health insurance. The second and third strategies, which are intended to improve efficiency and
effectiveness of health care systems is less widely used by many countries in SSA (AddaeKorankye, 2013).

Given the importance on cost recovery in Africa, user fees creates a barrier to utilization
especially in reference to primary and preventive care services, particularly when other factors
affecting demand for health services are taken into account (Addae-Korankye, 2013). Cost
recovery hinder access to health care service for the poor. Social and private financing is another
form of funding source for health care financing in sub-Saharan Africa. According to Ndiaye
(2006), social financing involves spreading risks and cost of medical care by pooling resources,
usually through premiums or tax payments to central or local governments. Proponents of social
financing underscore that social financing can ensure equitable access to quality health care
through limiting benefits giving attention to expected utilization patterns to keep premiums
affordable (Filmer et al., 1997).

Social financing health insurance is predominantly in the form of government provided, taxfinanced health care services for the whole population (Ekman, 2004). For example in Senegal
and Mali, there exists a compulsory social security for the entire formal sector (Addae-Korankye,
2013). In Democratic Republic of Congo there is government mandatory employer coverage of
health care for employees. Kenya also practices the National Hospital Insurance Fund for formal
employees. Other forms of social financing, not limited to the formal sector are also practised in
some countries including community-sponsored prepayment and rural insurance plans in the

29

Democratic Republic of Congo (Bwamanda rural hospital insurance programme) and Kenya
(Harambee movement funds for catastrophic illnesses) (Addae-Korankye, 2013).

2.6

Healthcare Financing in Ghana

The Ministry of Health (2004) report indicated that, health care financing in Ghana has gone
through a chequered history. Prior to independence, financial access to modern health care was
predominantly by out-out-pocket payments at point of service delivery (Arhinful, 2003). Under
colonial rule, Ghana, organized its health system primarily to benefit a small elite group of
colonial officials and their workers (Arhinful and Tenkorang, 2001, 2003). Health care provision
occurred mainly through hospitals in urban areas, with direct payment at the point of use.
Immediately after independence in 1957, health care provided to the people was free in public
facilities since the financing of health in the public sector was, entirely through tax revenue
(Nsiah-Boateng, 2010; Addae-Korankye, 2013) and external donor support. Thus attendance at
health facilities was free and did not require clients to pay any fees at points of health care
delivery (Addae-Korankye, 2013).

On the contrary, private sector health services continued to be paid for by out-of-pocket fees at
point of service use. The sustainability of this form of free financing of health care services
became problematic due to declining and worsening of the economy and the competing demands
on the same scare source (MOH, 2004; (Addae-Korankye, 2013). By the early 1970s, general tax
revenue in Ghana, with its stagnating economy, could not support a tax based health financing
system (Agyepong et al., 2007). In the health sector there were shortages of essential medicines,
supplies and equipment, and poor quality of care.

30

In 1985 Ghana initiated health sector reforms as part of broader structural adjustment
programmes aimed mainly at reducing government spending to address budgetary deficits,
introducing cost recovery mechanisms through user fees (known as cash and carry) and
liberalizing health services to allow private sector involvement (Arpoh-Baah, 2011). The
financial aims of the reform were achieved and shortages of essential medicines and some
supplies improved (Nsiah-Boateng, 2010). The user-fee regime was justified to enable
government of Ghana to reduce its fiscal spending and to make provisions for coverage which
will exempt citizens with particular severe diseases (Addae-Korankye, 2013). The aim of the
user fees was to recover at least 15% of recurrent cost for quality improvements (Agyepong and
Adjei, 2008).

The government then introduced the Hospital Fees Act 387 which was similar to the user fees.
The Hospital Fees system paved the way for a nation-wide fee-for-service system in which fees
were raised from token levels to specific charges for services (Nyonator and Kutzin, 1999).
However, these fees were insufficient to meet the resource needs of health facilities. In view of
this challenge, the government introduced the cash and carry health care delivery system. This
system resulted in the withdrawal of government subsidy on health care delivery. Hence clients
were required to pay for the full cost of medication and service at the point of service delivery.
The implementation of the cash and carry system excluded mainly the poor from accessing
health care service, thereby creating vast inequalities in health care delivery system.

31

However, the implementation of the cash and carry worsened the utilization challenge by
creating financial barrier to health care access especially for the poor (MOH, 2004; (AddaeKorankye, 2013). The cash and carry system therefore led to under-utilization of basic health
services (Johnson and Stoskopf, 2009). Under the cash and carry system, individuals become
impoverished due to the higher and/or rising costs of medical bills. This is as a result of the
uncertainty of the amount of expenditure needed to meet the health care needs on an individual
basis (Kwarteng, 2011). In Ghana, the Hospital Fee Decree (1969), later amended into the
Hospital Fee Act (1971) and the Hospital Fees Regulation 1985 (L. I. 1313), introduced forms of
payment for health care delivery in public health facilities in the country. These Acts specified
fees to be charged for consultation, laboratory and other diagnostic procedures, medical, surgical
and dental services, medical examination and hospital accommodation in Ghana.

The L. I. 1313 was introduced mainly to enable health facilities to totally recover all costs
involved in their operations and this was highly successful in ensuring availability of medicines
and medical supplies. It however lacked a human face which led to huge reduction in uptake of
services as well as refusal of health professionals to treat clients, including those requiring
emergency care, without upfront payment (Kwarteng, 2011). Asenso-Okyere et al (1999) posit
that, before the introduction of the cash and carry in public health facilities, private health care
facilities in Ghana was operating on full cost recovery. Mission health care facilities and other
non-governmental organisations charged patients with the aim of covering part of their
operational costs, especially recurrent expenses (Asenso-Okyere et al, 1999).

32

Goodman and Waddington (1994) structured user fee for curative care into three categories. In
the first category, user fee are charged on the actual cost plus a percentage mark-up of the drugs
and dressing received. In this category, the client pays exactly what he/she received hence there
are no hidden subsidies in the price (Kwarteng, 2011). For this system fees for treatment differ
from client to client depending on treatment. For the second category, the client is charged a
fixed price for treatment received which is achieved in two ways by charging the same fee for all
diagnosis and diagnosis are categorized into a small number of groups with each group having its
own fee (Kwarteng, 2011). Charging for different diagnostic groups allows for the fact that some
conditions are much more costly to treat than others. The system allows for only a small number
of possible fees to pay and is therefore simple to administer (Kwarteng, 2011). It also allows
more expensive treatment to be subsidized by cheaper treatments. However, clients pay more
than the cost for simple treatments.

The challenges of all these varied financing systems resulted in the search for alternative health
care financing mechanisms. By 2003, the passage of Act 650 established a nationwide health
insurance Scheme. The national health insurance Scheme was perceived as serving as a
mechanism for eradicating financial barrier to access to health care (Nsiah-Boateng, 2010).

2.6.1

Private Mutual Health Insurance Scheme (PMHIS)

With this type of scheme any group of persons resident in the country can form and operate a
PMHIS. This type of scheme operates exclusively for the benefit of the members and does not
necessarily have a district focus. It is either a community based or occupational or faith based. It
is also a social in character but does not receive subsidy from government (Ministry of Health
2004).
33

2.6.2

Private Commercial Health Insurance Scheme (PCHIS)

A PCHIS is regarded as a limited liability company under the companys code and considered as
a business venture and operates for profit. Their premiums are based on calculated risks of
particular groups and individuals who subscribe to it. Thus those with higher risk pay more. The
ownership of PCHIS resides with the company and its shareholders (Ministry of Health 2004).

2.6.3

National Health Insurance Scheme (NHIS)

This section discusses the NHIS implemented in Ghana in 2003.

2.6.3.1 Overview of the National Health Insurance Scheme (NHIS) Policy

Under the Ghana Poverty Reduction Strategy (GPRS I: 2003 - 2005), a number of measures were
initiated in the medium term to deliver accessible, affordable, and good quality health care to all
Ghanaians especially the poor and most vulnerable in society (MOH, 2004). The Cash and
Carry System of paying for health care at the point of service was observed as a key financial
barrier to health care access for the poor. MOH (2004) in their report indicated that out of 80% of
the population who required health care at any given time, only 18% of them were able to access
it. This implied that the vast majority who needed health care could not afford to pay out-ofpocket at the point of service use. This resulted in delays in seeking health care, non-compliance
to treatment, and consequently premature death (MOH, 2004).
To remove the financial barrier to health care services and ensure affordable and sustainable
health care arrangement for the poor, the government initiated the NHIS in 2003 to make health
care accessible to Ghanaian residents. The NHIS was implemented based on principles of equity,

34

risk equalization, cross-subsidization, solidarity, quality care, efficiency in premium collection,

community or subscriber ownership, partnership, reinsurance, and sustainability (MOH 2004).
The National Health Insurance Act, 2003 (Act 650) established the National Health Insurance
Scheme (NHIS) aims at increasing access to health care and improving the quality of basic
health care services for all citizens, especially the poor and vulnerable. According to the policy
framework, every person living in Ghana shall contribute according to the principle of ability to
pay in order to enjoy a package of health services covering over 95% of diseases afflicting
Ghanaians.

Financing Sources
Financing for NHIS has been secured using three mechanisms including (a) consumption tax of
2.5 percent; (b) mandatory payroll deduction of 2.5 percent from formal sector workers and
employers contributions and; (c) a graduated premium from the informal sector. Thus all SSNIT
contributors are exempted from paying a premium. However, they are required to register in
order to benefit from the scheme. The contribution levels have an inbuilt cross-subsidization
mechanism whereby the rich pay more than the less privileged, adults pay on behalf of children,
the healthy cover for the sick and urban dwellers pay more than the rural dwellers (MOH, 2004).

On the other hand, all informal sector workers are required to pay a premium, based on their
income level so as to benefit from accessing basic health services under the NHIS. A portion of
total mobilized funds for the scheme is repackaged as an exemption fund and channeled
through district implementing bodies to cater for the poor and vulnerable groups as defined under
the scheme. Due to anticipated teething problems related to adverse and risk selection issues, and

35

also due to low incomes, the framework innovatively established this fund to provide buffer for
district mutual health insurance schemes licensed under the NHIS Act and to subsidize the cost
of providing health care services to the exempted group (NDPC PM&E, 2008). The fund
implicitly subsidizes families by exempting children (under 18 years of age), whose parents fully
pay their annual premiums.

Implementation of the NHIS Policy

Through the Legislative Instrument, LI 1809 (Republic of Ghana, 2004), and the NHI Act, Act
650 (Republic of Ghana, 2003), NHIS was established with the aim of increasing access to
health care and to improve the quality of basic health care services for all citizens, especially the
poor and vulnerable (NDPC PM&E, 2008). In the Act 2003, it is mandatory for every district in
Ghana to have an operational insurance scheme with membership opened to all residents. The
law which established the scheme allows for the concurrently operation of District-Wide (Public)
Mutual Health Insurance schemes, Private Mutual Health Insurance schemes and Private
Commercial Health Insurance schemes (Arpoh-Baah, 2011). However the schemes only
financially support District-Wide (public) Mutual Health Insurance Schemes. Each district
mutual health insurance scheme also uses its discretion to determine additional benefits a scheme
could provide to their members.

In addition, under Act 650, provisions have been made for exemptions of the poor and indigents.
The National Health Insurance Scheme (NHIS) has since its implementation exceeded its target
of 40 percent nationwide coverage by 2008 (Addae-Korankye, 2013). The accreditation of

36

private health care facilities, nationwide, started with a few facilities in June 2005 with the
number increasing from 145 in 2008 to 155 facilities in (Ministry of Health, 2009).

Also according to the NHIS progress report for 2008, the total registered members have
increased from 1,797,140 in 2005 to 12,518,560 as at end of 2008, representing 61.3% of the
population (NDPC PM&E, 2008). However, as indicated by Nsiah-Boateng (2010), only around
a third of these are contributing to the scheme financially. This presents a sustainability problem,
in that revenue is decoupled from the growing membership. Furthermore, NHIS has also seen
increase in number of accredited providers. Within five years of operation (2003-2008), NHIS
has experienced major developments including the introduction of the free maternal policy. This
has resulted in an increase in utilization for out and in- patients services.

However, notwithstanding these achievements, increase in coverage puts financial strain on

NHIS as NHIS income is largely tax based (90-95% from SSNIT & VAT levy) and will grow
with national income and not membership numbers (Ministry of Health, 2008). The implication
of this is that the more successful NHIS becomes in terms of coverage, the greater the financial
un-sustainability of NHIS (Addae-Korankye, 2013). Other challenges include financial barriers
still exist since membership skewed particularly against the poor.

Initially the NHIS covered only services provided to registered members who received care in
public health care facilities. However, due to overcrowding in public health care facilities as a
result of increased membership, the scheme accredited some private health care facilities to
provide care to registered members (Amporfu, 2011). Registered members of the scheme now

37

receive services that are covered by the scheme in public health care facilities as well as private
facilities accredited to provide care for scheme members.

The NHIS uses the fee for service payment scheme to pay health care providers. The payment
scheme is such that the total revenue entitled the service provider for insured clients is positively
related to the quantity of care provided. In the case of public health facilities permanent
employees (physicians, nurses etc) are salaried and so payment for insured patients goes directly
to the hospital and does not affect the salaries of permanent staff. Such employees have no
incentive to increase demand when the number of physicians increases. Besides the income of
such employees does not change with the entry of new physicians hence there is no incentive for
inducement. In private hospitals, however, physicians are also the owners or shareholders of the
facilities implying a positive correlation between physician income and the hospital revenue
(Addae-Korankye, 2013).

2.6.3.2 Challenges Private Health Facilities face with re-imbursement by NHIS in Ghana
The implementation of NHIS has been confronted with some challenges. One major challenge
faced by NHIS is the institutional framework as provided for in the NHIS Act. The application of
the framework has led to governance, operational, administrative and financial challenges
(Government of Ghana, 2009). District schemes by law are autonomous of National Health
Insurance Authority (NHIA) and operate under the Companys Code of Ghana. Meanwhile,
district schemes are partially funded and receive reinsurance from NHIA. Given these, there
exists a system without appropriate layers of authority and oversight, supervision and clarity of
roles between NHIA and district schemes (Addae-Korankye, 2013). This raises questions of

38

accountability, as NHIA is limited by the extent to which it can demand accountability from
district schemes as legal entities.

In addition, district schemes are challenged with operational issues such as claims processing and
payment. This is as a result of the high volume of claims submitted by providers, coupled with
manual vetting systems; delay therefore exists in the release of subsidy and reinsurance. Many
schemes are unable to process claims for timely payment to providers. Even though the law (L.I
1809) stipulates that providers submit claims within sixty days of rendering service, and the
scheme unless any impediments pays claims within four weeks after submission, these schedules
are not followed in practice. Addae-Korankye (2013) noted that delay in claims payment cause
agitation by providers, undermining quality of service delivery to clients.

Furthermore, there exist issues of weak system and human capacity for claims management,
audit and fraud control. Fraud and weak administrative management threaten the sustainability of
the NHIS. This has resulted is delayed reimbursements of up to seven months, which negatively
impacts public and private health care providers. However, it is particularly damaging to private
health care providers since they rely of such re-imbursements to pay for the wages of employees
whiles for the public health care facilities this component (personal emoluments) are absorbed by
the government.
2.7

Conclusion

The methods used to finance health care service play a major role in shaping a countrys health
care system. How this care is financed influences how individuals access health care, the types of
health care provided, and the mechanisms used to allocate health care services. Financing

39

methods also influence how the costs of health care are distributed among members of society by
income and by health status. The main source of health sector financing is taxation, but OOP
payments are very significant. The National health Insurance Scheme (NHIS), launched in 2004
to replace user fees or cash and carry, is mainly funded through tax and is increasingly
becoming a significant financing mechanism.

CHAPTER THREE

RESEARCH METHODOLOGY

3.1

Introduction
40

This section provides a discussion of the methodology employed to achieve the objectives of the
study. The methodology of a research is very significant in presenting the processes through
which the study will be carried out. In order to achieve the objectives of the study, the research
methodology involves the research design, research strategy, sources of data, the sample
population, sampling technique and the instruments for data collection. This section also presents
the primary and secondary sources of data, ethical consideration, pre-testing and data
management/analysis.

3.2

Research Approach

This study will employ both the quantitative and qualitative research approach. Qualitative
researchers study things in their natural settings, and try to understand or interpret the social
phenomena based on facts, real conditions, reactions, and behaviour of people (Sarantakos
2001). As pointed by Auerbach and Silverstein (2003), qualitative research entails the analysis
and interpretation of texts and interviews in order to discover meaningful patterns. Thus,
qualitative studies allows for an in-depth analysis of comments and perceptions (Faizal, 2005).
Qualitative method is thus used when a researcher wants to get a more profound understanding
for a specific situation. Quantitative approach on the other hand entails the collection of
numerical data (Bryman 2004). Quantitative data for the study will be collected using semistructured questionnaires which will be distributed to the Head of Finance of private health care
providers. In addition, qualitative data will be sourced through interviews.

The reason for such a combination was to ensure that the advantages of both qualitative and
quantitative approaches are obtained which in turn helped to overcome limitations of one

41

research approach. The use of quantitative approach prevented elements of bias in the gathering
and presentation of data. It also ensured objectivity, and reliability of the research undertaken.
The qualitative research approach on the other hand provides more in-depth and comprehensive
information as data is gathered through open ended questions.

3.3

Research Design and Strategy

According to Aaker, Kumar and Day (2004), research design is the detailed blue print used to
guide the implementation of a research study towards the realisation of its objectives. This study
will employ a descriptive research approach to examine and analyse financing of private health
care providers and their effect on health care delivery in Ghana.

3.4

Sampling Technique and Population

Sekaran (2003) defined sampling as involving any procedure that utilizes a small number of
items or a proportion of a population, to arrive at a conclusion regarding the whole population.
Sampling can be divided into two major categories: non-probability sampling and probability
sampling. Cant et al (2003) state that non-probability sampling relies on the personal judgement
of researchers to select the sample, and that chance selection procedures are not used to draw the
sample. Probability sampling on the other hand, occurs when elements or sampling units are
chosen by chance.

As the research was targeting a specific population (that is private health care providers), a nonprobability sampling design specifically purposive sampling technique will be used. Purposeful
sampling is a strategy in which particular settings, persons, or events are selected deliberately in

42

order to provide important information that cannot be retrieved from other choices (Maxwell,
1996). Private health care providers operating in Greater Accra Region, Ghana was chosen due to
two main reasons. First of all, considering the limited resources (that is, time and finance)
available for this study, the criteria to be used in the selection of study area includes its proximity
which will afford the researcher to easily sample and conduct follow-ups of an appreciable
number of Private health care providers. In addition, Private health care providers must be in
operation for not less than five years.

In addition, purposive random sampling technique will be employed in sampling the Heads of
Finance of these facilities The purpose for using this sampling method was due to them (that is,
Heads of Finance) having the required data on funding mechanisms available and being
employed by their respective companies and the challenges being experienced.. In addition, this
sampling method was chosen due to it being less time consuming and less expensive to gather
data. Welman and Kruger (2001) contend that the advantage of non-probability samples is that
they are less complicated and more economical than probability samples. In addition, the
purpose for using this sampling method was due to them (that is, Heads of Finance) having the
required data on funding mechanisms available and being employed by their respective
companies and the challenges being experienced.

The research population for any study is the complete list of all the cases in the population from
which the sample would be drawn. Thus the research population for the study encompasses
private health care providers operating in Greater Accra Region, Ghana. According to Cant et al
(2003), a sample is a subgroup of the population that is selected to participate in the research and

43

a population consists of all the elements (people, products, organisations, markets, etc.) of a
problem. The advantage of using a sample in research includes the fact that taking a sample
requires fewer resources than a census (Mugo, 2008). A non-probability sampling design
specifically purposive sampling technique was used to sample twenty private health care
facilities within the Greater Accra Region, Ghana.

3.5

Sample Size

Slovins formula is used to calculate the sample size (n) given the population size (N) and a
margin of error (e). It is computed as n = N / (1+Ne 2). Using a confidence level of 80 percent
(which gives a margin error of 0.02) and 74 representing the population size (active registered
private providers in Greater Accra, Ghana being in operation for more than 10 years), then the
sample size (n) is calculated to be:

N / (1 + N e2)

74 / (1 + 74 * 0.2 2)

18.7 which is approximated to 20.

Based on the above computation for sample size, twenty (20) private health care providers will
be sampled.

3.6

Data Sources

Two sets of data will be used for the research which is primary and secondary data. Primary data
refers to data collected directly from a source. Thus, primary data consist of data collected for the
purpose of this work. Data from primary sources will be collected using semi-structured

44

questionnaires and interviews. Secondary data comprise data that were originally collected for
some other purpose. Secondary data denotes empirical data that has been collected for another
purpose and is collected from the internet, previous studies and literature (Lewis et al. 2000). For
this study, information from secondary sources will emanate from published and unpublished
books, scholarly journals, the internet search engines and organisation / financial reports (Profit
and Loss Account, Income Statement and Cash Flow Statement).

3.7

Research Instrumentation

According to Emory and Cooper (1995), two primary types of data collection methods can be
distinguished namely: interviewing and self-administered questionnaires/surveys. This study will
employ the use of semi-structured questionnaires and interviews for collection of data. Semistructured questionnaires will be made up of both open-ended and close-ended questions. Openended questions according to Kotler (2000) allow respondents to answer questions in their own
words. Open-ended questions will ask respondents to enumerate the challenges their institution
faces in financing health delivery, sources of funding available to private health care providers in
health delivery, the most preferable financing method being used and the factors that influence
the choice of financing mechanism.

Closed-ended questions will be measured using a four point Likert-scale questionnaire. The
Likert scale is characterized with the quality ranks that respondents will choose-mainly from
high or low using five or seven levels. This technique presented respondents with a series of
attitude dimensions for which they were asked how strongly, they agree or disagree, using one of
a number of positions on a five-point scale that is 1= strongly disagree, 2 = disagree, 3 =

45

neutral, 4 = agree and 5 = strongly agree. Use of likert-scale is beneficial for both
interviewer and respondent since it is fast, less time consuming and organized.

In addition, interviews are appropriate in producing individual experiences, opinions and

feelings; and as well in addressing sensitive topics. Interviews provide the opportunity for the
interviewer to observe how the interviewee feels, that is, it affords more accurate and honest
responses. It also provides the interviewer to seek for clarification of any answer that is not
comprehensive enough. Interviews allows for gathering of in-depth data not possible with
questionnaire and also has the advantage of higher response rates compared to questionnaires. It
is very flexible and allows for probing for additional information.

In this study, semi-structured interviews were considered to be more flexible than structured
interviews and thus more appropriate for the objectives of this study (Pasutham, 2012). Semistructured interviews ensure that bias is reduced, however, flexibility is severely restricted
(Sarantakos 2001). The use of semi-structure interviews meant that the researcher had a list of
questions acting as an interview guide which allows for probing questions to be asked based on
responses from respondents.

Interview session began with a brief introduction of the researcher and the research topic.
Interview consent letter and participant information sheet were shown to the respondents in the
beginning of the interviews. In addition the respondents were assured on the confidentiality of
the information given. The interviews lasted between 30 minutes to 60 minutes. All interviews
were conducted at the respondents work place.

46

3.8

Pre-testing

Pre-testing of research instruments will be conducted to test the suitability of the questions and
their ability to elicit the required data needed to arrive at the research studys primary
conclusions. This will allow for changes to certain parts of the questionnaire to standardize it
before running the real process of data collection.

3.9

Ethical consideration

Institutional approval to administer the questionnaires and interview guide will be sought from
the Management of private health providers. A covering letter will be attached to the
questionnaire to highlight the purpose of the study. In administering the questionnaire and
interview guide, ethical principles including participants right to anonymity, confidentiality,
privacy or non-participation, informed consent and protection from discomfort, harm and
victimization will be adhered to strictly.

3.10

Validity and Reliability of Research

The reliability and validity of a research study is dependent on the level of relevant information.
Thus the factors that enable research to be widely accepted as qualified research are validity and
reliability. The quality of collected survey data has a direct influence on the validity and
reliability of the research. Reliability and validity are enhanced when the researcher takes certain
precautionary steps such as having respondents with diverse backgrounds and viewpoints to
review the survey before it is administered, finding out if each item on the data collection
instrument is clear and easily understood, if respondents would interpret each item in the

47

intended way, if the items have intuitive relationship to the studys topic and goals, and also if
the intent behind each item is clear to colleagues knowledgeable about the subject (Sarantakos,
2001).

Reliability is defined as the consistency with which a measuring instrument performs (Leedy,
1997). Cant et al. (2003) state that response formats must be designed in such a way that reliable
responses are ensured. Furthermore, Cant et al. (2003) state that reliability can be improved by
using pilot tests where the response formats are tested on a small sample of randomly selected
respondents. Pre-testing of the tools will therefore be executed to test the suitability of the
questions and their ability to answer the research questions. Validity is entails the achievement of
the purpose of the research objectives for which it is undertaken. To ensure validity, the questions
will be sent in advance to the interviewees, which will enhance the quality of the answers and
enhanced reliability.

3.11

Data Analysis and Presentation

Data analysis involves reducing the raw data into a manageable size, developing summaries and
applying statistical inference. Data collected will be analysed with the aid of Statistical Package
for Social Scientist (SPSS) software. The data collected were examined, categorized, tabulated
and analysed to address the research objectives. Information gathered were first edited and
organised into tables. Some of the values were later converted into percentages and graphs to
facilitate comparison between the responses. Descriptive statistics will then be used to
summarize and present the information in the form of frequency tables, pie charts and bar charts.

48

CHAPTER FOUR

DATA ANALYSIS AND DISCUSSION

4.1

Introduction

This study assessed health care financing in the private sector with reference to private health
care facilities in Accra, Ghana. Having examined the debates in the literature and explained the
research methodology, this chapter presents the results of data collected from Heads of private

49

health care facilities. This chapter is categorized into sub-sections. This has been done to ensure
consistency in the presentation of information. Tables and graphs were inserted at appropriate
sections to illustrates and support certain statements. The issues discussed includes background
information of respondents, various forms of funding available to private health care providers,
challenges faced by private health care practitioners in accessing external funds and assessing
factors that influence the choice of financing mechanism used by private health care providers.

4.2

Profile of Respondents

In achieving the objectives of the study, a survey questionnaire was developed and distributed to
Heads of private health care facilities. Survey questionnaires are relatively cheap, easy to analyze
and generate a substantial amount of data (Palys and Atchinson, 2008). In view of this, twenty
(20) semi-structured questionnaires were distributed using the simple random sampling method.
Of the twenty questionnaires distributed, eighteen (18) were returned representing a response
rate of 90.0%.

Descriptive analysis was used to examine the demographic characteristics of sampled

respondents. Table 4.1, presents frequency table of profile (gender, age, educational level and
length of service) of Heads of private health care facilities sampled.

Table 4.1: Profile of Respondents

Variable
Gender:
Male
Female
Total
50

Frequency

Percentage

11

61.11

7
18

38.89
100

Age:
18 25
26 35
36 45

16.67

44.44

22.22

0.00

3
18

16.67
100

Doctorate

5.56

Masters

22.22

Bachelors

38.89

Diploma

27.78

Secondary level
Total
Number of years of experience:

1
18

5.56
100

0-5 yrs

44.44

6-10yrs

16.67

11-15yrs

11.11

16-20yrs

5.56

46 55
56 65
Total
Highest level of Education:

Above 20 yrs
Total

4
18
Source: Field Survey (2015)

22.22
100

From table 4.1, most of the Staff sampled were males (61.11%, n = 11) whiles the rest 7
(38.89%) were females. In addition, from figure 4.1, most respondents sampled 44.44%, n = 8)
were between the age group of 26 35, followed by 36 45 years (22.2%, n = 4), 18 25 years
(16.67%, n = 3) and 56 65 years (16.67%, n = 3).

Figure 4.1: Age Distribution of Respondents

51

44.44%
45.00%
40.00%
35.00%
30.00%

22.22%

25.00%
20.00%

16.67%

16.67%

15.00%
10.00%
5.00%
0.00%

0.00%

Source: Field Survey (2015)

Education is commonly believed to be important for the success of entrepreneurial activity. High
educational qualification is an important requirement in the successful management of health
facilities. With reference to educational level of participants, all sampled Staff (100.00%) had
formal education. A large number of respondents had been educated up to bachelors level
(38.89%, n = 7). Five (5) respondents representing 27.78% had Diploma Certificate whiles 4
(22.22%) had gained Masters Degree certificate. In addition, one (1) respondent representing
5.56% indicated having a Doctorate Degree. However, one respondent had only been educated
up to Secondary level.

From figure 4.2, majority (n = 8, 44.44%) had worked at their respective Private Health Care
Facilities for between 0 - 5 years, followed by 4 respondents (22.22%) above 20 years, three (3)
52

Staff representing 16.67% having worked between 6 10 years and 2 (11.11%) between 11 15
years.
Figure 4.2: Number of Years of Experience

44.44%
45.00%
40.00%
35.00%
30.00%
25.00%
20.00%
15.00%

22.22%
16.67%
11.11%
5.56%

10.00%
5.00%
0.00%

4.3

Source: Field Survey (2015)

Profile of Private Health Care Providers Sampled

All the sampled Private Health Providers sampled provided Out Patient Departments (OPD) and
services generally start at 8.00am until all patients are attended for the day. In addition,
emergencies are provided for clients. Services provided by Facilities includes medical services in
the form of preventive and management of communicable (tuberculosis, etc) and noncommunicable diseases (hypertension, diabetes, etc), management of injuries, etc. Other services
provided include obstetrics and gynaecological services, medical imagining, pharmaceutical
services.

53

Table 4.2 below presents the profile of sampled Private Health Care Providers which covers the
nature/ type of health facility, years of operation and number of employees.
Table 4.2: Profile of Private Health Care Providers
Variable
Frequency
Percentage
Nature/ Type of Health Facility:
13
72.22
Private Limited Company
0
0.00
Partnership
5
27.78
Sole Proprietor
0
0.00
Family Owned Business
Total
18
100
Years of Operation:
Less than 5 years
3
16.67
Between 5 and 10 years
6
33.33
Between 11 and 15 years
2
11.11
Between 16 and 20 years
3
16.67
Over 20 years
4
22.22
Total
18
100
Number of employees in the Facility:
19
4
22.22
10 19
4
22.22
20 29
2
11.11
30 59
4
22.22
51 100
2
11.11
Greater than 100
2
11.11
Total
18
100
Source: Field Survey (2015)
From table 4.2, most sampled private health facilities (that is 13) were Private Limited
Companies (72.22%) whiles the remaining 5 (27.78%) were sole proprietorship.

In addition, from table 4.2 and figure 4.3, majority that is 6 representing 33.33% noted that their
respective health facility had been in operation for between 5 to 10 years, followed by 4
(22.22%) stating that it had been in operation for over 20 years, 3 (16.67%) facilities providing

54

health care services to clients for less than 5 years and another 3 (16.67%) between 16 and 20
years.
Figure 4.3: Years of Operation

33.33%
35.00%
30.00%
25.00%
20.00%
15.00%
10.00%
5.00%
0.00%

22.22%
16.67%

16.67%
11.11%

Source: Field Survey (2015)

Most definitions of Micro, Small and Medium Enterprises (MSMEs) are based on the number of
employees of the enterprise (Frempong and Essegbey, 2006). Respondents were asked to indicate
the number of workers their health facilities had engaged both on permanent and temporal basis.
The aim of including this question was to enable the grouping of sampled health facilities into
micro, small and medium scale enterprises. Various authors categorise enterprises based on
different numbers of employees. This study employed the Ghana Statistical Service (GSS)

55

categorization of MSMEs. GSS considers firms with fewer than ten employees as small scale
enterprises while those with more than ten (10) employees as medium enterprises.

An assessment of the current life cycle phase of private health care facilities sampled in terms of
financing reveals that majority that is 83.33% are in the expansion phase, which involves
obtaining working capital for growth and major expansion. This figure is in line with the length
of time the Facilities have been in operation (see figure 4.3), considering that most have existed
for more than 5 years.

From figure 4.4, most respondents sampled that is, 14 (77.78%) employed over 10 individuals
whiles the remaining 4 (22.22%) employed between 1 and 9 employees. Based on the GSS
definition of MSMEs, 22.22% of sampled private health facilities are small scale enterprises
whiles the remaining 77.78% are medium scale enterprises.

Figure 4.4: Number of employees in the Facility

56

25.00%

22.22% 22.22%

22.22%

20.00%
15.00%

11.11%

11.11% 11.11%

10.00%
5.00%
0.00%

Source: Field Survey (2015)

Respondents were asked to indicate their Facilitys approximate monthly net profit. Their
responses are presented in figure 4.5 below.

Figure 4.5: Approximate Monthly Net Profit of Private Health Care Facilities
57

6%
12%

Less than GH5,000.00

GH5,001.00 GH10,000.00
44%

37%

GH10,001.00 GH15,000.00

GH15,001.00 GH20,000.00

Source: Field Survey (2015)

From figure 4.5, majority (n= 7, 38.89%) of Health Facilities sampled made an average monthly
net profit of less than GH5,000.00 whiles 6 representing 33.33% made between GH5,001.00
and GH10,000.00. Two respondents failed to provide any information for this section since they
felt it was sensitive.

4.4

Funds Acquired to Set-Up Private Health Facility

There are several objectives for establishing and running a health facility. These objectives
include growth, survival and expansion. These objectives will be achieved when there are
adequate funds at the disposal of business operators. Finance is therefore very vital for every
business entity from its inception, growth and survival. However, this is always hardly to come
58

by and thus has remained a major obstacle for most private health care providers, particularly in
the developing countries such as Ghana since they are often denied access to credit from many
financial institutions (Quaye and Sarbah, 2014). Due to this, most owners of private health care
providers depend mainly on their personal resources to cater for their business needs and
sometimes throughout the entire life of the business.

Private health care providers generally require large start-up capital since the nature of the
business is capital intensive. Key equipment important for diagnostic purposes is very expensive
for private health facilities to purchase. However, these equipment are necessary in providing
quality health care services to all clientele. To ensure private health care facilities have all
necessary equipment, a large initial cash outlay is required. This will usually have to come from
personal savings or from borrowings. Thus, from figure 4.6, majority of respondents (n= 8,
44.44%) noted that they relied mainly on their personal savings in setting up the Private Facility.
Okraku and Croffie (1997) in their study confirmed that SMEs relies primarily on personal
savings of owners, and sometimes business profits for their financial needs. They have little or
no access to formal external credit.

Private Health Providers expand to a point where personal resources of the owners are unable to
cater for such expansion. Therefore, it becomes necessary to seek for alternative sources of
finance for the expansion of the business. Since it is difficult to usually have personal savings
huge enough to start projects of this nature some owners of private health facilities also resort to
the bank for lending. Five Staff sampled representing 27.78% resorted to the use of loans from
the banking sector in financing the construction of their Private Health Facility. However,

59

Ghanas banking system is not flexible enough to provide private health care facilities with
access to huge sums of money required for these purposes and thus some private health care
providers scale down the size of the facility.

Traditional financial institutions regard SMEs including Private Health Providers as high risk
and high default rate businesses. As a result, the financial needs of SMEs are not considered in
the lending policy formulation of banks. Most of them are denied access to financial assistance
from traditional financial institutions (Quaye and Sarbah, 2014). These challenges result is the
unavailability of vital tools and equipment required for the provision of quality health care
services.

Figure 4.6: Source of Funding for Setting-up the Private Health Facility

45.00%
40.00%
35.00%
30.00%
25.00%
20.00%
15.00%
10.00%
5.00%
0.00%

44.44%
16.67%

27.78%
5.56%

Source: Field Survey (2015)

60

Of the sampled respondents, 1 (5.56%) Private Health Care Provider acquired loan/ capital from
Non-Bank Financial Institution (NBFI) in setting-up the Health Facility. The activities of nonbank financial institutions in Ghana have gained prominence since the enactment of a regulatory
framework, Non-Bank Financial Institution (NBFI) Law 1993 (PNDCL 328). The NBFIs
covered under the law include savings and loan companies, credit unions, pension funds, finance
houses, investment trust companies, finance companies, insurance companies, mortgage houses
and leasing. In spite of the important and unique role played by NBFIs in meeting the financial
needs of businesses, the market for such source of finance has been largely ignored in the finance
literature (Arena, 2011). NBFIs play a key role in providing prompt sources of funding to
companies. These NBFI have shorter procedures for loan applications than those of commercial
banks.

In addition, another source of start-up capital available includes loans from friends and families.
Contributions from family and friends remain an alternative source of finance for private health
providers. Financing from friends and families is the most common source of finance for the
poor (Collins et al., 2010), especially for developing countries such as Ghana. From figure 4.6,
three (3) Private Health Providers representing 16.67% used loans from friends and family in
setting-up their health facility.

4.5

Sources of Funding for Private Health Facilities

Funding is an important component necessary in achieving quality health care. Thus for every
entity to achieve its vision, there is the need for funds for smooth running of its day-to-day
activities. Respondents were asked to indicate available sources of funding to their facility which

61

is presented in figure 4.7.

Figure 4.7: Sources of Funding Available and being used by Private Health Care Providers

National 17%
Health Insurance Scheme
39%

Out of Pocket Payment (Cash and Carry)

44%

Private Health Insurance

Source: Field Survey (2015)

From figure 4.7, majority (n= 15, 83.33%) of sampled respondents indicated that they selffinanced their operations. Thus money is generated internally from user fees paid by clients. All
Facilities were operating at least two of the sources of financing for their Facilities. Majority
were operating Out of Pocket Payment and the NHIS.

Majority of Private Providers (n = 8, 44.44%) were operating the Out of Pocket Payment (Cash
and Carry) as the dominant sources of funding for their day-to-day management of the Facility.
In addition, NHIS (n = 7, 38.89%) was the second most utilised source of financing for Private
62

Health Facilities. Private Health Insurance Schemes (example Premium Mutual Health,
Universal Health Insurance, Liberty Insurance, Apex Mutual Health, Empire Mutual, Cooperative Insurance, Managed Mutual Health, etc) was the third (n = 3, 16.67%) source of
funding for Private Health Facilities sampled.

Respondents were asked to indicate their most preferred financing mechanism. Majority of
respondents that is 11 (61.11%) indicated that Out of Pocket Payment (Cash and Carry) was their
preferred financing mechanism. For these facilities, payment for services rendered at the point of
service delivery makes money readily available to management of the Facility for effective and
efficient management of the Facility. All other financing arrangement such as National Health
Insurance Scheme and Private Health Insurance Schemes makes payment to Health Facilities at a
future date.

4.6

Challenges and Factors Influencing Choice of Financing Mechanism

One important problem that SMEs often face is access to capital. Despite its growth and
potential, in most emerging and developing economies many private health sector entities
struggle to obtain financing. Respondents were asked to indicate how easy it was in accessing
credit facilities from banks and NBFIs. It was not surprising that majority (n = 13, 72.22%)
indicated that it was not easy at all in accessing credit facilities.

Lack of adequate financial resources places significant constraints on Private Health Care
Providers development. Cook and Nixson (2000) observe that, notwithstanding the recognition
of the role of SMEs in the development process in many developing countries, SMEs

63

development is always constrained by the limited availability of financial resources to meet a

variety of operational and investment needs.

The role of finance is therefore critical element for the development of Private Health Care
Providers (Cook and Nixson, 2000). A large portion of the SME sector does not have access to
adequate and appropriate forms of credit and equity, or to financial services. Access to finance
therefore remains a dominant constraint to the development of Private Health Facilities in Ghana.
When respondents were asked to choose which financial entities the Facility has approached for
financial assistance, it was not surprising that majority that is 11 (61.11%) had applied to banks
for loans to run the Facility. Also, one respondent (5.56%) had approached their business
partners and Non-Bank Financial Institutions (eg N.D.K. Financial Services Ltd., Bayport
Financial Services Ltd. Etc).

One option for effective managing a Private Health Facility is to acquire loan from the banks.
Loans do not come cheap and most often one has to go through complex processes to access
them. Respondents were asked to indicate the factors taken into consideration before accessing
credit facilities. Their responses are presented in figure 4.8.

64

Figure 4.8: Factors Considered Before Accessing Credit Facilities

77.78%
80.00%
70.00%
60.00%
50.00%
40.00%
30.00%
20.00%
10.00%
0.00%

11.11%

11.11%

0.00%

0.00%

Source: Field Survey (2015)

From figure 4.8, majority of Private Health Providers (n = 14, 77.78%) consider the amount of
interest to be paid on loans before initiating the application process for acquiring the loan. A loan
process can take months from start to completion. Sometimes, companies are required to bring
large collaterals in the form of landed properties. This makes it difficult for Private Health
Providers to access them. When one is able to provide these, the interest payable on the loan is
unattractive especially for NBFIs. It was therefore not surprising that only one Private Health
Providers had applied to NBFI for loan.

Due to declining macro-economic stability, Ghana currently has one of the highest loan interests
in the world. Thus profits of the Private Health Facility are spent in servicing the loan interest
65

repayments and thus restricting the growth of the Health Facility. It also prevents Private Health
Facility to take such initiatives since they cannot reap the benefits of their investments until the
loan debt is settled which take years.

Private Health Facilities sampled were asked to indicate the frequency at which the Facility
applies for credit facilities from banking and non-banking institutions. Most sampled Facilities
involving 38.89% indicated that they applied for loans from banking and non-banking
institutions annually followed by 4 (22.22%) facilities making monthly and quarterly
applications to banking and non-banking institutions. Of the fifteen who indicated that their
application were approved, 8 (44.44%) Facilities were charged an interest rate between 21
30%, 6 (33.33%) Private Health Facilities also agreed on an interest rate less than 20% whiles
the remaining 1 (5.56%) had a high interest rate of between 31 40%.

Agyapong, Agyapong and Darfor (2011) in their study indicated that business operators when
borrowing from banks must develop an understanding of the decision criteria used by financial
institutions in order to increase the probability of getting their loan applications accepted by
adequately fulfilling the required criteria. A study by Agyapong, Agyapong and Darfor (2011)
found that when Banks are deciding on whether to accept or reject a loan application from
business operators, the intended purpose of the loan, repayment records or previous loans,
repayment schedule, type of business activity, size of loan relative to the size of a business and
also the availability of collateral are ranked high on the criteria list. It is also crucial to note the
fact that lenders take particular interest in risk when dealing with business operators. However
the criteria used by banks to assess credit or loan applications differ from one bank to another.

66

Factors considered by banks to accept or reject loan applications by small business operators
include collateral, guarantee, maturity and schedule of repayment, credit history, initial capital,
managerial experience and the bank policy, security, financial strength, profitability, financial
stability, and liquidity, operating experience, quality of management and risk of default (Berger
and Udell, 2002; Agyapong et al., 2011). In addition, Berger and Udell (2002) assert that
business lending focuses on the financial statement and asset base. Financial statement lending
emphasises on evaluating information from the financial statements, and the decision to lend is
basically based on the strength of these statements. Under asset base, decision to lend will be
based on the availability and quality of the collateral security.

Three (3) respondents representing 16.67% noted that their application were not successful.
Reasons for rejection of loan application from banking and non-banking institutions bad credit
record, lack of transparency, the problem of information asymmetry lack of collateral, poor
business plan and lack of collateral.

Private health facilities in many developing countries including Ghana are characterized by low
levels of transparency since many fail to keep accurate financial records or even have clear
ownership. In addition, income and expenditure is frequently poorly recorded and other times not
reported at all. Moreover, such Private Health Facilities authorize informal payments, which
usually go undeclared. This is mainly due to out-of-pocket payments.

Due to the nature of the business run by Private Health Providers which requires longer-term
investments, particularly in the case of equity or project financing for larger organizations such

67

as hospitals, banks in emerging markets such as Ghana identify greater risk with longer-term
investments hence are unwilling to grant them loans. Furthermore, rejection of loan application
is also attributed to the problem information asymmetry. During lending to business operators,
the major task of lenders will be that in reducing and avoiding credit risk is to overcome the
challenge of asymmetric information. According to Agyapong et al. (2011), this problem occurs
when one party to a contract knows relevant information which has a material effect on the
contract, but which is not known by the other contracting party. When Private Health Providers
apply to banks for loans, they always have an information advantage over the bank which results
in such Companies overstating the viability of their businesses as against the quantum of
finances sought.

Various challenges were enumerated by respondents as hindering their Facility from accessing
credit facilities. Figure 4.9 presents their responses.
Figure 4.9: Key Challenge Hindering Private Health Facilities from Accessing Credit
77.78%
80.00%
70.00%
60.00%
50.00%
40.00%
30.00%
20.00%
10.00%
0.00%

11.11%

68

5.56%

5.56%

Source: Field Survey (2015)

From figure 4.9, 14 respondents representing 77.78% noted the high cost of repayment /High
Interest

as the major contributing factor hindering their Facility from accessing credit

facilities from banks and NBFIs. Also, two respondents (11.11%) indicated the strict and lack of
collateral security as the greatest obstacle in accessing finance. Lack of collateral security, poor
business plans, lack of knowledge and lack of financial deposit are some of the main obstacles to
accessing finance by small business operators. Banks expect collateral security from the loan
applicants (for risk).

This is also supported by Mutezo (2005), Bbenkele (2007) and Agyapong et al., (2011) who also
identified these factors as main obstacles to accessing bank finance. Most small business
operators confirmed that they do not know the criteria used by banks when granting loans. The
other factors that were raised as obstacles by respondents include unavailability of proper
financial records as a result of lack of financial management knowledge of lack of bookkeeping
skills. Many banks in Ghana do not see the viability of Private health business ventures. Banks
do not see the viability of some entrepreneurial ventures and as a result, they fail to access loans.

For private Health Facilities to receive payments for services rendered to beneficiaries of
Insurance Providers, Private Health Facilities have to submit claims to Insurance Providers for
re-imbursement. Of the eighteen respondents sampled, majority (n = 12, 66.67%) indicated they
submit their claims for re-imbursement monthly whiles 4 representing 22.22% submit quarterly
claims. The quantum of claims submitted ranged from GH2,500.00 to GH94,000.

69

Prompt claims payment system is an essential element of the financial incentives of healthcare
providers and is a key factor affecting provider behaviour (Kwon, 2008). A review of claims
settlements pattern for national Health Insurance Scheme shows that there are lengthy delays in
payment of claims. According to NHIS Act 2003 (Act 650), the stipulated period for vetting and
payment of claims is four weeks (28 days). However, NHIS owed in arrears of six months to
health providers sampled. It has been found that paying claims promptly is an important aspect
of service and good value (Garand and Wipf, 2006). Therefore, there is the need for the Scheme
to reimburse providers on time to enable them render continuous service to insured members.

For claims submitted to Insurance Providers for re-imbursement, majority (n =7, 38.89%)
indicated that re-imbursement was carried out on quarterly basis. This was only true for the
Private Health Insurance Providers. In addition, two (11.11%) Private Health Providers were reimbursed on monthly basis. However, of claims submitted only 1 (5.56%) as presented in figure
4.10 received payments for all claims submitted without any rejection. Thus, the vast majority (n
= 17, 94.44%) did not receive full payment for claims submitted to Insurance Providers.

70

Figure 4.10: Does the Insurance Providers pay your facility all the claims submitted?

94.44%
100.00%
90.00%
80.00%
70.00%
60.00%
50.00%
40.00%
30.00%

5.56%

20.00%
10.00%
0.00%
No

Yes

Source: Field Survey (2015)

Rejected claims are not always paid by Insurance Providers. Reasons for the rejection include
wrong diagnosis, in-correct records, wrong prescription, typographical mistakes, wrong figures,
printing mistakes, etc. Such rejected claims are sent to Private Health providers to make the
necessary corrections and then subsequently re-presented for payment to be effected.

Irregular and delay in re-imbursement affects the smooth day-to-day operation of Private Health
Providers in Ghana. Sixteen (16) respondents representing 88.89% noted that Insurance
Providers owed their Facility. Amount in areas ranged from GH15,000 to GH342,000.00. One
Private Health Provider indicated that:
71

During such instances Private Health providers experience crippled cash flow and
difficulty in running operations which delays activities of the clinic which results in delay
in payment of workers.

Other respondents cited the delay in re-imbursement which results in Private Health Providers
being unable to pay for drugs purchased from suppliers.

4.7

Conclusion

Due to declining economic trends, access to external capital in Ghana has become more
important than ever for private health facilities nationwide. Many private health facilities are
facing the challenge of securing capital in order to ensure continuing provision of services to
their clientele. This challenge is due to the problem related to capital access, fewer borrowing
options, higher cost of capital, less flexibility, and higher risks of available borrowing options.
Few Private Health Providers today can generate enough cash flow from their operations and
reserves to fund short and long-term strategic investments in people, programmes, facilities, and
technology.

72

CHAPTER FIVE

SUMMARY, CONCLUSION AND RECOMMENDATION

5.1

Introduction

This chapter presents a summary of findings from the analyses of data, the conclusion drawn
from the analyses and some recommendations on how to improve health care financing in the
private sector with reference to private health care facilities in Accra, Ghana

5.2

Summary of Study

This study assessed health care financing in the private sector with reference to private health
care facilities in Accra, Ghana. In achieving this objective, the study identified the various forms
of funding available to private health care providers, assessed the challenges faced by private
health care practitioners in accessing external funds and identified factors that influence the
choice of financing mechanism used by private health care providers. This study employed the
quantitative research approach. Quantitative data for the study was therefore collected using
semi-structured questionnaires which were randomly distributed to twenty Head of Finance of
private health care providers.

Majority of the Staff sampled were males (61.11%) whiles the rest 38.89% were females. Most
respondents sampled that is 44.44% were between the age group of 26 35. In addition, a large
number of respondents had been educated up to bachelors level (38.89%) with 27.78% having
Diploma Certificate. Also, majority (44.44%) had worked at their respective Private Health Care
73

Facilities for between 0 - 5 years. Most sampled (72.22%) private health facilities were Private
Limited Companies with the remaining 27.78% being sole proprietorship. 33.33% noted that
their respective health facility had been in operation for between 5 to 10 years. Majority that is
38.89% of Health Facilities sampled made an average monthly net profit of less than
GH5,000.00.

44.44% of respondents noted that they relied mainly on their personal savings in setting up the
Private Facility. 27.78% resorted to the use of loans from the banking sector in financing the
construction of their Private Health Facility. 16.67% used loans from friends and family in
setting-up their health facility. 83.33% of sampled respondents indicated that they self-financed
their operations.

Funding for Private Health Facilities were from three sources namely, Out of Pocket Payment,
NHIS and Private Health Insurance Schemes. Majority of Private Providers (44.44%) were
operating the Out of Pocket Payment (Cash and Carry) as the dominant sources of funding for
their day-to-day management of the Facility. This was followed by NHIS (38.89%) which was
the second most utilised source of financing for Private Health Facilities. Private Health
Insurance Schemes such as Premium Mutual Health, Universal Health Insurance, Liberty
Insurance, etc were the third (16.67%) source of funding. Majority (61.11%) of respondents
indicated that Out of Pocket Payment (Cash and Carry) was their preferred financing mechanism.

One important problem that SMEs often face is access to capital. Such that majority (72.22%)
indicated that it was not easy at all in accessing credit facilities. As such majority that is 61.11%

74

had applied to banks for loans to run the Facility. In accessing such loans, majority of Private
Health Providers (77.78%) considered the amount of interest to be paid on loans.

38.89% indicated that they applied for loans from banking and non-banking institutions annually.
44.44% of Facilities who had successful loan applications were charged an interest rate between
21 30%. However, minority (16.67%) noted that their application were not successful. Reasons
for rejection of loan application from banking and non-banking institutions included bad credit
record, lack of transparency, the problem of information asymmetry, lack of collateral, poor
business plan and lack of collateral. Majority (77.78%) noted the high cost of repayment /High
Interest

as the major contributing factor hindering their Facility from accessing credit

facilities from banks and NBFIs. Lack of collateral security, poor business plans, lack of
knowledge and lack of financial deposit are some of the main obstacles to accessing finance by
small business operators. Other challenges experienced by Private Health Facilities include
irregular and delay in re-imbursement such that 88.89% noted that Insurance Providers owed
their Facility. Amount in arrears ranged from GH15,000 to GH342,000.00.

5.3

Conclusion

Health care is a very capital-intensive business and access to debt financing keeps Private Health
Providers in business. The contribution of the private health sector has grown rapidly in
developing counties including Ghana. However, provision of private health care services comes
with huge financial challenges due to the difficult economic issues. Thus, financing an efficient
and effective health care system is of a major challenge confronting Ghana. This study assessed
health care financing in the private sector with reference to private health care facilities in Accra,

75

Ghana. Private Health Facilities employed the use of three sources of funding for their operations
namely Out of Pocket Payment, NHIS and Private Health Insurance Schemes.

Access to capital for expansion and smooth running of the health facility is a major challenge
facing Private Health Facilities in Ghana. Rejection of loan application from banking and nonbanking institutions was due to bad credit history, lack of transparency; high interest the problem
of information asymmetry, poor business plan and lack of collateral. Health Insurance Schemes
especially the NHIS are challenged with operational issues particularly on claims processing and
payment. Given the volume of claims submitted by providers, delay in release of subsidy and
reinsurance, many schemes fail to promptly process claims for timely payment to Private Health
Providers. Concerted efforts through government, policy makers, institutions and individuals are
therefore necessary in enhancing the development of the Private Health Sector, especially in the
area of availing reliable and affordable credit to Private Health Facilities.

5.4

Recommendation

In view of the findings of the study, the following suggestions can help enhance health care
financing for Private Health Providers in Ghana.

5.4.1

Improvement in Business Management Skills

In order for Private Health Facilities to access loans easily from financial institutions, they need
to improve their business management skills including basic record keeping, credit management
skills and marketing skills. They need to also gain specialised capacity building support (training,
workshops, and conferences). They should engage the services of experts in the preparation of

76

financial statements and business plans. Private Health operators are encouraged to adopt sound
and rigorous financial management practices in order to reduce loan defaults, financial loss and
mismanagement of financial resources that characterize the private health sector of the economy.

Moreover, Private Health operators should make regular cash lodgment into their business
accounts and use the bank transaction systems such as cheques for payments. This will enable
financial institutions to better appreciate their financial transactions. Thus will reduce
information asymmetry and also make Private Health Facilities very attractive thereby
facilitating the approval of loan applications.

5.4.2

Prompt Re-imbursement of Funds by National Health Insurance Scheme

The National Health Insurance Scheme is seen as an important mechanism to removing financial
barrier to achieving equitable access to health care for all citizens. By this goal, health care
utilization should no longer be restrained by finance. However, the delay in payment of bills to
Providers (NHIS) when they fall due is unfortunate. It is therefore, recommended that payment
of bills should be done promptly since that could jeopardize the provision of quality service
provided by Private Health Providers to clients.

5.4.3

Intensifying Governmental Support

Governments role in supporting the Private Health Providers should be intensified, especially
where the financial system and the economic conditions in Ghana is a stumbling block to
accessing enough financial assistance from the financial sector. More government finance
schemes such as MASLOC and other micro-credit schemes should be established, where

77

collateral security is not a major demand by the government. Such schemes should charge
interest rates lower than that charged by the banking and non-banking sector and other financial
institutions.

In addition, government and government agencies should create an enabling environment for
Private Health Providers to source funds without totally depending on the government or
government agencies. There should also be the provision of incentives for financial institutions
lending to Private Health Providers by government and other international stakeholders.

Furthermore, the government through innovative initiatives should encourage specific training
institutions to provide training to Private Health Providers on entrepreneurial, management skills
in areas like negotiation skills, writing business plans and proposal, effective records
management, among others.

Government should institute some form of tax incentives to financial institutions involved in
providing funds to Private Health Providers. This will encourage other financial institutions to
consider the option of lending to Private Health Providers.

5.4.4

Flexible Access to Loans

The findings of this study support that Private Health Providers find it difficult to access bank
finance. Financial institutions, government and government agencies are urged to support the
Private Health Providers since they play an important role in the health delivery system of
Ghana. Eligibility criteria for accessing funds should be made a bit more flexible to enable more

78

Private Health Providers to qualify for access to these funds. Financial institutions should also
develop products that that are best suited for Private Health Providers.

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APPENDIX
QUESTIONNAIRE FOR HEADS OF FINANCE IN PRIVATE HEALTH PROVIDERS
87

I am a Masters in Business Administration (MBA) Finance student from the University of

Ghana undertaking a study on Healthcare Financing in the Private Sector: A Case Study of
Private Healthcare Facilities in Accra, Ghana. You are kindly requested to answer all the
questions as honestly and objectively as possible. As it is purely an academic exercise you are
assured of utmost confidentiality. I therefore wish to state categorically that the anonymity of
responses and respondents will be guaranteed. No reference will be made to any individual and
the information will be reported in an aggregated form.
Tick [ ] where appropriate and supply the needed information where applicable.

1. Gender:

[ ] Male

2. Age:

[ ] 18 25
[ ] 46 55

SECTION A
BACKGROUND INFORMATION
[ ] Female
[ ] 26 35
[ ] 56 65

[ ] 36 45
[ ] >66

3. Highest level of Education

[ ] Doctoral degree
[ ] Masters degree
[ ] Bachelors degree
[ ] Diploma
[ ] Secondary level/ Vocational
[ ] Junior High School
[ ] Primary level
[ ] Other (specify).....................
4. Number of years of working experience
[ ] 0-5yrs
[ ] 6-10yrs
[ ] 11-15yrs

[ ] 16-20yrs

[ ] Above 21yrs

SECTION B
COMPANY PROFILE
5. Nature/ Type of Health Facility.

[ ] Private Limited Company

[ ] Partnership
[ ] Family Owned Business

6. For how long has this Health Facility been in operation?

[ ] Less than five (5) years
[ ] Between 5 and 10 years
[ ] Between 16 and 20 years
[ ] Over 20 years

[ ] Sole Proprietor
Others (please

[ ] Between 11 and 15 years

7. How many people are employed by the Health Facility?

[ ]19
[ ] 20 29
[ ] Greater than 100

[ ] 10 19
[ ] 30 59

[ ] 20 29
[ ] 51 100

8. What is the Facilitys approximate monthly net profit?

[ ] Less than GH5,000.00

[ ] GH5,001.00 GH10,000.00
[ ] GH10,001.00 GH15,000.00 [ ] GH15,001.00 GH20,000.00
[ ] Greater than GH20,000.00
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specify)

SECTION C
SOURCES OF FUNDING
9. How was funds acquired to set up the Health Facility?
[ ] Personal savings
[ ] Family
[ ] Loans from Non-Bank financing institution
[ ] Loan from friends
[ ] Loan from Banks
[ ] Others (Specify)

10. What are the sources of funding available to private health care providers? (multiple answers
apply)
[ ] National Health Insurance Scheme
[ ] Private Health Insurance
[ ] Out of Pocket Payment (Cash and Carry)
[ ] Loans and Grants
[ ] Donations
[ ] Others (Specify)..
11. Which of the following is the preferred source of financing?
[ ] National Health Insurance Scheme
[ ] Private Health Insurance
[ ] Out of Pocket Payment (Cash and Carry)
[ ] Loans and Grants
[ ] Donations
[ ] Others (Specify)..
SECTION D
CHALLENGES AND FACTORS INFLUENCING CHOICE OF FINANCING
MECHANISM
12. Which of the following financial entities has the Facility approached for financial assistance?
(indicate one or more)
[ ] Business Partners
[ ] Banks
[ ] Non-Bank Financial Institutions (eg N.D.K. Financial Services Ltd., Bayport Financial
Services Ltd. SIC Life Trust Finance Limited)
[ ] Money lenders
[ ] Others (Specify).
13. What are the factors taken into consideration before accessing credit facilities?
[ ] Repayment period
[ ] Fluctuation interest rates
[ ] Amount of credit facilities processing fees
[ ] Amount of interest paid on
[ ] Others (Specify).
14. What is the frequency at which the Facility applies for credit facilities from banking and nonbanking institutions?
[ ] Monthly
[ ] Quarterly
[ ] Bi-Annually
[ ] Annually
[ ] Others Specify:
15. Were the application credit facilities from banking and non-banking institutions successful? [
] Yes
[ ] No
16. If your answer to question 15 is No, what was the reason/s for the rejection?
[ ] Bad credit record
[ ] Lack of collateral
[ ] Poor business plan
[ ] Others (Specify)..
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17. If your answer to question 15 is Yes, what was the interest on Loans borrowed?
[ ] less than 20%
[ ] 21 30 %
[ ] 31 -40 %
[ ] Others (specify)....
18. State the key challenge hindering your Facility from accessing credit facilities?
[ ] High cost of repayment /High Interest
[ ] Strict collateral requirements
[ ] Not getting the exact amount applied for
[ ] Bureaucracy
[ ] Unwillingness of people to act as guarantors
[ ] Lack of securable assets
[ ] Short payment period
[ ] Poor Business Plan
[ ] Lack of financial performance track record
[ ] Others (Specify)...
19. How easy is it to access credit facilities?
[ ] Very Easy
[ ] Easy
[ ] Not Easy
20. Do you utilise the services of any health insurance provider?
[ ] Yes
[ ] No
21. If your answer to question 20 is Yes then name these insurance providers?

22. How often do you submit claims to Insurance Providers for re-imbursement?
[ ] Monthly
[ ] Quarterly
[ ] Bi-Annually
[ ] Annually
[ ] Others Specify:
23. How much do you submit averagely to Insurance Providers per month for?
24. How often does Insurance Providers re-imburse your Facility?
[ ] Monthly
[ ] Quarterly
[ ] Bi-Annually
[ ] Annually
[ ] Others Specify: .
25. Does the Insurance Providers pay your facility all the claims submitted?
[ ] Yes
[ ] No
[ ] Not All Cases
26. What happened to the rejected claims if any?
..

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27. Do Insurance Providers owe your facility? [ ] Yes

[ ] No

28. If YES how much? GH ............................

29. Does the amount owe by the Scheme has an impact on the services provided?
[ ] Yes
[ ] No
Explain

..

30. How often does Insurance Providers review its payment system?
[ ] Monthly
[ ] Quarterly
[ ] Bi-Annually
[ ] Annually
[ ] Others Specify:
31. What are the barriers experienced in accessing finance?
[ ] Informational barriers
[ ] Lack of management skills
[ ] Weak institutional capacity
[ ] Lack of managerial know how
[ ] Others Specify:
SECTION E
RECOMMENDATION
30. What can be done by the following to improve financing of private health facilities in Ghana?
a) Government:

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b) Clients

c) Financial Institutions

d) Private Health Facilities

e) Private Health Insurance Schemes

f) National Health Insurance Scheme

Thanks so much for responding to these questions.

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