CoB Nyakang’o warns counties over heavy reliance on hospital fees, urges revenue diversification
Nyakang'o noted that while facility improvement funds helped offset some shortfalls, overreliance on health revenues leaves counties vulnerable to fiscal shocks and limits their ability to invest in other critical areas.
The Controller of Budget (CoB) has raised concerns over counties relying heavily on out-of-pocket payments from patients, with some generating more than 80 per cent of their local revenue from hospital fees.
In her report for the financial year ending June 30, 2025, CoB Margaret Nyakang’o warned that such dependence on hospital collections poses significant risks to the financial stability of devolved units.
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She noted that while facility improvement funds (FIF) helped offset some shortfalls, overreliance on health revenues leaves counties vulnerable to fiscal shocks and limits their ability to invest in other critical areas.
According to the report, counties generated Sh67.3 billion in own-source revenue (OSR) during the period, falling short of the annual target by Sh20.37 billion. Nyakang’o said the shortfall would have been larger if not for Sh25.29 billion from the FIF, which channels revenue collected from hospital fees back into health facilities.
Overall, hospital fees accounted for 37 per cent of total OSR across counties, with some relying on these funds for more than half of their local revenue.
Nyakang’o sounded the alarm, noting that counties such as Nyamira, Garissa, and Homa Bay relied on hospital fees for over 70 per cent of their revenue. Nyamira collected Sh606.6 million from hospital fees, while only Sh134.53 million came from other sources.
Garissa’s total revenue of Sh478.87 million included Sh384.15 million from hospital fees, yet only Sh140.53 million came from approved claims under the national health insurance scheme, with the remainder being out-of-pocket payments. In Homa Bay, hospital fees contributed Sh1.1 billion to the total revenue of Sh1.49 billion.
Other counties showed similar patterns of dependence. Kitui, Kakamega, Kericho, Kirinyaga, Kisumu, Laikipia, Lamu, Kisii, West Pokot, Wajir, Nyandarua, Nyeri, Siaya, Tharaka Nithi, Taita Taveta, Turkana, Trans Nzoia, Vihiga, Marsabit, Meru, Migori, Murang’a, Kwale, Machakos, Makueni, Mandera, Nakuru, Nandi, Kilifi, Busia, Elgeyo Marakwet, Embu, Baringo, Bomet, Bungoma, Kajiado, and Kiambu all derived a significant portion of their revenue from hospital fees, often with only a fraction reimbursed through the health insurance fund. In many cases, the bulk of the funds came directly from patients paying out of pocket.
Fiscal risks
The report highlighted the fiscal risks of such a system, explaining that FIF collections are intended to improve service delivery within health facilities, not to finance broader county operations. Overreliance on hospital revenue can leave counties vulnerable to shocks, particularly if patient volumes decline or reimbursements are delayed.
“Overreliance on the facility improvement fund, which accounted for over 50 per cent of OSR for many counties, poses a risk to financial sustainability. County governments should develop realistic strategies to expand their revenue and reduce reliance on the FIF,” Nyakang’o said.
Conversely, counties including Mombasa, Nairobi, Isiolo, Uasin Gishu, Narok, Tana River, and Samburu demonstrated greater diversification in revenue streams.
Mombasa generated Sh5.13 billion in total revenue, with only Sh916.99 million from hospital fees, while Nairobi collected Sh13.53 billion, with hospital fees contributing Sh1.73 billion.
In these counties, revenue from land rates, business permits, park fees, and other sources dominated, highlighting the potential for more sustainable local financing models.
Nyakang’o urged counties to strengthen other local revenue sources such as property rates, business permits, and user fees, and to adopt automated collection systems and innovative financing mechanisms.
She emphasised that broadening revenue streams is essential to reduce dependence on hospital fees, ensure predictable funding, and protect the financial health of devolved units.
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