The Race: 9:33pm, June 24, 2018: From Nairobi, Dr Felix Wanjala texts on a work WhatsApp group: “Team, let’s ensure we don’t let the team down … let’s meet our target.”

Without context, this might appear like a harmless motivational speech from a boss to his subordinates. But here is the context: Dr Wanjala is the CEO of Nairobi Women’s Hospital (NWH). In the message immediately before that, he had forwarded a text listing the admission numbers across all the hospital’s branches in the country. “We have the numbers as follows at this hour,” the CEO wrote to his employees, and then listed admissions totalling 288 across the hospital group.

The target, and the context of the war cry not to let the rest of the team down, he went on, was to get 22 more admissions.

Vigilant

To do this, the CEO recommended that his team, based at the Nairobi Women’s Hospital Branch in Nakuru (called Nakuru Hyrax) should “start with looking for referrals”, not miss “any opportunity (to admit)”, and be “very vigilant in casualty”.

In multiple texts covering different days in 2018, the WhatsApp group resembles a trading floor, with Dr Wanjala and his Chief Operations Officer Eunice Munyingi pushing employees to work harder and increase admissions. On the first day of July, for example, Ms Munyingi wrote in response to the nurse in charge of the hospital chain: “Let us increase speed; two admissions against 13 discharges at this hour is not good.”

It’s our striking time. Let’s intensify our effort … replace all discharges by 6pm.” Five days later, at 7:28pm, the COO told the Nakuru branch staff to “get three admissions by 9pm”.

Interviews with whistle-blowers who shared the screenshots paint the picture of a corporate culture of being pushed to meet admission targets. “Although it was not said explicitly,” one former member of the NWH told this writer, “the implication was that doctors and nurses in particular had to find reasons to admit patients to meet the hourly and daily targets, even if those reasons were an absolute lie.”

Financial reward

Another added that there was a financial reward paid to clinical officers for each admission; and they had to write down why they were admitting each patient. This meant, several former staff members said, that they had to get creative to meet targets, both personal ones and those of their employer.

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The Founder: Founded two decades ago by Dr Sam Thenya, a young gynaecologist, Nairobi Women’s Hospital began with a unique specialisation. The focus of its first branch, in Hurlingham, was solely obstetrics and gynaecology services, meaning its primary clients were women. It particularly became known for its Gender Violence Recovery Centre, a charitable arm that serves survivors of sexual and domestic violence.

“I was working in a hospital and I had pitched this idea to the CEO of that hospital, but he wasn’t very keen on the idea of taking in abused women for free,” the hospital’s founder told the Business Daily in November 2016. “One time he told me that if I thought the idea would work then I should go ahead and open my own hospital because it wasn’t going to work at that hospital, and right there I thought to myself, ‘Why not?"

So at 31, Dr Sam Thenya followed his boss’s advice.

What drove him to start the hospital when he had no money, he told the interviewer, was a “certain trigger, madness or passion”. That singular focus to his goal, despite challenges almost as soon as he started, built one of the most familiar, respected private hospitals in the capital city.

In 2003, the hospital’s banker, Daima Bank, collapsed. Dr Thenya, still in the early years of his project, heard the devastating news while refuelling his vehicle at a petrol station. “We had just issued suppliers’ cheques,” he said in the interview.

Challenged

Despite other challenges, Dr Thenya and the hospital he built surged on. In a scenario that exemplifies the fine line between private healthcare as a business and a service, Dr Thenya had to fight with politicians, including President Uhuru Kenyatta, and technocrats who demanded the release of patients over bills.

Once, he told the interviewer, the President called him and told him someone had sent him an email lamenting that the body of his or her mother was being held hostage by NWH over unpaid bills. “Sam, what do we do?” the President asked. “Your Excellency, the bill has to be paid,” Dr Thenya answered.

After the President said he would pay the bill, and asked the body be released while he did it, Dr Thenya replied: “I need some proof of payment. If you want me to release it today, then pay today.”

By the time this was happening, a lot had changed. Dr Thenya had transformed from a practising gynaecologist to an entrepreneur as the hospital grew. He had also sold it, and was on his way out as the founding CEO.

Born in Nyakihai, Murang’a, in 1968, a much younger Sam Thenya had wanted to be a pilot. But he became a doctor instead. As a young doctor in training, he led a strike at Nyeri Provincial General Hospital in the early 1990s. The issue, which was fixed because of the strike, was bad work conditions for medical practitioners.

“I am not one who stands by and watches things deteriorate,” he told an interviewer in 2011.

Sexual violence

What finally drove him to ask his boss to start a wing for victims of sexual violence, and doing it himself when he was challenged, was meeting the victim of a brutal gang rape. Battered, violated and in need of urgent medical care, she did not have money to pay for admission.

“I paid for her admission and closely monitored her progress.”

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The Past: As a young doctor on a mission in the early 2000s, Dr Thenya was unstoppable in his mission to build Nairobi Women’s Hospital. In October 2000, a facility called Hurlingham Hospital was being auctioned off for unpaid debts. Dr Thenya approached the auctioneers with a promise to buy the hospital. It was an attractive deal for both sides: the auctioneers would get rid of an asset, and the young doctor would not have to start a hospital from scratch. But there was one problem, a big one. He had no money on him.

Nairobi Women's Hospital Adams branch. PHOTO | JEFF ANGOTE| NATION MEDIA GROUP

The most he could raise was half a million shillings, which he did by selling his wife’s car. He needed Sh17 million more, so he got other investors to put in the money and take a share of the repainted hospital’s ownership.

In the world of modern finance, this seemingly brilliant financing strategy has a name. It is called a leveraged buyout (LBO). It works exactly how Dr Thenya did it: You buy a company by taking in debt and giving up equity, which means you do not need a single coin to start whatever enterprise you want to start.

Hostile takeover

The most famous LBO in the world is the hostile takeover of American company RJR Nabisco. In 1989, the executives of the conglomerate, which sold tobacco and food, started an unstoppable process to acquire the entire company at $75 a share.

The events that followed that ignition are covered in Barbarians at the Gate: The Fall of RJR Nabisco, a book by two American journalists that later became a movie. It covers the executives’ plan to buy out other shareholders, and the marathon that began when other groups of people joined in on the sudden race to acquire one of the biggest companies in the world. One of them finally won, by offering a price higher, by $15, than the management team’s offer.

But the best part of this story is that none of them, even the executives who wanted to buy a company for $25 billion, actually had the money, and they didn’t need to.

The gist is to start what is called, in modern finance, a fundless fund. Simply, a corporate body that on the one hand promises to and negotiates to buy something, while asking for money from those who have it to complete the deal. For investors with vast amounts of money, this is an investment for which they expect to see profits.

Dr Thenya gave up 40 per cent of NWH’s ownership to the investors who gave him Sh50 million to buy the assets of Hurlingham Hospital and rebuild it anew as Nairobi Women’s Hospital. As the hospital grew, on the back of its reputation as a niche healthcare provider, Dr Thenya bought out the investors, and by the late 2000s, owned the entire thing.

In 2009, he acquired Masaba Hospital in Adams Arcade, and turned it into the second Nairobi Women’s Hospital branch. By the end of the next decade, there would be a total of nine branches of Nairobi Women’s Hospital: four in the capital city and the metropolis; two in Nakuru; and one each in Naivasha, Meru and Mombasa.

Strategy meetings

From a single hospital in Hurlingham, Nairobi Women’s Hospital was one of the fastest-growing hospital chains in Kenya by the mid-2010s. But things had changed. In the first decade, Dr Thenya had quit practising to concentrate on the business side of his hospital.

“I realised that I was not giving my patients full attention because I was often caught up in strategy meetings,” he said, “(so) I had to choose between expanding the hospital and practising.”

And in several transactions beginning in 2010, he had progressively sold his ownership stake in the hospital to the successor of leveraged buyouts in modern finance; a similar but differently named structure called a private equity fund.

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The Present: A private equity (PE) firm is a leveraged buyout by any other name. Simply, you get money from wealthy individuals and organisations and invest it in attractive companies. Then you restructure the company by cutting costs and expanding as fast as possible, and then you sell the now bigger company for a profit.

The basis of this model of financing is to buy and sell, as opposed to keeping an investment in perpetuity. So PE firms strip their new companies of any sellable assets, change the management, reduce costs by firing professionals and employing cheaper labour, pay executives bonuses for meeting targets, and once the company is attractive enough on paper, sell it to someone else. That new buyer is often just another PE firm.

Dr Sam Thenya founded Nairobi Women’s Hospital with a unique specialisation. The focus of its first branch, in Hurlingham, was solely obstetrics and gynaecology services, meaning its primary clients were women. PHOTO | FILE | NATION MEDIA GROUP

In the complicated structures of global commerce, private equity funds are used to finance rapid expansion, which increases the value of the assets. Investors, who include funds of funds — where one investment fund invests in another investment fund — expect a return on investment. And investment funds get money by promising exactly that.

Make money

PE funds make money in two ways: by charging an annual management fee of the money they have been trusted with, calculated as a percentage, and by taking a cut of the profits they make when they sell the companies they buy. So their primary motivation is to get more investor money, and to restructure companies as fast as possible to attract a higher price than they bought it for.

One of the things PE funds do when they acquire a company is to transition it from a founder-run company into a corporate body that can attract a higher price. This is exactly what happened at Nairobi Women’s Hospital from the first founding round in 2010, where Dr Thenya’s ownership systematically diminished as the new owners’ stake increased.

In the midst of the “Africa Rising” narrative, and from the ashes of the 2008 global crisis, US billionaires and institutional investors turned their investment focus on Africa. The continent’s young population offered an attractive proposition for a profit-making venture; it was expected that not only would these younger Africans be richer than their parents, and willing to spend more on everything, but that there were no modern legal or regulatory structures in place to halt corporate raids of existing companies. And by the time they came, several rounds of investors would have already made enough profits.

In 2010, Dr Thenya got $2.66 million for part of his stake in the hospital. The buyer, The Abraaj Group, which would collapse in 2018 amid investigations that it had stolen investor funds, was founded by a Pakistani and based in Dubai. In addition to Nairobi Women’s, it also acquired all or parts of other Kenyan companies: Java House (100 per cent), Brookside Dairy (10 per cent), and Seven Seas Technologies (21 per cent).

But its most prominent purchase was in private healthcare, where it bought 18 clinics and 10 major hospitals. In addition to its stake in Nairobi Women’s, it also bought part of Avenue Group Hospital, Ladnan Hospital, and Metropolitan Hospital.

Three years later, Abraaj bought more of Nairobi Women’s with a partner PE firm called Swedfund. The Swedish government describes Swedfund, which it funds and owns, as a “development financier and development cooperation actor”; but it works in basically the same way privately owned PE firms operate.

Quality health

“The objective of the Africa Health Fund is to increase access to affordable and quality health related goods and services for those at the bottom of the income pyramid,” Swedfund said in a press release dated November 22, 2013, “At the same time it hopes to provide investors with good long-term financial returns.”

This dual purpose fit into Dr Thenya’s founding principles, which had been to build a hospital that offered services to abused women for free, while offering other medical and surgical services at a fee. Swedfund, which said it “put a high emphasis on environmental, social and governance issues”, and other investors were pumping money into the hospital to fund its expansion.

From a single branch in the 2000s, Nairobi Women’s Hospital had expanded to three hospitals: one in Adams founded in 2009, another in Ongata Rongai founded in 2011, and the Nakuru branch that followed a year later.

It also had two medical centres in Kitengela and Eastleigh, both opened in 2012, and two more branches, in Mombasa and Kisumu, on the way. This was all, the Swedish state investor said, “part of the grand plan to expand further in the country and the Eastern African region by 2016; and subsequently into the rest of Africa.”

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The Through Pass: While the source of Swedfund’s finances is obvious, the source of The Abraaj Group’s funds is a more interesting story because it led to its death in 2018 and the arrest of its top executives. Because PE funds run multiple projects at any one time, they structure them as independent funds with their own fund managers.

The specific one that invested in private healthcare in Kenya beginning in the late 2000s was called The Abraaj Growth Markets Health (Africa) Fund. It got its $1 billion to invest in Kenya from multiple sources, the most prominent being the Bill & Melinda Gates Foundation and the World Bank’s private equity fund, the International Finance Corporation (IFC).

This second deal was worth $6.5 million.

The Dubai-based Abraaj Group, founded a year after Dr Thenya started Nairobi Women’s, was a renowned investor in multiple sectors across the continent. By the time it collapsed in 2018 amid a dispute with its investors — the Bill & Melinda Gates Foundation initiated an audit into how its money in the healthcare fund had been used — it had invested an estimated Sh320 billion in 80 transactions across Africa.

Naqvi arrested

Through the fund, $1 billion of which the PE firm’s founder, a Pakistani man called Arif Naqvi, was accused of misusing, Abraaj owned private hospitals in Kenya, Nigeria and Pakistan. In April 2018, around the same time the screenshots of the Nairobi Women’s Hyrax WhatsApp group appeared, Naqvi was arrested in Britain on a US warrant.

While he had resigned from Abraaj the month before, investigators had found evidence that he had defrauded investors in two main ways: by inflating the price of assets, which included Nairobi Women’s Hospitals and several other Kenyan private healthcare providers, and misappropriating the fund.

The scandal made headlines around the world, as many other similar investment structures had ridden on the Africa Rising wave and bought many companies, in many countries, on the continent.

Meanwhile, The Abraaj Group was closed and its assets stripped for parts by other PE firms. A British firm took over its stakes in Brookside Dairy and Java; and an American PE firm called TPG acquired the healthcare fund, which counted among its assets several Kenyan hospitals. TPG then renamed the fund the Evercare Health Fund to avoid the negative reputation of its former name and manager and acquired Nairobi Women’s Hospital and several other private hospitals in Kenya.

Meanwhile, Arif Naviq remains in the UK, and not by choice. Last May, after spending a year in custody, he was granted a record $20 million bail. By October, he was also being investigated for bribing Pakistani politicians.

A theatre room at Nairobi Women’s Hospital in Nairobi on August 24, 2010. Medical officers and other specialists who have worked at the hospital described multiple instances of being pushed to keep patients for longer than necessary. PHOTO | FILE | NATION MEDIA GROUP

While this complicated game of international finance was happening, the private hospitals in Kenya were still operational, and working to make profits for the fund.

In a text forwarded to the Nakuru Hyrax staff on September 11 2018, CEO Felix Wanjala outlined the revenues so far, and the targets he expected them to contribute to that same day.

Sh33 million

The Nairobi Women’s Hospital group was making Sh12.81 million a day against a target of Sh15.47 million, and cumulatively was Sh33 million off a total target of Sh136 million.

“Team, this revenue is too low for the numbers that we have, are we billing?” he posed to the staff.

As part of the shift from Dr Thenya’s ownership to the new owners, the PE funds had launched what was typical corporate behaviour after acquiring a new asset. Nairobi Women’s Hospital had, over time, stopped hiring doctors, professionally known as medical officers (MOs), most of whom were postgraduate students or specialists in training, to serve outpatient patients. It had instead turned to hiring young clinical officers (COs), who only had a diploma earned after three years of training, to do the job.

To staff its rapid expansion, Nairobi Women’s was now depending on COs to serve patients who were not already admitted in the hospital. It was also encouraging them, according to multiple insiders, to meet admission and revenue targets, which were analysed every hour of every day, day and night.

While the hospital still hired doctors, it hired fewer than it required because MOs would get better salaries, and gave clinical officers the job of determining which patient needed to be admitted.

It also gave the COs a financial incentive, at one point Sh710 for every patient they admitted. This structure meant that, while COs would find and push for admissions, even (and especially when) they were unnecessary, more qualified medical officers would only encounter the patients when they had already been admitted, and were already paying for the bed, food, tests and medicines.

They were already, in lingo used frequently in the leaked WhatsApp group messages, “customers”.

Once they were in the hospital, the top management of Nairobi Women’s encouraged the staff, everyone in the WhatsApp group, medical and non-medical staff included, to keep them admitted for longer.

In another text, for example, CEO Wanjala asked his staff: “How did we end up at 18 discharges from 10 planned?” The text included an emoji of a sad face, suggesting he was unhappy with the situation.

Specialists

His COO Eunice Munyingi then asked someone called Victoria to answer the CEO. Victoria then passed the question to two other people, before the CEO responded “Vikki calm down … we expect better performance in future. Obviously this is not good for us.”

Medical officers and other specialists who worked at Nairobi Women’s at the time describe multiple instances of being pushed to keep patients for longer than necessary. In a text sent at 8:04am on November 11, 2018, COO Munyingi told the staff to “lock discharges at seven” and to “kindly start now”.

This meant that if you were admitted at this particular Nairobi Women’s Hospital, and should have been released to go home, the decision of whether to let you go was based on revenue and admission targets, and not your health.

In the texts, the senior executives ask staff to post hourly updates of the branch’s status, specifically how many people and how much money they had brought in, and cheer them on in a language a media practitioner described as “better suited for a trading floor than a hospital management team”.

The comparison to a trading floor is poignant, because insiders describe an internal system that fits on the script of the popular TV series “Billions”, with a similar dynamic to that of the characters Bobby Axelrod and Mike “Wags” Wagner have in the show.

The similarities with a fictional TV show do not end there, because the two characters run a ruthless private equity firm that buys companies, restructures them by any means necessary, legal or otherwise, and sells them over for a profit.

Like a PE firm, the top management of Nairobi Women’s also kept tabs on its reputation. In one screenshot from 2017, the then clinical services in-charge, Victoria Wawira, posted a screenshot of a Facebook post written by a woman who had commented on their hurry to admit her child. Whenever she took her daughter to the hospital, “the doc sees her and immediately its admission; no second thought about medication,” she’d written on the Nakuru County Mums group on Facebook.

Revenue targets

In follow-up messages, Victoria told two clinical officers that the post was “trending on FB” and that they should “vet admissions”. In any other context, this would mean that the two COs should make sure they were admitting only patients who needed to be admitted. But in this particular context, it meant one thing: that they should check that they didn’t admit potentially problematic patients who would be suspicious of the need for them to move from outpatient to inpatient.

Bad publicity meant not just harm to reputation, but could also hurt the bottom line if future buyers found the posts and figured out how Nairobi Women’s was achieving its spectacular service and revenue targets.

The chaos, and reasons we seek medical attention, meant patients caught up in this great game of corporate greed, and trusting their doctors to know what was best to restore their health, did not know better.

They would sell assets, sacrifice savings, hold fundraisers both online and offline, and do whatever was necessary to pay their hospital bills, without ever knowing that they had been unknowing victims of the vagaries of modern finance, and the sudden focus on Africa that followed the 2008 mortgage crisis.



