Public Hospitals to Outsource Medical Services Under New Financing Rule

Aug 23 , 2025. By NAHOM AYELE ( FORTUNE STAFF WRITER )

Hospitals and clinics are adopting a new directive that allows them to outsource not only non-medical support roles, such as cleaning and catering, but also key medical services, including laboratory testing and radiology. Boards of public health facilities will decide if third-party providers can deliver better outcomes, based on feasibility studies. Alert Hospital’s CT scan and X-ray machines break down so often that management is considering outsourcing diagnostics to ensure reliable patient care

A new directive authorises state-run hospitals and clinics to outsource not only non-clinical support services but, for the first time, core medical services as well. Health officials say the policy, part of a broader reform of the health financing system, seeks to address the strain on overburdened institutions and improve the quality, efficiency, and reach of healthcare services.

While contracting out non-medical services, such as security and janitorial work, long been a fixture in the public health sector, the new directive expands the scope to include essential medical functions, including laboratory diagnostics, radiology, and pathology. These services may be outsourced to third-party providers if feasibility assessments show the move would yield better and more cost-effective outcomes.

“What could new is that medical services are now included,” said Anmut Ayalew, who leads the finance and partnership team at the Ministry of Health. “It helps reduce the workload of institutions and allows them to focus on their core mission of delivering quality care.”

However, outsourcing will remain optional. Health facility boards will decide whether to adopt it, provided it is financially and operationally justifiable. Crucially, Anmut disclosed to Fortune that the directive includes safeguards to prevent unwarranted cost burdens on patients.

“All outside contractors would be thoroughly vetted,” he said. “We want to avoid passing unnecessary costs on to patients.”

Some hospitals are already preparing to test the new flexibility. At Alert Hospital, Tesfaye Gudeta, CEO for competence and human resources management and development, believes the directive could help solve persistent management headaches.

“Our CT scan and X-ray machines frequently break down," he told Fortune. "The cost of maintenance is high. Outsourcing could mean more reliable services and better quality.”

Non-medical functions, such as catering, staff cafeterias, patient assistance, and portering, could also be outsourced to contractors, allowing the Hospital to focus on treatment. Alert Hospital plans to conduct feasibility studies to determine which services should remain in-house and which to contract out, a process likely to be repeated at facilities nationwide.

Staffing is a particular challenge, with roughly 490,000 employees in the sector, including 328,951 health professionals. On average, one physician serves nearly 5,843 people, one nurse serves 999, and one midwife serves 4,339. With such gaps, it is little surprise that hospitals are keen to explore new ways to relieve pressure on staff and improve technical services, especially in radiology and laboratory testing.

Not everyone is convinced that outsourcing medical care is the right answer. In the corridors of Alert Hospital, Workneh Tolosa, whose 13-year-old son was waiting to be seen by doctors, questioned the logic of a hospital established to provide medical care, outsourcing those very services.

“Outsourcing non-medical services may be fair enough,” he said. “But a hospital established to provide medical care, outsourcing its own medical services, does not make sense.”

Workneh worries that medical fees could rise if professionals who previously worked inside the hospital return as external providers and start charging patients directly.

“The difference between the private and public sectors is not the people themselves, but the sense of responsibility,” he said.

He argues that the government should focus on stronger accountability rather than shifting services, and that proper maintenance of hospital equipment would be more effective in preventing breakdowns and service gaps.

The public sector accounts for only 32.2pc of total health expenditure, with development partners accounting for another 33.9pc. Private sector providers are often criticised for overcharging and recommending unnecessary tests, unveiling the need for government oversight to prevent abuse and protect patients. Experts argue that affordability and access for the poor should be at the centre of any outsourcing decisions, especially given the country’s dependence on external financing.

“When services are outsourced, the critical question is whether the poor will have access," said Asayehagne Tekeste, a public health advisor with the Public Health Officers Association. "This must always be considered.”

Caution is also the watchword at Black Lion Hospital, the country’s main referral facility, and Tikur Anbesa Health Science College. According to Andualem Deneke, chief executive director, his team is in no rush to implement the new directive, even as he acknowledged its possible benefits.

“We want to study how our core services could potentially be outsourced carefully,” he said. “Such a move requires detailed assessment to ensure quality isnot compromised.”

Black Lion will limit its outsourcing, for now, to some medical services and laundry services. The Hospital has previously outsourced cleaning and security services, but Andualem disclosed that outsourcing core services such as teaching is far more complex and demands a much more thorough evaluation.

The government’s policy arrives at a time when the public health system is under severe strain. Over the last decade, the country has rapidly expanded its health infrastructure, now counting 404 hospitals, 3,907 health centres, and 15,531 health posts nationwide. Outpatient attendance per capita reached 1.7 in the 2023/24 fiscal year, an indicator of both growing population demand and mounting pressures on hospitals and clinics.

Public health experts, however, cautioned against this approach.

According to Asayehagne, outsourcing has delivered benefits in other countries, but he warned that success in Ethiopia will depend on careful management. He called for outsourcing decisions to be transparent and based on solid research, with input from both technical experts and service users.

“The executive bodies cannot simply hand over services to the private sector and walk away,” he said. “They must remain actively engaged, resolving problems on both the user's and the provider's side while monitoring and supporting institutions to ensure they deliver quality services.”

The directive goes further than outsourcing, spelling out new procedures from revenue collections to the utilisation of internal funds, resource acquisition, setting service payments and rate calculations, providing free healthcare, and operating private medical rooms within public hospitals.

PUBLISHED ON Aug 23,2025 [ VOL 26 , NO 1321]