Private provider tariffs in Nigeria: why hospital and pharmacy price variability is the HMO's hidden loss ratio risk

Published 26 October 2026 · 7 min read · By Moyo Awoyokun, MB ChB, MBA, FIHIMCN

In brief

Private HMO plans in Nigeria pay what each hospital and pharmacy negotiates, not a regulated schedule. In 2025 private providers repriced broadly and unevenly: one study found anti-hypertensive prices rose 24 per cent in a public pharmacy and 134 per cent in the private sector over the same year. There is no published benchmark, so an HMO cannot see whether a provider's price is high, only that it is higher than last year. Premiums reset annually while provider prices move monthly, and the HMO carries the gap. The remedy is to build an internal reference tariff from the HMO's own claims, measure each provider's dispersion from it, contract and steer towards it, and reprice on evidence rather than on a flat uplift.

There is no reference price in the private market

The NHIA's April 2025 review raised capitation by 93 per cent and fee-for-service by 378 per cent (what that did to the market) for the programmes it governs. Private plans sit outside that schedule. A private HMO contracts bilaterally with each hospital, each diagnostic centre and each pharmacy in its network, and each contract carries its own price list.

Industry insiders told Nairametrics in late 2025 that hospitals, not the regulator, initiated much of the recent price adjustment, citing drugs, consumables, utilities and staffing. The drivers are structural. About 70 per cent of medicines are imported, so naira movements pass through to the shelf. Pharmaceutical manufacturers rely on diesel to power their factories. In April 2026 the Federal Government cut tariffs across 127 product lines, including a 20 per cent tariff on antimalarials, and the Pharmaceutical Society of Nigeria warned that lower import duties might not translate into appreciable price reductions while energy and logistics costs stayed high.

None of this produces one price. It produces a distribution.

The spread is wide, fast and invisible

Three features of that distribution hurt an HMO.

It is wide. The same drug carries very different prices depending on where it is dispensed. Markups between manufacturer and patient run around 80 per cent, with distributors and pharmacies each adding 30 to 40 per cent. A hospital pharmacy adds its own margin on top. One pharmacy benefit operator has described HMOs paying ₦8,000 to ₦10,000 per hospital visit for malaria treatment that a networked retail pharmacy could fill for ₦2,000 to ₦3,000. Across a network of several hundred providers, the same episode of care can cost three or four times as much at the top of the range as at the bottom.

It moves faster than premiums. Private pharmacies respond quickly to market pressure; public ones are slower but prone to stock-outs. The 24 per cent versus 134 per cent finding for anti-hypertensives is a one-year gap. A premium is set once a year. Every month between renewals in which a provider raises prices, the HMO pays the new price against the old premium.

It cannot be seen from inside one HMO. There is no official nationwide average published by regulators for private plan costs, and none for provider tariffs. Each hospital knows its own costs and what it charges other HMOs. The HMO sees only its own claims. In a negotiation the hospital holds all the information, and the HMO is arguing about a number it cannot benchmark.

The consequence shows up in two places. The loss ratio drifts upward between renewals, and the HMO does not know which providers are driving it. And the cash cycle tightens: providers must be paid on time or they leave the network, premiums arrive in instalments, and corporate and government clients often pay late. Hygeia HMO's public commentary this month named provider behaviour, fraud and tariff indiscipline as constant challenges. Providers, for their part, say HMOs set premiums at unrealistically low rates to win clients and then push the shortfall onto hospitals. Both are describing the same missing reference price from opposite sides.

So what can an HMO do?

How does an HMO manage a cost base it cannot see as a whole and cannot fix in advance?

Build the reference price, then contract and steer to it

The HMO has one asset the hospital does not: claims from every provider in the network. Used properly, that is the benchmark nobody else publishes.

1. Build an internal reference tariff. For each common service and each formulary drug, compute the median price paid across the network, by provider tier and by geography. A tertiary hospital in Ikoyi and a primary clinic in Kano are not comparable; a tier-two hospital in Lagos and another tier-two hospital in Lagos are. The result is a price list the HMO owns, derived from its own book, refreshed monthly.

2. Measure dispersion as a KPI. For each provider, the ratio of its price to the network median for the same service and tier. For each drug, the ratio of the price paid to the formulary reference. Track both monthly. A provider at 1.1 times the median is normal. A provider that moves from 1.1 to 1.6 in a quarter is a renegotiation, a steering decision or an investigation, and the HMO should know which within the month, not at year end.

Illustration: the same episode across a network

Figures are illustrative, not drawn from any single insurer's data. The point is the shape: spreads of three to five times for routine care are what a network with no reference price produces.

3. Contract against the variance. Use the reference tariff in every renegotiation. Capitation and bundled case rates for predictable care, where the HMO wants a fixed price and the provider wants a fixed income. A negotiated formulary price for chronic drugs, dispensed through a pharmacy network at pharmacy rather than hospital margins. Fee-for-service only where clinical variation is real. Write renegotiation triggers into contracts: a provider that drifts beyond an agreed band from the reference invites a conversation, not a surprise.

4. Steer elective and pharmacy volume. Members do not know which provider is at 1.1 times the median and which at 1.6. The HMO does. Direct elective referrals and chronic refills to in-band providers at the point of authorisation, when the care decision is still open. Emergencies are excluded; the NHIA's rules already require immediate treatment without a code, and no steering logic should sit in front of an emergency.

5. Reprice on evidence, not on a flat uplift. At group renewal, bring the dispersion data. A corporate client whose members use in-band providers should not pay for another client's members who use the most expensive hospital in the city. Pricing by observed cost, rather than by a market-wide inflation guess, is the only way to keep premiums competitive for the groups that behave well.

Three questions for an HMO board

1. What is the price dispersion across our network for our twenty most common services, and which providers sit above 1.5 times the median?
2. What share of our pharmacy spend is at a negotiated formulary price, and what share is at whatever the dispensing point charged?
3. How quickly do we detect a provider drifting out of band: within the month, at quarter end, or in the annual accounts?

An HMO that can answer all three has a reference price. One that cannot is negotiating blind.

Frequently asked questions

Does the NHIA tariff apply to private HMO plans in Nigeria?

No. The NHIA's capitation and fee-for-service rates apply to the programmes it administers. Private HMO plans pay the tariffs each HMO negotiates bilaterally with each hospital, diagnostic centre and pharmacy in its network, and there is no regulated schedule for those.

Why do hospital prices vary so much between providers in Nigeria?

Each provider sets prices against its own costs: imported drugs and consumables, diesel, staffing and rent, which differ by location and tier. There is no published benchmark, so prices for the same service commonly differ by three to five times across a network.

How can an HMO benchmark provider prices with no published tariff?

From its own claims. The median price paid for each service and drug across the network, by provider tier and geography, is a reference tariff the HMO owns. Each provider's price can then be expressed as a ratio to that median and tracked over time.

Why is pharmacy spend the first place to look?

Drugs are the largest and least standardised claim category. The same molecule can be dispensed at hospital, retail or wholesale margins, with markups of 30 to 40 per cent at each step. A negotiated formulary price, dispensed through a pharmacy network, removes most of that spread.

For how the loss ratio is decided one claim at a time, see how Nigerian health insurers can protect their loss ratio. For the regulatory clock that now sits on every authorisation, see the NHIA one-hour rule.

Sources

1. Nairametrics, "Rising drug prices force sharp increases in health insurance premiums across Nigeria", 14 November 2025 (hospitals initiated price adjustments; drivers).
2. Vanguard, "NHIA raises capitation fees by 93%", February 2025 (NHIA review scope).
3. The impact of inflation on medicine prices in Nigeria: a comparative analysis of public and private pharmacies, PMC, 2024 (24 per cent versus 134 per cent).
4. WellaHealth, "Pharmacy benefits management in Nigeria", 2023 (markup chain; malaria visit cost comparison).
5. The Guardian (Nigeria), "Pharmacists blame energy, logistics costs for unaffordable medicines", October 2026 (PSN; 2026 fiscal measures).
6. Journal of Health Reports and Technology, 2025 (about 70 per cent of medicines imported).
7. nairaCompare, "Why medical costs are rising in Nigeria and what it means for your HMO", 2026 (no official nationwide average published by regulators).
8. Vanguard, "Top inspiring business leaders of excellence: Hygeia HMO", October 2026 (tariff indiscipline; cash cycle).
9. BusinessDay, "Hospitals to drop HMOs over debts, poor tariffs" (HCPAN on premium setting and provider risk).