This study seeks to investigate the effect of health sector grants on availability and quality of primary healthcare in Kenya while focusing on the effect of Health Sector Services Fund (HSSF), an innovative financing mechanism in which funds are channelled directly from the national government to the lowest tiers of healthcare providers in the country: the dispensaries, health centres and first level hospitals. Specifically, we sought to establish the effect of HSSF on availability and quality of healthcare in the country as measured by essential drug availability and provider illness diagnostic accuracy, respectively. The study used data from the Health Service Delivery Indicators and Public Expenditure Tracking Survey (SDI-PETs) conducted in Kenya in 2012/13. The analysis was based on basic microeconomic theory¬ – the principal-agent theory. We appropriately used Ordinary Least Squares and probit models in regressing availability and quality of healthcare measures on HSSF status and a variety of control variables while controlling for endogeneity of HSSF receipt. The regression results point to the importance of Health Sector Services Grants (HSSF) amount and receipt in improving availability of essential drugs and quality of care, respectively. Thus, direct, and increased funding to lower-level health facilities enhance availability of individual essential medicines at the facility level. Similarly, HSSF funding was important in influencing accuracy in illness diagnosis. Other factors such as facility type and access to power influenced availability of essential drugs while health worker age-group and health worker training as indicated by cadre type were important determinants of provider process quality of healthcare.
