UC Berkeley

Managerial ability influences firm performance in various industries. This suggests that improving business performance through better management in health care can result in productivity gains in countries with low and varied quality of care. We report results from a field experiment of a large and comprehensive management consulting intervention designed to improve business management and care delivery in the Kenyan private health sector. We find large improvements in management practices and a shift of provider preferences towards profit-maximization and away from altruism towards clients. The intervention also increased structural quality that translated into better business performance in terms of increased investment, output, higher prices, increased revenue, lower unit costs and higher profits. However, better management and structural quality did not translate into improved process (clinical) quality. In fact, we surprisingly find the program significantly reduced correct clinical case management of patient care by 7.8% (p-value < 0.001). We also find that the fall in quality did not register with clients and did not affect demand, consistent with demand being quality inelastic. Hence, it was optimal for profit-maximizing firms to lower quality and raise prices. We further examine intervention mechanisms using causal mediation analysis. We find that the effects on quality of care and price of services are mediated by the shift in provider preferences, while the increase in profits and reduction in non-labor unit costs are mediated by changes in management practices.