# **I Introduction**

Despite frequent calls for increased regulation, the difficulty of randomizing regulations in the health sector has meant that there is currently no experimental evidence on its impacts.<sup>1</sup> The lack of well identified studies is particularly worrying because theoretical models and empirical research both yield ambiguous results. On the one hand, regulatory reforms like minimum standards can be extremely beneficial in low- and lower-middle-income countries (LLMICs) where the quality of care is low and variable and a non-negligible fraction of health facilities in the private sector may be illegal and/or unlicensed.<sup>2</sup> On the other, even well implemented reforms can reduce geographical access and lead to higher prices as facilities are forced to close if they do not meet minimum standards, changes that have been shown to disproportionately hurt the poor.<sup>3</sup> In this paper, we bring regulatory reforms firmly within the ambit of experimental techniques and show that doing so yields novel and important insights into the functioning of health markets. A minimum quality standard, accompanied with inspections and sanctions, raises quality without any decline in utilization; the quality increase reflects improvements within facilities rather than entry or exit; and mechanisms privilege market power rather than lack of information as a source of the underlying inefficiency that the standards address. Taken together the results provide a powerful illustration of how government regulation and stewardship can significantly improve the quality of care in LLMICs.

The specifics are as follows. Between 2013 and 2015, as part of a World Bank team, we worked with the Ministry of Health in Kenya and its nine regulatory boards and councils to develop a new regulatory mechanism for both public and private providers. The reform established minimum quality standards (MQS) that changed the content, frequency and consequences of facility inspections. In terms of content, it established a standardized inspection protocol called the “joint” health inspection checklist or JHIC that was used to assess the facility’s compliance with patient safety protocols. Further, it replaced an earlier system of infrequent and ad-hoc inspections with

> 1See, for instance, WHO (2006). Two systematic reviews on the impacts of healthcare regulation found only two studies that met the eligibility criteria (Flodgren et al., 2011, 2016). Both studies examined the impact of inspections with additional support rather than a broader regulation that combined inspections with sanctions (but nothing else) and were “uncertain” on the impact of inspections. Outside the scope of these reviews, recent observational studies examine the impact of regulations that restrict physicians’ economies of scope. Chen et al. (2016) show that restricting physician ownership of pharmacies in Taiwan, China, reduced drug prescriptions, although loopholes in the policy attenuated this effect. Yi et al. (2015) show that a similar policy in China reduced drug sales, but increased inpatient days driven by changes in producer behavior.

> 2In India, 75% of primary care is delivered by providers without any formal medical training (Das et al., 2022). This fraction is similar to what is found in other low-income contexts with the difference that in Sub-Saharan Africa, many countries allow non-physician clinicians to practice and prescribe medicines, including antibiotics. Multiple audit studies in primary care show severe deficits in the diagnosis and management of basic conditions in LLMIC. See Das et al. (2012), Banerjee et al. (2020), Mohanan et al. (2015), Daniels et al. (2017), Kovacs et al. (2022), King et al. (2021), and Kwan et al. (2022) for evidence from India, Senegal, Tanzania and Kenya. For hospital care, Siam et al. (2019) document substantial variation in the quality of obstetric care within a single city, Nairobi, Kenya.

3For instance, Chipty & Witte (1997) and Hotz & Xiao (2011) show that childcare regulations in the United states disproportionately reduced access for the poor.

2