Introduction To move towards universal health coverage, the government of Kenya introduced free maternity services in all public health facilities in June 2013. User fees are, however, important sources of income for health facilities and their removal has implications for the way in which health facilities are governed.

Objective To explore how implementation of Kenya’s financing policy has affected the way in which the rules governing health facilities are made, changed, monitored and enforced.

Methods Qualitative research was carried out using semistructured interviews with 39 key stakeholders from six counties in Kenya: 10 national level policy makers, 10 county level policy makers and 19 implementers at health facilities. Participants were purposively selected using maximum variation sampling. Data analysis was informed by the institutional analysis framework, in which governance is defined by the rules that distribute roles among key players and shape their actions, decisions and interactions.

Results Lack of clarity about the new policy (eg, it was unclear which services were free, leading to instances of service user exploitation), weak enforcement mechanisms (eg, delayed reimbursement to health facilities, which led to continued levying of service charges) and misaligned incentives (eg, the policy led to increased uptake of services thereby increasing the workload for health workers and health facilities losing control of their ability to generate and manage their own resources) led to weak policy implementation, further complicated by the concurrent devolution of the health system.

Conclusion The findings show the consequences of discrepancies between formal institutions and informal arrangements. In introducing new policies, policy makers should ensure that corresponding institutional (re)arrangements, enforcement mechanisms and incentives are aligned with the objectives of the implementers.