The health system in Kenya is currently going through a major transition with the implementation of the new constitution. The responsibility to deliver essential health services has been devolved to the 47 counties while the national government is responsible for policy making and operating the national referral hospitals. The government is giving a high priority to the health sector and has waived user fees at primary health facilities and introduced free maternity care at all public health facilities to increase access to essential health services. The government is also committed to achieving universal health coverage. While these are notable measures, the challenge is to ensure that there are adequate resources available to meet these commitments. More importantly, given that the available public health sector resources are limited, it is necessary to ensure that they are optimally used for providing health services to the greatest number of people possible ensuring better value for money. Unfortunately, the Ministry of Health has limited information on the operational efficiency of the health system at different levels of care. The overarching objective of this study is to assess the efficiency in the public health sector. Specifically the study: i) estimated the technical efficiency of samples of dispensaries, health centres and hospitals in urban and rural counties; ii) reviewed critically the ongoing pilots on performance based financing and output based aid to highlight potential efficiency gains and policy options for national scale-up. The study applied the Data Envelopment Analysis (DEA) approach to analyse technical efficiency of randomly selected sample of twenty four district hospitals, two hundred and ninety five health centres and thirty-eight dispensaries using output and input data for FY 2012.