Price and income elasticities of demand for modern health care : the case of infant delivery in the Philippines

)4, -+I THE WORLD BANK ECONOMIC REVIEW, VOL. 2, NO. 1: 49-76 :jFA. Ijgg Price and Income Elasticities of Demand for Modern Health Care: The Case of Infant Delivery in the Philippines J. Brad Schwartz, John S. Akin, and Barry M. Popkin 311E Cge'tX The economic determinants of the demand for infant delivery services in the Cebu region of the Philippines are examined in this article. Although user charges can be a significant source of revenues to pay for maternal and child health services, important policy questions are whether charging for such services will significantly deter use, and how service quality can be improved. Price and income elasticities of the demand for types of services are computed, and simulations are carried out on the effects of different delivery service characteristics on the type of delivery method chosen. The results suggest that increasing the availability of modern public practitioners and facilities in rural areas, increasing the hours that health care facilities are open, making drugs available, and providing trained midwives for delivery will increase the use of modern delivery services. Perhaps the most important finding-which suggests an area for further investigation-is the apparent relative insensitivity of the choice of delivery service to changes in prices and household income in our model. In the Philippines, most births take place at home, and a significant proportion are attended either by a traditional midwife or by friends and relatives of the mother. Women continue to choose this pattern of delivery despite large invest- ments by the health sector in modern prenatal and obstetrical health service systems. Even though a large majority of the pregnant women have direct con- J. Brad Schwartz is currently a research economist at the Center for Population and Policy Studies, the Research Triangle Institute. He was at the University of North Carolina Population Center when this research was undertaken. John S. Akin is an economist at the University of North Carolina, Chapel Hill. He was in the former Population, Health, and Nutrition Department of the World Bank when this research was undertaken. Barry M. Popkin is an economist at the University of North Carolina at Chapel Hill and the Carolina Population Center. Funding for this article was provided by the Population, Health, and Nutrition Department, the World Bank. The Cebu data collection effort is part of a collaborative research project between the Nutrition Center of the Philippines, the Office of Population Studies, University of San Carlos, and a group from the Carolina Population Center. Funding for the project design and data collection was provided by the Nestle's Coordinating Center for Nutrition Research, Wyeth International, the Ford Foundation, the U.S. National Academy of Science, the U.S. National Institutes of Health (contract number Rl HD19983A), and the U.S. Agency for International Development. Lionel Deang, David Fugate, and Margaret Mauney are thanked for their extensive assistance. 49  50 THE WORLD BANK ECONOMIC REVIEW, VOL. 2, NO. 1 tact with modern delivery services, there appears to be a preference for tradi- tional home deliveries. It turns out that this choice can to a large extent be explained by the characteristics of the modern and traditional delivery systems and the socioeconomic characteristics of the households. Important questions to be answered in order to make health policy decisions relate to how to provide and finance modern delivery care in low-income coun- tries in which traditional and modern health providers coexist. The factors that affect mothers' choices of types of health care are ultimately those choices that determine whether many infants live or die or are healthy or chronically ill. We examine the determinants of the choice of type of delivery care, including eco- nomic facts (such as money prices, time prices, and household income), health facility characteristics, and-delivery practitioner characteristics of both the tradi- tional and modern delivery providers in one region of the Philippines. The sensitivity of the choice of birth delivery method to factors such as these has important implications for the placement, organization, and financing of mod- ern delivery services. The analysis emphasizes the factors most amenable to policy change by the government of the Philippines, such as the location of clinics and the fees charged. The data come from a survey of health facilities and delivery practitioners combined with a survey of over 3,000 women who dLelivered babies during 1983-84 in the Cebu region of the Philippines. In the first section below we describe the traditional and modern delivery sectors in low-income countries, in the second we present an overview of the economic model that guides the analy- sis, and in the third we discuss the data and provide descriptive statistics. In the fourth section we discuss the estimation technique and the results of the multivariate analysis, and in the fifth present policy implications and conclu- sions. I. BACKGROUND The Traditional Sector Over two-thirds of the babies born in low-income countries are delivered by traditional birth attendants, who often are poorly educated and have no formal medical training. A national survey of traditional midwives conducted in 1974 in the Philippines found that over 50 percent had only elementary school train- ing and most had either learned midwifery on their own or from relatives (Man- gay-Angara 1981; Akin and others, 1984). It is this lack of formal medical training which differentiates traditional midwives from modern medical profes- sionals. The modern health sector consists mainly of physicians and nurses with university educations and licensed midwives with some formal medical training. The heavy reliance on traditional birth attendants in developing countries may be related to the heavy concentration of modern practitioners in urban areas and traditional ones in rural areas. Typically, 60 to 80 percent of the population and 70 to 90 percent of the doctors reside in urban areas (Akin and others, 1984).  Schwartz, Akin, and Popkin 51 The urban facilities at which these doctors work are often inaccessible (either for geographic or economic reasons) to the lower-income and rural populations. The traditional sector generally provides greater coverage of the rural popula- tion than does the modern sector. Whereas in Asia and Africa the modern sector usually is physically accessible to only 10 to 30 percent of the population, in many countries 100 percent of the population is within walking distance of a traditional midwife. It is not unusual for the population-per-practitioner ratio for traditional midwives to be only a fifth to a half that of modern practitioners. The traditional midwives are readily accessible to most of the population in almost all developing countries. The work of the traditional midwives is diverse. They not only deliver babies but also assist women during the prenatal and postnatal periods and are in- volved in a number of important aspects of maternal and child health care. During prenatal care they often use massage to relax muscles, relieve discomfort, and estimate the progress of pregnancy. As delivery approaches, massage is used to position the fetus. . . . During labor the traditional midwife may massage the woman and administer herbal beverages.... At delivery many midwives help to extract the baby and the placenta. [Simpson-Hebert and others, 1980, pp. J-444-51. It is generally believed that some of the practices of the traditional birth attendants are harmful, and that many others, while probably harmless, are of uncertain effect. Harmful practices, or those which can be potentially harmful, include dietary restrictions, mishandling of the umbilical cord (associated with neonatal tetanus), misuse of drugs (for example, heavy use of inappropriate antibiotics), postpartum feeding practices which exclude the feeding of colos- trum, and incorrect responses to complications of pregnancy (Popkin and others 1984). Both surveys of modern medical personnel and data from hospital records repeatedly identify neonatal tetanus as the major infant mortality risk associated with deliveries attended by untrained midwives (Mangay-Angara 1981). Modern Obstetrical Care and Primary Health Care In the last decade there has been a major effort to expand modern health services in developing countries. One principal goal of the expansion has been the provision of inexpensive modern prenatal and delivery services. Usually, in determining the allocation of these services, the planners have concentrated on simple formulas related to geographic distribution of health services rather than on how best to provide services given the available resources and the benefits of alternative approaches. Few studies have documented the impact of changes in health facilities and practitioners on the proportion of deliveries attended by modern practitioners,  s2 THE WORLD BANK ECONOMIC REVIEW, VOL. 2, NO. 1 and even fewer have evaluated the health effects of such changes. An exception is a project in the province of Bohol, Philippines, which implemented and evalu- ated a maternal and child health and family planning project. Over the period of the project, the availability of low-cost modern care was found to lead to a decline from 67 percent to 1 percent in births attended by untrained midwives. Concurrent declines in the number of cases of neonatal tetanus and in the prevalence of many inappropriate delivery practices (for example, the use of bamboo slivers to cut the umbilical cord) were observed (Williamson 1982; Parado 1979). Another study found that the introduction of modern care to the area led to a reduction in fetal deaths (Akin and others 1984). The Realignment of Delivery Patterns In order for government investments in improved delivery services to achieve their objectives, it is essential that the determinants of the choice of type of infant delivery be considered. Surprisingly few systematic studies have considered the factors associated with the choice of delivery services-be it for modern or traditional public or private care-although several recent World Bank studies examine the broader question of demand for health services (see, for example, Dor and van der Gaag, forthcoming; Gertler, Locay, and Sanderson 1987; Dor, Gertler, and van der Gaag forthcoming; Mwabu forthcoming; and Birdsall and Chuhan 1983). Elsewhere the authors have reviewed the earlier studies and presented the results of a small case study of the factors associated with the choice of modern or traditional delivery services (Akin and others, 1984, 1986). That earlier research, based on an analysis of about five hundred births from the Bicol region of the Philippines, concluded that the choice between a modern or traditional birth attendant was made mainly on noneconomic grounds. The important explanatory variables were found to be mother's education and urban residence. Previous studies of choice of infant delivery method, including the earlier work of these authors, have been based on small samples and, more signifi- cantly, have failed to control for some important econornic and quality of service characteristics. In this study we expand on previous work by analyzing a large data set which includes information not only on the socioeconomic characteris- tics of the users of delivery services but also on the economic cost and service quality characteristics of all suppliers of delivery services in the community being analyzed. Moreover, because the data were collected on a prospective basis, they represent a significant improvement over those for other studies based on retro- spective recall data. II. ECONOMIC DEMAND MODEIL In this section we briefly outline a delivery service demand model which is detailed elsewhere (Akin and others, 1984, 1986). We assume that a model for analysis of delivery services must take into account the facts that delivery serv-  Schwartz, Akin, and Popkin 53 ices can be provided either publicly or privately, either by untrained or trained practitioners, and either at home or away from home. In the model each type of delivery has an associated set of characteristics, including time and money prices, availability, and service quality. We assume that a woman maximizes her own well-being, which is a function of the health of her infant. The outcomes predicted as a result of this maximization process are that a woman's choice of type of delivery service will be determined by the prices, availability, and quality of the services plus a set of socioeconomic, demographic, and community fac- tors. In general terms, the relationship between type of delivery used and the exogenous factors is as follows: Yi = f(Pi, Ti, Hi, Qi; Z) where Yi = the ith delivery type i = at home by relatives, at home by traditional practitioners, at home by modern public practitioners, at home by modern private practitioners, away from home (at clinics or hospitals) by modern public practitioners, or away from home by modern private practitioners (six possible choices) P, = cash price paid to delivery service provider of type i Ti = time price of traveling between the delivery provider of type i and the woman's residence Hi = the hours of availability for delivery service of type i Qi = the perceived quality of delivery service of type i Z = the set of household and community characteristics (such as income, as- sets, education, insurance coverage, residence, and household composi- tion) affecting the income available to, the time constraints of, and the knowledge and preferences of, the mother. III. SURVEY BACKGROUND The study site is metropolitan Cebu, an area embracing both the city of Cebu and rural areas of the Island of Cebu in the central Philippines. Metropolitan Cebu includes, besides Cebu City, coastal towns and a number of mountain villages. Although basically of Malayan stock, the metropolitan Cebu popula- tion (particularly in the urbanized areas) also contains people who are of Spanish and Chinese ancestry. Metropolitan Cebu is composed of three administratively distinct cities (among them Cebu City, the second largest city of the country) and six other municipalities. At the time of the 1980 census, the administrative entities con- tained 243 barangays (the barangay is the smallest administrative unit in the Philippines and, in the rural areas, is usually identical with a village) with 171,702 households and slightly more than 1 million inhabitants. The barangay is the initial sampling unit for the survey from which the data are derived.  54 THE WORLD BANK ECONOMIC REVIEW, VOL. 2, NO. 1 Separate random samples taken from urban and rural metropolitan Cebu baran- gays resulted in a sample of 17 urban and 16 rural barangays. All households in the 33 barangays were surveyed to collect data on all women who had births between May 1, 1983, and April 30, 1984. Baseline surveys were obtained during the sixth month of pregnancy for the 3,327 preg- nant women who gave birth during the twelve-month period. For the analysis of delivery patterns, the sample consists of 3,075 women for whom both baseline and birth information were collected and who delivered non-twin births. Of the 3,327 baseline women, 38 (1.1 percent) had stillbirths, 13 (0.4 percent) had miscarriages, 26 (0.8 percent) had twin births, 135 (4.1 percent) outmigrated between the baseline and birth interviews, and 17 (0.5 percent) refused birth interviews. An additional 57 women in the sample comrnunities who gave birth during the twelve-month period but either did not live in the communities during their pregnancy or were missed in the screening for pregnant women are omitted from this analysis. The public and private health facilities serving the 33 sample barangays also were surveyed. Included in the facility sample are all facilities and personnel located in each barangay, plus personnel and facilities located outside the baran- gays but identified by proximity to the barangay, by legal jurisdiction over the community (for public clinics and hospitals), or by barangay informants (on questions asked during the baseline) as servicing the sample households. In total, data from 48 modern public and modern private hospitals, clinics, and health center facilities and 88 private modern and traditional health practitioners were used in this analysis. In addition, data were collected from part-time government health facilities (Barangay Health Stations, or BHSS) located in 23 of the 33 barangays. Variables Household income and an inventory of the resale value of all household assets were collected from each household at the time of the baseline survey. Because the baseline survey for each household occurred at different points in time over the collection period, income and assets were discounted by an appropriate price index to a common point in time at the beginning of the collection period. This adjustment ensures comparability of the value of income and assets across all households in the survey. Delivery price data were collected from all health practitioners and facilities in the sample described above. Barangay averages were cornputed for each possible delivery option (at home by traditional practitioner, at home by modern public practitioner, at home by modern private practitioner, away from home by mod- ern public practitioner, and away from home by modern private practitioner). In addition, households were surveyed to determine the amount of money given to relatives when they assist in delivery. In the Philippines there is a cultural norm which dictates payment for delivery in the form of a gratuity even when there is no explicit market price. Thus even relatives are paid a "fee for service" and  Schwartz, Akin, and Popkin 55 Table 1. Pattern of Delivery Service Choices Made, 1983-84 Urban Rural Total Delivery type Number Percent Number Percent Number Percent Relatives and friends, at home 130 5.45 64 8.84 194 6.25 Traditional practitioner, at home 511 21.77 460 63.54 971 31.62 Public practitioner, at home 405 17.26 112 15.47 517 16.83 Private practitioner, at home 200 8.48 14 1.93 214 6.94 Public practitioner, away from home 508 21.64 35 4.83 543 17.68 Private practitioner, away from home 597 25.40 39 5.39 636 20.68 Total 2,351 100.00 724 100.00 3,075 100.00 Source: Original surveys; information about the data sets is available, upon written request, from the authors. barangay averages of this fee are included in our empirical specification as an expected price, to control for differences in money prices across all delivery options. The average money price by barangay for each type of delivery is used to construct a full menu of delivery prices for each household in the survey. There is fairly wide variation in the money prices paid for the different types of delivery. The price differences are notably large between home and away deliv- ery in general, as well as between public and private away-from-home delivery. The travel time between the mother and delivery practitioner represents the proximity of each delivery option, whether the mother chooses to travel to the practitioner or to have the practitioner travel to her home for delivery. The quantification of this variable is complex. From the location of the household we determine the facilities available for each type of delivery and from the facilities we determine their populations served. We carry out an analysis of transporta- tion patterns, topography, and distance to estimate the travel time of each house- hold to the relevant public, private, or traditional delivery practitioner. We do not, however, have information on the number of people accompanying the mother (for away-from-home delivery) so that even this very detailed evaluation of travel time considerations may be incomplete for some households. The pattern of delivery choice across the six methods represented in the de- pendent variable is presented in table 1. Table 2 describes each independent variable used, and table 3 shows the mean values and standard deviations of the independent variables. All variables are presented separately for urban and rural samples for reasons discussed below. IV. ESTIMATION METHOD AND RESULTS The complexity of the issues addressed here is reflected in the range of over- lapping methodological choices available for our analysis. We have used the mixed multinomial logit technique to estimate the relationships between delivery  56 THE WORLD BANK ECONOMIC REVIEW, VOL. 2, NO. 1 Table 2. Variable Descriptions Delivery-specific variables Price The average price, in pesos, for each delivery type in each barangay is used as the price facing women in each barangay. Travel time The time, in minutes, between the household and the delivery practitioner. Hours available The number of hours per week that the practitioner and/or facility is available. Drugs available Whether drugs are available at the public or private facility (yes = 1; no = 0). Untrained practitioner Whether the delivery practitioner has had formal medical training (yes = 0;no = 1). Trained midwife Whether the usual delivery practitioner at the public or private facility was a trained midwife (yes = 1; doctors, nurses, or combinations of doctors, nurses, and midwives = 0). Individual and household characteristics Household income Annual household income, in thousands of pesos. Household assets Total value of assets, in thousands of pesos, owned by the household including, among other things, land, housing, consumer goods, and vehicles. Mother's education Years of formal schooling. Father's education Years of formal schooling interacted with whether the father was present. Father present Whether the father is present in the household (yes = 1; no = 0). Mother's age Age in years. Children under age 6 Number of children between the ages 0-6 years. Females over age 13 Number of females in the household aged 13 and older. Cebuano Ethnic origin indicated by language spoken in the household (Cebuano spoken by both husband and wife = 1; otherwise = 0). Electricity Whether the household has electricity (yes -= 1; no = 0). Insurance coverage Whether the woman is covered by health insurance (yes = 1; no = 0). Wet season Whether the childbirth occurred during the rainy season (June-October = 1; otherwise = 0). Dry season Whether the childbirth occurred during dry months (February-April = 1; otherwise = 0). Private prenatal visit Whether a prenatal visit was made to a private practitioner (yes = 1; no = 0). Public prenatal visit Whether a prenatal visit was made to a public practitioner (yes = 1; no = 0). Traditional prenatal Whether a prenatal visit was made to a traclitional practitioner (yes = 1; visit no = 0). Source: Original surveys; information about the data sets is available, upon written request, from the authors.  Schwartz, Akin, and Popkin 57 Table 3. Sample Means and Standard Deviations of Independent Variables Urban Rural All Variable Mean SDa Mean SD Mean SD DELIVERY-SPECIFIC Price (in pesos) Relatives 48.66 (20.14) 27.36 (8.47) 43.64 (20.22) Traditional 56.96 (15.85) 48.33 (17.09) 54.92 (16.56) Public, home 51.27 (14.74) 41.17 (6.62) 48.89 (13.96) Private, home 66.98 (16.11) 66.37 (39.92) 66.83 (23.94) Public, away 169.80 (48.75) 162.13 (70.33) 167.99 (54.69) Private, away 426.81 (104.70) 378.04 (102.93) 391.94 (121.84) All 136.61 (28.28) 120.27 (13.80) 128.95 (25.40) Travel time (in minutes)b Traditional 7.27 (4.73) 24.15 (21.13) 11.25 (13.16) Public 11.23 (5.66) 32.51 (24.67) 16.24 (15.79) Private 4.39 (2.91) 30.15 (25.16) 10.46 (16.57) All 6.41 (2.44) 24.99 (15.21) 10.78 (11.04) Hours available (per week)c Public, away 127.77 (58.06) 58.74 (42.25) 111.49 (62.09) Private, away 148.95 (36.16) 127.94 (42.76) 143.99 (38.85) Drugs available Public, away 0.51 (0.50) 0.53 (0.26) 0.51 (0.49) Private, away 0.45 (0.49) 0.36 (0.42) 0.43 (0.49) Untrained practitionersd 0.33 (0.06) 0.33 (0.06) 0.33 (0.06) Trained midwives Public, home 0.41 (0.49) 0.59 (0.49) 0.44 (0.50) Private, home 0.45 (0.50) 0.43 (0.48) 0.45 (0.47) Public, away 0.32 (0.47) 0.95 (0.21) 0.47 (0.50) Private, away 0.00 0.00 0.00 INDIVIDUAL AND HOUSEHOLD CHARACTERISTICS Household income 0.30 (0.47) 0.19 (0.27) 0.28 (0.44) Household assets 14.25 (54.42) 5.76 (19.35) 12.25 (48.63) Mother's education 7.62 (3.29) 5.46 (2.29) 7.11 (3.31) Father's education 7.49 (3.41) 5.09 (3.01) 6.93 (3.51) Fatherpresent 0.94 (0.24) 0.95 (0.21) 0.94 (0.23) Mother's age 25.88 (5.84) 26.70 (6.46) 26.07 (6.00) Childrenunder6 1.49 (1.14) 1.67 (1.12) 1.53 (1.14) Females over 13 0.51 (0.90) 0.36 (0.76) 0.47 (0.87) Cebuano 0.91 (0.29) 0.95 (0.21) 0.92 (0.27) Electricity 0.60 (0.49) 0.18 (0.38) 0.50 (0.50) Insurance 0.12 (0.32) 0.05 (0.21) 0.10 (0.30) Wet season 0.50 (0.50) 0.47 (0.50) 0.49 (0.50) Dry season 0.18 (0.38) 0.20 (0.40) 0.19 (0.39) Private prenatal visit 0.24 (0.43) 0.07 (0.26) 0.20 (0.40) Public prenatal visit 0.53 (0.50) 0.47 (0.50) 0.52 (0.50) Traditional prenatal visit 0.47 (0.50) 0.58 (0.50) 0.49 (0.50) Note: Numbers in sample: urban, 2,351; rural, 724; all, 3,075. a. SD = standard deviation. b. Travel time for relatives assumed equal to zero. c. Hours available per week for at-home deliveries equals 168. d. Sample average across all choices. Source: Original surveys; information about the data sets is available, upon written request, from the authors.  58 THE WORLD BANK ECONOMIC REVIEW, VOL. 2, NO. 1 characteristics, mothers' characteristics, and delivery choice. The dependent variable in the delivery model is in the form of a set of unordered, mutually exclusive categories. This estimation procedure allows two types of independent (explanatory) variables to be used-conditional variables, such as the price of delivery, which differs in value for any given mother on the basis of delivery choice made; and unconditional variables, such as mother's age, which does not change as a result of the choice. An implicit assumption of the multinomial logit (MNL) estimation technique is the "Independence of Irrelevant Alternatives" (IIA). This means that the model cannot be appropriately applied when there are different degrees of substitut- ability or complementarity among the various choices. In our application, it would imply that each of the six delivery choices is independent and has different characteristics. It also implies that as the value of a variable pertaining to a particular delivery method changes and mothers adjust their choices in response, the proportionate distribution of their movement between that particular deliv- ery type and the five alternatives will be identical to the initial distribution of choices over the five alternatives. The effect of this assumption is possibly to lessen the simulated effect of changes on some specific variable values, which may change the policy implica- tions of the findings. For instance, an increase in drug availability in public facilities might be expected to draw women almost exclusively out of the other modern options while not reducing the use of traditional practitioners. We do not have information to suggest that any such grouping or covariance among the alternatives exists, and further research would be required to deter- mine if such grouping is the case (for further information on the IIA property and its appropriateness see also Domencich and McFadden 1975; McFadden, Tye, and Train 1986; and Hausman and Wise 1978). Alternatively, the Hausman- McFadden specification test for multinomial logits (1984) can be used to deter- mine if the MNL assumptions are valid. The IA assumptions do not apply to a nested model, and future research using this methodology may also provide interesting results. We believe, however, that the IA assumptions are appropriate for the issues being analyzed and that any limitations of the IIA assumptions are outweighed by the model's positive attributes. X,1 represents a vector of values for a set of indepenclent variables (for exam- ple, the set of prices in table 3) that vary by choice ( = 1, 2, .. . , N) and by woman (i = 1, 2, . . . , M), and Zi represents a vector of independent variables that vary only by woman. The log of the odds of any particular choice being made (choice 1, for example) is: tProb(Y, = 1- T(Xij - Xi,)