Effects of Higher Clinic Fees On Demand and Revenue Vary by Type of Service
An increase in client fees for family planning and reproductive health services of a nonprofit program in Ecuador resulted in a loss in demand but a gain in revenue for three of the four main services offered.1 When clinics of the Centros Médicos de Orientación y Planificación Familiar (CEMOPLAF) charged clients 16-44% more for their services, the number of visits generally decreased, with greater reductions occurring at higher price increases. The decline in demand, however, did not cause a loss of revenue from IUD insertion, IUD revisits and prenatal visits. In contrast, gynecology consultations showed losses in both demand and revenue (of 18% and 4%, respectively) when prices were raised by 16%. Higher fees for gynecologic services led to a 5-8% reduction in the proportion of low-income clients, but this decline showed no significant relationship with the magnitude of the price increase.
Because donor funding for family planning and reproductive health has been declining in Latin America, service providers have been looking for alternative sources of income. One option is to raise fees, but concerns exist about losing clients, particularly those with low incomes. To help CEMOPLAF managers decide on an appropriate price increase, researchers designed a randomized block study to quantify the impact of implementing different price increases on service use and revenue. Fifteen CEMOPLAF clinics were randomly assigned to three groups, which were to increase client fees for four main services by 20%, 40% or 60%. For each service--IUD insertions, IUD revisits, gynecologic services and prenatal consultations--the researchers analyzed the mean number of visits per month and revenue in the three months before and after November 1, 1996 (the date of the price increase), as well as mean prices charged in the month before and after that date. Client characteristics were also recorded before and after the price rise.
Instead of the increases set by the investigators, the clinics implemented a range of price increments that fell into three groups: 13-21%, 31-44% and 49-67%. In addition, some clinics raised fees for the four services by differing amounts. The investigators therefore modified the study design by assigning clinics to groups according to the real price rise for each service and by assessing the effect of fee increases on each service.
Before the price rise, the most expensive of the four services was an IUD insertion (range, $4.58-6.33) and the least expensive an IUD revisit ($1.64-2.04). For each service, a higher price increase generally meant a greater reduction in demand--for example, the largest fee increments for IUD insertion and IUD follow-up (44% and 42%, respectively) resulted in the largest reductions in the number of visits for those services (17% and 24%, respectively).
By calculating the ratio of the percentage change in number of visits to the percentage change in price, the analysts were able to estimate the impact of the various fee increases on revenue after accounting for changes in demand for each service. The results showed that revenue rose after prices were increased for IUD follow-up, and suggested a similar effect for IUD insertion and prenatal consultation.
To illustrate more clearly the trade-off between revenue generation and service use, the researchers calculated actual changes in total revenue in the first month following the implementation of fee increases for two of the services offered. For example, in the month following price increases of 16-43% for prenatal services, revenue rose by 13-34%, despite a 3-13% reduction in the number of visits. In contrast, a price increase of 16% for gynecology visits led to a drop of 4% in revenue and a decline of 18% in demand, but an increase of 42% led to a gain in revenue of 7%, while demand fell by 30%. The analysts suggest that in practical terms, the modest revenue gain in the last case may not be worth such a substantial reduction in clinic attendance.
Agency managers were concerned that higher prices would deter poorer clients from using services, but the researchers found no evidence of such an effect: Although the proportion of clients earning less than $85 a month who used gynecologic services fell by 5-8% after the price change, the decline was not significantly greater at higher levels of increase. Furthermore, the proportion of gynecologic clients who were better-off (earning more than $275 a month) did not rise in parallel with the fee increase: The proportion rose by 5-6% at each of the three levels of increase.
The researchers conclude that higher charges for CEMOPLAF's family planning and reproductive health services--including ones not included in the study, such as general consultations and contraceptive services--would likely lead to higher total revenues despite being accompanied by a loss in demand. The analysts comment that the observed fall in attendance may not have been caused solely by the rise in fees: Winter holidays in December 1996 and civil disturbances in Ecuador in January 1997 may have been contributing factors. Unlike other studies, this one found that the raising of clinic fees did not lead to a disproportionate loss of low-income clients. Although the researchers do not exclude the influence of external factors on changes in client characteristics, they suggest that "price increases resulted in a loss of clients at both ends of the socioeconomic spectrum. ...Poor clients may have departed to the more affordable public sector, while wealthier clients may have transferred to the private sector where more amenities were available."--T. Lane
1. Bratt JH et al., The impact of price changes on demand for family planning and reproductive health services in Ecuador, Health Policy and Planning, 2002, 17(3): 281-287.