Background Avoidable hospitalisations are hospital admissions for medical conditions that could potentially have been prevented by outpatient healthcare. They are used as an indicator of access to and quality of primary healthcare.

Aim To investigate the association between median area income and avoidable hospitalisation and whether potential differences can be explained by contextual or compositional factors.

Method Median area income was calculated for all 43 city districts and municipalities in Stockholm County during 2005–2007 and grouped into quintiles. The association between median area income and avoidable hospitalisation was studied by calculating age-adjusted rates. To disentangle contextual and compositional effects, ORs with 95% CIs were calculated, controlling for individual age, sex, country of birth, marital status and socioeconomic position.

Results Rates of avoidable hospitalisation were higher in areas with lower income, 1535 per 100 000 inhabitants in the lowest area income quintile compared with 1179 in the highest area income quintile after age standardisation. For the age group 18–64 years, comparing the lowest quintile with the highest quintile, adjustment for individual characteristics of residents (compositional factors) reduced the crude OR from 1.52 (95% CI 1.44 to 1.60) to 1.12 (95% CI 1.06 to 1.19). For the age group 65–79 years, the ORs were 1.28 (1.21 to 1.36) and 1.06 (1.00 to 1.13), respectively. For those aged 80+ years, no association was found with area median income.

Conclusions Higher rates of avoidable hospitalisation in low-income areas indicate greater healthcare needs of people living there. This should be addressed by investing in outpatient care for lower socioeconomic groups. The composition of individuals must be considered when studying area characteristics and avoidable hospitalisation.