This paper examines regional differences in the effect of user fee removal in rural areas of Zambia on the use of health institutions for delivery. The analysis uses quarterly longitudinal data covering 2003q1-2008q4. When unobserved heterogeneity, spatial dependence and quantitative supply-side factors are incorporated in the Interrupted Time Series (ITS) design, user fee removal is found to immediately increase aggregate institutional deliveries, although the national trend was unaffected. Drug availability and the presence of traditional birth attendants also influence institutional deliveries at the national level, such that, in the short-term, strengthening and improving community-based interventions could increase institutional deliveries. However, there is significant variation and spatial dependence masked in the aggregate analysis. The results highlight the importance of service quality in promoting institutional deliveries, and also suggest that social and cultural factors, especially in rural areas, influence the use of health facilities for delivery. These factors are not easily addressed, through an adjustment to the cost of delivery in health facilities.