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To determine the risk for diarrheal disease (DD) in day-care centers (DCC) for children residing in a poor urban slum area of Quito, Ecuador, compared with that for children from the same environment but cared for in their own residential home (RH), a prospective age-, sex-and locale-controlled study of DD was conducted, including 115 children in DCC and 115 in RH, ages 12 to 42 months. The overall incidence of DD was 46/1000 child weeks. Diarrhea was more common in DCC than in RH (relative risk (RR), 1.75; 95% confidence interval (CI), 1.38 to 2.22; P < 0.001). Poor hygienic practices were more prevalent in DCC than in RH. The use of reused water for child handwashing before eating and for washing raw vegetables was associated with a higher risk of DD in DCC than in RH (RR = 4.08, CI 2.93 to 5.67, P < 0.001; RR = 3.90, CI 2.79 to 5.44, P < 0.001, respectively). These two practices were risk factors in the DCC (RR = 2.74, CI 2.08 to 3.68, P < 0.001; RR = 2.05, CI 1.55 to 2.71, P < 0.001, respectively) when compared with their absence in the same DCC. Shigella (RR = 3.58, CI 1.19 to 10.78, P < 0.02), Aeromonas (RR = 10.47, CI 1.35 to 81.05, P < 0.01), rotavirus (RR = 2.86, CI 1.87 to 4.39, P < 0.001) and Giardia (RR = 1.59, CI 1.00 to 2.59, P < 0.05) were more common in DCC than in RH. More than two-fifths of the Shigella and Aeromonas isolates were resistant to trimethoprim-sulfamethoxazole. Although the incidence of DD was lower in this high Andean community than reported in many developing countries, DCC significantly increased the risk of disease. Poor hygiene in DCC, particularly the reuse of the scarce available water, was identified as an important risk factor. Increasing use of DCC in poor communities will likely increase DD and its adverse consequences in developing country settings unless an effort is made to improve hygienic practices.