Does treatment `pay for itself`?

One of the greatest challenges in the field of substance abuse is not developing the technology to treat alcohol and drug addictions but identifying funding sources for treatment programs. Even though successful addiction treatment can have an important impact on people's lives, funding for substance abuse treatment competes with other worthwhile uses of limited resources. Programs are more likely to be funded if they can be shown to “pay for themselves” through reductions in other types of costs.

The costs associated with substance abuse are well known:

• increased rates of crime, accidents, and infectious diseases such as HIV/AIDS, hepatitis, and tuberculosis

• increased burden on the criminal justice system and social programs such as unemployment, welfare, Medicaid, disability, and food stamps

• greater use of emergency room and hospital services

• exacerbation of certain mental disorders

• impaired work productivity

The question therefore is whether investment in treatment can reduce the costs of substance abuse sufficiently to represent a net benefit to society.

Although research suggests that substance abuse treatment is associated with net benefits, early studies were subject to certain limitations, including:

• the inability to compare the benefits of treatment with the costs

• small sample sizes

• potential lack of generalizability to the “real world”

• inability to measure a comprehensive array of social costs

• the data's age

Fellow researchers and I sought to address some of these limitations by analyzing data from the California Treatment Outcome Project (CalTOP) to address the issue of whether the benefits of substance abuse treatment outweigh the costs.1

CalTOP Analysis

CalTOP was a large demonstration project that collected outcomes data on clients admitted to 43 substance abuse treatment providers in 13 counties in California.2 Surveys were administered to clients at treatment intake and at three and nine months postintake. Survey data on the use of emergency room and hospital services and income received from various sources were linked to information on the patient's mental health services use and criminal activity from government databases. Data on substance abuse treatment costs were collected from 31 of the CalTOP providers using the DATCAP form (www.datcap.com).

We compared the direct cost of substance abuse treatment with the associated monetary benefits during the nine months following treatment intake. Treatment costs were calculated by multiplying the number of days the client spent in each modality (outpatient, residential, methadone maintenance) by the average per diem cost for that modality and adding them up. Monetary benefits were measured as the increase in employment earnings and reductions in the cost of medical care, mental health services, and criminal activity associated with the client's entrance into substance abuse treatment (a pre/poststudy design). Crime costs included the direct cost of days incarcerated and the victimization, law enforcement, and court costs of all crimes for which the person was arrested. Changes in unemployment, disability, retirement, and welfare income were examined separately. The unit costs (prices) assigned to healthcare services and criminal offenses were derived from a variety of sources.1

The main analyses were based on 2,567 clients who entered substance abuse treatment between April 2000 and May 2001 and were followed for nine months. On average among these patients, substance abuse treatment cost $1,583 and was associated with a monetary benefit to society of $11,487, representing a greater than 7:1 ratio of benefits to costs. The savings were primarily because of reductions in crime ($1,788 in incarceration costs and $5,676 in victimization and other crime-related costs) and increases in employment earnings ($3,352). A small reduction in emergency room use ($223) and a slight increase in welfare payments ($101) were also found, but associations of substance abuse treatment with hospital inpatient care, mental health services, and other government program costs were small and nonsignificant. Our conclusions appeared to be quite robust, based on a variety of sensitivity analyses.

For clients whose initial treatment modality was residential or outpatient, ratios of benefits to costs were nearly 6:1 and 11:1, respectively. (We were unable to estimate this ratio with sufficient precision for methadone maintenance patients because of the small subsample size.) Average monetary benefits were higher for those starting treatment in a residential setting ($16,257 versus $9,049 for those starting treatment as outpatients), but average treatment costs were also higher ($2,791 versus $838). Caution must be exercised in comparing across modalities, however, as the patients treated in each modality have different characteristics and treatment needs, and many of the patients used more than one modality during their treatment episode. Thus, one cannot infer that it would be more cost-effective to switch all patients to the treatment modality with the highest ratio of benefits to costs.

Policy Implications

In an era of skyrocketing healthcare costs, even medical interventions demonstrated to be highly effective are not always adopted because of cost-containment concerns. Substance abuse treatment faces the additional burden of stigma and perhaps an underlying skepticism about the value of rehabilitation. For these reasons, allocation of funds for substance abuse treatment often is based on a criterion stricter than cost-effectiveness, namely, cost-neutrality (i.e., substance abuse treatment costs are fully offset by reductions in other costs). Based on our analysis of CalTOP data, we concluded that even without considering the direct value to clients of improved health and quality of life, allocating taxpayer dollars to substance abuse treatment appears to be a sound investment. The challenge is to translate the research evidence into practice by convincing federal and state policy makers to allocate more resources to support treatment programs.

Supply and Demand

Historically, the United States often has pursued supply-side policies for controlling substance abuse (e.g., interception of illegal drug imports or crop substitution programs in impoverished countries). However, a decline in the supply of addictive substances without a commensurate reduction in their demand is likely to increase their price, providing incentives for alternative sources of supply to spring up and for addicts to engage in crime to pay for their habit. Treatment of addictions, on the other hand, ought to reduce price—thereby discouraging crime—by lowering demand. Thus, a strong argument can be made to redouble domestic policy efforts to ensure that every American who wishes to be treated for an addiction has the ability to gain access to treatment in a timely and affordable fashion.

Government's Important Role

Although private insurers can, and should, provide coverage for substance abuse treatment on par with treatment for medical conditions, private funds are necessarily imperfect substitutes for government-funded programs, since addicts tend to be uninsured or publicly insured. Furthermore, the main sources of cost savings associated with substance abuse treatment, in both CalTOP1 and earlier studies on this topic,3 were reductions in crime costs (65% of the total benefit in the CalTOP study) and increased employment earnings (29%). Only about 6% of the savings in the CalTOP study was related to reduced medical and behavioral healthcare costs. Thus, while substance abuse treatment appears to provide excellent value from a societal standpoint, it will be more difficult to make the economic case for a “return on investment” to private insurers, because their bottom line primarily depends on reimbursable services, at least in the short run.

Research Challenges

Additional challenges are faced by researchers in this area. The strength of the design of substance abuse treatment studies is necessarily limited by the inability to randomize clients because of ethical considerations. For example, research is needed to establish a link between the monetary benefits of treatment and the duration and intensity of treatment. Yet it is difficult to interpret associations that arise in observational data because of various selection biases: more acute clients probably receive more intensive services, at least initially, while more motivated clients are likely to have higher retention rates. Ideally, clients would be tracked over many years to determine the long-term cost implications of treatment history, but such longitudinal follow-up is expensive, especially with itinerant, low-income populations. Self-reported information (e.g., on crimes committed) may be unreliable, yet confidentiality concerns often prohibit linkage to government databases, and the information provided by those databases is limited, as well (e.g., the U.S. Department of Justice collects arrest, not crime, data).

Cost-benefit analyses provide information critical to informing the debate over which services should be funded. Unfortunately, studies of this nature are expensive and often underfunded. Generalizability of findings depends on the ability to recruit “real-world” treatment providers for research studies, yet the financial pressures and competing demands facing these programs, combined with a lack of infrastructure for extensive data collection, make it difficult for many providers to participate unless they are reimbursed for investments in IT or extra staff time. The net result of this lack of resources is a “vicious circle” in which it becomes difficult to carry out the research necessary to make the case for future investments in substance abuse treatment programs.

Final Thoughts

Neoclassical economic theory teaches that it is appropriate for the government to play a role in markets in which there are external costs and benefits. Thus, an economic rationale exists for the government to subsidize services needed to prevent the external costs associated with substance abuse (such as crime) and facilitate the external benefits (such as increased tax revenues from employment) associated with its treatment. Unfortunately, the public agencies likely to reap the benefits of investment in substance abuse treatment (e.g., criminal justice) are not the ones funding the treatment, and it seems unlikely that the agencies accruing the savings would readily accept budget cuts to allow the budget of the agencies incurring the treatment costs to be increased. In the end, politics, rather than economics, may pose the primary impediment to the willingness of the government to allocate the necessary resources for addiction treatment.

Acknowledgments

The CalTOP study was supported in part by the California Department of Alcohol and Drug Programs (ADP) under the Center for Substance Abuse Treatment TOPPS II funding (grant #98-00245, PI: Yih-Ing Hser) and by the Robert Wood Johnson Foundation (grant #046113, PI: Yih-Ing Hser). The content of this article does not necessarily reflect the views or policies of the funders and coauthors. The author wishes to thank the administrators and staff from the 13 participating counties for supplying information and supporting the study.

Susan L. Ettner, PhD, is a Professor in the Division of General Internal Medicine and Health Services Research at the David Geffen School of Medicine at UCLA.

References

1. Ettner SL, Huang D, Evans E, et al. Benefit-cost in the California treatment outcome project: Does substance abuse treatment “pay for itself”? Health Serv Res 2006; 41:192-213.
2. Hser Y-I, Evans E, Teruya C, et al. The California Treatment Outcome Project (CalTOP) Final Report Submitted to the California Department of Alcohol and Drug Programs. Los Angeles:UCLA Integrated Substance Abuse Programs, 2002.
3. McCollister KE, French MT. The relative contribution of outcome domains in the total economic benefit of addiction interventions: A review of first findings. Addiction 2003; 98:1647-59.