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Special Report
Preventive Interventions
Under Managed Care: Mental Health
and Substance Abuse Services
Appendix B:
Cost Analyses
The costs of mental disorders and substance abuse include the
direct costs of treatment programs and services as well as
the indirect costs of the loss of productivity in all aspects of
an individual’s life. For example, substance abuse–related costs are
incurred in the direct treatment of the problem, treatment of medical
conditions attributable to substance abuse, treatment of medical conditions
for which substance abuse is a major risk factor, and extended
lengths of stay due to complications arising from a secondary diagnosis
of substance abuse (NIDA, 1998). Intangible costs include prevention
of pain and suffering (Haddix, 1996). In general, costs are viewed as
consumption of scarce resources that could have been used in other
ways (CMHS, 1996c).
Currently, the four measures of cost
impact that are most often addressed in the
analysis of preventive interventions are cost-effectiveness,
cost benefit, cost utility and
cost offset. Cost-effectiveness analyses most
often compare the cost per unit of outcome
among alternative interventions that produce
the same or similar effect; sometimes they
compare the outcome of an intervention to
no intervention (Haddix, Teutsch, Shaffer, &
Duret, 1996). In the case of prevention,
effectiveness is the avoidance of adverse outcomes.
Cost-effectiveness is determined by
dividing the net cost of an intervention by its
net effectiveness (Teutsch, 1992). In this
ratio, the denominator represents positive
outcomes resulting from an intervention; the
numerator represents the cost of obtaining
those outcomes (Gold, Siegel, Russell, &
Weinstein, 1996). A cost-effective intervention
produces more positive outcomes than
alternative uses of the resources (NIDA,
1998). One observer notes the following:
"Cost-effectiveness" is a term that
is often misunderstood and misused.
The imprecision attached to the term
"cost-effective" stems also from the
variety of masters the concept serves.
Purchasers of health care use the term
to convey a careful assessment of the
relative value of different healthcare
services; producers of health care technologies
and programs use the idea to
support marketing claims; advocates
for particular illnesses or constituencies
use the term to garner resource investments.
All of these parties are agreeing
to the notion of value for money that is
connoted by the term, and this notion
does allow for common conceptual
ground to be found.
(Gold et al., 1996, pp. xvii–xviii)
While cost-effectiveness studies ask
whether a preventive intervention is worth the time, trouble, and incurred costs relative
to other alternatives, cost-benefit analyses
seek to determine, "Is prevention worth it?"
(NIDA, 1998). When outcomes of preventive
interventions are viewed as benefits, a monetary
value is assigned to each outcome. Cost
benefit is expressed as a ratio with the benefits
as numerator and the costs as the
denominator. Because the benefits of preventive
interventions may include avoidance of
pain and suffering and enhanced quality of
life, the determination of monetary value can
be a difficult and controversial process.
Cost-utility analyses focus on increased
quality of life. Often expressed as cost per
quality-adjusted life years (QALY), the net
benefit is derived from calculating the number
of life years saved, adding morbidity
reduced and subtracting side effects reduced
(Haddix et al., 1996). A newer variant of
the QALY was created for the World Health
Organization’s The Global Burden of
Disease (Murray and Lopez, 1996), called
the Disability-Adjusted Life Years (DALY).
This internationally standardized measurement
expresses years of life lost due to premature
death and years lived with a disability.
This report projects that by the year
2020, depression will be the second leading
burdensome disease worldwide (and in 1990
was ranked the fourth most burdensome).
Another application of cost-utility analysis
is in the measurement of immediate intervention
outcomes, such as participation,
satisfaction, and coordination with related
services (NIDA, 1998).
Cost offset occurs when the provision of
preventive behavioral health services results
in reduced utilization of other health or
social services—in other words, the cost of
behavioral intervention offsets treatment or
other costs that are incurred if a problem is
not prevented. To date, relatively little discussion
of cost offset exists in the prevention
literature (NIDA, 1998). The cost of providing
some mental health services can be
offset in part or in full through a decline in
the use of general medical services when
mental health factors lead to unnecessary or
ineffective health care utilization. The trend
toward "carving out" mental health and
substance abuse benefits (to be managed by
large specialized proprietary companies) is
causing concern because it may limit opportunities
to achieve cost offset since the medical
and surgical benefits where savings
occur are managed separately:
Mental health benefits that are carved
out by the payer break the link between
mental health and general financing.
In these types of carve-outs, managed
care plans lack a financial incentive to
capture cost offsets and lose access to
information about their subscribers’
use of medical care services. Managed
care companies that do not also manage
mental health benefits have little
incentive to pursue savings from cost
offsets because this requires a substantial
investment to develop the expertise
to identify cases with high cost-offset
potential.
(Olfson, Sing, & Schlesinger, 1999, p. 86)
Some in the managed care environment
are concerned about how much time is
required for savings to be demonstrated.
One researcher has suggested that there is a
2- to 3-year minimum lag period between
health behavior change and cost reductions
related to health improvements (Fries,
Koop, Sokolov, Beadle, & Wright, 1998).
If an MCO experiences frequent enrollee
turnover, only short-term cost savings may
provide sufficient incentive to motivate the
provision of preventive behavioral health services. On the other hand, a study found
that voluntary disenrollment rates were
higher in MCOs that offered fewer behavioral
health promotion options (Stoil & Hill,
1998), which suggests that the availability of
these services may increase enrollee satisfaction
and retention. It may also provide a
marketing tool for differentiating one MCO
from its competitors (Mrazek, 1998).
It is unwise to overemphasize financial
incentives as the only or best rationale for
increasing the availability of preventive
behavioral health services to managed care
enrollees. While there may be evidence that a
preventive service is highly cost-effective and
contributes to quality of life, it may nonetheless
cost more to implement than it saves
(Satcher & Hull, 1995). In a book on prevention
effectiveness, the authors refer to
cost-effectiveness analysis as "an aid to decision-
making, not a complete decision-making
procedure" (Haddix et al., 1996). Other
incentives to provide preventive behavioral
health services must be identified.
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