Economic evaluation of alcohol treatment services

Economic evaluation of alcohol treatment services

Michael T. French*

Health Services Research Center, Department of Epidemiology and Public Health; and Department of Economics, University of Miami (D93), 1400

NW 10th Avenue, Suite 1105, Miami, FL 33136, USA

Received 1 July 1998; received in revised form 1 December 1998; accepted 1 May 1999

Abstract

The objective of this paper is to summarize and critically review the most recent literature on economic evaluation of alcohol

treatment services, identify information gaps, and suggest a research agenda for the future. The focus of the review is researchpublished after 1995, although some of the earlier economic studies are also included. Research ®ndings in the literature provideevidence for the following. First, for many alcoholics, day hospital treatment or even less intensive outpatient services are cost-

e�ective alternatives to inpatient treatment. Second, alcoholism treatment often results in declining health care costs foralcoholics who are covered by private health insurance. Third, though the use of alcoholics anonymous (AA) as an alternativeto more structured alcohol treatment services may be cost-e�ective, substance abuse outcomes from AA are sometimes less

favorable and the risk of relapse is higher. Fourth, methods have recently been developed to estimate the dollar value of alcoholtreatment outcomes such as avoided absenteeism, increased productivity, improved health, and avoided crime. Based on these®ndings and developments, new treatment approaches and changes in service delivery systems require a fresh perspective on the

costs and bene®ts of alternative treatment services. The ®ndings from economic evaluation studies must be reported in clear andnontechnical terms to an audience of clinicians and politicians so that they can be used in the process of decision making. # 2000Elsevier Science Ltd. All rights reserved.

1. Introduction

Managed behavioral health care is a relatively newphenomenon, but its popularity has increased rapidlyin recent years. Resulting changes in the ®nancing andreimbursement of alcohol treatment services have ledto many unanswered questions regarding the relativecosts and bene®ts of alternative delivery systems. Man-aged care delivery systems tend to emphasize shorterepisodes of care and streamlined services comparedwith the more traditional fee-for-service reimbursementsystem. These cost containment practices will probablydrive down the total and average (per patient) cost ofalcohol treatment services. The two essential policyquestions that need to be addressed are whether thenew ``packages'' of services are e�ective and whether

they are cost-e�ective relative to a more generous

array of services.

To answer these questions, analysts should learn

from existing economic evaluation studies and employ

current techniques to estimate the costs and bene®ts of

alcohol treatment services. The purpose of this review,

therefore, is to highlight recent developments in the

economic evaluation of alcohol treatment services, es-

pecially since the advent of managed behavioral health

care in the 1990s. Some of the earlier economic evalu-

ation studies are identi®ed, but the focus of this review

is research published since 1995. Since the literature is

still rather sparse in this area, the paper also includes

some important studies focusing on illicit drugs rather

than alcohol. Methodological as well as empirical con-

tributions are summarized. The primary goals of this

review are (1) to inform readers about current econ-

omic evaluation studies, (2) to identify information

gaps, and (3) to propose a future research agenda.

Evaluation and Program Planning 23 (2000) 27±39

0149-7189/00/$ - see front matter # 2000 Elsevier Science Ltd. All rights reserved.

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* Tel.: +1-305-243-3490; fax: +1-305-243-2149.

E-mail address: [email protected] (M.T. French).

2. Overview of economic evaluation methods

Before reviewing the methodological and empiricalstudies, it will be helpful to establish de®nitions for im-portant terms and techniques used throughout thedocument. Economic evaluation methods in healthcare include techniques used primarily by health econ-omists to evaluate a program, service, or intervention(hereafter referred to generically as a ``program''). The®rst technique, and one that is incorporated into allothers, is economic cost analysis. Economic cost analy-sis estimates the opportunity cost of a program from asocietal perspective. Opportunity cost refers to the mar-ket value (i.e., the value of the next best alternative) ofall resources used in the delivery of a program (e.g.,Drummond, O'Brien, Stoddart & Torrance, 1997). So-cietal perspective implies that opportunity costs areincluded for all participants or stakeholders in the pro-gram (without double counting) such as organizations,individuals, taxpayers, and insurance companies (e.g.,Sindelar & Manning, 1997). For program evaluation,the societal perspective is advocated over a private per-spective (e.g., insurance company) because the formeris neutral across stakeholders and more comparableacross programs (Gold, Russel, Siegel & Weinstein,1996).

When two or more programs generate the same out-come, cost-minimization analysis can be used to guideresource allocation decisions. By estimating and com-paring the costs of alternative programs, the analystcan identify which program costs least to achieve agiven outcome. Cost minimization is a handy tech-nique, but it is rarely used to evaluate alcohol treat-ment services because most services involve multipleoutcomes with varying levels of success.

Though cost-e�ectiveness analysis is the most popu-lar economic evaluation method employed in healthcare, it is also the most commonly misunderstood.Simply stated, cost-e�ectiveness analysis comparesratios of incremental (opportunity) cost and incremen-tal outcome of two or more alternative programs whenoutcome is measured along a single scale. Incrementalanalysis relates to the additional cost or outcome thatwould arise if a program is implemented. For example,the incremental cost of an enhanced services interven-tion is the cost of adding this component to standardor baseline services; not the cost of standard plusenhanced services. This technique is not intended forevaluating a single program or two or more programsinvolving multiple types of outcomes (Gold et al.,1996).

The most powerful economic evaluation method isbene®t-cost analysis. With this technique, the opportu-nity cost of a program is compared to its economicbene®ts (measured in monetary terms, such as dollars).Results are expressed as a bene®t-cost ratio or net ben-

e®t (total bene®t minus total cost). The di�culty as-sociated with estimating the dollar value of programoutcomes such as sobriety and improved family lifehas resulted in few bene®t±cost studies in the alcoholtreatment literature (see French, 1995 for an earlierreview).

The health care evaluation literature sometimesrefers to two other types of economic evaluationmethods. Cost-utility analysis compares the incremen-tal cost and the incremental change in utility (qualityof life) for two or more programs. This technique isbecoming increasingly popular for evaluating pharma-ceutical products (e.g., Drummond et al., 1997), but israrely used in alcohol treatment evaluations. Alterna-tively, cost-o�set analysis is often referred to in thealcohol treatment literature as a distinct method ofeconomic evaluation (e.g., Holder, 1987; Holder,Longabaugh, Miller & Ruboris, 1991). In reality, cost-o�set analysis is a partial bene®t-cost analysis becauseit compares the cost of a program with the dollarvalue of one outcome (e.g., avoided future health carecosts). In the review that follows, cost-o�set studiesare discussed within the context of bene®t-cost studies.

To promote the consistency and uniformity of cost-e�ectiveness analysis of health care programs, the USPublic Health Service recently commissioned a groupof leading experts to reach consensus on a number ofmethods and principles. The sessions generated a com-prehensive book (Gold et al., 1996) as well as severalprofessional articles (e.g., Siegel, Weinstein, Russell &Gold, 1996; Russell, Gold, Siegel, Daniels & Wein-stein, 1996; Weinstein, Siegal, Gold, Kamlet & Russell,1996). A variety of topics such as analysis perspective,designing a cost-e�ectiveness study, estimating costs,discounting, addressing multiple outcomes, and uncer-tainty are carefully presented, and recommendationsare advanced. Although a careful summary of theseissues is not possible in the present paper, they arecontained in the assessment of recent studies and inthe proposed research agenda. Readers with furtherinterest can consult several excellent reference bookspublished on economic evaluation methods in healthcare, such as Tolley, Kenkel and Fabian (1994), Sloan(1996), Drummond et al. (1997), and Hargreaves(1998).

3. Brief historical perspective

As noted earlier, this review focuses on economicevaluation studies of alcohol treatment services pub-lished in the peer-reviewed literature from 1995 through1997. Some studies forthcoming in the peer-reviewedliterature and papers focusing on illicit drug use arealso included. Working papers, government reports,project reports, policy papers, and similar materials

M.T. French / Evaluation and Program Planning 23 (2000) 27±3928

Table 1

Summary of selective economic evaluation studies through 1994

Author(s)/type of study Objective(s) Principal ®ndings

Alterman et al. (1994)

Cost-e�ectiveness Measure cost-e�ectiveness of day hospital treatment

relative to inpatient treatment for cocaine dependence

Day hospital treatment amounts to 40±60% of the cost of

inpatient treatment for cocaine dependence; little

di�erence in outcomes between groups at 7-month follow-

up

Annis (1986)

Literature review Examine alternatives to traditional inpatient

hospitalization for alcoholism

Inpatient alcoholism programs show no higher success

rates than brief hospitalization; day treatment programs

have equal or superior results to inpatient hospitalization

and the former costs less

Elixhauser et al. (1993)

Literature review Review C-E and B-C literature of personal health services

from 1979 through 1990

Over 3000 eligible publications were located, a volume and

diversity which demonstrated di�erent levels of rigor and

®ndings

Goodman et al. (1991)

Bene®t-cost Investigate the extent to which initiation of alcoholism

treatment a�ects the total cost of health care

Overall, a 10% increase in alcoholism treatment leads to a

9.2% increase in health care costs; implications for

bene®ts of alcoholism treatment


Cost Model the determinants of alcoholism treatment costs

including location, type of alcohol problem, and

comorbidities

Comorbidities have signi®cant impact on treatment

location, but not on treatment costs conditional on

location; cost functions are estimated separately for

inpatient and outpatient care

Heien and Pittman

(1989)

Methodological Review methods and assumptions used in social cost

studies of alcoholism

Current estimates are inaccurate and overstate actual costs

Holder (1987)

Literature review Review research ®ndings and methods related to health

care cost savings that can be attributed to alcoholism

treatment

Many studies have methodological problems and serious

data limitations; almost all studies examine privately

insured alcoholics; cost o�sets do not vary much by type

of alcoholism treatment; it is di�cult to attribute causality

without a randomly assigned control group; there should

be no more studies with only 1 year pre- and post-

treatment data

Holder and Blose

(1986)

Bene®t-cost Examine the e�ect of alcoholism treatment on total health

care costs for 1697 treated alcoholics (and family

members)

Costs continue to decline during several years following

treatment; it is di�cult to control for treatment dosage, so

the intervention group is really an intent-to-treat group;

biggest spike in health care costs occurs just prior to

treatment

Holder and Blose

(1992)

Bene®t-cost Review claims ®led from 1974 to 1987 by employees (and

dependents) at a large Midwestern manufacturing

corporation

Total health care costs of treated alcoholics decline 23±

55% from their pretreatment levels; post-treatment costs

of treated alcoholics are 24% lower than post-treatment

costs for untreated alcoholics; signi®cant group di�erences

between treated and untreated samples raise concern

Holder et al. (1991)

Literature review

Methodological Review alcohol treatment cost and e�ectiveness studies to

form conclusions about certain modalities

There is little clinical agreement about the best measure of

e�ectiveness (abstinence or reduced use, and over what

time frame); consider 33 di�erent treatment modalities and

rank modalities in a matrix of cost (low±high) and

e�ectiveness (low±high); many e�ective modalities (brief

motivational counseling) tend to be low cost and many

less e�ective modalities (residential) tend to be high cost;

surprisingly, the study shows that a negative relationship

between cost and e�ectiveness is possible

(continued on next page)

M.T. French / Evaluation and Program Planning 23 (2000) 27±39 29

are not discussed because the rigor and quality ofthese sources are uneven, and many of these docu-ments are hard to access. Although the review disre-gards some respectable studies, the papers summarizedhere have at least passed the test of peer review andattained a measure of quality.

To appreciate the contributions and recognize thegaps in the recent literature, it is best to begin with abrief historical review of the period preceding 1995.Table 1 summarizes most of the economic evaluationliterature for alcohol treatment services through 1994.The annotations are organized alphabetically byauthor, with information on type of study, objective(s),and principal ®ndings. Methodological quali®cations

and study limitations are presented in the concludingsection of this paper.

Several themes can be detected. A few studies exam-ine the relative cost-e�ectiveness of traditional inpati-ent treatment for substance abuse vs less intensivetreatment such as day hospital care or periodic outpa-tient services (Alterman et al., 1994; Annis 1986; Long-abaugh et al., 1983; McCrady et al., 1986; Walsh etal., 1991). The general conclusion from these e�orts isthat inpatient and ambulatory care generate roughlyequivalent outcomes at follow-up. Given the lowercost of ambulatory services compared with inpatientservices, the former should be considered a more cost-e�ective treatment option. However, some studies

Table 1 (continued )


Holder and Blose

(1991)

Bene®t-cost Compare alcoholism treatment utilization patterns and

charges for three groups of insurance enrollees

Total alcoholism treatment cost was $4665 per patient

over the period of study, and $1287 per year; average

costs are described by gender and by age

Howard (1993)

Methodological Critical review of Holder et al. (1991) Disagrees with earlier conclusions about relative cost

e�ectiveness of di�erent modalities when some modalities

treat alcoholics of di�ering severity; also objects to

selection of studies and interpretation of results

Jones and Vischi (1979)

Literature review Review cost-o�set studies for alcohol treatment services Findings and recommendations are somewhat redundant

in light of results of more recent studies and literature

reviews

Longabaugh et al.

(1983)

Cost-e�ectiveness Compare the cost and e�ectiveness of extended inpatient

hospitalization (EIH) with partial hospitalization (PH) for

alcoholism

Short-term (6 months) outcomes show PH is as clinically

e�ective as EIH; PH can be delivered at much lower cost

than EIH; analysis does not control for patient severity

and patient-treatment matching; concerned about

``regression to the mean''

McCrady et al. (1986)

Cost-e�ectiveness Follows the treatment groups from Longabaugh et al.

(1983) through 12-month outcomes

Clinical e�ectiveness is very similar for PH and EIH, but

cost is much lower for PH; results are the same as for the

6-month outcomes

Richman (1983)

Methodological Propose methodological recommendations for cost-

e�ectiveness studies of drug and alcohol treatments

Recidivism and resource absorption are important factors

to consider; readmissions account for about 50% of total

admissions to substance abuse treatment programs, but

many analyses are con®ned to the initial treatment

episode; a minority of the patients use a

disproportionately large share of clinical services (resource

absorption); argues for case-mix adjustment in calculation

of treatment costs; short follow-up periods may exaggerate

treatment e�ectiveness

Walsh et al. (1991)

Cost-e�ectiveness Randomly assign 227 alcoholic workers to mandatory

inpatient treatment, mandatory AA, or choice of options

All three groups improved, and there were no di�erences

in job performance measures; hospital group did best on

substance use outcomes, where AA group did least well;

AA group and choice group required more subsequent

hospitalization than the hospital group; concluded that

referral to AA alone or choice of programs requires

intense monitoring due to higher risk of relapse; implicit

cost-e�ectiveness implications


Table 2

Summary of economic evaluation studies since 1995


Barnett and Swindle (1997)

Cost-e�ectiveness Seek to identify the characteristics of cost-e�ective

inpatient substance abuse treatment programs; survey of

program directors and records of 98 VA treatment

programs; principal outcome considered is readmission

within 6 months

Program size (negative), intended LOS (positive),

and ratio of sta� to patients (positive) are

signi®cantly related to treatment cost; same

relationships with regards to e�ectiveness, with the

exception of ratio of sta� to patients; patient

characteristics (history of prior treatment) are

related to cost and readmission; 28-day program is

more costly and slightly more e�ective than a 21-

day program, resulting in incremental cost

e�ectiveness of $26,450 per successful treatment;

moving from a 21- to 28-day program may not be

cost e�ective; consolidation of small programs

would reduce costs but also reduce access and

e�ectiveness

Blum and Roman (1995)

Literature review Review cost and outcome studies of EAPs Many EAP evaluations have design limitations; no

de®nitive evidence that EAPs are cost e�ective

relative to other programs or that one type of EAP

is more cost e�ective than another type; however,

most EAP evaluations show e�ectiveness, having

positive implications for cost e�ectiveness

Booth et al. (1997)

Cost Evaluate changes in health services utilization and costs

for lower socioeconomic male veterans who received

inpatient alcoholism treatment at VA medical centers

Both total inpatient days and outpatient visits

increased for all groups completing treatment;

increases in health care utilization and costs were

greatest for the group who completed inpatient

treatment; alcoholism treatment in the VA system

may be associated with higher short-term medical

costs because ability to pay is not a deciding factor

in the provision of care

Bray et al. (1996)

Cost Analyze cost of EAPs at seven worksites EAPs exhibit some economies of scale; labor is the

most costly resource; EAPs with similar costs per

eligible employee may use a substantially di�erent

mix of resources; annual cost per eligible employee

ranges from $10.56 to $181.47

Callahan et al. (1995)

Cost-minimization Complete cost-minimization analysis of managed care

program for mental health/substance abuse treatment

Treatment expenditures are reduced by 22% below

predicted levels in the absence of managed care,

without any overall reduction in access or quality

of services; one population segment (children and

adolescents) may be the exception; implications for

cost minimization under managed care

Dunlap and French (1998)

Methodological Discuss the methodological di�erences in the accounting

and economic approaches to treatment cost estimation

Economic (opportunity) cost is based on resources

used and will always be greater than or equal to

accounting costs; methodological di�erences are

explained through actual case studies

Finney and Monahan (1996)

Cost-e�ectiveness Extend method and ®ndings of Holder et al. (1991), who

examined the cost e�ectiveness of alcoholism treatment;

determine e�ectiveness by creating an alternative

e�ectiveness index

Conclude that ®ndings reviewed in Holder et al.

show weak relationship between cost and

e�ectiveness; point to many limitations of the study

and caution against using the results for resource

allocation or policy purposes





French et al. (1998)

Cost Estimate cost of standard EAP services and incremental

cost of enhanced services at a large Midwestern EAP

Total developmental cost is $44,000 and

implementation cost for the ®rst year of the

intervention is $140,000; annual cost per eligible

employee for standard EAP services was $22.92,

and the incremental annual cost per eligible

employee for enhanced services was $5.01 under

full implementation; ®ndings provide benchmark

cost estimates for other EAPs considering enhanced

services

French and McGeary (1997)

Cost/methodological Present cost estimation method for substance abuse

programs with speci®c reference to the Drug Abuse

Treatment Cost Analysis Program (DATCAP)

Technique is outlined and applications to actual

treatment programs are presented

French et al. (1997a)

Cost/methodological Present data collection methods, analysis, and reporting

for cost estimation of substance abuse programs

Paper is written as a user's guide for data collection

and cost estimation; case study results are

presented

French et al. (1996a)

Methodological Introduce methodology for estimating the full cost

(bene®t) of health consequences (outcomes) associated

with substance abuse interventions

Methodology is based on medical, economic, and

social welfare principles; example calculations are

presented for six health consequences including

acute hepatitis B, HIV/AIDS, hypertension,

bacterial pneumonia, sexually transmitted diseases,

and tuberculosis; methodology o�ers evaluators a

framework for performing bene®t-cost analyses of

substance abuse interventions

French et al. (1997b)

Cost Estimate the per-employee annual cost of operating an

EAP across worksites included in a national probability

sample; present cost ®ndings by type of EAP, worksite

characteristics, and other factors

The mean (median) annual cost of EAP services

per eligible employee is $26.59 ($21.84) for internal

programs and $21.47 ($18.09) for external

programs; internal EAPs provide signi®cantly more

services than external EAPs, which may explain the

higher mean and median costs


Cost Estimate alcoholism treatment cost functions using

insurance claims data; predictors include decision to seek

treatment, treatment setting (inpatient vs outpatient), and

individual characteristics

Diagnosis for alcohol abuse or alcohol dependence

and comorbidity has important in¯uence on the

probability of additional treatment; claims data

present several limitations; bivariate probit analysis

with sample selection; translog cost function to

detect interactions and nonlinearities


Bene®t-cost Examine additional issues related to health care cost-o�set

e�ects of substance abuse treatment

Policymakers should distinguish between cost and

utilization e�ects; total e�ects di�er from individual

o�sets; results support the substitution of one type

of care for another; study is limited by data only

on treated substance abusers; selection e�ects are

also a concern; actual cost-o�set e�ects are modest

Humphreys and Moos (1996)

Cost-e�ectiveness Compare di�erences in 1- and 3-year treatment costs

between alcoholics who attend AA vs those who seek help

from a professional provider of outpatient alcoholism

treatment

Treatment costs are lower for the AA group over

the course of the study, but outcomes are similar;

voluntary AA participation may signi®cantly

reduce treatment costs without compromising

outcomes; selection e�ects, cross-over e�ects, and

small sample size (201) are concerns



rightly point out that inpatient clients are often more

di�cult to treat than outpatient clients, which may

explain (partly or entirely) why inpatient programs do

not show better outcomes (Howard, 1993). In ad-

dition, alcoholics in outpatient programs may have a

higher risk of relapse than alcoholics in hospital-based

programs (McCrady et al., 1986; Walsh et al., 1991).

The heterogeneous (and sometimes unobserved)

characteristics of individuals who enter di�erent types

of programs pose statistical challenges for programevaluators, commonly referred to as ``selectivity bias''.

Holder and colleagues pioneered a series of studiesinvestigating whether alcoholics who receive servicesfor their abuse or dependence encounter lower healthcare costs after initiation of these services, comparedwith an equivalent period before service delivery(Goodman, Holder & Nishiura, 1991; Holder, 1987;Holder & Blose, 1986; Holder & Blose, 1992; Holderet al., 1991; Holder & Blose, 1991; Jones & Vischi,



O'Farrell et al. (1996a)

Cost-e�ectiveness/Bene®t-cost Randomly assign 36 married male alcoholics who initiated

individual alcoholism counseling to counseling/behavioral

marital therapy (BMT) or counseling/interactional couples

group (IRG); C-E and B-C analysis of adding BMT or

IRG to individual counseling

From a net bene®t perspective, BMT and

individual counseling alone both show higher

bene®ts than costs; analyzing the data presented, it

appears that BMT is not cost-e�ective relative to

individual counseling alone; BMT is better than

IRG, but both are more expensive and not as

e�ective as individual counseling alone; sample size,

representativeness, and short period before baseline

are limitations

O'Farrell et al. (1996b)

Cost-e�ectiveness/Bene®t-cost Randomly assign 59 couples to counseling/BMT only or

to counseling/BMT plus relapse prevention (RP); similar

design and analysis as O'Farrell et al. (1996a)

Both conditions show positive net bene®ts, but

cost-e�ectiveness results are mixed; authors do not

estimate incremental costs and outcomes of RP,

but data seem to imply higher incremental costs of

RP compared to incremental outcomes;

examination of individual cases suggests that

patient treatment matching may be appropriate to

achieve maximum bene®ts; limitations include small

sample sizes, absence of control group to compare

to BMT, short pre-treatment period, and some

methodological inconsistencies

Rajkumar and French (1997)

Methodological/Bene®t-cost Propose a method to estimate the tangible (e.g., criminal

justice system) and intangible (e.g., pain and su�ering of

crime victims) costs of particular types of crime;

demonstrate the feasibility of this method by estimating

the pre- and post-treatment costs of criminal activity for a

sample of 2420 drug abusers

The estimated crime-related costs incurred during

the period prior to treatment admission and the

period after treatment discharge are signi®cantly

higher when calculated using the proposed method

compared to traditional methods considering

tangible costs only; a simple bene®t-cost

comparison of criminal activity outcomes indicates

that drug abuse treatment has the potential to

return net bene®ts to society through crime

reduction; quantitative evidence shows that

including victims' intangible losses can substantially

raise the estimated dollar bene®ts of avoided

criminal activity

Sindelar and Manning (1997)

Methodological Discuss issues related to the economic evaluation of

treatment of illicit drug abuse; most issues are applicable

to alcoholism treatment as well

Suggest that current evidence about the cost-

e�ectiveness or cost-bene®ts of treatment is

insu�cient to direct public policies on funding;

discuss types of economic questions, perspective,

causality, multiple goals and outcomes, and

appropriate methodology; attribute the small, ``®rst

generation'' literature to the numerous di�culties

of applying appropriate methods in this area;

outline directions for future economic research


1979). Most of these studies involve alcoholics withprivate health insurance and health care costs aremeasured through large insurance claims databases.Most studies ®nd that health care costs begin todecline at the time of service delivery, but some of the®ndings require additional investigation due to numer-ous methodological challenges and data limitations(e.g., selectivity bias, regression to the mean, censoredsamples). These issues are explicitly discussed later inthis report.

Several studies have contributed to the methodo-logical literature on economic evaluation techniquesfor alcohol treatment services. Goodman, Holder,Nishiura & Hankin (1992) developed an econometricmodel to estimate the e�ects of treatment location(e.g., inpatient vs outpatient), type of alcohol pro-blem, and comorbidities on alcoholism treatmentcosts. Heien and Pittman (1989) discuss severalmethodological problems with national cost-of-illnessstudies for alcoholism and outline improved tech-niques. Howard (1993) o�ers a critical review ofHolder et al. (1991) and suggests some correctionsto the cost-e�ectiveness ®ndings. Two important fac-tors that Richman (1983) advocates for in the con-text of cost-e�ectiveness studies of drug and alcoholtreatments are recidivism and resource absorption (asmall number of clients a�ecting a relatively largeportion of treatment resources).

4. Review of recent studies

Several notable additions to the economic evalu-ation literature between 1995 and 1997 span the fullrange of topics, including methodological studies andempirical bene®t-cost studies (Table 2). The qualityof the science also improves during this period, withmany advances in both the ways that economicevaluation techniques are applied and the type ofdata collected. As noted earlier, the following discus-sion is organized by type of study (i.e., methodologi-cal, cost, etc.), and ample space is devoted tospeci®c ®ndings.

It should ®rst be noted that much of the methodo-logical research represents groundbreaking ventures,naturally accompanied by associated risks and short-comings. However, methodological studies are neededto advance the credibility of economic evaluation ®nd-ings. The ®nal assessment of these methods and tech-niques will depend on their acceptability in futureeconomic evaluation research.

French and colleagues contributed to the methodo-logical literature by developing a data collection instru-ment to assemble the appropriate information on

resource use and expenditures, information which canthen be used to estimate the economic costs of treat-ment services for a particular program (Dunlap &French, 1998; French & McGeary 1997; French, Dun-lap, Zarkin, McGreary & Mclellan, 1997a). The DrugAbuse Treatment Cost Analysis Program (DATCAP)can be completed by treatment program sta� with theassistance of a user's manual, telephone consultation,and/or on-site assistance. The cost estimation pro-cedures follow standard economic principles so thatthe analyst can calculate both the opportunity costand accounting cost of treatment services. In addition,the cost estimates can be presented in a variety of for-mats, such as per year for the entire program or perweek for a typical client.

The DATCAP instrument can be completed by anytype of substance abuse treatment provider, includingalcohol treatment programs. Recent applicationsinclude employee assistance programs (Bray, French,Bowland & Dunlap, 1996; French, Dunlap, Zarkin &Karuntzos, 1998) and all types of substance abusetreatment programs, ranging from outpatient metha-done maintenance clinics to therapeutic communities(French, Dunlap, Galinis, Rachal & Zarkin, 1996b;French et al., 1997a). The instrument is currentlybeing expanded to estimate the patient costs of sub-stance abuse treatment, including travel expenses, day-care costs, and lost wages.

There have also been methodological developmentsin the estimation of the dollar bene®ts resultingfrom e�ective substance abuse interventions. French,Mauskopf, Teague and Roland (1996a) introduced amethod to estimate the full dollar value of health-re-lated outcomes. Based on principles in economics,medicine, and epidemiology, the proposed methodcaptures the tangible and intangible bene®ts ofhealth improvements or avoided health consequences.Following the bene®t estimation theme, Rajkumarand French (1997) demonstrated a method to esti-mate the tangible and intangible bene®ts of avoidedcrime that can result from successful substance abuseinterventions. As demonstrated by the authors, theintangible bene®ts can be quite large, even thoughsome areas are not investigated. The method wasapplied to actual pre- and post-treatment data for2420 drug abusers to compare the costs of treatmentwith the dollar bene®ts associated with crime re-duction.

Goodman, Nishiura, Hankin, Holder and Tilford(1996) continued their econometric research on treat-ment cost functions using insurance claims data for879 employees or retirees of a large Midwestern manu-facturing company. Study participants had at least onetreatment episode for alcohol dependence, alcoholabuse, or alcohol psychoses between 1980 and 1987.By using a ¯exible form cost function to detect inter-


actions and nonlinearities, they predict alcohol treat-ment cost as a function of (1) prior treatment episodes,(2) the treatment location (i.e., inpatient or outpatient),and (3) individual characteristics. The most signi®cantexplanatory variables for additional treatment includediagnosis for alcohol abuse and drug abuse comorbid-ity. This study highlights the sophistication and powerof econometric modeling, while acknowledging thelimitations of insurance claims data.

Booth, Blow, Cook, Bunn and Fortney (1997)analyzed changes in health care utilization for85,000 male alcoholics who received inpatient carethrough Department of Veterans A�airs (VA) medi-cal centers in 1987. The impressive size of the dataset, the length of the pre-treatment and follow-upperiod (3 years), and the provision of substanceabuse and medical services in the VA on the basisof need rather than ability to pay represent notablefeatures of this study. Unlike several previous stu-dies on cost o�set e�ects of alcoholism treatment,Booth et al. found a signi®cant increase in thenumber of inpatient days and outpatient visits forall types of medical care and for all groups of alco-holics who received treatment services, even for in-dividuals who completed inpatient treatment. Thisresult is somewhat surprising because one wouldexpect inpatient care, especially for those completingtreatment, to be associated with lower health careutilization and costs. The authors suggest several ex-planations for this result, but the most compellingreason may derive from the fact that relapse iscommon even for those who complete treatment,and the VA system is more apt to provide follow-up services compared to other public and privateclinics. Determining whether the increases in short-term costs persist for longer periods is an idealtopic for future analyses.

One of the most creative and in¯uential papersfrom this period is a study by Barnett and Swindle(1997). Using program administrators' surveys andrecord abstraction from 98 VA inpatient treatmentprograms, Barnett and Swindle try to identify thecharacteristics of the most cost-e�ective clinics. They®nd that program size, intended length of completedtreatment as reported by program directors, theratio of sta� to patients, and a client's history ofprior treatment are all related to both treatmentcost and outcome (readmission within six months ofinitial treatment). In addition, they ®nd that a 28-day program is more costly and only slightly moree�ective than a 21-day program, resulting in anincremental cost-e�ectiveness estimate of $26,450 pertreatment ``success''. Treatment ``success'' is de®nedas no hospitalization for psychiatric or substanceabuse treatment within 180 days of discharge fromthe index treatment. The authors claim that moving

from a 21-day program to a 28-day program maynot be cost-e�ective. Furthermore, they argue thatconsolidation of small programs would probablyreduce costs, but might also lower treatmente�ectiveness and limit treatment access for some cli-ents.

A di�erent type of cost-e�ectiveness study was pub-lished recently by Finney and Monahan (1996). Build-ing on the work of Holder et al. (1991), these authorssuggest alternative ways to rank the relative e�ective-ness and cost-e�ectiveness of alcoholism treatmentmodalities. Since alcoholism treatment involves mul-tiple outcomes, only one of these outcomes can beused in a cost-e�ectiveness analysis, or the analystmust specify an index of e�ectiveness that captures arange of outcomes. The features of any e�ectivenessindex will be the subject of considerable debate. Never-theless, using the same cost estimates from Holder etal. (1991), Finney and Monahan de®ne an alternativee�ectiveness index and reinterpret some of the ®ndingsfrom the literature. With these changes, comparing all26 modalities in their review, the authors ®nd only aweak relationship between cost and e�ectiveness (cor-relation is ÿ0.01). While the absence of a standardizedmeasure of e�ectiveness limits the applicability of these®ndings for resource allocation and policy purposes,the review does highlight the consistent evidence onthe e�ectiveness of some modalities (e.g., social skillstraining, community reinforcement approach, beha-vioral marital therapy, and stress management train-ing).

Humphreys and Moos (1996) compare di�erences in1- and 3-year treatment costs between alcoholics whochoose to attend Alcoholics Anonymous vs those whoseek help from a professional outpatient alcoholismtreatment provider. As expected, treatment costs arelower for the AA group than for the outpatient groupover the course of the study. However, outcomes aresimilar for both groups, indicating that voluntary AAparticipation may signi®cantly reduce treatment costswithout compromising outcomes. The authors cautionthat although AA is not a substitute for outpatienttreatment in all cases, it should be encouraged forsome types of alcoholics. In addition, subjects thatself-select a treatment option rather than followingrandom assignment is a process that potentially intro-duces selection bias.

O'Farrell and colleagues examine both cost-e�ective-ness and bene®t-cost issues in their companion studiespublished in 1996. O'Farrell et al. (1996a) randomlyassigned 36 married male alcoholics who started indi-vidual alcoholism counseling to either (1) counselingalone, (2) counseling complemented with behavioralmarital therapy (BMT), or (3) counseling complemen-ted with an interactional couples group (ICG). Look-ing ®rst at individual counseling alone, they show that


the dollar bene®ts at follow-up (compared with the

baseline value) were signi®cantly greater than the cost

of treatment1. The same can be said for counseling

plus BMT, but not for counseling and ICG. The natu-

ral inclination is to recommend the virtues of individ-

ual counseling and endorse the addition of BMT to

individual counseling as economically prudent. How-

ever, a closer examination of the data will reveal that

the incremental bene®t of adding BMT is very small,

and possibly even negative2. Thus, individual counsel-

ing plus BMT can be justi®ed overall from a net ben-

e®t perspective, but individual counseling alone may

achieve similar outcomes at a lower cost. These results

should be considered preliminary, however, especially

given the small number of subjects that are random-

ized to three conditions.

The design and analysis in O'Farrell et al. (1996b)

are identical to O'Farrell et al. (1996a), with the excep-

tion that 59 married male alcoholics are randomly

assigned to individual counseling and BMT or to the

package consisting of counseling, BMT, and relapse

prevention (RP). Both BMT and BMT plus RP show

dollar bene®ts at follow-up that are higher than the

cost of treatment. However, as before, the incremental

bene®ts of BMT plus RP are small and possibly nega-

tive relative to BMT without RP. Thus, the higher

cost of adding RP to individual counseling and BMT

may not be economically justi®ed.

Another example of a recent bene®t-cost study is

Goodman, Nishiura and Humphreys (1997). The

objective here is to examine additional issues related to

health care cost-o�set e�ects of substance abuse treat-

ment. Similar to the earlier studies by Holder and

others (Holder, 1987; Holder & Blose, 1986; Holder &

Blose, 1992), Goodman and colleagues ®nd that health

care costs decline for substance abusers after treatment

initiation, but the di�erences compared to pre-treat-

ment levels are relatively modest. The authors suggest

that future studies should distinguish between health

care cost and health care utilization. In addition, they

emphasize the fact that cost di�erences before and

after service delivery can vary widely for individual

substance abusers. Thus, including relevant covariates

and increasing sample sizes can mitigate the e�ects of

these individual di�erences.

5. Summary and recommendations

The economic evaluation literature has recentlydeveloped into a well-de®ned collection of studies thatapply advanced techniques to the study of alcoholtreatment services. This literature is especially note-worthy given the fact that the ``®rst generation'' ofeconomic evaluation studies only started to appear inprofessional journals in the early 1980s. Findings inthe literature are not always consistent and interpret-ation requires some degree of subjectivity. Neverthe-less, the most important ®ndings and evidence in theliterature can be summarized as follows:

1. For many alcoholics, day hospital treatment or evenless intensive outpatient services (e.g., AA or indi-vidual counseling) are cost-e�ective alternatives toinpatient treatment.

2. Though national and individual program estimatesare available for the cost of employee assistanceprograms (EAPs), no study has rigorously examinedthe incremental cost-e�ectiveness of EAPs as asource of diagnosis, brief counseling, and referralfor alcoholic employees.

3. The initiation of alcohol treatment services oftenrelates to declining health care costs for alcoholicswho are covered by private health insurance.

4. Personal characteristics, such as severity of diagno-sis, comorbidities, and participation in prior treat-ment, a�ect the costs and outcomes of alcoholtreatment services; adjusting the mix of cases intreatment planning may be necessary to account forthese factors.

5. Although the use of AA as an alternative to morestructured alcohol treatment services may be cost-e�ective for some alcoholics, substance abuse out-comes are sometimes lower, and the risk of relapseis usually higher.

6. Data collection forms and standardized techniquesare now available to estimate the economic andaccounting cost of alcohol treatment services.

7. Methods have recently been developed allowing theestimation of the dollar value of alcohol treatmentoutcomes, such as avoided absenteeism, increasedproductivity, improved health, and avoided crime.

While the methodological developments and empirical®ndings summarized above are signi®cant, each of thestudies reviewed earlier was challenged by signi®cantobstacles, such as the multi-outcome nature of alcoholtreatment services, the inability to randomize to a no-treatment control group, and limitations associatedwith secondary data sources. Listed below is a briefsummary of the challenges and limitations faced byprevious studies, which may be encountered in futurestudies as well.

1 Although randomization placed individuals into di�erent treat-

ment conditions, the study did not randomize subjects to a no-treat-

ment control group. Thus, when the outcome ®ndings are

interrupted, regression to the mean is still a potential problem.2 The information necessary to make these calculations is not expli-

citly provided in O'Farrell et al. (1996a).


1. The optimal and preferred research design (randomassignment of alcoholics to an intervention group(s)and a no-treatment control group) is often not feas-ible for this population due to ethical concerns, butit is di�cult to attribute causality without randomassignment. Observational ®eld studies with alco-holics covered by managed care policies hold prom-ise as a viable alternative to pure randomization(Callahan, Shepard, Beinecke, Larson & Cava-naugh, 1995).

2. Analysis of alcoholics who voluntarily choose treat-ment introduces selection bias because this sample isa motivated group, and one can not determine ifthey would have improved even in the absence oftreatment services; unobservable personal character-istics may be correlated with treatment success.

3. Economic evaluation techniques in the literature aresometimes inconsistent (e.g., de®nition of terms,analysis perspective, execution of methods) andimproperly used, making it di�cult to compare ®nd-ings across studies.

4. Measures of e�ectiveness are not uniform acrossstudies, and sometimes outcomes move in di�erentdirections, further compounding comparison di�-culties across studies. Indexes of e�ectiveness havebeen suggested, but so far consensus has not beenestablished.

5. Using insurance claims data to model health carecosts has many desirable features, but limitationsexist because: health care claims are not a truemeasure of economic cost; type of treatment anddosage (e.g., quality and quantity of servicesreceived) is di�cult to determine; pre-treatment andpost-treatment periods are generally short; eligibilitygaps and missing data are common; and alcoholicswithout insurance or on public assistance can notbe included in the study.

6. Most studies consider 6-month or 12-month out-comes, but very little research investigates long-termtreatment outcomes.

7. Sample sizes are very small for some study groupsthat are compared in a cost-e�ectiveness analysis orbene®t-cost analysis; small sample sizes increase thein¯uence of outliers and reduce the power of theanalysis.

8. Few studies estimate the opportunity costs of alco-hol treatment services or the full range of treatmentbene®ts from a societal perspective; partial econ-omic evaluations may formulate incorrect con-clusions.

Drawing from the strengths and limitations of the cur-rent literature, the following recommendations areadvanced to guide future economic evaluation studiesof alcohol treatment services:

1. Although random assignment to an intervention

and a no-treatment control group may not be feas-ible for many studies, random assignment to stan-dard and enhanced treatments should be consideredin future research designs. Non-randomized studiesshould employ statistical corrections to address po-tential limitations, such as sample selection bias.

2. Future studies should achieve an adequate samplesize to ensure statistical power and enhance general-izability.

3. Cost-e�ectiveness analysis and bene®t-cost analysisof alcohol treatment services should not be pursueduntil treatment e�ectiveness has been established.

4. Whenever possible, bene®t-cost analysis should beselected over cost-e�ectiveness analysis, especiallywhen a program or intervention involves multipleoutcomes. Bene®t-cost analysis strives for maximuminclusion of multiple outcomes from alcohol treat-ment services, which results in a more precise andcomparable (i.e., dollars) contrast of treatment costsand outcomes.

5. The e�ectiveness of recent treatment is in¯uencedby the number and duration of previous treatmentepisodes (e.g., French, Zarkin, Hubbard & Rachal,1993; Hubbard et al., 1989). Therefore, researchersshould include measures of prior treatment in multi-variate models that estimate the e�ectiveness of themost recent treatment episode.

6. Estimation of long-term alcohol treatment costs andoutcomes should be pursued in all future economicevaluation studies if the research design and budgetwill accommodate this extension. As suggested byHolder (1987), future studies of treatment cost-o�-sets should extend the baseline and follow-up periodbeyond 1-year pre- and post-treatment initiation.

7. Methods are now available that allow estimation ofthe dollar value of most alcohol treatment out-comes. Future bene®t-cost studies should attempt toconsider the full range of outcomes (beyond healthservices utilization) in estimates of economic ben-e®ts.

8. Standardization in design, methods, analysis, andreporting of economic evaluation research is one ofthe primary recommendations advanced by a recentNIH expert panel (Gold et al., 1996) and healtheconomists in general (Drummond et al., 1997; Sin-delar & Manning 1997). Economic evaluationresearch of alcohol treatment services should followthese guidelines (e.g., estimate opportunity cost, usesocietal perspective) to maintain internal consistencyand to facilitate comparisons with other health careservices and programs.

9. While the economic evaluation literature is well rep-resented by studies on the relative costs and out-comes of inpatient and outpatient services, moreeconomic studies are needed to evaluate contempor-ary and innovative treatment services. These inno-


vations include EAPs, AA coupled with outpatientcounseling, medications such as naltrexone, pro-grams that link alcohol treatment services with pri-mary medical care, brief intervention models, andsocial treatment models.

10. Previous studies have urged analysts to recognizethe wide continuum of alcoholism and alcoholdependence, and the unique treatment needs ofmany alcoholics. Protocols matching patients andtreatments provide an excellent opportunity forfuture economic evaluation research. Researchobjectives for patient-treatment matching studiesshould include an economic evaluation componentwhenever feasible.

In summary, though economic evaluation research ofalcohol treatment services has advanced rapidly duringthe 1990s, many improvements can still be made inmethodology, data collection, analysis, and reporting.New technologies and changes in service delivery sys-tems require a fresh look at the costs and bene®ts ofalternative treatment programs. Economic evaluationresearch has the potential to apply rigorous techniquesto the study of alcohol treatment services. The ®ndingsfrom these analyses must then be reported clearly to anontechnical audience so that the results can rapidlyin¯uence policy decisions. Given the strong interest ineconomic evaluation studies during the current decade,and the continuing support for this type of researchfrom public and private sources, the literature isalmost certain to become more sophisticated and volu-minous during the ®rst part of the 21st century.

Acknowledgements

This work was supported by the National Instituteon Alcohol Abuse and Alcoholism and three researchgrants (2P50 DA07705, 5P50 DA10236, and 1R01DA11506) from the National Institute on Drug Abuse.An earlier version of this paper was presented at theAmerican Public Health Association Annual Confer-ence, Washington, DC, November, 1998. I am gratefulto David Brown, Ronald Newman, Carmen Martinez,Christopher Roebuck, Helena SalomeÂ , Silvana Zavala,and three anonymous referees for their helpful com-ments and assistance on earlier drafts of this manu-script.

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