HEALTH ECONOMICS LETTERS

ESTIMATING THE ECONOMIC COST OFSUBSTANCE ABUSE TREATMENT

MICHAEL T. FRENCH* AND KERRY ANNE McGEARYDepartment of Economics and Health Services Research Center, University of Miami, USA

SUMMARY

Few studies have estimated the economic costs and benefits of substance abuse treatment services. This paperintroduces a data collection instrument and method for estimating the economic cost of substance abuse treatmentprograms. The Drug Abuse Treatment Cost Analysis Program (DATCAP) is based on standard economicprinciples and the method has recently been tested in two drug abuse intervention studies. Findings from casestudies at three treatment programmes are presented to demonstrate the feasibility and reliability of theinstrument. The estimation methods and results can be used by treatment programmes for self-evaluation purposesand by researchers who are interested in performing cost-effectiveness or benefit-cost analyses of substance abuseservices. © 1997 by John Wiley & Sons, Ltd.

Health Econ. 6: 539–544 (1997)

No. of Figures: 0. No. of Tables: 2. No. of References: 37.

KEY WORDS — addiction; alcohol; drugs; cost analysis

INTRODUCTION

The United States spends a considerable amountof public and private money on substance abusetreatment programmes. In 1993, approximately$2.3 billion in Federal government expendituresflowed to programmes that primarily treatedindividuals addicted to illicit drugs such as heroin,cocaine and marijuana. These expendituresincreased to $2.8 billion in 1996.1 Alcoholismtreatment programmes account for even morehealth care resources and a significant amount ofresources also flow to self-help groups and peersupport groups such as Alcoholics Anonymousand Narcotics Anonymous. Private sector invest-ments are also large as the majority of private

health insurance policies have either full or partialcoverage for behavioural health care, includingsubstance abuse treatment.

Given the vast amount of resources that isinvested annually in substance abuse treatmentservices, it is surprising that very few economicevaluations have been conducted.2–5 It is oftenassumed that substance abuse treatment servicesare effective for most clients and cost-effectiverelative to other anti-drug policies such as inter-diction and law enforcement.6–8 However, quanti-tative economic data are conspicuously absent inthis area and the existing studies rarely followstandard economic principles for cost estimation,cost-effectiveness analysis or outcome valuation(e.g. Refs 9–11).

*Michael T. French, University of Miami (D-93), 1400 NW 10th Avenue, Suite 1105, Miami, Florida 33136, USA. Tel. (305) 2433490. Fax (305) 243 2149. E-mail mfrench@mednet.med.miami.eduContract grant sponsor: National Institute on Drug AbuseContract grant number: P50-DA07705

HEALTH ECONOMICS, VOL. 6: 539–544 (1997)

CCC 1057–9230/97/050539–06 $17.50© 1997 by John Wiley & Sons, Ltd.

A critical component of a comprehensive eco-nomic evaluation is a programme cost analysis.The purpose of this letter is to describe a datacollection instrument and a method for estimatingthe opportunity cost of substance abuse treatmentprogrammes. Opportunity costs are estimatedfrom the programme perspective, but plans areunder way to include other social costs of treat-ment in the data collection instrument. We esti-mate opportunity costs rather than accounting orfinancial costs to facilitate cross-programme com-parisons and additional programme evalua-tion.9,11 Resource use and cost data are presentedfor a selected number of recent case studies todemonstrate that the method is operational andconsistent. This research brings more economictheory into the analysis of drug abuse treatmentprograms and offers future evaluation studies asystematic method for collecting data and esti-mating the costs of substance abuse treatmentservices.

DRUG ABUSE TREATMENT COSTANALYSIS PROGRAM (DATCAP)

Some of the earliest treatment cost studies beganto appear in the substance abuse treatmentliterature in the 1980s (e.g. Refs 12–22). Theseinitial studies were often difficult to compare andevaluate because the methods were not standard-ized across the studies, the data sources wereoften limited to programme budgets rather thanresources used and expenditures and the estima-tion perspective was unclear. While economic costestimation methods were advanced and widelyused in many health care programme evaluations(e.g. Refs 23–25), penetration of economic tech-niques into substance abuse research wasextremely limited throughout most of the 1980s.

Perceiving the need for an economic evaluationguide, we developed a data collection instrumentand cost estimation procedure for substanceabuse treatment programmes. The instrumentbecame formally known as the Drug AbuseTreatment Cost Analysis Programme (DATA-CAP) and was first used successfully to evaluatethe costs and outcomes of an enhanced counselingintervention26 and a job training/employmentintervention.27 The DATCAP has been used inseveral subsequent cost studies includingemployee assistance programmes, methadone

maintenance programmes, outpatient pro-grammes, therapeutic communities and short-term residential programmes (e.g. Refs 28–31).

The DATCAP method for cost estimation isfamiliar to most economists. The cornerstone ofthis method is the concept of opportunity cost.Unlike a financial appraisal (i.e. review of balancesheet information), an opportunity cost analysiswill identify all resources used in the delivery oftreatment services and then value those resourcesbased on the compensation they would receive intheir next best use (e.g. Refs 30 and 32–34). Agood approximation of this value is the marketprice for a resource. Similarly, if a treatmentprogramme purchased all resources at compet-itive prices, the financial costs of treatment will bea good approximation of the opportunity costs. If,however, some resources are donated or used freeof charge (e.g. volunteer labour), then financialcosts will underestimate opportunity costs.

In the current version of DATCAP, all opportu-nity costs are estimated from the perspective ofthe treatment programme rather than the client,the insurance company or society. We adopted thetreatment programme perspective for severalreasons. First, treatment programmes are invest-ing their time in the evaluation process andsharing their data. Programme directors are natu-rally more concerned with the private costs oftreatment and this incentive increases participa-tion and cooperation. Second, the programmeperspective is useful for treatment planning andexpansion. Third, programme personnel can usethe cost data for internal evaluation and otheranalyses. Despite these advantages, recent recom-mendations from an expert panel advocate pro-gramme cost estimation from the societal per-spective to facilitate a cost-effectiveness orbenefit-cost analysis.11 Consequently, we intend toexpand the DATCAP instrument to collect infor-mation on societal costs of treatment (e.g. patienttime and travel expenses). This extension will notcompromise the current objective of DATCAPbecause we can easily report cost estimates fromdifferent perspectives.

The DATCAP instrument catalogues allresources used in the delivery of treatmentservices and divides them into the followingcategories: personnel, supplies and materials,major equipment, contracted services, buildingsand facilities and miscellaneous resources. Allresources are then valued at market-clearingprices based on actual expenditures, rental rates,

M. T. FRENCH AND K. A. MCGEARY540

Health Econ., 6, 539–544 (1997) © 1997 by John Wiley & Sons, Ltd.

Table 1. Characteristics and costs of three case study treatment programmes (1995)a (source: Ref. 31)

Average Total Weekly Economiclength Average annual economic cost per

Financial of stay daily economic cost per treatmentProgramme structure Modality (weeks) census cost client episodeb

A Private, not-for-profit Methadone 150 559 1 973 601 67.90 7662maintenance

B Private, not-for-profit Outpatient 16 165 718 921 83.79 1341drug-free

C Private, not-for-profit Outpatient 22 148 618 748 80.40 1778drug-free

aThe cost measures are reported in 1995 US dollars.bEconomic cost per treatment episode may not exactly equal the product of weekly cost per client and average length of stayowing to rounding.

depreciation schedules and comparable marketvalue. We believe that this approach comes veryclose to estimating the true opportunity cost oftreatment services for individual programmes.

The data collection process is not particularlyarduous, but variation is present across pro-grammes depending on their recordkeeping prac-tices. Many programmes can complete the entireinstrument independently, whereas other pro-grammes require consultation by telephone or inperson. The typical time investment for pro-gramme staff is about 15–20 person hours for asingle-modality programme. To expedite the proc-ess and provide answers to common questions, wedesigned a User’s Manual35 that most pro-grammes have found very helpful. French et al.36

provide a detailed description of the User’sManual and the DATCAP history, process andapplications. Copies of both the DATCAP instru-ment and the User’s Manual are available uponrequest from Professor French.

RESULTS FROM SELECTED CASESTUDIES

The initial version of the DATCAP instrumentwas released in 199237 and subsequent versionshave been used in numerous evaluation andpolicy studies (see Refs 29 and 36, for a review).To demonstrate the type of information thatemerges from DATCAP and cost estimates foractual treatment programmes, Table 1 presentsfindings from three recent case studies.31 All threeprogrammes are currently delivering drug abusetreatment services in the Philadelphia area and

the data correspond to fiscal year 1995operations.

Two of the programmes are outpatient drug-free, one is methadone maintenance and all threeare private, not-for-profit. The methadone pro-gramme is considerably larger than the other twoin terms of caseflow and total annual cost.However, measured by the weekly economic costto provide treatment services to one client, thethree programmes are similar with a low of $69and a high of $80. Methadone maintenance clientshave much longer treatment episodes relative toother modalities, which leads to a correspondinglyhigh average cost per treatment episode. Forexample, our case study methadone programmeoperated at an average cost per treatment episodeof $7662 compared with $1341 and $1778 at thetwo outpatient drug-free programmes.

Table 2 presents the distribution of costs acrossthe various resource categories.31 Deliveringtreatment services is very labour intensive, and allthree programmes had labour costs that aregreater than 60% of their total costs. The remain-ing costs tend to distribute more evenly across thecategories, with occasional exceptions for build-ings and facilities and major equipment.

DISCUSSION

Economic evaluation of substance abuse pro-grammes must start with a careful analysis ofopportunity costs. Previous treatment cost studieshave been uneven in their use of economicmethods and reporting conventions. The DAT-CAP is an attempt to standardize the process ofcost estimation in a manner that subscribes to

ECONOMIC COST OF SUBSTANCE ABUSE TREATMENT 541

© 1997 by John Wiley & Sons, Ltd. Health Econ., 6, 539–544 (1997)

Table 2. Distribution of costs across resource categoriesa (source: Ref. 31)

Supplies BuildingsFinancial and and Contract Major Other

Programme structure Modality Labour materials facilities services equipment items

A Private, not-for-profit Methadone 62 3 20 5 4 6maintenance

B Private, not-for-profit Outpatient 58 2 5 3 30 3drug-free

C Private, not-for-profit Outpatient 71 5 4 8 4 8drug-free

aPercentages may not add to 100 owing to rounding.

economic principles. Results from economic costanalyses can be used by treatment programmesfor internal evaluation and planning, by govern-ment officials when developing allocation rulesfor the disbursement of block grant money totreatment programmes and by academic research-ers who seek systematic estimates of treatmentcosts for economic evaluations.

This letter briefly discusses the DATCAPmethod while presenting results from recent casestudies. The process is not difficult to understandand most treatment staff can complete the entireinstrument with the aid of the User’s Manual. Asmore substance abuse researchers and pro-grammes use the DATCAP in their evaluationstudies, the findings from a variety of differentinterventions can be easily compared andassessed. In addition, as DATCAP evolves, oppor-tunity cost estimates from a societal perspectivecan be combined with intervention outcomes tofacilitate cost-effectiveness and benefit-costanalyses.

ACKNOWLEDGEMENTS

The research reported in this paper was funded by a grantfrom the National Institute on Drug Abuse (Grant No.P50-DA07705). We are extremely grateful to the many friendsand colleagues who assisted in the design of DATCAP andanalysis of the data. Included in this list are Don Anderson,Mark Belding, Brad Bowland, Cathy Bradley, Jeremy Bray,Brian Calingaert, Bill Cartwright, Michael Dennis, LauraDunlap, David Galinis, Rick Harwood, Robert Hubbard,Georgia Karuntzos, Tom McLellan, Valley Rachal and GaryZarkin. Lastly, we would likely to acknowledge Don Kenkeland an anonymous referee for suggestions on an earlier draft,Robert Anwyl for editing the manuscript and the staff at theindividual treatment programmes we studied for offering theirtime, their data and their invaluable assistance.

REFERENCES

1. The Budget of the United States for Fiscal Year 1997,Appendix, pp. 483–484. Washington, DC, U.S.Government Printing Office, 1996.

2. Cartwright, W. S. and Kaple, J. M. (eds). EconomicCosts, Cost-Effectiveness, Financing and Commu-nity-Based Drug Treatment, NIDA Monograph No.113. Rockville, MD: National Institute on DrugAbuse, 1991.

3. French, M. T. Economic evaluation of drug abusetreatment programs: methodology and findings.American Journal of Drug and Alcohol Abuse 1995;21: 111–135.

4. French, M. T. and Martin, R. F. The costs of drugabuse consequences: a summary of research find-ings. Journal of Substance Abuse Treatment 1996;13: 453–466.

5. Holder, H. D., Lennox, R. D. and Blose, J. O. Theeconomic benefits of alcoholism treatment: a sum-mary of twenty years of research. Journal ofEmployee Assistance Research 1992; 1: 63–82.

6. Hubbard, R. L., Marsden, M. E., Rachal, J. V.,Harwood, H. J., Cavanaugh, E. R. and Ginzburg,H. M. Drug Abuse Treatment: a National Study ofEffectiveness. Chapel Hill: University of NorthCarolina Press, 1989.

7. Institute of Medicine (IOM). Treating Drug Prob-lems: a Study of the Evolution, Effectiveness, andFinancing of Public and Private Drug TreatmentSystems (Gustein, D. and Harwood, H., Eds).Washington, DC: National Academy Press, 1990.

8. Rydell, P. C., Caulkins, J. P. and Everingham, S. S.Enforcement or treatment? Modeling the relativeefficacy of alternatives for controlling cocaine.Operations Research 1996; 44: 687–695.

9. Drummond, G. W., Stoddart, G. L. and Torrance, G.W. Methods for the Economic Evaluation of HealthProgrammes. Oxford: Oxford University Press,1987.

10. Tolley, G., Kenkel, D. and Fabian, R. Valuing Healthfor Policy: an Economic Approach. Chicago: Uni-versity of Chicago Press, 1994.

M. T. FRENCH AND K. A. MCGEARY542

Health Econ., 6, 539–544 (1997) © 1997 by John Wiley & Sons, Ltd.

11. Gold, M. R., Siegel, J. E., Russell, L. B. andWeinstein, M. C. (eds). Cost-Effectiveness in Healthand Medicine. New York: Oxford University Press,1996.

12. Cruze, A., Harwood, H., Kristiansen, P., Collins, J.and Jones, D. Economic Costs of Alcohol and DrugAbuse and Mental Illness — 1977. ResearchTriangle Park, NC: Research Triangle Institute,1981.

13. Harwood, H. J., Napolitano, D. M., Kristiansen, P.L. and Collins, J. J. Economic Costs to Society ofAlcohol and Drug Abuse and Mental Illness: 1980(Final report prepared for the Alcohol, DrugAbuse, and Mental Health Administration, RTI2734/00-01FR). Research Triangle Park, NC:Research Triangle Institute, 1984.

14. Rice, D. P., Kelman, S. and Miller, L. S. Economiccosts of drug abuse. In: Cartright, W. S. and Kaple,J. M. (eds) Economic Costs, Cost-Effectiveness,Financing, and Community-Based Drug Treatment,NIDA Monograph No. 113, pp. 10–32. Rockville,MD: National Institute on Drug Abuse, 1991.

15. Annis, H. M. Is inpatient rehabilitation of thealcoholic cost-effective? Con position. In: BarryStimmel (ed.) Controversies in Alcoholism andSubstance Abuse, pp. 175–190. New York: HaworthPress, 1986.

16. McLellan, A. T., Woody, G. E., Luborsky, L.,O’Brien, C. P. and Druley, K. A. Increased effec-tiveness of substance abuse treatment: a pro-spective study of patient-treatment matching. TheJournal of Nervous and Mental Disease 1983; 171:597–605.

17. Holder, H. D. and Blose, J. O. The reduction ofhealth care costs associated with alcoholism treat-ment: a 14-year longitudinal study. Journal ofStudies on Alcohol 1992; 53: 293–302.

18. McCrady, B., Longabaugh, R., Fink, E., Stout, R.,Beattie, M. and Ruggieri-Authelet, A. Cost effec-tiveness of alcoholism treatment in partial hospitalversus inpatient settings after brief inpatient treat-ment: 12-month outcomes. Journal of Consultingand Clinical Psychology 1986; 54: 708–713.

19. National Drug and Alcoholism Treatment UnitSurvey (NDATUS). Final Report, Publication No.(ADM) 89-1626. Rockville, MD: National Instituteon Drug Abuse, 1987.

20. Horgan, C. Cost of drug treatment programs:preliminary findings from the 1990 drug servicesresearch survey. Presented at the NIDA NationalConference on Drug Abuse Research and Practice,Washington, DC, January 1991.

21. The California Drug and Alcohol Treatment Assess-ment (CALDATA) General Report. Sacramento,CA: State of California, Department of Alcoholand Drug Programs, 1994.

22. Finigan, M. Societal Outcomes and Cost Savings of

Drug and Alcohol Treatment in the State of Oregon.Report prepared for the Office of Alcohol andDrug Abuse Programs. Salem, OR: OregonDepartment of Human Resources, 1996.

23. Eisenberg, J. M. Clinical economics: a guide to theeconomic analysis of clinical practices. Journal ofthe American Medical Association 1989; 262:2879–2886.

24. Normand, J., Salyards, S. D. and Mahoney, J. J. Anevaluation of preemployment drug testing. Journalof Applied Psychology 1990; 75: 629–639.

25. Rizzo, J. A., Baker, D. I., McAvay, G. and Tinnetti,M. E. The cost-effectiveness of a multifactorialtargeted prevention program for falls among com-munity elderly persons. Medical Care 1996; 34:954–969.

26. Bradley, C. J., French, M. T., and Rachal, J. V.Financing and cost of standard and enhancedmethadone treatment. Journal of Substance AbuseTreatment 1994; 2: 433–442.

27. French, M. T., Bradley, C. J., Calingaert, B., Dennis,M. L. and Karuntzos, G. T. Cost analysis of trainingand employment services in methadone treatment.Evaluation and Program Planning 1994; 17:107–120.

28. Bray, J. W., French, M. T., Bowland, B. J. andDunlap, L. J. The cost of employee assistanceprograms (EAPs): findings from seven case studies.Employee Assistance Quarterly 1996; 11(4): 1–19.

29. French, M. T., Dunlap, L. J., Galinis, D. N., Rachal,J. V. and Zarkin, G. A. Health care reforms andmanaged care for substance abuse services: findingsfrom 11 case studies. Journal of Public HealthPolicy 1996; 17: 181–203.

30. Dunlap, L. J. and French, M. T. A comparison oftwo methods for estimating the costs of drug abusetreatment. Journal of Maintenance in the Addictionsin press.

31. French, M. T. and McGeary, K. A. The drug abusetreatment cost analysis program. In Evaluation ofTreatment for Substance Use Disorders. Geneva:World Health Organization, in press.

32. Drummond, M. F. Principles of EconomicAppraisal in Health Care. Oxford: Oxford Uni-versity Press, 1980.

33. Horngren, C. T. Cost Accounting: a ManagerialEmphasis, 5th edn. Englewood Cliffs, NJ: Prentice-Hall, 1982.

34. Sugden, R. and Williams, A. H. The Principles ofPractical Cost-Benefit Analysis. Oxford: OxfordUniversity Press, 1979.

35. French, M. T., McGeary, K. A. and McLellan, A. T.User’s Manual for the Drug Abuse Treatment CostAnalysis Program (DATCAP). Version 1. CoralGables, FL: University of Miami, 1996.

ECONOMIC COST OF SUBSTANCE ABUSE TREATMENT 543

© 1997 by John Wiley & Sons, Ltd. Health Econ., 6, 539–544 (1997)

36. French, M. T., Dunlap, L. J., Zarkin, G. A.,McGeary, K. A. and McLellan, A. T. A structuredinstrument for estimating the economic cost of drugabuse treatment: the drug abuse treatment costanalysis program (DATCAP). Journal of SubstanceAbuse Treatment 1997; 14: 1–11.

37. French, M. T., Bradley, C. J. and Zarkin, G. A. DrugAbuse Treatment Cost Analysis Program (DAT-CAP): Cost Interview Guide for Provider Sites.Drug Abuse Treatment Module. Version 1. ResearchTriangle Park, NC: Research Triangle Institute,1992.

M. T. FRENCH AND K. A. MCGEARY544

Health Econ., 6, 539–544 (1997) © 1997 by John Wiley & Sons, Ltd.