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Lowering the Cost of Medicaid by Providing Drug and Alcohol Treatment

By Matthew Gever
January 31, 2007 

 

Introduction

Medicaid is the third largest provider of health insurance in the United States. It also is the largest and fastest growing sector of many state budgets. Of the $86 billion spent by states on Medicaid,1 25 percent went to pay for the consequences of substance abuse.2 To counter this trend, a number of states have looked into providing alcohol and

other drug (AOD) treatment for those with chemical dependency issues, with the idea that treatment will lead to future cost savings.

Substance Abuse and Health

Many of the health consequences of addiction and substance abuse are well documented. The best-known are the effects of cigarette smoking. A myriad of cancers, respiratory problems, cardiovascular diseases and reproductive problems are directly linked to smoking. Approximately 440,000 U.S. deaths are annually linked to tobacco use, with associated health-related economic losses of $157 billion.3

Alcohol has the second largest overall effect on public health. The most common illness associated with excessive alcohol use is alcohol liver disease (ALD), which can take any of three forms: cirrhosis, fatty liver and alcoholic hepatitis. Some symptoms include an enlarged liver, increased white blood cell count, hypertension and kidney failure. Conservative estimates show 2 million Americans with ALD.4 Alcohol abuse also is linked to heart disease, a diminished immune system, breast cancer, loss of bone density and high blood pressure.5

Alcohol and other drug use can affect those who are not directly ingesting the substance. A leading cause of birth defects and mental retardation is fetal alcohol spectrum disorders (FASD), which can be caused when a woman drinks during her pregnancy. This can cause a child to develop abnormal facial features, growth deficiencies and central nervous system problems. The Centers for Disease Control and Prevention reports FASD rates ranging from 0.2 to 1.5 per 1,000 live births.6 Nine percent of pregnant women in the U.S. have reported drinking alcohol in the past month, while 3 percent report binge drinking (five or more drinks at one sitting).7 In addition, children born to mothers who drank during their pregnancy also are at higher risk for alcoholism later in life.8

Use of illegal drugs has many similar health consequences to those of alcohol and tobacco. Popular illegal drugs–such as cocaine, heroin and methamphetamines–are linked to cardiovascular, respiratory ands prenatal problems.9 Drug abuse also is a major factor in the spread of HIV and hepatitis. The virus is spread by the use and exchange of needles among intravenous drug users, primarily through the use of heroin. Overall, 36 percent of AIDS cases in the United States are the result of intravenous drug use.10

Addiction also can lead to HIV and hepatitis infection due to users' behavioral practices. Research from the National Institute on Drug Abuse has shown that alcohol and drug use can interfere with judgment and lead to risky behaviors. For example, a Centers for Disease Control and Prevention study of young adults in three inner-city neighborhoods shows that crack smokers had an HIV infection rate three times greater than non-smokers.11

The health problems of addiction significantly affect state health budgets, primarily the state’s Medicaid budget. In fiscal year 2004, states spent nearly $86 billion on Medicaid.12 Roughly 25 percent of state Medicaid funding goes directly to substance abuse.13

Lessons from the States

A large body of research from the past two decades has suggested that providing treatment for substance abuse may reduce future medical costs for treated individuals. These findings apply to individuals in both public and private care. This research has inspired some states to conduct their own research on the benefits of substance abuse treatment.

Texas

Texas is one of six states to receive a Screening, Brief Intervention, Referral, and Treatment (SBIRT) grant from the Substance Abuse and Mental Health Services Administration (SAMHSA). Through this grant, the state created InSight, an initiative to incorporate alcohol and drug screening into general medical settings. This involves four steps: screening questions for tobacco alcohol and drug use; brief intervention (BI), which is a 15- to 30- minute counseling session for those who use substances but are not addicted; brief treatment (BT) of up to 12 individual counseling sessions for those with health problems related to substance use; and referral to treatment (RT) for those with severe substance use problems. Program implementation began in Harris County, which includes Houston.

In the year before InSight services were offered, total hospital costs for the county were approximately $12.5 million. In the year after InSight services were offered, total hospital costs were approximately $8.3 million–a net reduction of just over $4.1 million.14 The largest average cost reductions came from BI ($9,119) and BT ($12,262) patients.

The state also performed research to determine whether AOD treatment for Medicaid clients could reduce the costs of emergency room visits, commonly one of the more expensive medical services. For this study, the Department of State Health Services compared two groups of Medicaid clients in FY 2005–those who were diagnosed with a substance abuse problem and received treatment, and those diagnosed with a problem who did not receive treatment.

During FY 2005, average monthly emergency room costs for the untreated group were $136. Costs for the treated group were $89, a cost offset of $47 per client per month, a 35 percent difference.15 In addition, if treatment and its subsequent savings were applied to the untreated group in the study (N=4,219), Texas could realize savings in the $2 million range just on Medicaid emergency room costs.

California

In 2002, the California Department of Alcohol and Drug Programs released the final report of the California Treatment Outcome Project (CalTOP). The project’s purpose was to develop, implement and test an outcome monitoring system for the state’s system of care for substance abuse treatment and to determine the extent to which treatment produced cost offsets in other areas.

Treatment staff collected data from patients’ admissions, during treatment and upon exiting service. Researchers conducted follow-up studies with patients at three months and nine months after treatment admission. In addition, CalTOP developed a cross-system database linkage to monitor clients progress in other administrative areas and to measure cost offsets in the health, social service and criminal justice systems.

The final report indicated a variety of improved behaviors as a result of AOD treatment. The nine-month follow-up studies reported significant improvements in clients’ health indicators. Overall, 88 percent of clients reported no drug use in the follow-up period, and 83 percent reported no alcohol use.16 The rest reported an 82 percent reduction in the severity of their drug use and a 78 percent reduction in severity of alcohol use.17 Those with psychiatric disorders reported a 41 percent decrease in severity of their problems.18 Clients with medical problems reported a severity decrease of 17 percent.19

Much of these decreases translated into significant cost savings. For example, the average cost of a hospital night stay for a client nine months before being admitted to treatment was $1,380 per night.20 The average cost nine months after treatment was $1,008 per night, a nightly savings of $372.21 The cost of emergency room visits also declined significantly. Before treatment, the average cost of an emergency room visit was $631. After treatment, the average cost was $408.22

Washington

The Department of Social and Health Services (DSHS) saw Supplemental Security Income (SSI) recipients as having the greatest potential for cost savings and offsets as a result of AOD treatment. In 1999, DSHS developed the SSI Cost Offset Pilot Project to provide more substance abuse treatment to this population.

The project started with $2.5 million in funding for the years 1999-2001. Funds were made available at the county level to provide increased treatment and referral services, while the records of the 103,000 SSI recipients in the state were examined to determine who might be in need of such services. Of these, 13 percent demonstrated a need for substance abuse treatment, based on either medical records or arrests for alcohol or other drug related offenses. Of this number, 37 percent received treatment.23

In the three years prior to the pilot project, admissions to treatment programs averaged 136 per month. Within one year, admissions grew to a peak of 186 per month, 50 more than the pre-project average.24 Over the course of the pilot project, admissions for treatment averaged 166 per month, an average of 30 more admissions per month, totaling 360 for the entire year.25

Cost Offsets

For those who received AOD treatment, average monthly Medicaid costs were $540 lower than for those who appeared to need but did not receive treatment.26 This factor includes all variables, including race, age, gender and prior monthly medical costs, as well as the costs of providing AOD treatment.27 The result was an overall annual cost difference of $6,480 per person.

On average, Washington was able to admit 30 more patients per month (360 per year) into treatment during the pilot project period. Based on the study’s findings, this would lead to annual Medicaid savings of $2.3 million.28 If 40 more patients were admitted per month (480 per year), the state would realize savings of $3.1 million in annual Medicaid savings.29

Overall, cost offsets were higher for older SSI recipients. For those age 45 and older, the average monthly offset was $931, compared to $351 for those between the ages of 18 and 44.30 This suggests not only that conditions worsen with age but also that treating AOD problems early can yield significant long-term cost savings.

The one population for whom no cost offsets were realized was arrestees. Approximately 25 percent of SSI recipients in need of treatment had been arrested for a serious drug or alcohol offense during the study period, and one-third of those received treatment, yet there were no statistically significant cost differences. By comparison, non-arrestees saw an average monthly cost offset of $739.31

As a result of these findings, the Legislature continued the project, increased funding to $2.9 million and expanded the number of counties involved from 16 to 30. An evaluation component was also added to examine differences in costs for publicly funded social and health services for SSI recipients who receive AOD treatment.32

Significant cost savings to the state resulted from SSI clients going through treatment. For clients who completed their first episode of AOD treatment, medical costs fell by $380 per client per month, while state hospitals saw cost savings of $56 per client per month. For those who continued treatment for more than 90 days, costs for medical care fell by $333 per client per month, while state hospitals saw savings of $61 per client per month.33

Cost savings through AOD treatment also appeared in other areas of state medical spending, for example in the mental health sector. Completion of AOD treatment led to costs offsets for both state mental hospital care and community psychiatric hospitalizations, with savings of $56 and $33, respectively, per client per month.34 The state also saved money on nursing home care, a service paid for by Medicaid, to the tune of $56 per person per month for clients who entered AOD treatment.35 

The state further extrapolated these figures to the remainder of the population who receive SSI benefits. Current figures put the number at 10,572 SSI clients who need AOD treatment but have not yet received it. If 30 percent of these clients were to enroll in treatment, the state would save an additional $9.6 million per year.36

Conclusion

Medicaid spending continues to increase and is becoming an increasingly larger portion of state budgets. For many states, spending on this program will exceed spending on public schools, higher education and corrections in the upcoming years. States need new and innovative ways to keep spending in check without denying services to those in need. Providing treatment for chemical dependency is one option that has potential. As California, Texas and Washington demonstrate, states can reduce their Medicaid burdens by identifying and treating those with substance abuse problems. By shifting state funds to provide effective AOD treatment, significant cost savings will help to reduce state Medicaid budgets.

  1. Henry J. Kaiser Family Foundation, 50 State Comparisons: State Medicaid Expenditures, http://www.statehealthfacts.org/cgi-bin/healthfacts.cgi?action=compare&category=Medicaid+%26+SCHIP&subcategory=State+Medicaid+Spending&topic=State+Medicaid+Spending%2c+SFY2004, 2004, accessed Oct. 25, 2006.
  2. The National Center on Substance Addiction and Substance Abuse at Columbia University, Shoveling Up: The Impact of Substance Abuse of State Budgets (New York, N.Y.: Columbia University, January 2001), 17
  3. Department of Health and Human Services, Centers for Disease Control and Prevention, National Center for Chronic Disease Prevention and Health Promotion, Office on Smoking and Health, The Health Consequences of Smoking: A Report from the Surgeon General (Atlanta, Georgia: Centers for Disease Control and Prevention, 2004), 6-7.
  4. National Institute on Alcohol Abuse and Alcoholism, “Medical Consequences of Alcohol Abuse,” Alcohol Research and Health 24, no. 1 (Winter 2000).
  5. Ibid.
  6. Centers for Disease Control and Prevention, Fetal Alcohol Spectrum Disorders, 2006, http://www.cdc.gov/ncbddd/fas/fasask.htm, accessed Oct. 25, 2006.
  7. Wallace et al., 15.
  8. Health Day, Drinking While Pregnant May Boost Child's Alcoholism Risk, http://www.nlm.nih.gov/medlineplus/news/fullstory_38294.html, 2006, accessed Oct. 25, 2006.
  9. National Institute on Drug Abuse, Drugs of Abuse and Related Topics - Medical Consequences of Drug Abuse, http://www.nida.nih.gov/consequences/prenatal/, 2005, accessed Oct. 25, 2006.
  10. National Institute on Drug Abuse, NIDA InfoFacts: Drug Abuse and the Link to HIV/AIDS and Other Infectious Diseases, November 2004,  http://www.drugabuse.gov/PDF/Infofacts/DrugsAIDS06.pdf, accessed Oct 25, 2006.
  11. Ibid.
  12. Henry J. Kaiser Family Foundation, 50 State Comparisons: State Medicaid Expenditures.
  13. NCASA, Shoveling Up: The Impact of Substance Abuse of State Budgets, 17.
  14. Addiction Research Institute, Executive Summary: Insight Cost Study Analyses v1.0. (Austin, Texas: University of Texas at Austin, Addiction Research Institute, Sept. 13, 2006), 3.
  15. Texas Department of State Health Services, DSHS Behavioral Health News Brief, no. 1(June 19, 2006), 2.
  16. UCLA Integrated Substance Abuse Programs, The California Treatment Outcome Final Report, (Sacramento, California: The California Department of Alcohol and Drug Programs, 2003), ii.
  17. Ibid.
  18. Ibid.
  19. Ibid., iii.
  20. Ibid., 13-25.
  21. Ibid.
  22. Ibid.
  23. S. Estee and D.J. Nordlund, “Washington State Supplemental Security Income (SSI) Cost Offset Pilot Project:  2001 Progress Report”  (Olympia, Washington:  Research and Data Analysis Division, Department of Social and Health Services, 2003), v.
  24. Ibid., 9.
  25. Ibid., 3.
  26. Ibid., 2.
  27. The cost of providing treatment averaged $2,956 per person.
  28. Ibid., 3.
  29. Forty monthly admissions represents the midpoint between the peak of 50 per month and the low of 30.
  30. Ibid., 18.
  31. Ibid., 19.
  32. S. Estee and D.J. Nordlund, “Washington State Supplemental Security Income (SSI) Cost Offset Pilot Project:  2002 Progress Report.”  (Olympia, Washington:  Research and Data Analysis Division, Department of Social and Health Services, 2003), 1
  33. Ibid., xi.
  34. Ibid., 28.
  35. Ibid., 29.
  36. Ibid., x.

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