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7 Public Coverage The question of whether there should be a large-scale system of publicly supported drug treatment was answered affirmatively in the 1970s. That answer has been reaffirmed in the past few years, and the committee's analysis to this point has not raised any fundamental new doubts. With the existence and legitimacy of the public tier no longer at issue, the questions for public coverage are instead ones of management objectives and techniques. The task of this chapter is to consider the present system of public coverage in light of the needs, wants, and demands placed on it and to make appropriate recommendations for improvement. First, it is necessary to frame the fundamental policy questions that those responsible for public coverage of drug treatment should address a critically important endeavor. Even when some of the answers can only be provisional, approximate, or resolvable by public debate and political negotiation, asking the right questions is essential in order to assemble relevant evidence and give rational shape to the decision-making process. Policy has to do with ends and means. The committee sees three questions under each of these categories. In deciding on the ends of treatment policy, the questions are as follows: What are the fundamental principles that justify public coverage of drug treatment? Or, whose treatment should public funds cover, and why? What priorities should guide the current expansion of public cov- erage? 220

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PUBLIC COVERAGE 221 - What is the optimal level of public spending to implement these priorities? The committee identifies as principles that public coverage should seek to remedy treatment constraints that arise from inadequate income and to reduce external social costs, particularly those relating to crime and family role dysfunctions. Such efforts often require actively inducing people to seek treatment through a variety of methods, as well as seeking mechanisms to increase retention (e.g., legal coercion, outreach efforts, enhanced social services). Four specific priorities flow from these principles and conform to the committee's empirical analysis: reduce admission delays, improve program quality and performance, reach out to young mothers, and treat more criminal justice clients. This chapter outlines three progressive strategy options for public decision makers to consider: a core spending strategy, an intermediate plan, and a comprehensive option. The priorities and expenditure patterns recommended in this chapter should not be implemented without reconsidering the adequacy of present means for managing the public tier. These considerations divide into three instrumental questions: What should be the respective state and federal roles in public coverage of drug treatment? . What are the most appropriate financial mechanisms for providing public supportessentially, to what degree should the emphasis be on direct service programs versus public insurance? What disciplines or controls should be in place to ensure that public expenditures for drug treatment are appropriate and effective? State governments have played the major role in financial administra- tion and quality control of drug treatment in recent years. Now, however, the federal government, in pumping major new funds into treatment, is reasserting its earlier leading role. It should take this opportunity to re- build important directional and accountability mechanisms and to prepare the ground for later introduction of a larger share of public insurance financing. (However, public insurance financing will never obviate the need for direct service support of critical program elements such as outreach and integration with nonhealth services.) Routine outcome measurement, training and technical assistance, gatekeeping functions, and performance contracting will be the keys to upgrading drug treatment and introducing it permanently into the mainstreams of health and human services. THE PRINCIPLES OF PUBLIC INTERVENTION l~venty-five years ago, publicly supported drug treatment in the United States was confined to the provision of certain therapeutic amenities at

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222 TREATING DRUG PROBLEMS four correctional facilities. Each site admitted hundreds of drug-abusing and dependent individuals in a given year; most of them were convicted of narcotics violations, but some of them were volunteers requesting treatment. Leo of the facilities were large federal prison-hospitals, at Lexington, Kentucky, for the eastern United States and at Fort Worth, Texas, for the West; the others were specialized rehabilitation prisons operated by the two most populous states at Rikers Island, New York, and Corona, California. The challenges of financing and managing public-sector treatment have changed markedly since that time. Instead of four prison treatment sites, there are several thousand public-tier programs in communities and institutions in every state, treating well over 600,000 annual admissions and interacting with federal institutes, state offices, county agencies, elected officials, local bureaucracies of criminal justice, education, welfare, and health care organizations, and occasionally even private insurers. The issue certainly is not whether there will be large-scale public support for treatment but how much, what kinds, and for whom. The reasons why society has become interested in treating illicit drug abuse are neither strictly hard-headed nor purely idealistic but rather a combination of the two. These reasons have moved the public not only to permit treatment of illicit drug abuse and dependence in community settings but also to enhance the amount of treatment taking place by substantially reducing the price that the majority of individuals pay for treatment to well below the cost of providing itoften, in fact, to nothing. 1b better understand the logic by which the government arrives at the "right" level of support, it is necessary to grasp firmly the specific rationale for these public subsidies. The reasons for supporting public treatment fit comfortably within the realm of conventional justifications for other public health measures, but that is a very broad realm, indeed (Institute of Medicine, 1988a). In the case of public drug treatment, there are important specific emphases that ought to be made explicit. External Costs Individuals who can be clinically identified as meeting the criteria for drug treatment (whether or not they are interested in treatment to help extinguish their drug-seeking behavior) generally impose serious burdens on other members of society. The harm to victims of violent crime, the damages to the well-being and future prospects of the individual's family, the risk of transmitting hepatitis or HIV infection, and other such burdens are called externalities, or external costs. The problem with external costs is that, unlike the self-imposed consequences of actions, they do not au- tomatically discipline or instruct the individual, which is usually the way harmful behavior is corrected.

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PUBLIC COVERAGE 223 Solutions to external cost problems ordinarily take one of two forms. One form is to reassign these costs to the individuals who produce them through selective taxes or confiscations, civil liability, or the imposition of criminal sanctions such as fines or incarceration. Ixing and confiscating the proceeds of illicit drug-related behavior have proved to be difficult and frequently haphazard endeavors; moreover, the individuals who originally impose the external costs are often too poor to pay commensurate civil or criminal fines. Determining an appropriate fine for transmitting serious and even deadly diseases is beyond nearly anyone's capacity. With legislatively mandated sentencing, the consequent sanction for such individuals has increasingly become jail or prison the individual is made to pay a liberty price as a "just desert." What this measure emphasizes is less the burden of harm to individual others and more the moral weight of the drug offense; and it is a moral calculus that assigns the exaction due the criminal's "debt to society." Nevertheless, this price may be considered unsatisfactory in at least two ways. In the first instance, the penal strategy generally does not fully reassign the social costs because society has to pay a substantial price to impose deprivations of liberty on unwilling individuals. Second, to date, imprisonment has not had enough of the desired effect: individuals who have paid the price of incarceration have all too frequently (at the rate of about three felons out of four) come out of prison and reimposed the same criminal burdens on society. There is also a third dissatisfaction. Society is uneasy about the strictly criminal approach to drug consumption. However broad the consensus on maintaining criminal penalties, particularly for trafficking offenses, the historical streams of libertarian and medical ideas continue to affect the nation's collective thinking. Although clearly in the minority, there are respectable voices questioning the entire wisdom of drug laws, even from within the bastions of the criminal justice system. In contrast, no such voices rise in dissent regarding laws that proscribe homicide, sexual assault, robbery, or grand theft (auto). These shortcomings of the criminal approach, in particular, the first two, led originally to the development of the public tier of treatment. As a result of studies in public-tier programs, which are reviewed in Chapter 5, there are now reasonable grounds to believe that at least some modalities of treatment do in fact reduce the external costs of drug abuse and dependence in greater measure than the cost of the treatment itself. Moreover, in doing so, treatment provides some benefits that drug-abusing and drug-dependent individuals themselves seek (although it often takes a substantial amount of exterior pressure or interior misery or both to bring them to that point). This last statement brings up the second mode of dealing with ex- ternalities (the first being to reassign the external COStS): design positive

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224 TREATING DRUG PROBLEMS incentives to induce the persons who are producing external costs to stop. Incentives are a carrot that often accompanies the stick of penalties. The committee's review in Chapter 4 indicates that the treatment motivations of drug-abusing and drug-dependent individuals are usually ambivalent, with some degree of desire for recovery, some degree of pressure to avoid drugs, and some degree of desire and compulsion to continue seeking drugs; in other words, applicants show an interest in the benefits of treatment mixed with hostility toward its constraints. Under these circumstances, the money price of treatment may for some fraction of individuals play a pivotal role in determining whether treatment is sought or how much treatment is utilized. For relatively inexpensive treatment such as outpatient care, a partial sub- sidy may make a difference; for relatively expensive residential or inpatient treatment, the cost is high enough that a subsidy may be critical to whether an individual actually receives treatment. A complication enters here, namely, the relationship between public and private benefit. If both the individual and society would benefit from the individual's positive response to treatment, then who should pay for it? One approach is to say that the answer should depend on the proportions of public and private benefit; a second is to express a strong preference for maximizing private payments (for example, through sliding-scale fees); a third strategy is to put the fullest onus on public payment. To be completely efficient in the use of public funding, one would want to lower prices d~scnminately. No one who is prepared to purchase treatment on his or her own at its market price (the cost of production plus markups, reserves, or profit margins, adjusted to competition) should be subsidized. Subsidies should go only to those who would purchase treatment at some below-market price, and the amount should be only what is necessary in each case to assure the purchase. If the external costs of untreated drug consumption (which, on average, treatment can be expected to reduce significantly) exceed the costs of treatment by a large amount and there are individuals who need treatment but do not want it even at zero cost, then the public might even find it optimal to create a "negative price." A negative price is an inducement to enter and stay in treatment that exceeds the minimum cost of helping clients to extinguish drug seeking. The extreme case of a negative price is cash inducement: paying people to enter treatment. A more palatable alternative is incentives in kind, such as amenities that are not strictly needed for treatment (even though some may in fact prove to make treatment more effective) for example, attractive facilities, free coffee, or assistance in dealing with a variety of other social, medical, or psychological problems. Intrinsic medication effects may fulfill this incentive function. For ex- ample, clinically optimal levels of either methadone or naltrexone "block"

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PUBLIC COVERAGE 225 the euphoric effects of any other opiates. But the very mild analgesic prop- erties of stabilized methadone doses, in contrast to the virtually complete lack of perceptible effects of naltrexone maintenance, constitute a positive inducement, which may help to explain why methadone maintenance typi- cally retains a substantial percentage of clients whereas naltrexone retains very few. In summary, the combination of high external costs and a reluctant clientele may lead society to want not only to provide treatment for illicit drug abuse and dependence at a reduced cost but even to provide some selected inducements, at least to some potential clients, that go beyond the cost of bare-bones treatment. (A more technical analysis of the issue of treatment demand and pricing is sketched in Figure 7-1.) Income Constraints Whether or not the external social costs equal or exceed and hence begin to efficiently justify- treatment expenditures, there is a second major reason for public support of treatment: the problem of income constraints, or the fact that some people are simply too poor to afford the cost of treatment even if they are very interested in obtaining it. In some respects, society has taken a broad ethical position on income constraints, namely, that there are certain goods and services that should never be denied to anyone on the grounds of inadequate income. Generally, these goods and services fall into one of two categories: items that everyone needs at some minimum level but that most people can afford (e.g., food and shelter) and items that only a few people (relatively speaking) might need very badly at any one time but that most cannot afford at all or without undergoing some severe degree of hardship for example, major medical care. Drug treatment appears to belong in the second category. In these kinds of cases, the government has both encouraged the formation of private compacts (using tax incentives and regulatory guarantees) to help the individual in need~mployer-sponsored health insurance is the prime example and has entered directly into the sponsorship of such arrange- ments, most prominently in the Medicare program. But private insurance and Medicare share the characteristic that eligibility for these forms of coverage depends on making (or having made) ongoing contributions to an insurance pool through regular premiums that are matched by an employer and/or deducted from a steadily incoming paycheck This form of coverage is inapplicable to individuals who do not belong to a private group health insurance plan and are too young (or otherwise lack qualifications) for Medicare eligibility. At a minimum, this group includes an estimated 31 million individuals who are without any health insurance (Moyer, 1989; cf. Chollet, 1988~. It may also include an additional

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226 TREATING DRUG PROBLEMS _ 50 in = o 40 o U) U' ._ - UJ o In ~ Ps- 10 LLJ PP 30 20 LL PI O G - Ds S 0 40 1 80 120 160 200 Q TREATMENT EPISODES Q. (in thousands) 240 280 FIGURE 7-1 The market for drug treatment showing private and public demand. The great force of external cost considerations affects the whole market for treatment. If treatment episodes are expected to provide benefits to the public beyond those to the recipient by reducing the external costs of untreated drug problems, then that expectation should be reflected in the market by raising the demand schedule for treatment. In other words, at any given price, the amount of treatment demanded should be greater than just that sought by individual clients. This increase in the demand for treatment, which results from induding the benefits to the general public, implies that the socially optimal amount of treatment is greater than the amount that would be provided in a completely private treatment market. This principle is illustrated in conventional economic terms in the figure, which is hypothetical but modeled on realistic assumptions. The purely private market for treatment is represented by the downward-sloping demand curve Dp and the supply curve 5. Their intersection shows the average price, Pp. and total quantity, Qp, of drug treatment episodes that would be delivered in the private marketplace if the government did not intervene. The public benefit from treatment dictates that the social demand for treatment, curve Ds' is higher than the purely private demand for treatment, curve Dp, and the quantity of treatment desired at any price is accordingly greater. When the social value of treatment is recognized in the demand schedule Ds, the socially optimal amount of treatment is indicated lay the intersection of the new demand curve and the supply curve. The socially optimal quantity of treatment Qs is greater than the quantity delivered in the private market Qp. To achieve utilization of treatment at the socially optimal level Qs' subsidization of treatment must be undertaken (by means of governmental or philanthropic subsidies) to make up the difference between Ps, the price of inducing the socially optimal level of treatment, and Pt. the average price that many potential clients would actually be prepared to pay for that many episodes of treatment. 13 million people covered by Medicaid plans and 48 million with private health plans that lack specified coverage for drug treatment services. These 61 million people are covered for emergency services (e.g., drug overdoses) and treatment of physical sequelae of drugs; many would probably be covered for some types of treatment of drug problems under general plan

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PUBLIC COVERAGE 227 provisions; and some could afford to pay drug treatment costs out of pocket. In the committee's judgment, however, a large proportion of the 61 million individuals in this country without specified coverage for drug treatment are not covered by their health insurance for appropriate drug treatment in the event they were to need it. There are, in other words, at least 31 million and possibly 92 million individuals for whom insurance coverage of drug treatment may be unavail- able when it is needed; absent stronger data, the approximate midpoint of this range, 60 million, is a reasonable figure to use. For many of these in- dividuals, the out-of-pocket costs of treatment are formidable, particularly for residential or hospital treatment. The committee hazards the further estimate that one-third of the 31 million individuals who are uninsured and one-half of the 30 million who are insufficiently covered might be able to afford outpatient treatment out of pocket. This still leaves roughly 35 mil- lion individuals who could not do so and who would qualify as indigent with regard to buying any form of drug treatment. For residential treatment, the committee's estimate of the number who would be considered indigent rises to 60 million. If society does not want to see drug treatment denied to persons in this group as a result of income constraints, the standard solution is to develop a scheme of differential pricing, which enables the relatively indigent person to pay a below-market price for treatment through a government subsidy or service program, contingent on an accurate determination of his or her level of income or wealth. The income criterion could be graduated according to circumstances; the guiding principle is that the price of treatment should be brought below whatever threshold rules out the individual being able to purchase the needed treatment or at which paying for treatment would create undue hardship. In many cases, using this guideline means the price must be effectively zero. Positive Response to Treatment There is a third principle besides external costs and income constraints that is worth mentioning: the treatment should do good; that is, the client should respond well. Of course, some do not. There are public clients who never achieve significant reductions in their drug-seeking and other criminal behavior (when the latter is present to begin with) during treatment. When those who are not responding well leave treatment, their departure cannot be called an effective result. Yet it does achieve the virtue of efficiency, in that no further money is wasted. When the public (or any other third party) is paying the bill for treatment, the most troubling problem is individuals who neither modify their behavior positively nor leave treatment. There are not many such people, particularly in the more intensive

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228 TREATING DRUG PROBLEMS and demanding programs and modalities. For the most part, people who stay in treatment do well as long as they are in it, and they either drop out or are discharged when their behavior deteriorates and therapeutic corrections (if the program makes them) are unsuccessful. This is not to say that most people in treatment are absolutely crime and drug free but that unmistakable improvement over pretreatment conditions is very much the day-to-day norm. In principle, there should be no coverage of individuals who are not expected to respond positively to treatment. But prognostic precision is simply not acute enough to draw bright exclusionary lines. Even previous treatment failure is no sure guide because the route to recovery often leads through several such mistress In drug treatment, as in viral ally all medical care for severe, chronic conditions, the limited capacity to accurately predict individual responses dictates that this principle be applied sparingly, usually on a retrospective rather than prospective basis, therefore erring on the side of treating too many rather than too few. In practice, denial on the grounds of expected nonresponse is exercised very little at the point of admission; instead, it is a judgment made by clients (through voluntary attrition), by clinicians (through discharge decisions), or by third parties such as police officers (by arresting violators of the law). Balancing Treatment Needs and Cost Concerns With declining budgets the norm from the mid-1970s until fairly re- cently, one must assume that there will be continuing budget constraints on drug treatment dollars. It Is difficult to believe, despite notable recent budget increases by the federal government and a few states, that the day may come when public treatment funds overshoot the need for treatment. Ideally, to make the best decisions with limited budget dollars, one should look at every individual for whom a legitimate argument for public support could be made, evaluate the strength of the argument in each instance in terms of relative costs and benefits, and apply a triage or optimizing procedure to achieve the most efficient distribution of limited funds that is, to get the greatest return on the investment of each treatment dollar. This triage would apply not only to whether an individual needed treatment but also to how intensive (and expensive) a treatment is needed for optimal results. However, to calculate precisely for each drug-abusing and dependent Treatment programs do in fact exclude some people whose personal history is unpromising. However, these negative prognostic signs are attended to mostly out of a desire to minimize the risks that nonresponding behavior will disrupt other clients or endanger the clinical setting for example, programs are leery of admitting individuals who are chronically assaultive or known as large-volume drug trallickers.

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PUBLIC COVERAGE 229 individual the extent of attributable external costs, the ability to pay, the relative strengths of the desire for and hostility toward treatment (includ- ing the potency of exterior and interior pressures), and the probabilities of response to the various treatment options is a complex and demanding assignment. The specific information needed about individual and program performance, the cost to collect and evaluate it, and the sheer conceptual challenge are all extensive, and there would be unavoidable residual uncer- tainties about the results, in light of the current and foreseeable state of the prognostic arts. Instead of trying to exact the last ounce of efficiency by fine-tuning the structure of price subsidies, some simpler rules of thumb may be (and generally are) employed. For example, ability to pay is usually determined by a preset income maximum that for convenience may be equivalent to local standards for welfare (and Medicaid) eligibility; copayments, if required, are graduated according to very broad income levels, and external cost and motivational issues are seldom explicitly considered in determining direct charges to patients (although they may be very important in admission and treatment planning decisions). Income is obliquely taken as an index of external costs in that low-income drug-abusing and dependent individuals are considered very likely to resort to criminal activities to pay for their drugs. The committee believes it is clear that external cost and income con- siderations are already firmly incorporated into public decisions about the coverage of drug treatment. The external costs, particularly in terms of vio- lent crime and increasingly in terms of harm to young children's lives, have been uppermost in importance. These considerations have been reinforced by the second type of concern that treatment should not be appreciably less available to the poor than to the wellmff and well-insured because it is mostly poor individuals who commit violent crimes and whose children are least protected from neglect or abandonment. There is a further overtone of concern (an echo of the 1960s War on Poverty) that general conditions of racial and income inequality might help cause and perpetuate drug problems and retard recovery, further reinforcing the urgency of public intervention. The principal decision criterion in public coverage is and should be to make publicly subsidized treatment available to those who are doubly needy those who most need treatment according to clinical criteria and who most need financial help to afford it.2 Generally, having a serious 2 exact titration of the inability to pay, so as to marginally reduce public payments to those who are partially able financially, may be expensive and may reduce the desirable incentives that help draw reluctant individuals into treatment; in otherwords, the resulting revenue gains from copay- ment requirements may not be worth it. However, the introduction of means-based copayment requirements for long-term outpatient treatment, such as methadone maintenance, would make sense once stabilization of behavior had occurred. Similarly, a payback principle in kind or in

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230 TREATING DRUG PROBLEMS need for treatment stands as a guarantee or, at least, makes it quite probable that external costs are present; moreover, the less the ~ndiv~dual's legitimate financial capacity, the greater these external costs are likely to be. In general, the principle of covering the needy should be applied not only to all those who readily seek treatment but also to all others who can by legitimate means be induced to seek it. Considerations of external costs further argue that there is reason to create incentives beyond minimal coverage of bare-bones programs. Just as the external costs of crime Justin negative ~ncentives~oercion by the criminal justice system, which may be helpful in steering individuals toward treatment these costs justifier positive incentives to some degree, provided they can induce greater motivation and better retention In treatment. The external costs of poor job performance and parental deficiencies may justify positive incentives as well, given that criminal justice coercion of drug-abusing and dependent individuals who are steadily employed or taking care of children, or both, may be impractical or unlikely. In summary, the committee recommends that the principle of public coverage be to provide adequate support for appropriate and timely admis- sion, completion, or maintenance of good-quality treatment for individuals who cannot pay for it, either fully or partly. Public coverage should be invoked whenever such individuals reed treatment, according to the best professional judgment, and seek treatment, or can be induced through ac- ceptable means to pursue it, assuming there is some probability of positive response. FROM PRINCIPLES TO PRIORITIES Chapter 3 concluded that the aggregate need for treatment in the United States at any one time in 19~ involved about 2.5 million drug- dependent individuals and 3 million more individuals who were at least abusing drugs. Chapter 6 indicated that the 1987 survey of treatment providers found about 260,000 clients in treatment at that time, with total annual admissions numbering 850,000. Even allowing for an incomplete count of providers, it is clear that the need for drug treatment according to relevant diagnostic criteria exceeds the number of annual admissions by a substantial amount.3 dollars for successful graduates of therapeutic communities or other programs may also make sense; the prevalence of supportive "alumni groups" and "thirteenth-steppers" reflects this idea. 3 Of course, there are also dynamic considerations: 4 million young people newly enter the prime onset period each year, and an unknown number leave the drug scene. Appendix 7B contains some additional comments on the need for dynamic analysis.

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262 TREATING DRUG PROBLEMS Fund at new rate per client in treatment- $5,000 per client in treatment, or $1,860 per client treated. Keep current mix of residential and outpatient treatment. 132,000 x $5,000 = $660 million Comprehensive prison treatment Increase daily prison treatment enrollment by 50,000, or twice the compro- mise goal (average treatment retention, 6 months). Assume $3,125 per treatment year delivered in prison. 50,000 x $3,125 /2 = $156.3 million One-time Capacity ExpansionJImprovements Residential capacity expansion Increased length of stay requires additional 2,250 beds. Waiting list expansion of 25% requires 7,000 beds. Criminal justice system expansion also adds 50% (14,000 beds). Expectant mothers expansion requires 14,060 beds. Assume cost of $20,000 per additional space (discussed above). (2,250 + 7,000 + 14,000 + 14,060) x $20,000 = $746.2 million Repair enacting residential facilities Same as under core option. $90 million Repair existing outpatient facilities Same as under core option. $118.1 million Main additional staff Assume minimum of 26,000 staff in 1989. Assume requirement for 34,200 additional staff, which equals 26,000 staff in 1989 divided by 275,000 clients in 1989 times 578,600 clients in future times 1.1 for increase in staffing intensity. Assume $2,000 per additional staff for first 10,000 (assumes most with some prior experience or related training in drug problems) and $4,000 per each additional stab (minimal or no closely related experience or training). 10,000 x $2,000 + 24,200 x $4,000 = $116.8 million

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PUBLIC COVERAGE Eliminate waiting list INTERMEDIATE STRATEGY OPTION Annual Recurring Costs Same as under core option. $330 million Restore~ndingperclienttol97~19791evel Same as under core option. $412.5 million Staff training 263 Assume minimum of 26,000 staff in 1989. Expect 49,800 total staff in future, which equals 26,000 staff in 1989 divided by 275,000 clients in 1989 times 478,300 clients in future times 1.1 for increase in staffing intensity. Assume annual training expense of $500 per staff. 26,000 x $500 = $13 million, first year 49,800 x $500 = $24.9 million, subsequent years Program/client performance monitoring system Assume 815,000 annual public-tier clients in 1989. Compromise scenario treats 443,100 more clients annually. Estimate $25 per client for client reporting at intake, during treatment, and at discharge. Assume postdischarge follow-up performed on 25% of public clients. Estimate $200 per client tracked and interviewed to perform follow-up assessment after discharge. (815,000 + 443,100) x [$25 + (0.25 x $200~1 = $94.4 million Aggressive outreach to expectant mothers Assume aggressive outreach to drug-using expectant mothers reaches 18,750 at $1,000 each plus 18,750 additional at $2,000 each. 18,750 x $1,000 + 18,750 x $2,000 = $56.3 million Meat 37,500 expectant mothers Assume half of recruited expectant mothers participate in 6 months of therapeutic community treatment (currently $12,500 per year, funding upgraded by 25%), and half get 6 months of outpatient treatment (currently $2,500 per year, funding upgraded by 25%~.

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264 TREATING DRUG PROBLEMS (18,750 x $12,500 x 1.25 + 18,750 x $2,500 x 1.25) / 2 = $175.8 million Children of mothers in residential programs Same as under core option except 37,500 expectant mothers treated per year. [~28,600 x 1/4) + (66,000 x 1/4 x 0.106) + (37,500 x 1/2 x 1/2~] x 0.225 x 2.5 x $6,000 = $61.7 million Modest probation/parole induction Increase daily treatment enrollment of probationers or parolees by 66,000 (equal to prior increase to admit waiting list). Fund at new rate per client in treatment $5,000 per client in treatment, or $1,860 per client treated. Keep current mix of residential and outpatient treatment. 66,000 x $5,000 = $330 million Modest prison treatment Increase daily prison treatment enrollment by 25,000. Fund at $3,125 per treatment year delivered in prison (assumed as equal to annual funding of outpatient because residential costs are already covered by prison). 25,000 x $3,125 = $78.1 million One-time Capacitor ExpansionlImprovements Residential capacity expansion Increased length of stay requires additional 2,250 beds. Waiting list expansion of 25% requires 7,000 beds. Criminal justice system expansion also adds 25% (7,000 beds). Expectant mothers expansion requires 9,375 beds. Assume annual cost of $20,000 (see core estimates). (2,250 + 7,000 + 7,000 + 9,375) x $20,000 Repair existing residential facilities Same as under core option. $90 million = $512.5 million

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PUBLIC COVERAGE Repair easing outpatient facilities Same as under core option. $118.1 million Fain additional staff 265 Assume minimum of 26,000 staff in 1989. Assume requirement for 23,750 additional staff, which equals 26,000 staff in 1989 divided by 275,000 clients in 1989 times 478,300 clients in future times 1.1 for increase in staffing intensity. Assume $2,000 per additional staff for first 10,000 (assumes most with some prior experience or related training in drug problems) and $4,000 per each additional staff (minimal or no closely related experience or training). 10,000 x $2,000 + 13,750 x $4,000 = $75 million APPENDIX 7B MODELING FUTURE TREATMENT NEEDS AND EFFECTS All of the strategy options presented here involve prospective resource requirements and expenditures over the next three to five years. How long such needs will last is a very important question, but unfortunately there is no solid base on which to ground the answer. The goal of early aggressive initiatives is obviously to reduce current and future problems and requirements for drug treatment and enforcement expenditures in the future. Although there is evidence that drug treatment reduces the treated individual's likelihood of future drug use and criminal activity, this evidence must be incorporated into a systematic epidemiological model of drug consumption across the population, considering factors that affect onset, progression, duration, recovery, and relapse, as well as the respective effects of prevention, enforcement, and treatment. A dynamic model is required that predicts the potential need for treatment services over time contingent on alternative public policies. One might hypothesize that a "status quo" policy of limited availability of treatment with current prevention and enforcement policies would produce a gradually increasing need for treatment. "Legalization" of currently illicit drugs could result in dramatic increases in the clinically defined need for treatment (although legalization proponents contend this tendency to increase need would be offset in terms of economic costs and perhaps clinical criteria as well by reduced criminal activity). Intermediate anti-drug policies (treatment, prevention, and enforcement) could be expected to progressively reduce the need for treatment over time relative to the status quo of limited treatment

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266 TREATING DRUG PROBLEMS availability. The alternative scenarios represent fears and desires regarding the effectiveness of drug policy; what is required is sophisticated analysis and modeling of the effects of different anti-drug policies on the number of drug users, their legal and criminal behaviors, and their need for treatment. Although rudimentary dynamic models of heroin and cocaine use have been developed (Levin et al., 1975; Hunt and Chambers, 1976; Gardiner and Schreckengost, 1987; Homer et al., 1988), no one has yet produced a model that incorporates all drugs or simulates the effects of public policy variables (prevention, treatment, and enforcement). Consequently, the strategy options described earlier in this chapter must be considered short- to medium-term estimates, and judgments about more distant future requirements must be left in abeyance at present. APPENDIX 7C MEDICAID Although the ADMS block grant has been the principal federal mech- anism to support the public drug treatment system during the 1980s, the public health insurance plans, Medicaid and Medicare, have devoted a notable amount of resources and attention to drug treatment in recent years. Coverage by Medicaid is the major alternative to grant and contract mechanisms as the way to provide public coverage. Medicaid is the major mechanism of public health care financing for low-income people in the United States who by and large cannot afford individual private health policies and do not hold jobs that include employer-sponsored group plan coverage with the obvious exception of the large group of people with low incomes who receive their primary health coverage from Medicare.5 The Medicare population of 32 million is mostly over 65 years of age and is relatively peripheral with regard to the kinds of drug problems that most engage public concern. Therefore, Medicare Is not a key element In considering public-tier funding. 5 In addition, certain large populations depend on health programs of the Department of Vet- erans Affairs and the Department of Defense (DoD) for access to drug treatment. Generally, the committee has not considered populations covered by the specialized programs of DoD military personnel and dependent~as part of this study, except insofar as VA programs were discussed earlier in this chapter. 6 To put the point more concretely, illicit drug abuse and dependence are not major cost factors in Medicare, nor do Medicare clients figure prominently in the financing of drug treatment pro- grams. In 1983, for example, there were 4,451 general hospital admissions of Medicare clients with a primary diagnosis of drug dependence or abuse 0.04 percent of the 10 million annual Medicare hospital admissions. (By comparison, there were 53,019 Medicare admissions with a primary diagnosis of alcoholism [Ha~wood et al., 1985~.) In 1987, drug treatment programs of all modalities reporting to states admitted only 1,300 clients aged 65 and older (Butynski and Canova, 1988~.

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PUBLIC COVERAGE 267 A few states now use Medicaid on a fairly extensive basis to support drug treatment services, and it has some role in nearly all states. Enough states increased their use of Medicaid during the 1980s that, according to the NDATUS results, from 1982 to 1987 public third-party reimbursements (which are primarily Medicaid) more than doubled. Yet despite the signifi- cant use of Medicaid in a few states, there are powerful limitations on what it now can and cannot do for the population without private insurance. To see why, it is necessary to review briefly the way Medicaid coverage policy is determined and its limitations with respect to eligibility and services. Coverage Policy Determination Under Medicaid Medicaid is a cooperative federal/state program regulated by federal law but administered by state officials; under it the states have a great deal of autonomy, including the simple option not to participate. The federal government pays half or more of the costs of Medicaid program claims in a state on a matching formula basis, with the match coming from state appropriations. The match varies from 1:1 to 3:1 (federal:state funds), depending on a mathematical formula that is set for each state based on its poverty and income characteristics. The federal government sets certain minimum requirements (in terms of whom a state must consider eligible and what services and procedures its program must cover) for classification as a "participating state," that is, to receive federal matching dollars. Beyond these minima, states have substantial options to cover more people or services on their own, and the federal government will continue to match these expenditures on the same basis as the required coverage. Federal regulations permit reimbursement of most services delivered in the major drug treatment modalities, but they do not require states to cover most of them. As a result, there is no consistency across states in who gets covered for drug treatment or in what kinds of drug treatment services are reimbursed. In 1987 the NDATUS found that third-party public payments to re- porting providers were $139 million, or nearly 11 percent of total reported revenues (Table 7C-1~. Third-party public reimbursements included Med- icaid, Medicare, and some payments by insurance programs for military families using nonmilitary treatment services. It is probable that most of the reported revenues were Medicaid dollars, among other reasons be- cause the majority of these reimbursements were in just three states that make significant use of Medicaid for drug treatment: New York Califor- nia, and Pennsylvania, which accounted for nearly $90 million out of the $139 million in revenues. (These states have quite different approaches, however, and the large dollar flow in California is attributable to that state's large size rather than to an unusual level of commitment to this

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268 TREATING DRUG PROBLEMS financing mechanism.) Without more detailed information, which no one has yet assembled, it is impossible to know to what extent different factors account for the very large differences in state coverage, factors such as eligibility requirements, the nature of services covered, the reimbursement rates established by the different states, underlying needs for treatment, and adequacy of alternative financing mechanisms. Eligibility The Medicaid system was the primary health insurance protection during some part of 1986 for 20.6 million citizens under the age of 65 (Chollet, 1988; U.S. Department of Commerce, 1988~; in comparison, 32.4 million persons in this age group were estimated to be living in poverty (U.S. Department of Commerce, 1988~. The reason for this evident gap is that, although federal requirements hold that certain disadvantaged persons and family configurations are categorically qualified for Medicaid coverage, the states still have enormous discretion in setting the income-based standards for eligibility within these categories. All state plans must cover individuals who qualify for Supplemental Security Income, which includes blind, permanently and totally disabled, and aged (over 65) individuals with low annual incomes and total assets. These standards qualified 6.3 million persons in 1986, of whom 3.1 million each were aged and disabled, for reimbursement by Medicaid of services not covered by Medicare. Probably the major significance of this population's eligibility is that Medicare will not pay for nursing home care but Medicaid will, and nursing home claims now account for more than two-thirds of all Medicaid payments, limiting the capacity of this system to deal with other kinds of health problems. Most Medicaid beneficiaries (15.5 million) are eligible for Medicaid assistance owing to their receipt of Aid to Families with Dependent Chil- dren (AFDC), which is another federaVstate cooperative program. AFDC eligibility is based on a categorical qualification plus an income standard established by the individual states. It always covers single-parent families, pregnant women, and young children in two-parent families provided their household of residence has an income below a financial "standard of need" that is usually configured in terms of a percentage of the federal poverty line. States may at their option cover as "medically needy" categorically eligible persons in households with incomes somewhat above the AFDC standard (that is, individuals who cannot receive AFDC). But most states have used their great latitude in establishing the standard of need to set the income level of AFDC eligibility, and thus Medicaid eligibility, at a per- centage somewhat if not substantially (e.g., 35 percent) below the poverty line.

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PUBLIC COVERAGE 269 TABLE 7C-1 Third-Party Public Revenues by State in 1987 as a Percentage of Public State Total Revenues and of National Third-Party Public Payments State Revenues Third-Party Public Payments - Third-Party Total Percentage of Percentage of State ($000s) ($000s) State Total All National Alabama 644 6,987 9.2 0.5 Alaska 16 3,366 0.5 0.0 Arizona 948 24,328 3.9 0.7 Arkansas 354 2,641 13.4 0.3 California 17,779 256,530 6.9 12.8 Colorado 3,753 18,458 20.3 2.7 Connecticut 1,797 20,832 8.6 1.3 Delaware 5 1,352 0.4 0.0 District of Columbia 17 7,306 0.2 0.0 Florida 2,446 61,729 4.0 1.8 Georgia 478 24,288 2.0 0.3 Hawaii 22 4,730 0.5 0.0 Idaho 5 1,429 0.3 0.0 Illinois 1,227 40,484 3.0 0.9 Indiana 1,092 17,391 6.3 0.8 Iowa 1,118 11,553 9.7 0.8 Kansas 498 6,443 7.7 0.4 Kentucky 1,161 7,745 15.0 0.8 Louisiana 1,880 13,967 13.5 1.4 Maine 245 3,459 7.1 0.2 Maryland 3,031 27,837 10.9 2.2 Massachusetts 642 20,300 3.2 0.5 Michigan 1,613 36,408 4.4 1.2 Minnesota 2,337 25,772 9.1 1.7 Mississippi 115 1,769 6.5 0.1 Missouri 500 15,103 3.3 0.4 Montana 9 1,786 0.5 0.0 Nebraska 146 4,725 3.1 0.1 Nevada 21 2,971 0.7 0.0 New Hampshire 196 5,637 3.5 0.1 New Jersey 788 32,797 2.4 0.6 New Mexico 610 6,363 9.6 0.4 New York 58,773 250,382 23.5 42.2 North Carolina 1,337 18,848 7.1 1.0 North Dakota 725 6,486 11.2 0.5 Ohio 6,209 59,123 10.5 4.5 Oklahoma 527 8,227 6.4 0.4 Oregon 223 10,918 2.0 0.2 Pennsylvania 14,190 69,845 20.3 10.2 Puerto Rico 0 10,127 0.0 0.0 Rhode Island 28 5,115 0.5 0.0 South Carolina 431 7,263 5.9 0.3 South Dakota 0 778 0.0 0.0 Tennessee 1,016 9,279 10.9 0.7 Texas 4,856 64,341 7.5 3.5 Continues on new page

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270 TABLE 7C- 1 (Continuedf TREATING DRUG PROBLEMS State Revenues Third-Party Public Payments Third-Party Total Percentage of Percentage of State ($000s) ($000s) State Total All National Utah Vermont Virginia Washington West Virginia Wisconsin Wyoming 220 73 1,531 1,275 249 2,023 48 6,828 917 28,653 11,474 2,941 18,200 1,762 Total United States 139,227 1,308,013 3.2 8 0 5.3 11.1 8.5 11.1 2.7 0.2 0.1 1.1 0.9 0.2 1.5 0.0 10.6a 100.0 aThis figure is an average rather than a sum. Source: Institute of Medicine analysis of the 1987 National Drug and Alcoholism Treatment Utilization Survey. The federal statutes for Medicaid allow states the option of covering certain additional individuals who do not fit the mandatory categories: older children, two-parent intact families, single adults, and childless cou- ples. Very few states have taken up these options, which would bring Medicaid much closer to being a form of universal coverage for low- income people. As a result, probably the largest segment of drug-abusing and dependent individualsyoung, single, adult males are categorically ineligible for Medicaid. Aside from eligibility as such, actual registration for Medicaid can be a problem. In New York, where Medicaid standards are relatively inclusive, drug treatment programs routinely check whether new clients are certified or prima facie eligible for public assistance, which virtually ensures Medicaid eligibility. Uncertified but eligible clients may complete application forms (kept handy by admission units) at the time of initial program contact and submit them by mail. In contrast, application for Medicaid coverage in most states must be made in person at a central office. Coverage Provisions The federal guidelines for minimum benefits do not specifically deal with drug treatment. Federally required Medicaid services primarily include inpatient and outpatient hospital services and physician services. Although these services are sometimes necessary to treat some kinds of drug prob- lems and to deal with such sequelae or complications as trauma, AIDS, and other infectious diseases, the primary components of drug abuse treat- ment are psychosocial services (counseling, social work, psychotherapy),

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PUBLIC COVERAGE 271 pharmacotherapy (medications such as methadone, buprenorphine, or de- sipramine), and residency in a therapeutic milieu. Coverage for counseling services, prescribed medications, and residential treatment outside of hos- pital wards is not required but is left to the discretion of the states, along with the rates at which these elements are reimbursable. There is no systematic study available of state Medicaid coverage for specific drug treatment services. A number of states do reimburse selected types and amounts of relevant services, most commonly (based on the committee's site visit information) physician examinations at admission (but generally at a rate equal to a conventional outpatient office visit rather than a multiphasic examination appropriate for an individual potentially severely compromised by drug abuse or dependence), methadone prescription (but generally at a rate that does not cover the cost of meeting federal regulations to run a lawful maintenance clinicy, and services of psychiatrists or licensed clinical psychologists (but not other counseling professionals). Emergency hospitalization for drug overdoses is generally covered, but treatment in residential programs is rarely reimbursed. These selective reimbursements have been sufficient to allow a few states with relatively wide eligibility and generous benefits, such as New York, Pennsylvania, and Colorado, to draw on Medicaid as the source of more than 20 percent of all provider revenues. (In New York, moreover, public assistance-eligible clients in residential programs may also receive reimbursement under the Home Relief and Food Stamps programs, which helps to defray residential program expenses.) In many other states, how- ever, drug treatment providers receive almost no Medicaid support. The Current and Future Status of Medicaid Coverage In theory, the Medicaid system could cover many drug-abusing and dependent individuals because the clients served by the public tier are mostly indigent and that population is the group Medicaid was designed to serve. Yet the future role of Medicaid is undefined. In a few states, it is an important underpinning of the treatment system; in others, its effect is negligible. In the committee's judgment, if Medicaid is to assume a con- sistent role across the board in financing the public tier of drug treatment, federal legislation governing Medicaid must be materially altered so as to address drug treatment needs. Such legislation should delineate eligibility criteria, the kinds of services and providers eligible for reimbursement, and minimum reimbursement levels. Inhere are interesting precedents for Medicaid financing of drug treat- ment. The AIDS crisis is leading to new federal and state initiatives that extend Medicaid coverage to populations not previously included. In Cal- ifornia, individuals diagnosed with AIDS or AIDS-related complex are

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272 TREATING DRUG PROBLEMS categorically eligible for Medicaid coverage, whether or not they are eligi- ble under other categories. If they quality in terms of the income criterion, these individuals may receive Medicaid reimbursement for covered hospital and physician services. In a related precedent, many states are using their Medicaid systems to disburse $30 million in federal formula grant funds for purchase of the prescribed AIDS medication ANT. These one-time emergency grants had no federal attachment to Medicaid, but many states have found it efficient and convenient to use their existing Medicaid billing, administrative, and disbursement systems to spend and document these funds, even though the medication is purchased largely by individuals who are not otherwise categorically eligible or are not recipients of Medicaid coverage. This experience demonstrates that existing Medicaid reimbursement mechanisms can be adapted to manage other reimbursements that are parallel to but not part of Medicaid under present state criteria. Finally, and most pertinently, recent legislation (P.L. 100 360) requires states to provide Medicaid coverage to pregnant women and their infants who meet or exceed the federal poverty level by up to 35 percent. This provision is limited to health services related to pregnancy and to conditions that threaten the well-being of the infant. Maternal drug abuse certainly threatens the health of the infant, but whether this provision leads to the induction of such women into appropriate forms of care remains to be seen. The committee's recommendations regarding expanded outreach to this population could be partially and increasingly over time supported through Medicaid reimbursement for those eligible.