Controlling Treatment Costs of Substance Abuse and Psychiatric Problems

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Controlling Treatment Costs of Substance Abuse and Psychiatric Problems

New approaches are needed to control the skyrocketing treatment costs of substance abuse and psychiatric illness.

Psychiatric and substance abuse treatment costs are rising at about twice the rate of medical inflation. At one company, for example, inpatient hospital costs for nonpsychiatric care increased 17.4% between 1985 and 1987, while costs for psychiatric care rose 44.8%. The primary reason for such disproportionate growth is that psychiatric and substance abuse confinements are among the most difficult hospitalizations to control. Other contributing factors are state legislation that introduced or raised minimum mandated benefit levels, benefits plans that encourage inpatient (instead of outpatient) treatment even though outpatient treatment may be more appropriate and is far less costly, and the increasing social acceptance of treatment for psychiatric illness and substance abuse.

Traditional utilization review programs typically are ineffective for controlling psychiatric and substance abuse treatment costs partly because they rely on preauthorizing admissions and predicting length of stay on the basis of a given diagnosis. In psychiatric and substance abuse cases, diagnosis is of limited value in predicting length of stay, and once a patient is hospitalized reducing the length of stay can be difficult. Further, since many admissions are made on an emergency basis, preauthorization is often impossible.

However, the overriding reason that psychiatric and substance abuse treatment costs defy traditional cost-control methods is that psychiatric and substance abuse patients differ in important ways from patients hospitalized for other conditions: First, their illnesses often are chronic. Unlike most hospital patients, those admitted for psychiatric illness or substance abuse tend to have high relapse rates. Research has shown that one of five patients is readmitted within 12 months.

Second, although follow-up treatment and "aftercare" reduce the need for further hospitalizations, such care is not always an integral part of a treatment program. Moreover, many benefit plans provide little or no coverage for it, thereby discouraging patients from seeking such care.

Third, the courts increasingly require treatment in lieu of incarceration for psychiatric and substance abuse patients. In particular, the juvenile justice system and the courts that deal with drunk driving and drug abuse often direct offenders to detoxification programs and/or rehabilitative education instead of sending them to jail. Some estimates suggest that as much as 30% of adolescent substance abuse treatment and 10% of adult substance abuse treatment is court-ordered.

Fourth, psychiatric and substance abuse patients--especially adolescents--need help from their families in order to cope with their illnesses successfully. Currently, most benefit plans do not provide adequately for family involvement in treatment, follow-up, or aftercare.

How High Is Too High?

Psychiatric and substance abuse treatment costs typically run between 7% and 15% of total healthcare costs. When those costs are at or below 7%, an employer may not need to develop a strategy to manage its psychiatric and substance abuse treatment program. However, when the costs are more than 10% of total healthcare costs, an employer should cast a critical eye on its programs.

The employer should also examine hospital days per thousand lives covered. If psychiatric and substance abuse treatment generates more than 100 days per thousand lives covered, significant savings may be realized by implementing a cost-control program.

In addition, the employer should compare the rate at which costs are increasing for psychiatric and substance abuse treatment with the rate of increase in costs for general medical and surgical care. …