Controlling Treatment Costs of Substance Abuse and Psychiatric Problems
Pearson, Joan M., Personnel
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. A significantly higher rate of increase may be symptomatic of an emerging problem.
Although these indicators are useful guidelines, taken alone they do not constitute enough evidence for an employer to initiate--or reject--cost-control measures. Before launching a new program to manage psychiatric and substance abuse costs, employers should take the following additional steps:
Analyze psychiatric and substance abuse treatment claims. Claims analysis can answer a number of questions, including who is using these services, to what degree outpatient treatment is available and being used, and whether the availability of after-care is adequate. Examining the cost of inpatient treatment by facility, especially within the same geographic area, often brings to light wide variability in the costs of essentially the same treatment. This information also helps an employer assess whether utilization and cost trends differ by area of the country. Comparing claims experience from one year to the next may help identify the reasons for increasing costs.
Evaluate the effectiveness of current utilization review and cost-management programs. Understanding how these programs work can help an employer modify or strenthen its programs for controlling psychiatric and substance abuse costs.
Assess the role of an internal or external employee assistance program (EAP) in psychiatric and substance abuse treatment. Usually the percentage of psychiatric and substance abuse admissions attributable to referrals by an EAP is low. However, any change an employer makes in the management of psychiatric and substance abuse treatment will affect the way EAP counselors refer employees for treatment. Therefore, the EAP should be involved in the implementation of any new utilization management program. In addition, the EAP may be able to offer insight into the effectiveness of current programs and whether such programs impose any barriers to treatment. The EAP's appraisal of various treatment providers in the community can help the employer evaluate such facilities.
If after using the analysis and evaluation techniques suggested above an employer determines new mechanisms are needed to control psychiatric and substance abuse treatment costs, the next step is development of a strategy consistent with the employers' savings goals and employee relations philosophy. Some employers test proposed changes through pilot programs, using data from their claims analysis to select a pilot location.
A Proven Approach
About 70% of psychiatric and substance abuse treatment costs (compared with about 50% of medical/surgical costs) can be attributed to inpatient care. Depending on plan design and current utilization, up to 35% of those costs can be eliminated. One especially effective approach is use of a preferred provider network for inpatient care.
Establishing a preferred provider network is a complex task best accomplished with the assistance of a case-management firm specializing in psychiatric and substance abuse cost control. The firm will identify and recruit providers that use inpatient facilities conservatively. It will then negotiate an agreement with providers that includes:
* A range of options for treatment: inpatient care, outpatient care, partial hospitalization, and aftercare.
* A required (where possible) initial assessment of each patient to determine which types of treatment are appropriate.
* Incentives to avert unnecessary admissions.
* Flexibility with respect to length of stay for substance abuse treatment.
* A strong aftercare program with aggressive follow-up and continuous evaluation and monitoring of a patient's progress.
* Provision for extracontractual benefits such as coverage of partial hospitalization.
The employer will also need to redesign its benefit plan to encourage use of network providers.
Time for a Second Look
Significant cost savings can be realized in the area of psychiatric and substance abuse treatment, but traditional utilization review programs have largely ignored this opportunity. However, some employers have designed specialized cost-control programs for psychiatric and substance abuse treatment and have achieved cost reductions of as much as 35%. A preferred provider network is one alternative; modification of benefit plan design is another. Employers should develop a strategy for managing costs and excessive utilization in a manner that is consistent with their own culture and values.
JOAN M. PEARSON is a consultant at Towers, Perrin, Forster & Crosby, Inc. in the Seattle office.…
Questia, a part of Gale, Cengage Learning. www.questia.com
Publication information: Article title: Controlling Treatment Costs of Substance Abuse and Psychiatric Problems. Contributors: Pearson, Joan M. - Author. Magazine title: Personnel. Volume: 66. Issue: 10 Publication date: October 1989. Page number: 12+. © 1989 American Management Association. COPYRIGHT 1989 Gale Group.
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