7 Courtesy of Keith Brofsky/Thinkstock Evaluating the Cost of Care Learning Objectives After reading this chapter, you should be able to: •• Identify the factors that determine the true cost of care. •• Identify the direct and indirect costs of health care. •• Examine the concept of cost-benefit analysis related to the evaluation of a health care program. •• Examine the concept of cost-effectiveness analysis related to the evaluation of a health care program. •• Recognize programs that pass and fail cost-benefit and cost-effectiveness analysis. •• Apply cost-benefit and cost-effectiveness analysis to health care programs. bur25613_07_c07_195-218.indd 195 11/26/12 2:50 PM CHAPTER 7 Introduction Introduction Comparing data across studies and across organizations and programs is difficult because each one measures information differently. For example, one medical provider might measure services by the number of patients seen, whereas another might measure each billable procedure regardless of the number of patients seen. How do we determine which organization best uses its resources? First, we must determine what the true cost of care is. For this, we need information on the cost of supplies per service, the cost of physicians and staff needed for a procedure, and the facility’s cost per procedure. Once this data is tallied to find a total cost of care, the data must be analyzed to determine whether the money and resources were well spent. By doing so, decision makers can make informed selections regarding which services to continue and which ones to revise or discontinue. Courtesy of Jochen Sand/Thinkstock The expenses of several resources, including health care personnel, supplies, and facility, must be taken into consideration when calculating the true cost of a medical procedure. Critical Thinking Throughout this text, various statistics have been presented and discussed. For example, in Chapter 6, you read that “Many women with incomes below 200% of the federal poverty level report not seeking health care due to an inability to take off work during clinic hours.” Statistical data is gathered through various resources, one of which might be the electronic health records mentioned in previous chapters. Do you think that true costs can be better evaluated with this tool? Self-Check Answer the following questions to the best of your ability. 1. How might one organization measure costs? a. by the number of patients seen b. by counting every penny in the facility c. by estimating the reimbursement amount from Medicare/Medicaid d. by adding up the cost of every piece of medical equipment bur25613_07_c07_195-218.indd 196 11/26/12 2:50 PM CHAPTER 7 Section 7.1 Totaling the Cost of Care 2. Which of the following should be assessed to determine the true cost of care? a. the cost of the valet service b. the cost of paving the parking lot c. the cost of physicians and staff for a single procedure d. the cost of medical lobbyists 3. Why is it difficult to compare data across studies and across organizations and programs? a. Each measures information differently. b. Different researchers look at different issues. c. Employee satisfaction varies widely. d. Medical certifications are not the same everywhere. Answer Key 1. a 2. c 3. a 7.1 Totaling the Cost of Care T here are both measurable and abstract costs associated with any medical condition. Measurable costs are the direct costs of treatment, including the price of pharmaceuticals and materials, such as bandages and sutures, as well as the salaries of nurses, physicians, and pharmacists. Direct costs can be measured by totaling the financial prices of all of the resources used to treat a patient. To a provider of a service, these include costs related to property, plant, and equipment. These costs are typically called “overhead costs,” and the cost of direct care is typically inflated to include these costs. If it is tangible, it is a direct cost. Courtesy of Comstock/Thinkstock The cost of caring for a medical condition includes the expense of tangible materials as well as more abstract expenses caused by diminished productivity at work, taking sick days, and so forth. bur25613_07_c07_195-218.indd 197 Indirect costs are more abstract. The indirect costs of an illness, for example, include lost work hours, reduced productivity, and reduced family involvement and civil involvement. For a patient with a mental condition, fees paid to a psychiatrist are a direct cost; reduced work productivity due to taking time off to see the psychiatrist is an indirect cost. Both direct and indirect costs must be weighed when determining resource allocation to care for vulnerable populations. 11/26/12 2:50 PM Section 7.1 Totaling the Cost of Care CHAPTER 7 Vulnerable Mothers and Children The United States experienced a record-breaking birthrate in 2007 of 4,316,233 total births. The slight economic surge in 2006 and 2007, which preceded the Great Recession of 2008 and allayed fears over an impending recession, is a contributing factor to 2007’s elevated birthrate, as people are more comfortable growing their families during times of economic surplus. The U.S. population also reached an all-time high of 300 million people in late 2006, and the enlarged population added to the following inflated birthrate. The 2007 baby boom was followed by a steady decline in 2008 and 2009, partially due to the Great Recession that began in late 2008. The birthrate declined 4% from 2007 to 4,131,019 total births in 2009 (Sutton, Hamilton, & Mathews, 2011). The live birthrate further declined 3% from 2009 to 4,000,279 in 2010 (Hamilton, Martin, & Ventura, 2011). The good news is that the numbers of births to teen mothers and preterm births also declined between 2007 and 2010. The birthrate to females ages 15–19 fell from 42.5 births per 1,000 women in that age group in 2007 to 39.1 births per 1,000 women in that age group in 2009 (Sutton et al., 2011). While the preterm birthrate rose 20% from 1990 to 2006, this upward trend reversed in 2007. The preterm birthrate for 2006 was 12.8% of all live births; the rate fell to 12.7% in 2007, and again to 12.3% in 2008 (Martin, Osterman, & Sutton, 2010). This decline is important, as preterm babies, low birth weight babies, and babies born to teen mothers incur higher maternity, neonatal (just-born, generally considered to be the first day or two after birth), and postnatal (infancy after the first few days postdelivery) medical costs than babies born at full gestation, at healthy birth weights, and to more mature mothers. In terms of direct costs, newborns with no medical complications such as prematurity or low birth weight have an average postnatal care cost of $4,551 as of the year 2007. The average cost of care for newborns with complications other than prematurity and low birth weight is $10,273. The cost rises significantly to $49,033 for premature and low birth weight babies. Of these costs, health insurers pay the bulk. Figure 7.1 illustrates the payment breakdown of expenses (March of Dimes, 2008). bur25613_07_c07_195-218.indd 198 11/26/12 2:50 PM Section 7.1 Totaling the Cost of Care CHAPTER 7 Figure 7.1: Cost for maternal and infant care The cost of care for babies born premature or underweight is five times more than for other complications and ten times more than for babies born with no complications. March of Dimes. (2008). Retrieved from http://www.marchofdimes.com/peristats/pdfdocs/cts/ThomsonAnalysis2008_ SummaryDocument_final121208.pdf As for maternal care, uncomplicated cesarean deliveries cost significantly more than uncomplicated vaginal deliveries, at averages of $13,329 and $9,415, respectively. The total average for all complicated deliveries, both vaginal and cesarean, is $14,667. Maternal care costs include prenatal care and care for three months postpartum (March of Dimes, 2008). The costs for maternal and infant care should also be considered together to get a clear view of the total cost of having a baby. The average total cost of care for both mother and child is estimated at $21,328. Uncomplicated pregnancies and deliveries average a mother and infant total of $15,047, significantly lower than the overall average. The overall average is driven up by the total for premature and low birth weight cases, which average $64,713 for both mother and child. Other complications are only slightly more expensive than the overall average, at an average cost of $22,183. Figure 7.2 illustrates the breakdown of the total average costs for mother and infant care (March of Dimes, 2008). bur25613_07_c07_195-218.indd 199 11/26/12 2:50 PM CHAPTER 7 Section 7.1 Totaling the Cost of Care Figure 7.2: Breakdown of the total average costs of maternal and infant care, pregnancy through three months postpartum Three months postpartum, the gap in expenses closes marginally for complicated, premature, and uncomplicated births. Source: March of Dimes The indirect costs associated with birth include nonmaterial costs like time off work. The average maternity leave from work in the United States is six weeks. Many working mothers are not able to take more recovery time even for complicated pregnancies and deliveries. When complications like preterm delivery and low birth weight arise, other household members, such as grandparents and fathers, may need to take additional time off work to help the mother. Time off work, whether paid or unpaid, means a loss in productivity to employers. Exact numbers are difficult to estimate because productivity loss is an indirect cost, but the total productivity cost loss to U.S. employers is estimated to be around $260 billion per year due to all health-related work losses (Mitchell & Bates, 2011). Abused Individuals Nonfatal child abuse is estimated to cost the United States a total lifetime economic burden of $124 billion, based on 2008 figures (Fang, Brown, Florence, & Mercy, 2012). The lifetime cost estimate for each victim of nonfatal child abuse and neglect is $210,010. The direct costs associated with this number include the following: bur25613_07_c07_195-218.indd 200 11/26/12 2:50 PM Section 7.1 Totaling the Cost of Care CHAPTER 7 • $7,999 for special education costs • $7,728 in child welfare costs for programs such as Child Protective Services (CPS) • $6,747 in costs related to criminal justice • $10,530 in abuse-related adulthood medical costs per victim • $32,648 in abuse-related childhood medical costs per victim The per-victim total also includes indirect costs associated with productivity loss of $144,360 (Fang et al., 2012). Additional indirect costs associated with the effects of child abuse on the adult victim’s ability to grow social capital in the form of strong relationships are difficult to measure. However, measuring the indirect cost of adult domestic partner abuse is easier. In 1995, the Centers for Disease Control and Prevention (CDC) estimated the annual indirect cost of domestic partner abuse, including productivity loss, at nearly $1.8 billion. The direct costs of domestic partner abuse are related to medical treatment for injuries, mental health treatment, and criminal justice. The annual direct cost was estimated at nearly $4.1 billion. Accounting for inflation, the 1995 total estimated annual cost of $5.8 billion becomes $8.3 billion in 2003 (Futures without Violence, 2010; National Center for Injury Prevention and Control, 2003). This increase only reflects the loss in the value of U.S. currency, called monetary inflation, and does not account for any changes in amount or severity of domestic partner abuse. A lack of research on the direct and indirect costs of domestic partner abuse makes it more difficult to know which programs are most effective and to allocate resources accordingly. According to Brown (2011), the National Center on Elder Abuse and the Administration on Aging report spending at least $206.2 million in Social Services Block Grants funds and $42.3 million in Medicaid funds that were allocated to Adult Protective Services (APS) programs in fiscal year 2009. These funds, set up to assist the elderly with their medical care, were spent on protecting them from their abusers instead (Brown, 2011). Chronically Ill and Disabled Persons The direct and indirect costs of chronic illnesses have a significant effect on the United States’ economy and workforce. Focusing on the seven most common chronic ailments offers a clear view of the problem without over or under inflating the numbers. In a study by the Milken Institute (2007), the following are the seven most common and expensive chronic ailments in the United States and their total annual treatment expenditures in order of cost: • • • • • • • bur25613_07_c07_195-218.indd 201 stroke: $13.6 billion diabetes: $27.1 billion hypertension: $32.5 billion pulmonary disease: $45.2 billion mental disorders: $45.8 billion cancer: $48.1 billion heart disease: $64.7 billion 11/26/12 2:50 PM Section 7.1 Totaling the Cost of Care CHAPTER 7 The direct cost of treating these seven ailments for noninstitutionalized patients (those who do not reside in prisons, long-term care facilities, specialized homes for mentally unstable patients, and the like) is around $277 billion annually. (The costs of treating secondary conditions related to the seven conditions listed are not included in this figure.) Furthermore, the direct and indirect costs associated with chronic disease are expected to skyrocket in the coming decades. Figure 7.3 illustrates the estimated costs for 2023. Figure 7.3: Forecast of direct and indirect costs associated with chronic disease By 2023, it is expected to cost the nation more than twice as much to treat cancer compared to other leading chronic diseases. Milken Institute. (2007). Retrieved from http://www.milkeninstitute.org/healthreform/pdf/AnUnhealthyAmericaExecSumm.pdf The indirect costs associated with lost productivity for individuals with chronic conditions can be staggering. Absenteeism is the missing of days of work by employees. Workers with chronic conditions also often experience presenteeism, where they show up for work but have severely lowered productivity over a length of time. For example, a worker with hypertension might arrive on time every day but feel sluggish and tired and so not accomplish his or her best possible work output. The Milken Institute study indicates that presenteeism creates significantly more output loss than absenteeism. Output loss is not limited to chronic disease sufferers. Caregivers like spouses and adult children caring for elderly parents also experience output loss due to the strains of caring for somebody with a chronic disease. Overall, output loss due to chronic disease is estimated to cost the country over $1 trillion annually (Milken Institute, 2007). bur25613_07_c07_195-218.indd 202 11/26/12 2:50 PM Section 7.1 Totaling the Cost of Care CHAPTER 7 It is important to remember that although chronic diseases are among the most expensive health issues the country faces, the problem of chronic disease is potentially the area with the most possibility of cost savings. Preventive medicine in terms of obesity control, nutrition, immunizations, and smoking cessation creates an opportunity for a healthier populace with fewer chronic conditions. It is estimated that improving lifestyle habits now could save the country $1.1 trillion annually by 2023 (Milken Institute, 2007). Public programs, like First Lady Michelle Obama’s “Let’s Move” campaign, work toward this savings goal by educating and encouraging the public at large to improve our health by improving our lifestyles. Persons Diagnosed With HIV/AIDS The Centers for Disease Control and Prevention (CDC) estimate that new cases of HIV cost the United States and its territories a total of nearly $16.5 billion per year and that the cost for a lifetime of HIV treatment is $379,668 per person (Centers for Disease Control and Prevention, 2012d). Preventing new cases of HIV is an important part of the nation’s health objectives, and the CDC is tasked with monitoring HIV prevention. Reducing the number of people with HIV/AIDS not only creates a healthier citizenry but it also saves the nation a lot of money. To that end, the CDC earmarked $359 million annually for the years 2012–2016 to help fund HIV care and preCourtesy of jcarillet/iStockphoto vention programs in state-run health departments throughout When citizens are healthy, the nation saves a lot of money the nation. That number is sig- that would have otherwise been used to fund the treatment of nificantly increased from the acute and chronic illnesses, such as HIV/AIDS. $111 million total that the CDC used from 2007 to 2010 to fund HIV testing, which was estimated to have created a savings of $1.2 billion in medical costs during that same time (CDC, 2011b). The CDC estimates that every HIV infection that is prevented saves the country $355,000 in lifetime medical costs per patient (CDC, 2010b). Persons Diagnosed With Mental Conditions Mental conditions impose a heavy financial burden on patients and the country in terms of both direct and indirect costs. Mental health care costs are estimated to be as much as 6% of the nation’s total annual health care costs—an expenditure of about $57.5 billion per year. Spending on mental health in America is tied with spending on cancer (National Institute of Mental Health [NIMH], 2011). The CDC estimates that the direct cost of treating mental illness is closer to $100 billion annually (Reeves et al., 2011). bur25613_07_c07_195-218.indd 203 11/26/12 2:50 PM Section 7.1 Totaling the Cost of Care CHAPTER 7 The indirect costs associated with mental illness are much higher than the direct costs. In addition to the $100 billion annual cost of care estimated by the CDC, mental illness is estimated to cost the country $193 billion in lost wages and earnings due to absenteeism and presenteeism. Add another $24 billion annually in disability benefits, and the indirect costs are close to two and half times the annual direct cost (Reeves et al., 2011). Suicide- and Homicide-Liable Persons The indirect costs of suicide are estimated to be much higher than the direct costs associated with suicide. This is partially because most of the direct cost of suicide is actually a direct cost of mental illness, like severe depression, and so is measured as mental illness, not as suicide. The most recent estimates on the annual cost to the country of suicide puts the direct cost around $1 billion and the indirect costs of lost productivity and wages, as well as indirect costs to the remaining family, close to $32 billion (Crosby, Ortega, & Stevens, 2011). Homicides are quite a bit costlier. A study conducted at Iowa State University found that the total for both direct and indirect costs of a single murder is $17.25 million. The study estimates that every murderer costs the country $24 million (DeLisi et al., 2010). The direct costs included in these figures include costs associated with the criminal justice system, whereas the indirect costs include lost productivity of the criminal, the victim, and the victim’s friends and relatives. Persons Affected by Alcohol and Substance Abuse The costs associated with alcohol and substance abuse are both health and socially oriented. The overconsumption of alcohol alone is estimated to cost the country over $223.5 billion per year, a rate of nearly $1.90 for every alcoholic drink consumed. The majority of the estimated cost, 72.2%, is from indirect costs associated with lost productivity. Only 11% of the annual cost goes to health care, and criminal justice costs are a close third, at 9.4% of the total. The government picks up around 42.1% of the tab at $94.2 billion annually (Bouchery, Harwood, Sacks, Simon, & Brewer, 2011). Tobacco usage is another costly health issue. According to the CDC, tobacco use costs the country $96 billion in tobaccorelated health care costs and Courtesy of iStockphoto/Thinkstock $97 billion in lost productivity every year (CDC, 2012e). Drug The nation loses almost $100 million every year because of abuse costs the United States diminished productivity due to tobacco use. $193 billion annually. This number includes both direct costs of bur25613_07_c07_195-218.indd 204 11/26/12 2:50 PM Section 7.1 Totaling the Cost of Care CHAPTER 7 health care and criminal justice as well as indirect costs associated with productivity loss and indirect costs of crime, such as emotional distress to the victims. Health costs contribute the smallest portion of the annual bill with productivity loss and crime costs accounting for the bulk (U.S. Department of Justice, National Drug Intelligence Center, 2011). The scope of the economic effects of drug abuse is difficult to measure, and the health care cost to individuals is significant. The cost for residential drug abuse treatment is approximately $29,240. Outpatient therapy is significantly less expensive, costing around $4,318 (U.S. Department of Justice, National Drug Intelligence Center, 2011). Indigent and Homeless Persons Tracking the cost of health care for America’s homeless is as difficult as tracking the individuals themselves. Health care and homelessness are tightly interwoven issues. On the one hand, many homeless people do not have health insurance and regular access to health care. On the other hand, inflated health care costs can lead to bankruptcy and other financial problems that can lead to homelessness. Homeless and indigent people have a high incidence of emergency room visits, largely due to a lack of access to other health care providers. Although they may qualify for Medicaid, a great number of qualifying individuals do not have Medicaid coverage, due in part to difficulties in applying for it, such as physical access to Medicaid offices, lack of photo ID, and lack of a street address, to name a few. To address the health care needs of America’s transient homeless population, the federal government funds programs through the Department of Veterans Affairs (VA) Courtesy of Monkey Business/Fotolia and the Health Care for the Homeless (HCH) program. The VA provides medical care and other Because the homeless lack access to many services for all veterans of the United States mili- health care providers, they visit emergency tary and funds special initiatives to address the rooms much more frequently. medical needs of homeless veterans. The HCH provides primary and emergency health care as well as mental health and substance abuse services for America’s homeless. These and other government-funded programs, in addition to private organizations and agencies, health insurers, and out-of-pocket payments, cover the cost of health care for the nation’s homeless. Though the total health care cost of America’s homeless is difficult to ascertain, a study by the Lewin Group found that the cost per homeless person per day in a hospital ranges from $1,200 to around $2,000 (Lewin Group, 2004). bur25613_07_c07_195-218.indd 205 11/26/12 2:50 PM Section 7.1 Totaling the Cost of Care CHAPTER 7 Immigrants and Refugees Overall, immigrants to the United States use fewer health care resources than native-born citizens. This is due to a combination of access barriers, affordability, and cultural differences. Even when comparing insured immigrants with insured natives, native-born Americans use more—and more expensive—health care resources. The same is true when comparing uninsured immigrants and refugees with uninsured natives. Uninsured immigrants use about 61% less health care than uninsured native-born citizens. Native-born citizens of the United States use significantly more in quantity and more in quality health care resources (Udall Center for Studies in Public Policy, 2006). Overall, immigrants and refugees use health care at a rate of only 55% of that used by native-born citizens. Sadly, the largest gap in health care use is among native and nonnative children. Native U.S. citizen children use upwards of 74% more health care resources than do their immigrant peers (Mohanty et al., 2004). These gaps in health care use span populations with public payer insurance, private payer insurance, and the uninsured. More than the dollar amounts, the size of the usage gaps is important, as they inform public policy regarding health care access in the United States. The usage gaps debunk the argument that immigrants, both documented and undocumented, unduly drive up the cost of health care in America. Critical Thinking Consider the statement, “The usage gaps debunk the argument that immigrants, both documented and undocumented, unduly drive up the cost of health care in America.” Think about immigration and its relationship to health care costs. Do you agree with this statement? Why or why not? Self-Check Answer the following questions to the best of your ability. 1. The total cost of health-related productivity loss to U.S. employers is estimated at ___________ per year. a. $260 billion b. $290 billion c. $320 billion d. $370 billion 2. According to the text, who else suffers from job output loss but is not a chronic disease sufferer? a. employers b. insurance providers c. non-professional caregivers d. health providers bur25613_07_c07_195-218.indd 206 11/26/12 2:50 PM Section 7.2 Analyzing the Cost of Care CHAPTER 7 3. The indirect costs of what special population are close to two and half times the annual direct cost? a. people diagnosed with mental conditions b. the elderly c. nonviolent abuse victims d. HIV/AIDS patients Answer Key 1. a 2. c 3. a 7.2 Analyzing the Cost of Care D ecision makers use economic tools to analyze the financial and social costs associated with caring for the vulnerable. A cost-benefit analysis (CBA) assigns monetary value, or dollar total, to both direct and indirect costs, then compares the costs and benefits of a project to determine the likelihood of the project producing a positive outcome and a good return on the financial investments of the project. The difficult part of cost-benefit analysis is assigning monetary value to abstract social costs. Here is a simplified example of a cost-benefit analysis for a program that would provide free immunizations to schoolchildren: Step 1: Assign monetary value to both direct and indirect costs. Direct costs: Trained staff ($1,000 for one day) Syringes ($0.50 per child 3 300 children 5 $150) Vaccinations ($5 per child 3 300 children 5 $1,500) Alcohol pads ($0.10 per child 3 300 children 5 $30) Bandages ($0.10 per child 3 300 children 5 $30) Total direct costs: $2,710 Indirect costs: Missed classroom time (cost to run the school for one day 5 $5,000) Total indirect costs: $5,000 Step 2: Determine the expected benefit of the program. Children who have received the vaccine are less likely to miss school due to illness (this reduces the resources needed to catch children up on missed schoolwork). Teachers are less likely to catch illness from the vaccinated children and so are less likely to miss work (cost per missed day of work 5 $200 per teacher, per missed bur25613_07_c07_195-218.indd 207 11/26/12 2:50 PM CHAPTER 7 Section 7.2 Analyzing the Cost of Care day). If the program lowers the average number of missed days from three to two, the financial benefit of fewer missed work days is $12,000: 3 missed days 3 $200 per day 3 60 teachers in the school 5 $36,000 2 missed days 3 $200 per day 3 60 teachers in the school 5 $24,000 Step 3: Compare the costs and benefits. Total of direct and indirect costs 5 $7,710 Monetary value assigned to anticipated benefit 5 $12,000 Total savings caused by the immunization program 5 $4,290 Step 4: Make a decision. The program provides a positive return on investment, both in financial terms and in terms of the school population’s health. Cost-benefit analysis focuses on the value of one program. Conversely, cost-effectiveness analysis (CEA) is a method of comparing two or more programs. Unlike cost-benefit analysis, cost-effectiveness analysis, when used correctly, assigns both monetary value and social value to program outcomes. With CEA, finances are not the only determinant of a program’s value. For example: Smoking prevention program for teenagers: • cost to run program: $5,000 • anticipated percentage of students who will not smoke (based on available research of this program or similar ones): 75% Smoking cessation program for adults: • cost to run program: $2,000 • anticipated percentage of program participants who remain nonsmokers after leaving the program (based on available research of this program or similar ones): 20% Now consider the cost of caring for a long-term smoker who may present with emphysema, heart disease, or cancer. Although the smoking prevention program may initially cost more, CEA indicates that it offers better return on the financial and social investment. Cost-effectiveness can also be expressed using a mathematical formula: CE ratio = Cost new program 2 Cost current program Oucome new program 2 Outcome current program The mathematical formula does not put as much weight on social value as does the listing method. bur25613_07_c07_195-218.indd 208 11/26/12 2:50 PM Section 7.2 Analyzing the Cost of Care CHAPTER 7 Even with cost-benefit analysis and cost-effectiveness analysis to normalize data across programs and organizations, it is still challenging to make comparisons necessary to determine resource allocation. This is partly due to the lack of standardized data reporting techniques and a general lack of research on the cost analysis of many programs. This is especially true of programs that care for certain vulnerable populations, as we will discuss in the next few sections. Vulnerable Mothers and Children Family planning services offer a cost-effective way to reduce health care costs associated with vulnerable mothers and children. In 2008, an estimated 36 million women needed family planning services. Of those, 17.4 million were in need of publicly funded access to contraceptives and family planning–related services, including prevention-oriented education. In 2010, public expenditures for family planning materials and services were $2.37 billion, of which 75% came from Medicaid (Guttmacher Institute, 2012). That might sound like a lot to spend on contraceptives and counseling, but the estimated savings generated by the expenditures on family planning services are significantly higher. For the $2.37 billion spent Courtesy of Katie Little/Fotolia on family planning, it is estimated The public expenditures for family planning materials pale that federal and state governments in comparison to the cost of pre- and postnatal care for together save $5.1 billion per year. America’s youngest and poorest mothers. Broken down, that amounts to $3.74 in Medicaid savings for every $1 spent on family planning (Guttmacher Institute, 2012). These savings are based on the cost of prenatal and postnatal care for mothers and infants. Considering the incidence rate of babies with low birth weight and other health issues among America’s youngest and poorest mothers, preventing a pregnancy at the cost of contraception and counseling given at annual doctor appointments is significantly less than the cost of neonatal care for an infant in distress. Abused Individuals Cost analysis of abuse prevention is complicated by the difficulty in reaching victims and potential victims and by the challenge of estimating the indirect costs associated with abuse. Additionally, it is difficult to estimate the economic benefits of abuse prevention, particularly educationally based prevention programs. Consider a prevention program for teenage girls. A school may spend $500 on educating young women as to how to avoid abusive relationships, but tracking those students 10 years later and verifying whether or bur25613_07_c07_195-218.indd 209 11/26/12 2:50 PM Section 7.2 Analyzing the Cost of Care CHAPTER 7 not they ever found themselves in a situation to avoid an abusive relationship presents a significant challenge. Then there is the human aspect to consider—if just one of those girls uses what she was taught in the prevention program to avoid an abusive relationship, is it worth the full cost of the program? Violence prevention programs struggle to convince decision makers (particularly those holding the purse strings) that violence prevention programs are cost effective (BrowneMiller, 2008). When studying abuse prevention programs for cost-efficacy, the programs tend to be separated into three separate categories: • primary prevention programs that focus on public education and awareness • secondary prevention programs that focus specifically on identified high-risk groups, such as teen mothers and families affected by drug or alcohol abuse • tertiary prevention programs that focus efforts on families that have already experienced abuse Of these, primary prevention is often considered to be most effective due to the human cost savings of avoiding abuse altogether. Cost-benefit analysis of different primary prevention programs produces varying results. Overall, home-visiting programs that provide support and resource access to new mothers have been found to create cost savings in four primary areas: • increased maternal employment and productivity • decreased reliance on the public welfare system • decreased spending on health care and related services • decreased intervention by the criminal justice system Using these four points as a guideline, most home-visiting programs create a cost savings of $5.70 for every prevention dollar spent on high-risk groups, and savings of $1.26 for every prevention dollar spent on low-risk groups. However, two national programs were found to lose money. Healthy Families America, which provides various resources to expectant and new mothers, shows a loss of 4.8 cents for every program dollar spent. Similarly, Early Head Start, which works to improve family functioning and positive health outcomes, loses 7.7 cents for every dollar spent (Howard & Brooks-Gunn, 2009). These programs continue to receive funding due to the question of the human cost. Chronically Ill and Disabled Persons There is a movement toward creating cost savings by increasing the amount of homebased care, as opposed to clinic and residential-based care, for chronically ill and disabled people. Home-based care programs involve a team of doctors and nurses who engage and support the patients in seeking their own positive health outcomes. These programs have the most promise of increasing wellness among this population while reducing their total cost of care. Cost analysis of the Johns Hopkins Guided Care model, an integrated system of care that trains nurses in primary care settings to manage care coordination for high-risk patients bur25613_07_c07_195-218.indd 210 11/26/12 2:50 PM Section 7.2 Analyzing the Cost of Care CHAPTER 7 with chronic illnesses or disabilities, indicates that integrated care approaches offer significant savings. Data on the Guided Care program shows that patients enrolled in the program experienced 21% fewer hospital readmissions, which translates to significant financial savings (Holahan, Schoen, & McMorrow, 2011). Equally promising is data from the Intermountain Healthcare Primary Care Medical Home (PCMH) model, which focuses on high-risk elderly patients. In addition to nurse care Courtesy of Getty Images/Thinkstock managers, PCMH uses electronic health records to streamline coordi- Money that would otherwise be spent on clinic and nation of care. A two-year study of residential care could be saved by increasing home-based the PCMH model found that it cre- care for chronically ill and disabled people. ated a total hospitalization reduction of 10% (Holahan et al., 2011). Both examples offer encouraging evidence in favor of managed care models that engage patients, take advantage of technology, and use trained nurses to provide a higher level of patient care coordination. Persons Diagnosed With HIV/AIDS Cost analysis of HIV/AIDS testing and treatment programs should include consideration for indirect human cost of quality of life in addition to expanded life expectancy and direct costs. The CDC considers a treatment program cost effective if the cost per qualityadjusted life year (QALY), an outcome measure that weighs both the quality and quantity of life, is at or below $100,000 per QALY gained. Determining the cost-efficacy of HIV prevention programs relies on informed estimates as to the number of new infections that likely would have occurred in a set period. Considering that number with the cost of treatment provides a view of the cost-efficacy of prevention programs in the United States. The CDC reports that HIV prevention programs prevented an estimated 361,878 new HIV infections from 1991 to 2006. That translates to a savings of $129.9 billion during that same period (CDC, 2012d). Persons Diagnosed With Mental Conditions Much of what is spent on mental conditions in the United States is on social services and in the criminal justice system. In 2002, then Chair of the President’s New Freedom Commission on Mental Health, Dr. Michael Hogan, commented, “We are spending too much on mental illness in all the wrong places” (as cited in Insel, 2008). A decade later, his point still stands in that most of the direct and indirect costs of mental illness are not directly bur25613_07_c07_195-218.indd 211 11/26/12 2:50 PM CHAPTER 7 Section 7.2 Analyzing the Cost of Care related to health care for the individuals involved but are instead spent on items like public income assistance (welfare) and in addressing homelessness (Insel, 2008). Managed care models may hold the most hope for cost-effective reduction of the overall cost of mental conditions. Improving the coordination of physical and mental health care can reduce the likelihood of negative health outcomes. Mental health conditions often present together with other issues, such as alcohol or drug dependence, a situation termed mentally ill chemical abuse (MICA). Addressing multiple needs at the same time reduces length and number of treatments sought. Though it is difficult to measure the direct and especially the indirect costs of mental health issues, evidence suggests that improved programs within the health care system can reduce overall costs in terms of social services, criminal justice, and productivity loss (National Institute of Mental Health [NIMH], 2009). Suicide- and Homicide-Liable Persons Violence prevention programs are most effective when disseminated through the school system and other organizations that directly reach young people. Suicide and homicide prevention are closely tied to mental health and substance abuse prevention. Among those implemented in schools, the Signs of Suicide (SOS) program is perhaps most widespread. SOS trains educators and program facilitators who then run the SOS program in schools; the program teaches students how to recognize signs of suicide in themselves and others and how to respond to suicide indicators (Signs of Suicide, 2012). Studies of the SOS program have found it to be one of the most effective and cost-efficient suicide prevention programs in the United States (Aseltine, James, Schilling, & Glanovsky, 2007). Persons Affected by Alcohol and Substance Abuse Courtesy of vm/iStockphoto Alcohol and substance abuse are most often treated through outpatient therapy, allowing the patient to preserve productivity at home and at work. bur25613_07_c07_195-218.indd 212 Outpatient therapy is the most popular treatment program for alcohol and substance abuse. Outpatient therapy is not only more cost effective than residential treatment but it also allows the patient to maintain productivity both at work and at home. Evidence exists that outpatient therapies can improve cost-efficacy by combining multiple therapies that address both physical and psychological factors in a managed care plan (Beaston-Blaakman, Shepard, Horgan, & Ritter, 2007). 11/26/12 2:50 PM Section 7.2 Analyzing the Cost of Care CHAPTER 7 Prevention programs are even more cost effective in that they lower the incidence rate of alcohol and substance abuse. In doing so, prevention programs reduce the amount spent on substance abuse treatments, emergency medical needs, and in the criminal justice system. Substance abuse prevention programs aimed at youth have the dual effect of mitigating suicide and homicide rates. As such, many violence prevention programs have a built-in substance abuse avoidance message. Indigent and Homeless Persons There are many great programs that address the different needs of the homeless population. Some provide food, others provide shelter, and others provide medical care. The exact work and goal of a program must be considered in a cost-benefit analysis of any program serving homeless people. An organization providing multiple services under one roof should consider each program separately in order to ascertain where funds are best allocated. Evidence supports the theory that critical time intervention programs that immediately respond to the needs of homeless people with mental health conditions is cost effective in that these programs reduce the number of shelterless nights per individual served (Jones et al., 2003). Supported housing programs that integrate clinical care and sheltering have also been found to be cost effective in serving homeless people with mental health conditions. Although they are expensive to run, supported housing programs are found to significantly reduce the number of shelterless nights (Rosenheck, Kasprow, Frisman, & Liu-Mares, 2003). Immigrants and Refugees Health care access for noncitizen immigrants and refugees continues to be a hot-button topic in the United States. An argument can be made that disqualifying immigrants from social welfare programs such as Medicaid would save said programs billions of dollars. On the other hand, denying health care coverage and access to immigrants creates a significant financial liability to care providers, as well as state and federal governments, in the form of uninsured health care costs. The long debate over the Patient Protection and Affordable Care Act (PPACA) included voiced concerns over allowing noncitizen immigrants increased access to social welfare programs, particularly Medicaid. The law was written to offer lawfully present noncitizen immigrants the same qualifying access to Medicaid as nativeborn citizens; but the long-standing five-year waiting period is still active under PPACA. The law also includes lawfully present immigrants bur25613_07_c07_195-218.indd 213 Courtesy of Gerry Boughan/Shutterstock Noncitizens and refugees continue to campaign for affordable access to basic health care. 11/26/12 2:50 PM Section 7.2 Analyzing the Cost of Care CHAPTER 7 (those who have immigrated through the proper channels) in the mandate to maintain health insurance coverage and gives them equal access to the new health insurance marketplace developed under PPACA. Lawfully present immigrants are also eligible under the other requirements for tax credits for health insurance premiums, as created by PPACA (Siskin, 2010). Undocumented immigrants are exempted from the mandate and are also denied access to the new insurance marketplace (Siskin, 2011). Critical Thinking Cost-benefit analysis and cost-effectiveness both have different applications and uses. Can you think of two ways each type of analysis might be used? Self-Check Answer the following questions to the best of your ability. 1. Cost analysis of abuse prevention is complicated by what difficulties? a. reaching victims and potential victims b. cost-effectiveness of the program c. finding participants 10 years later d. social stigma of victims of abuse 2. The CDC considers a treatment program cost effective if the cost per qualityadjusted life year (QALY) is at or below _______ per QALY gained. a. $50,000 b. $75,000 c. $100,000 d. $125,000 3. Prevention programs are more cost effective in that they lower the incidence rate of what types of abuse? a. alcohol and substance abuse b. emotional abuse c. verbal abuse d. domestic partner abuse Answer Key 1. a bur25613_07_c07_195-218.indd 214 2. c 3. a 11/26/12 2:50 PM Chapter Summary CHAPTER 7 Case Study: The Argument Over Data Representation: Planned Parenthood Federation of America In 2011, Planned Parenthood Federation of America (PPFA) (2012) found itself in the middle of a debate over the way medical service providers should collect and report data on services rendered. Amidst a political firestorm over funding, PPFA released annual data on the total number of services, separated by type, which the entire organization had rendered in 2010. PPFA claimed that the data showed that abortion services accounted for 3% of the total number of services. The data was questioned because it did not reflect the number of patients who received abortion services; it reflected the total number of abortion services rendered. Concerns were also voiced that a patient seeking abortion services received multiple services as part of the abortion services (counseling, pregnancy tests, other medical tests, contraception, and breast exams, to name a few). The PPFA data counted each service separately, instead of as a package with the abortion services. It was posited that abortion services might account for significantly more than 3% of PPFA’s total business, were the data reported differently. In the end, it was decided that there was no proof of data misrepresentation by PPFA. This is because PPFA reports services data in accordance with Section 1001 of Title X of the Public Health Service Act. Title X is the federal program under which many family planning resource centers, including PPFA, health departments, and other community-based programs receive state and federal funding for reproductive health and family planning services. Title X is administered by the U.S. Department of Health and Human Services, Office of Population Affairs (2011). Under the administrative guidelines, all participating organizations must count services rendered and report data using the same definitions and data reporting practices. This allows the administrative offices of Title X to provide standardized data that enables objective cost analysis and program reviews that determine future funding to grantees under Title X. In this way, Title X has contributed to standardized data reporting across all programs receiving government funds for family planning services. Chapter Summary T he cost of medical care is more than what physicians charge to treat patients. Direct costs of care are tangible and include the cost of medication and treatment, including operational items such as staffing costs. Indirect costs of care include intangible items that are more difficult to measure. Time off work, productivity loss at work and at home, and quality of life are all indirect costs of care. Treatment and prevention programs must prove that the money spent is worthwhile in order to gain funding from grants, from donors, and from within the organizations themselves. Cost analysis considers direct and indirect costs along with intended outcomes and actual outcomes. The least expensive program may not actually offer the most cost-effective treatment method. Many times, prevention programs are more cost efficient than treatment programs because preventing negative outcomes is usually less expensive than reversing them. Critical Thinking The chapter states that prevention is a better way to spend money than curing people after they have contracted a disease or illness. Can you think of examples of certain health issues that would benefit from this approach and how prevention can reduce the associated costs? bur25613_07_c07_195-218.indd 215 11/26/12 2:50 PM CHAPTER 7 Self-Check Self-Check Answer the following questions to the best of your ability. 1. To determine how an organization should best use its resources, it must determine the true cost of health care. a. True b. False 2. For the purposes of this chapter, how are direct costs defined? a. those costs associated with providing health care b. how much a specific procedure costs c. if it is tangible, it is a direct cost d. by how much direct benefit a patient receives from the procedure 3. When determining resource allocation to care for vulnerable populations, what must be considered? (Select two.) a. patient benefits b. direct costs c. indirect costs d. social approval 4. The United States experienced a record-breaking birthrate of 4,316,233 total births in what year? a. 1998 b. 2007 c. 2009 d. 2012 5. Primary prevention programs focus on what? a. public education and awareness b. social relationships c. responsibility d. peer pressure 6. Treatment and prevention programs must prove that the money spent is ____________ in order to gain funding from grants, from donors, and from within the organizations themselves. a. worthwhile b. accessible c. accounted for d. placed in a strong financial institution Answer Key 1. a bur25613_07_c07_195-218.indd 216 2. c 3. b, c 4. b 5. a 6. a 11/26/12 2:50 PM Web Exercise CHAPTER 7 Additional Resources Visit the following websites to learn more about the topics covered in this chapter: Patient Centered Medical Home, which advocates a continuum of care http://www.ncbi.nlm.nih.gov/pmc/articles/PMC1466763/?tool=pmcentrez The Signs of Suicide website http://www.mentalhealthscreening.org/programs/youth-prevention-programs/sos/ The Office of Population Affairs website about Title X http://www.hhs.gov/opa/title-x-family-planning/ Web Exercise This chapter has discussed the unseen costs of health care services, including everything from physicians’ salaries to the cost of medical supplies such as tongue depressors and gloves. It has also discussed and given examples of cost-benefit and cost-effectiveness analyses. Choose a position that is for or against the statement, “Is any program worth the cost if only a single human being benefits from the program?” Research that position and write a three- to five-page paper outlining your position. Be sure to use reliable sources and cite them in APA format. Wikipedia and YouTube should not be used in this assignment. Your paper must meet the following requirements: •• three to five pages, double-spaced •• 12-point Times New Roman font •• APA formatting for quotes, citations, and sources In your paper, be sure to address the following: •• •• •• •• bur25613_07_c07_195-218.indd 217 explanation of your position as for or against examples supporting your position why you chose those particular examples did you change your stance when researching and why? 11/26/12 2:50 PM Key Terms CHAPTER 7 Key Terms absenteeism The missing of days of work by employees. monetary value Cost in terms of a dollar total. cost-benefit analysis (CBA) Determines the likelihood of the project producing a positive outcome and a good return on the financial investments of the project. neonatal Just-born, generally considered to be the first day or two after birth. cost-effectiveness analysis (CEA) A method of comparing two or more programs. direct costs Tangible costs that can be measured by totaling the financial prices of all of the resources used to treat a patient. indirect costs Abstract costs that are difficult to measure in economic terms. monetary inflation Loss in currency value. bur25613_07_c07_195-218.indd 218 postnatal Infancy after the first few days postdelivery. presenteeism Wherein workers show up for work but have severely lowered productivity over a length of time. quality-adjusted life year (QALY) An outcome measure that weighs both the quality and quantity of life. Signs of Suicide program A nationwide program that trains educators and other facilitators to educate youth on recognizing the signs and symptoms of suicide and the appropriate ways to respond. 11/26/12 2:50 PM 
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