Treatment Finance

The advent of managed care to contain health care costs has had a significant effect on how substance abuse treatment is paid for and delivered in the United States. Concerns abound as to the effect on quality and access to treatment services. This unit examines the costs and cost-benefits of substance abuse treatment and explores current financing structures to support treatment services.
Investments in substance abuse treatment are associated with long-term cost savings and reductions in crime (Jofre-Bonet and Sindelar, 2001) as well as reductions in recidivism (Zhang, Friedmann, & Gerstein, 2003). Estimates of cost savings for substance abuse treatment show one dollar invested in treatment programming returns four to seven dollars in “reduced drug-related crime, criminal justice costs, and theft” (National Institute on Drug Abuse, 1999, p. 21).
According to Solano (1997), the financing of drug abuse treatment in the United States is a two-tiered system composed of private- and public-sector funding sources. The private sector, which encompasses spending by private insurance companies and out-of-pocket expenditures by clients, accounts for about 25 percent of the treatment provided in the United States. The privately financed treatment system delivers substance abuse services mainly to insured working-class, middle-class, and upper-class clients. Prior to the 1990s, private sector treatment was dominated by an inpatient modality. “In recent years, service delivery has shifted to outpatient facilities due to the implementation of managed care in many health plans, in which financing and organizational service delivery have been combined” (Solano, 1997).
Public-sector drug abuse treatment has been financed through public insurance, primarily Medicaid (a joint federal and state government program) and direct-delivery programs that have been jointly funded by federal intergovernmental block grants and state and local government expenditures. These programs have been delivered by the latter government institutions, either with their own agencies or, more generally, through contracts with health care providers. The clients or target populations of public programs have been low-income and economically disadvantaged individuals and households, who sometimes are treated in public hospitals but mostly are cared for in residential and outpatient facilities. Recently, managed care has begun to be initiated for Medicaid in a number of states (Solano, 1997).
Solano (1997) also states, “A central question for financing drug abuse treatment is how to constrain service costs while ensuring ready access to and quality of care services that provide effective outcomes for patients.” Such concern has risen because of considerable growth of public and private expenditures for substance abuse treatment services, parallel to the large rise in medical care financed by both sectors over the same period. Various approaches have been proposed or introduced as a means to constrain costs, while ensuring access to and quality of care. For example, cost sharing, in the form of coinsurance, co-payments, and deductibles, has been implemented to raise the price of care to the consumer in order to decrease demand. Similarly, benefit package designs and payment mechanisms (such as prospective payments, capitation, and fixed budgets) are designed to constrain service use prescribed by treatment providers, thereby reducing treatment costs. To offset th e possibility that some providers may minimize treatment quality in order to maximize profits, management techniques such as utilization review and admission pre-certification have been instituted (Solano, 1997).
Jofre-Bonet, M., & Sindelar, J. L. (2001). Drug treatment as a crime fighting tool. Journal of Mental Health Policy and Economics, 4, 175–188.
National Institute on Drug Abuse. (1999, October). Principles of drug addiction treatment: A research-based guide (NIH Publication No. 99-4180). Retrieved March 18, 2009, from
Solano, P. L. (1997, December). Financing of drug treatment services [Literature review]. Retrieved March 18, 2009, from
Zhang, Z., Friedmann, P. D., & Gerstein, D. R. (2003). Does retention matter? Treatment duration and improvement in drug use. Addiction, 98, 962–972.
To successfully complete this learning unit, you will be expected to:
1. Describe the costs and cost-benefits of treating individuals with substance abuse problems.
2. Identify and describe the ways in which substance abuse treatment is currently financed.
3. Analyze the effect of managed care on the quality and effectiveness of substance abuse treatment.
4. Describe how SFBT and motivational therapy models might address some of the issues of managed care, cost, and effectiveness.
Learning Activities Studies Readings
• Use the library to complete the following:
• Read the Zarkin, Dunlap, and Homsi article, “The Substance Abuse Services Cost Analysis Program: A New Method for Estimating Services Costs.” This article discusses a new method in assessing the cost of substance abuse programs.
• Read Bouchery, Harwood, Dilonardo, and Vandivort-Warren’s 2012 article, “Type of Health Insurance and the Substance Abuse Treatment Gap,” from Journal of Substance Abuse Treatment, volume 42, issue 3, pages 289–300.
Optional – Readings
You may choose to read the following optional articles from the Capella library, your coursepack, and the Internet.
• The Alexander, Nahra, and Wheeler (2003) article, “Managed Care and Access to Substance Abuse Treatment Services,” from Journal of Behavioral Health Services and Research, volume 30, issue 2, pages 161–175.
• From your coursepack, the Galanter, Keller, Dermatis, and Egelko article, “The Impact of Managed Care on Substance Abuse Treatment: A Report of the American Society of Addiction Medicine.”

Discussion 1: 1 page needed with minimum of 250 words and 2 references.
Managed Care
Traditionally, substance abuse and mental health benefits in managed care plans do not equal those for other medical conditions. This lack of parity has become a significant area of focus for behavioral health care advocates who argue that benefits should be equal. Analyze the parity debate and provide your own position as to why parity for substance abuse benefits in managed care programs does or does not make sense. Consider what you have learned about solution-focused therapy and how it might fit with the managed care system.


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