Overview of Costs

Cost:

1. An amount paid or required in payment for a purchase; a price.

2. The expenditure of something, such as time or labor, necessary for the attainment of a goal.

The American Heritage® Dictionary of the English Language,
Third Edition © 1992

The first definition of cost above is what most people use when they start planning for a cost-related analysis. The second definition, however, is more useful because it allows for a much broader and more accurate accounting of the efforts necessary to change behavior. The amount of money paid, reimbursed, or requested for reimbursement for drug treatment varies depending on the national and local economic climate, the rate of inflation, and many other factors. To gain an accurate picture of costs, we must look beyond the simple lump sum totals allocated for a program. Although accounting records for cost assessment are useful in figuring costs, they usually do not supply the information needed to determine all expenditures. This manual shows how to figure costs once cost data have been collected and describes strategies for collecting information on the specific costs of treatment.

Cost Measures

When used in most treatment programs, cost, cost-effectiveness, and cost-benefit analyses are more complicated than in business because the money spent for treatment rarely is a complete and accurate measure of total treatment costs. To truly understand how a program operates and to find ways to improve its outcomes and reduce its costs, all the resources it uses need to be described and related to outcomes.

Basic Cost Categories

In choosing and recording cost data, it is helpful to categorize expenditures. Most treatment programs pay for -

• Treatment personnel (such as counselors, nurses, physicians, social workers, and psychologists).

• Administrators and office personnel (including managers, human resources, and payroll).

• Space.

• Furniture.

• Equipment.

• Transportation.

• Communication services (including telephone, e-mail, and Internet services).

• Vendor services (including drug tests, accounting, security).

• Insurance (including professional liability) and finance (including costs of corporate accounts).

Donated Resources

Volunteered time and services, donated facilities, space shared with other programs for which the treatment program may pay little or no cost, and donated equipment, supplies, and other resources rarely show up in a program's accounting records. These donated or undervalued resources, however, may be crucial to program operations. "Free" resources and their value need to be included in comprehensive descriptions of program costs.

Although programs should not be penalized for obtaining services, space, and other resources without having to pay money for them, it would not be accurate to say that a program cost $80,000 when an additional $20,000 of time, space, equipment, and supplies went into treating patients. It also would be difficult to replicate a program unless all the resources it used -including those volunteered by the community -were included in program descriptions.

Indirect Costs

Indirect costs, such as overhead, or shared costs must also be included to give a fair assessment of your program. This is particularly important in figuring costs of a single program in a much larger organization, such as the hospital detoxification component of a multiprogram organization where the fiscal and medical directors may be shared across components.

The Need for Cost per Patient

Determining all of the costs for your program, both paid and unpaid, is relatively simple, and you probably categorize them to some extent already. However, to evaluate your program, you need to consider your costs at the level of the individual patient, not just the treatment program as a whole. Although some programs also aim their interventions at the family and the community, if the primary focus of treatment is on the substance abuser, then the primary focus of measurement should also be on the substance abuser.

A simple approach to finding the cost per patient is to divide the total cost of a program for a particular period by the total number of patients the program treats during the same period. This calculation assigns the same cost to treatment for each patient, no matter how many or few program resources were devoted to treatment of the patient. The problem is that not all patients use the same amount of resources. Some use more, a few use a lot more, and many use less.

Most programs tailor treatment to the needs of each patient, and most patients use treatment resources to different degrees. For example, patients may show up for some but not all appointments. Some patients also leave treatment after the first or second contact, whereas others stay throughout the period (e.g., a month) during which costs are assessed. All of these factors make the cost per patient different for different patients.

In addition, the outcomes or behavior change associated with the resources expended varies. Some patients change a lot with a lot of resources, some change a little with a lot of resources, and a few change a lot with a few resources. To analyze cost-effectiveness and cost-benefit accurately, cost as well as effectiveness and benefit must be measured separately for each patient.

Standardized Costs

Using someone else's estimate of treatment costs is not advised. Some standardized treatment costs are not specific enough. To improve the cost-effectiveness and cost-benefit of treatment by adding or dropping treatment procedures, the cost of each procedure needs to be known. Because standardized cost estimates do not always list costs of specific procedures, it would be difficult to determine whether the effectiveness of a procedure justified the cost.

Procedure costs also need to be measured separately for each patient. Costs of performing the same basic procedure may vary between patients according to patient age, substance abuse history, and many other factors. The cost of individual therapy may be the same for each patient if the provider and the duration and number of sessions are all dictated by a third party. Even within highly standardized treatment delivery systems, however, patient participation (and thus resources actually used) will vary significantly and thus affect cost.

Also, most standardized treatment costs are not broken down by type of resource. For example, Anderson and associates (in press) provide detailed cost statistics for a variety of treatment procedures at several levels of specificity. The amount and value (cost) of each resource that made the procedure possible is not, however, mentioned. Information on the types and amounts of resources currently used can be especially valuable when trying to decrease costs while maintaining program outcomes. For example, it may be possible to implement the same procedures (e.g., individual therapy) using less expensive resources (e.g., paraprofessional counselors instead of clinical psychologists) while achieving similar outcomes. A breakdown of treatment procedure costs by type of resource could help managers decide what substitutions might be possible with minimal impact on outcomes.

In addition, standardized estimates of treatment cost may not be generalizable to your program. Different regions, even different parts of the same city, have vastly different economic and professional environments, which affect cost in complex ways.

Finally, measuring costs for specific procedures can generate useful insights into program operations. Recording how one spends time in different treatment-related activities may have a positive effect on one's efficiency in those activities. In fact, it is a good idea to collect cost data for a week or two before starting to collect the cost data that will be used in CPPOA, because those data may change as habits are modified.

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