Full Text PA-96-075
NIH GUIDE, Volume 25, Number 32, September 27, 1996
PA NUMBER:  PA-96-075
P.T. 34

  Drugs/Drug Abuse 
  Treatment, Medical+ 
  Health Care Economics 

National Institute on Drug Abuse
This program announcement encourages research on the economics of
drug abuse treatment services.  This field of economic research is
concerned with the behavior of consumers, providers, governments, and
third party payers, and how they respond to economic incentives
related to drug abuse treatment services. Applications are sought
that would employ the methods of economic analysis to the most
pressing problems facing the financing and delivery of drug abuse
treatment services in the United States.  Particular concern is
directed to understanding the structure of public and private drug
abuse treatment markets at a time when new insurance benefits and
alternative organizations for service delivery are being created.
Applied research on alternative payment systems, public and private
financing systems, and the design of insurance for drug abuse
treatment is of special interest.
The Public Health Service (PHS) is committed to achieving the health
promotion and disease prevention objectives of "Healthy People 2000,"
a PHS-led national activity for setting priority areas.  This program
announcement, ECONOMICS OF DRUG TREATMENT SERVICES, is related to the
priority area of Health Promotion/Alcohol and Other Drugs.  Potential
applicants may obtain a copy of "Healthy People 2000" (Full Report:
Stock No. 017-001-00474-0 or Summary Report: Stock No.
017-001-00473-1) through the Superintendent of Documents, Government
Printing Office, Washington, DC 20402-9325 (Telephone 202-512-1800).
Applications may be submitted by domestic and foreign for-profit and
nonprofit organizations, such as universities, colleges, hospitals,
laboratories, units of State and local governments, and eligible
agencies of the Federal government.  Racial/ethnic minority
individuals, women, and persons with disabilities are encouraged to
apply as Principal Investigators.  Foreign institutions are not
eligible for the First Independent Research Support and Transition
(FIRST) (R29) award.
Research support mechanisms include the research project grant (R01),
small grant (R03), and FIRST awards (R29).  There are special
requirements for FIRST and R03 mechanisms; the applicant intending to
apply utilizing either of these mechanisms, should contact the
program officer under INQUIRIES for further information.
Because the nature and the scope of the research proposed in response
to this announcement may vary, it is anticipated that the size of an
award will also vary.
Summary.  Research studies are sought on (1) financing of drug abuse
treatment services, including health insurance and/or payment
mechanisms, (2) alternative delivery systems and managed care, (3)
cost-benefit, cost-effectiveness, and cost-utility analysis, (4) cost
of drug abuse treatment, and (5) methodological research.  Studies of
financing include issues of health insurance and/or payment
Background.  Economic research on drug abuse treatment services has
the goal to inform society about fundamental issues in health care
reform and managed care as restructuring of the health care system
proceeds at a rapid pace.  In this environment of social
experimentation and institutional change, there are numerous natural
experiments available for the application of economic analysis that
would increase understanding of the demand and supply for drug abuse
treatment and the unique factors that contribute to public and
private markets for drug treatment.  Applied research on alternative
payment systems, public and private financing systems, and the design
of insurance for drug abuse treatment must be grounded in sound
microeconomic principles.
The economics of drug abuse treatment services studies factors that
determine supply such as:  (1) the price of drug abuse treatment; (2)
technological factors in drug abuse treatment; (3) price of resource
inputs; (4) prices of related goods; (5) market organization; and (6)
special influences such as government treatment standards, subsidies,
insurance, and risk sharing.
The economics of drug abuse treatment also studies factors that
determine demand for drug treatment: (1) the price of drug abuse
treatment; (2) average income of patients; (3) population
characteristics and need for treatment; (4) price of related goods;
(5) preferences or tastes; and (6) special influences such as patient
health, court intervention, family intervention, barriers, drug
testing, insurance coverage and benefit structure.
Drug abuse treatment services research is complicated by the factor
of direct government involvement in the production, financing, and
regulation of treatment services.  Market segmentation between the
private and public treatment providers is another special
consideration.  There is face validity to the notion of competitive
market failure given external costs of drug abuse, imperfect
information, insurance coverage, and interdependence of preferences
among addicts, families, courts, employers, and treatment providers.
Financing of drug abuse treatment is derived from Federal, State, and
local government funds and also private sector funds from health
insurance, consumer out-of-pocket expenditures, and charity.  The
scientific inquiry into financing of drug treatment requires
normative and positive economic analysis on allocation and
distribution issues.  For example, because different levels of
government are involved in public financing, fiscal federalism is a
central issue.  For health services needs of the poor, distributive
issues must be addressed.  Analysis of both public and private
provision of health insurance is essential to financing studies.
Furthermore, payment mechanisms for drug abuse treatment affect the
allocation and distribution of drug treatment resources within
specific health care delivery systems that are created through public
The history of medical and behavioral delivery systems has been a
move from traditional, fee-for-service to alternatives such as Health
Maintenance Organizations (HMOs), Preferred Provider Organizations
(PPOs), and Point of Service (POS) plans.  In the drug abuse
treatment field, there has been the rise of the behavioral health
care organization, usually for profit, to administer the mental
health, alcohol, and drug abuse treatment benefits in private or
public insurance plans.  Under these organizations, managed care is a
set of mechanisms designed to manage the quality, access, outcomes,
and costs of service delivery to enhance the efficiency and equity of
the system. Managed care systems require research on principal-agent
relationships and the design of incentives, contracts, and
Cost-benefit, cost-effectiveness, and cost-utility analyses are
collaborative activities by economic and drug abuse treatment
researchers who are investigating the effectiveness of innovative
medical and behavioral therapies as well as effectiveness in
real-world health care delivery systems. Methodological work is
needed on measuring common denominators, the costs of services, and
benefits.  Economic analysis also has a role in interpreting the
results of monitoring outcomes to improve the allocation and
distribution of resources within a delivery system.
Areas of research interest include direct and indirect treatment
costs as well as social benefits and costs.  Treatment costs for
other disease disorders can be increased if a drug disorder is
present, and cost savings (or "cost-offsets") are recognized as a
major consideration in integrated health care networks.   From a
social viewpoint, measurement of cost-offsets in criminal justice
populations is also needed.  Unfortunately,  information on the unit
service costs of drug treatment has been rudimentary,  which has
hampered full cost pricing of service delivery for innovative and
standard drug abuse treatments.  Conceptualizing and measuring the
relationships among accounting costs, marginal costs, average costs,
and total costs in drug treatment programs and systems has received
little attention.  Research in these areas is needed so that a
precise measurement of treatment costs can be established and further
economic analysis be stimulated in such areas as the drug abuse
treatment cost function.
Researchers are encouraged to develop rigorous designs for studies in
the economics of drug abuse treatment services.  The following are
illustrative of problem areas that may be addressed under this
announcement.  The examples are not exhaustive, and other types of
studies are anticipated to be submitted.
Financing of Drug Abuse Treatment Services
Research is needed on financing of public and private drug abuse
treatment. For analysis, such fundamental questions must be asked:
(1) What criteria should be applied in judging budget policies?;  (2)
What are the social, political, economic, and historical forces which
have formed the shape of the present funding pattern and which will
determine the formulation of contemporary and future funding
patterns?;  and (3) What are the interactions between the private and
public treatment sectors as various funding plans are devised?
Research topics in this broad area may be further refined into two
subtopic areas:
Health Insurance.  Research is encouraged on issues concerning the
provision of private and public health insurance for drug abuse
treatment.  Examples of research topics include:
o  Incentives, structure, and behavior of private and public
o  Incentives and behavior of patients with insurance coverage and
those patients without coverage;
o  Analysis of market functioning, moral hazard, adverse selection,
and risk pool development;
o  Design of drug abuse treatment benefits in public and private
health insurance packages;
o  Economic evaluation of regulatory controls and mandates;
o  Analysis of the prevalence of drug treatment insurance coverage
and types of coverage among the insured, underinsured, as well as
studies about the uninsured in need of treatment;
o  Economic barriers to the adoption of effective pharmacotherapies
in standard drug treatment services;
o  Insurance studies related to patients with HIV/AIDS; and
o  Prevalence impact and consequences of cost shifting among various
Payment Mechanisms.  Payment mechanisms affect the delivery, access
to services, utilization, and quality of drug abuse treatment
services.  Examples of such studies include:
o  Federal and State health care reform and payment mechanisms;
o  Prepayment, fee-for-service, capitation, and price regulation;
o  Risk sharing, coinsurance, deductibles, catastrophic limits,
stop-limits, and reinsurance;
o  Risk adjustment methods; and
o  Reimbursement levels and service adjustments.
Alternative Delivery Systems and Managed Care
Studies of managed care and behavioral health care organizations are
encouraged.  Some illustrative, but by no means exhaustive areas of
consideration are:
o  Economic evaluation of well-defined managed care systems on
quality, access, outcomes, and costs of service delivery;
o  Managed care effects on clinical decision making and on the
structure and function of the treatment provider organization;
o  Organization of drug abuse treatment delivery that is either
"carved-out of" or "integrated into" a managed care system;
o  Impact of managed care systems on Medicaid or Medicare; and
o  Economics of drug abuse treatment to HIV/AIDS patients under a
managed care system.
Cost-Benefit, Cost-Effectiveness, and Cost-Utility Analysis
The analysis of the economic costs and benefits of drug abuse
treatment has been derived in conjunction with effectiveness studies.
Additional studies are needed to assess the economic benefits and
costs of a variety of treatment interventions.  Cost-effectiveness
studies are useful in  comparing novel treatment technologies to a
standard treatment technology.  Examples of such studies include:
o  Cost-benefit or cost-effectiveness of innovative treatment
methods, targeted at special populations of injection drug users,
women, pregnant women, and women with children, correction's
populations,  adolescents, and patients with co-occurring disorders;
o  Cost-benefit or cost-effectiveness analysis of the utilization of
new or alternative medications for treating drug disorders and other
brain and behavioral disorders;
o  Cost-benefit or cost-effectiveness of medical, mental health,
alcohol, and drug treatment service integration; and
o  Cost-benefit or cost-effectiveness of integrating drug abuse
treatment with criminal justice interventions.
Cost of Drug Abuse Treatment
Improved measures of costs are needed for management decisions that
will assist clinical and program treatment staff as well as local,
State and national health policy makers.  For scientific research,
measures of costs must be improved both conceptually and
operationally so that precise costs of treatment interventions may be
determined.  Examples of such cost research include:
o  Estimation of the direct and indirect costs of treatment as well
as the cost of ancillary services;
o  Measurement of component unit service costs and full costs of drug
abuse treatment services that comprise standard and innovative
treatments; and
o  Cost-offset studies of integrated drug abuse treatment and other
health services.
Methodological Research
Research is encouraged that will develop and test the application of
new methods of economic analysis in drug abuse treatment services
research. Examples include:
o  Improvements for assessing economic efficiency and equity
associated with the problems of drug abuse treatment;
o  Improvements in health insurance theory and practices associated
with drug abuse treatment services;
o  Improvements in assessing the impacts of alternative delivery
systems and managed care;
o  Development of new statistical methods associated with economic
analysis of drug abuse treatment studies;
o  Development of simulation models that advance analysis of drug
abuse treatment financing at the national and State levels; and
Improving methodologies of cost-benefit, cost-effectiveness, and
cost-utility analysis.
It is the policy of the NIH that women and members of minority groups
and their subpopulations must be included in all NIH supported
biomedical and behavioral research projects involving human subjects,
unless a clear and compelling rationale and justification is provided
that inclusion is inappropriate with respect to the health of the
subjects or the purpose of the research.  This new policy results
from the NIH Revitalization Act of 1993 (Section 492B of Public Law
103-43) and supersedes and strengthens the previous policies
(Concerning the Inclusion of Women in Study Populations, and
Concerning the Inclusion of Minorities in Study Populations), which
have been in effect since 1990.  The new policy contains some
provisions that are substantially different from the 1990 policies.
All investigators proposing research involving human subjects should
read the "NIH Guidelines For Inclusion of Women and Minorities as
Subjects in Clinical Research," which have been published in the
Federal Register of March 28, 1994 (FR 59 14508-14513) and reprinted
in the NIH Guide for Grants and Contracts, Volume 23, Number 11,
March 18, 1994.
Investigators also may obtain copies of the policy from the program
staff listed under INQUIRIES.  Program staff may also provide
additional relevant information concerning the policy.
Applications are to be submitted on the grant application form PHS
398 (rev. 5/95) and will be accepted at the standard application
deadlines as indicated in the application kit.  Application kits are
available at most institutional offices of sponsored research and may
be obtained from the Grants Information Office, Office of Extramural
Outreach and Information Resources, National Institutes of Health,
6701 Rockledge Drive, Bethesda, MD 20892, telephone 301-710-0267,
email: ASKNIH@ODROCKM1.OD.NIH.GOV.  The title and number of the
program announcement must be typed in Item 2 on the face page of the
FIRST award applicants must include at least three sealed letters of
reference attached to the face page of the original application.
FIRST award applications submitted without the required number of
reference letters will be considered incomplete and will be returned
without review.
The completed original and five legible copies must be delivered to:
BETHESDA, MD 20892-7710
BETHESDA, MD 20817 (for express/courier service)
Applications that are complete will be evaluated for scientific and
technical merit by an appropriate peer review group convened in
accordance with the standard NIH peer review procedures.  As part of
the initial merit review, all applications will receive a written
critique and undergo a process in which only those applications
deemed to have the highest scientific merit, generally the top half
of applications under review, will be discussed, assigned a priority
score and receive a second level review by the appropriate national
advisory board or council.  Small grants do not receive a
second-level review.
Review Criteria
o  scientific, technical, or medical significance and originality of
proposed research; appropriateness and adequacy of the experimental
approach and methodology proposed to carry out the research;
o  qualifications and research experience of the Principal
Investigator and staff, particularly, but not exclusively, in the
area of the proposed research;
o  availability of the resources necessary to perform the research;
o  appropriateness of the proposed budget and duration in relation to
the proposed research; and
o  adequacy of the plans to include both genders and minorities and
their subgroups as appropriate for the scientific goals of the
The initial review group will also examine the provisions for the
protection of human and animal subjects, and the safety of the
research environment.
Applications will compete for available funds with all other approved
applications assigned to the Institute.  The following will be
considered in making funding decisions:  quality of the proposed
project as determined by peer review, availability of funds, and
program priority.
Inquiries are encouraged.  The opportunity to clarify any issues or
questions from potential applicants is welcome.
Direct inquiries regarding programmatic issues to:
William S. Cartwright, Ph.D.
Services Research Branch
National Institute on Drug Abuse
5600 Fishers Lane, Room l0A30
Rockville, MD  20857
Telephone:  (301) 443-4060
FAX:  (301) 443-2317
Email:  WC34B@NIH.GOV
Direct inquiries regarding fiscal matters to:
Gary Fleming, J.D., M.A.
Grants Management Branch
National Institute on Drug Abuse
5600 Fishers Lane, Room 8A-54
Rockville, MD  20857
Telephone:  (301) 443-6710
Email:  GF6S@NIH.GOV
This program is described in the Catalog of Federal Domestic
Assistance No. 93.279.  Awards are made under authorization of the
Public Health Service Act, Title IV, Part A (Public Law 78-410, as
amended by Public Law 99-158, 42 USC 241 and 285) and administered
under PHS grants policies and Federal Regulations 42 CFR 52 and 45
CFR Part 74.  This program is not subject to the intergovernmental
review requirements of Executive Order 12372 or Health Systems Agency
review.  Grants must be administered in accordance with the Public
Health Service Grants Policy Statement, (DHHS Publication No. (OASH)
82-50-000 GPO 0017-020-0090-1 (rev. 10/01/90).
The PHS strongly encourages all grant recipients to provide a
smoke-free work place and promote the non-use of all tobacco
products.  In addition, Public Law 103-227, the Pro-Children Act of
1994, prohibits smoking in certain facilities (or in some cases, any
portion of a facility) in which regular education, library, day care,
health care or early childhood development services are provided to
children.  This is consistent with the PHS mission to protect and
advance the physical and mental health of the American people.
Cartwright, W.S. and Ingster, L. "A Patient Based Analysis of Drug
Disorder Diagnosis on Length of Stay and Total Charges for the
Medicare Population," Health Care Financing Review, 15, 1993, pp.
Feldstein, P.J. Health Care Economics, 4th Edition. New York:  Delmar
Publishers Inc., 1993.
Frank, R.G. and Manning, Jr., W.G. Economics and Mental Health.
Baltimore: The Johns Hopkins Press, 1992.
Gerstein, D.R. and Harwood, H.J. (Eds.) Treating Drug Problems,
Volumes 1 and 2.  Washington, DC: National Academy Press, 1990.
Ginzberg, E.(ed.) Health Services Research, Key to Health Policy.  A
report for the Foundation for Health Services Research, Cambridge:
Harvard University Press, 1991.
Greenberg, W. Competition, Regulation, and Rationing. Michigan:
Health Administration Press, 1991.
Institute of Medicine, Broadening the Base of Treatment For Alcohol
Problems. Washington, DC:  National Academy Press, 1990.
Hu, T. and Rupp, A (Eds.). Advances in Health Economics and Health
Services Research, Volume 14. Greenwich: JAI Press Inc., 1993.
Musgrave, R.A. and Musgrave, P.B. Public Finance in Theory and
Practice. New York:  McGraw-Hill Book Company, 1973.
National Institute on Drug Abuse. "Recommendations" in Economic
Costs, Cost-Effectiveness, Financing, and Community Drug Treatment.
NIDA Research Monograph 113. DHHS Pub. No.(ADM)91-1823. Washington
DC:  U.S. Government Printing Office, 1991, pp. 205-211.
Rice, D.P.; Kelman, S.; Miller, L.S.; and Dunmeyer, S. The Economic
Costs of Alcohol and Drug Abuse and Mental Illness:  1985. Report
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Alcohol, Drug Abuse, and Mental Health Administration, U.S.
Department of Health and Human Services.  San Francisco: Institute of
Health and Aging, University of California, 1990.

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