A. Definition of Medical Cost Offset

For the purposes of this analysis, medical cost offset is defined as follows: an offset occurs if medical utilization decreases as a result of mental health intervention. A Total Offset occurs when general health care savings exceed the cost of the mental health treatment effectively resulting in the treatment paying for itself. Fiedler, J.L., and Wight, J.B. (1989). The medical offset effect and public health policy: Mental health industry in transition. New York: Praeger.

B. Mental Health Patients Typically Overutilize Medical Services

Many visits to primary care physicians are actually mental health related

• Only 5% of those suffering from a mental disorder see a mental health professional; the other 95% receive treatment from a family physician. Lechnyr, R. (1993). The cost savings of mental health services. EAP Digest, 22.

• 'Between 11-36% of all general care physician visits involved patients with diagnosable psychiatric disorders.' Eisenberg, L. (1992). Treating depression and anxiety in primary care. New England Journal of Medicine, 326, 1080-1083.

• 'Many patients with mental health problems are treated in ordinary health care services. They are often multi-users of care.' Borgquist, L., Hansson, L., Lindelow, G., Nettelbladt, P., & Nordstrom, G. (1993). Perceived health and high consumers of care: A study of mental health problems in a Swedish health care district. Psychological Medicine, 23, 763- 70.

• 'Approximately 10 percent of adults have anxiety disorder, yet it is estimated that only one-fourth of affected persons receive treatment. Treatment is usually given in a general medical setting rather than through the mental health system. Most patients with anxiety disorders are treated by nonpsychiatrist physicians who are generally familiar with the pharmacological management of anxiety. However, nondrug treatment can be more effective, and may be both time-efficient and less risky.' Altrocchi, J., Antonuccio, D., Basta, R. & Danton, W.G. (1994). Nondrug treatment of anxiety. American Family Physician, 10, 161-6.

• Researchers have estimated that between 50 and 70 percent of a physician's normal caseload consists of patients whose medical ailments are significantly related to psychological factors. VandenBos, Gary R. & DeLeon, Patrick H. (1988). The use of psychotherapy to improve physical health. Psychotherapy, 25, 335-343. If mental health care were available to these patients, it could reduce medical utilization and generate significant cost savings.

Patients with mental illness are heavy users of medical services

Patients diagnosed with mental illness are typically heavy users of medical services. If mental health services were made available to these patients, medical utilization would decrease resulting in potentially large savings to health care programs.

• Studies have shown that those persons not receiving mental health services visited a medical doctor twice as often for unnecessary care than persons who receive treatment. Lechnyr, R. (1992). Cost savings and effectiveness of mental health services. Journal of the Oregon Psychological Association, 38, 8-12.

• A recent six year analysis of the Hawaii Medicaid population, funded by a $5.5 million government grant, included 16,000 Medicaid recipients and nearly 30,000 federal employees. By tracking medical records, researchers were able to show that patients seeking mental health treatment during the study period were much higher utilizers of the medical system, with physical health care costs 200 to 250 percent higher than those not seeking mental health intervention. Cummings, N.A., Dorken, H., Pallak, M.S. et al. (1990). The impact of psychological intervention on healthcare utilization and costs. Biodyne Institute, April 1990.

• Concluding a systematic review of the scientific literature regarding mental health in primary care settings, one researcher calculated primary care utilization differences. He reported that patients with diagnosable mental disorders average twice as many visits to their primary care physicians as those without a mental disorder. Borus, J.F. & Olendzki, M.C. (1985). The offset effect of mental health treatment on ambulatory medical care utilization and charges. Archives of General Psychiatry, 42, 573-580.

• Research based at the Columbia Medical Plan, a prepaid Maryland group practice divided approximately 20,000 enrollees into three groups: mentally ill who received treatment, mentally ill who did not receive treatment, and a comparison group who had no diagnosable mental disorders. Statistics showed that in all three study years, the comparison group utilized less medical services than individuals with mental disorders. During a one year period, untreated mentally ill increased their medical utilization by 61%, while the comparison group averaged only a 9% increase. The treated group was similar to the comparison population, averaging only an 11% average increase. Hankin, J.R., Kessler, L.G. & Goldberg, I.D. (1983). A longitudinal study of offset in the use of nonpsychiatric services following specialized mental health care. Medical Care, 21, 1099-1110.

II. Medical Cost Offset

A. Amount of Offset can Depend on the Severity of Illness

1. Those with less severe mental illnesses can realize significant offsets

Offset studies reveal evidence that less severe mental disorder diagnoses, the conditions most amenable to psychotherapy, also demonstrate the greatest offset effects. Numerous sources provide support for this claim.

• Borus corroborated these findings in a 4-year study of 8,100 enro- llees at an ambulatory medical clinic in Boston. He found that while patients who received psychotherapy for a non-chronic condition decreased their nonpsychiatric services utilization by 7.2 percent, similarly diagnosed patients who did not receive mental health intervention increased their utilization by 9.5 percent. The cumulative difference between these groups was a substantial 16.7 percent--and lasted for the next 24 months of observation. Borus, J.F. & Olendzki, M.C. (1985). The offset effect of mental health treatment on ambulatory medical care utilization and charges. Archives of General Psychiatry, 42, 573-580.

• The Columbia Medical Plan, rendering medical and psychiatric services to predominantly white, educated, middle class enrollees, provided the site for this offset study. The study group originally included nearly 1200 enrollees whose utilization rates were studied for one year prior to the first psychiatric visit. After psychiatric treatment was implemented, subjects were studied for two more years to determine changes in utilization patterns. The total sample of psychiatric care recipients decreased their medical utilization an average 11.1% during the six months following treatment. Significant offset effects were still present up to two years after completion of the psychiatric intervention. Results were even more striking for patients with less disabling diagnoses who received high intensity therapies. Kessler, L.G., Steinwachs, D.M. & Hankin, J.R. (1982). Episodes of psychiatric care and medical utilization. Medical Care, 20, 1209-1221.

Those with serious physical illnesses can also realize offsets

• A study of a large population of Medicaid recipients and federal employees found that patients with chronic medical illnesses (e.g., diabetes, hypertension, etc.) lowered their medical costs 18-31% after receiving targeted psychological services. Lechnyr, R. (1992). Cost savings and effectiveness of mental health services. Journal of the Oregon Psychological Association, 38, 8-12.

• Patients with more severe physical disorders can realize significant reductions in medical utilization if provided with mental health care. A study of the Georgia Medicaid population (see Sec. III) showed that patients who used inpatient services during a ten quarter period spent $11,391. Outpatients spent a comparatively small $2,574 during the same period. Thus, patients undergoing surgery or other traumatic inpatient procedures have the highest potential to realize offset effects. Fiedler, J.L. & Wight, J.B. (1989). The medical offset effect and public health policy: Mental health industry in transition. New York: Praeger.

• Other studies have shown that patients with functional limitations, including physical handicaps and debilitating physical ailments, show high potential for offset. The Rand Corporation designed a study involving nearly 4,500 subjects from six geographically diverse sites. Researchers assigned families to one of 14 fee-for-service insurance plans which ranged in mental health coverage from free psychiatric care to almost no coverage. Each enrolle was tested for psychological and physical well-being using a battery of standard tests. The authors found that in every category of mental health status (low, medium, or high functioning) those who had functional limitations (defined as physically caused impairment in ability to carry out the activities of daily living) used 50% to 100% more mental health services than those without such limitations. The study concluded that those with functional limitations due to poor health are high users of both medical and mental services. The high-price of these subjects' health care makes them excellent candidates for offset. Ware, J.E., Manning, W.G., Duan, N., et al. (1984). Health status and the use of outpatient mental health services. American Psychologist, 39, 1090-1100.

Those with serious mental illnesses can realize an offset in terms of slowing their consumption of expensive medical services

• 'Diagnosing and treating patients with multiple personality disorder resulted in net savings of $84,900 per patient, in direct [medical] costs alone, during the first ten years following treatment.' Dua, V., & Ross, C. (1993). Psychiatric health costs of multiple personality disorder. American Journal of Psychotherapy, 47, 103-112.

• 'Earlier diagnosis of patients with multiple personality disorder could save $250,000 per case in direct [medical] costs alone if the [disorder] is identified within the first year of the patient's utilization of medical care.' Dua, V., & Ross, C. (1993). Psychiatric health costs of multiple personality disorder. American Journal of Psychotherapy, 47, 103- 112.

• Borus showed that patients diagnosed with severe mental ailments who do not receive psychological treatment increase their medical utilization at significantly faster rates than those chronic patients who do receive treatment. These results indicate that unless the severely mentally ill enter the mental health system, they are likely to become voracious users of already limited medical resources. Borus and other offset analysts suggest that in the absence of appropriate psychiatric care, the cost to insurers and to the primary care system is astronomical. Borus, J.F. & Olendzki, M.C. (1985). The offset effect of mental health treatment on ambulatory medical care utilization and charges. Archives of General Psychiatry, 42, 573- 580.

B. Making Outpatient Mental Health Care Available can Offset the Cost of Expensive Inpatient Care

• 'Mental health costs at General Leonard Wood Army Community Hospital had risen every year significantly. By increasing the size and scope of outpatient care to reduce inpatient admissions, net costs were reduced by $1.7 million.' Armstrong, S.C., & Took, K.J. (1993). Psychiatric managed care at a rural MEDDAC. Military Medicine, 11, 717-21.

• Between 1989 and 1992, the Civilian Health and Medical Program of the Uniformed Services (CHAMPUS) expanded its yearly outpatient psychiatric care expenditures from $81 million to $103 million which resulted in a net savings of $200 million because of greatly reduced psychiatric hospitalization. Psychiatric Times, August, 1993.

• Positive results such as these take on even more significance when considering the prevalence of the four chronic diseases studied. 40% of the American population suffers from diabetes, ischemic heart disease, hypertension, or airway-respiratory conditions Given the correct psychological intervention, a huge number could limit their medical expenditures while simultaneously improving their mental health status--at virtually no cost. Cummings, N.A., Dorken, H., Pallak, M.S. et al. (1990). The impact of psychological intervention on healthcare utilization and costs. Biodyne Institute, April 1990.

• '...individuals suffering from mental illness who also have severe enough physical health problems to be admitted inpatient for treatment provide the greatest vehicle for saving physical health treatment dollars via the offset effect.' (p 97) Fiedler, J.L., and Wight, J.B. (1989). The medical offset effect and public health policy: Mental health industry in transition. New York: Praeger.

• Numerous studies have confirmed that behaviorally disordered adolescents are more effectively treated in alternative or outpatient programs as opposed to inpatient programs. Leone, Fitzmartin, & Foster (1986).

C. Mental Health Care Utilization is Stable and Predictable

Insurance companies are fearful that generous mental health coverage will result in adverse selection and excessive use of services. Decades of research, however, have shown that mental health costs are a small percentage of total health care expenditures, and that utilization of mental health services is predictable and stable, regardless of a policy's generosity.

• For the past 20 years, behavioral health's share of total spending has remained constant at between 12-14%. Health Care Professional, Sept. 1992.

• The Rand Corporation designed a study involving nearly 4,500 subjects from six geographically diverse sites. Researchers assigned families to one of 14 fee-for-service insurance plans which ranged in mental health coverage from free psychiatric care to almost no coverage. In the study, both the probability of receiving mental health care and the intensity of care were directly related to amount of psychological distress. This finding indicates that those who need psychological services most are the ones most likely to seek it--regardless of cost. Enrollees were very unlikely to use mental health services inappropriately, even with the most plentiful coverage. Ware, J.E., Manning, W.G. & Duan, N. (1984). Health status and the use of outpatient mental health services. American Psychologist, 39, 1090-1100.

• Other data attesting to the stability of the mental health care system comes from the Blue Cross \ Blue Shield federal employees plan. These statistics show that after a slight initial increase in costs following the introduction of a broad mental health care package, psychiatric service utilization at Blue Cross \ Blue Shield did not vary more than .5 percent in over 11 years. Sharfstein, S.S., Muszynski, S., and Arnett, G.M. (1984). Dispelling myths about mental health benefits. Business and Health, Oct. 1984, 7-11.

III. Savings in Terms of Dollars

• NIMH released a study which found that the cost of covering mental illness on the same basis as medical illness would cost only $6.5 billion and that spending this extra amount would save U.S. taxpayers $8.7 billion in indirect costs associated with untreated mental illnesses. Goodwin, F.K., & Moskowitz, J. (1993). Health care reform for Americans with severe mental illness: Report of National Advisory Mental Health Council.
• The Group Health Association found that patients receiving mental health counseling trimmed their non-psychiatric usage by 30.7% and their use of laboratory and x-ray services by 29.8%. Kansas City Health Care Consumer, Feb., 1993.

• When the Utah division of Kennecott Copper Corporation provided mental health counseling for employees, its hospital medical and surgical costs decreased 48.9%. The company's weekly claims costs dropped nearly 64.2%. In all, for every dollar spent on mental health care, the company saved $5.78. Lechnyr, R. (1993). The cost savings of mental health services. EAP Digest, 22, 23.

• 'A study of Kaiser Permanente patients who received psychotherapy showed a 77.9% decrease in the average length of stay in the hospital, a 66.7% decrease in frequency of hospitalizations, a 48.6% decrease in the number of prescriptions written, a 48.6% decrease in the number of physicians seen for office visits, a 47.1% decrease in physician office visits, a 45.3% decrease in emergency room visits, and a 31.2% decrease in telephone contacts.' Lechnyr, R. (1993). The cost savings of mental health services. EAP Digest, 22, 23.

• A study of the entire Georgia Medicaid population revealed substantial offset savings resulting from mental health treatments. Patients receiving inpatient physical health treatment in addition to their mental health treatment realized a cumulative savings of nearly $1,500 over a two and a half year period. The cost of the mental health intervention was entirely paid for (i.e totally offset) by these savings. The result is psychologically and physically healthier patients at essentially no charge. While not reaching total offset, patients without physical ailments requiring inpatient treatment who received mental health care still showed significant savings. This group, which contained both severe and less severe diagnoses, had medical health charges that were lower than comparison samples by $296 to $392 during the study period. Fiedler, J.L. & Wight, J.B. (1989). The medical offset effect and public health policy: Mental health industry in transition. New York: Praeger.

• A three year study of over 10,000 Aetna beneficiaries showed that after the initiation of mental health treatment, client medical costs dropped continuously over the next 36 months. The health costs of one mental health intervention group fell from $242 the year prior to treatment to $162 two years post-treatment. Other subject groups demonstrated similarly dramatic offset effects, leading the researchers to conclude that a decrease in total health care costs can be expected following mental health interventions even when the cost of the intervention is included. Holder, H.D. & Blose, J.O. (1987). Changes in health care costs and utilization associated with mental health treatment. Hospital and Community Psychiatry, 38, 1070-75.

IV. Special Cases: Nicotine and Chemical Dependency

A. Smoking

• It is estimated that lifetime excess expenditures of current or previous smokers to be about $6,239 per smoker, with a cumulative burden of $500 billion on the U.S. economy. Hodgson, Journal of the American Medical Society, March, 1993.

• Every year thousands die or are hospitalized as a direct result of their smoking. The economic costs are conservatively estimated to range between $336 and $601 a year per smoker--billions of dollars annually absorbed by insurers and the health care system. Shipley, R.H., Orleans, C.T. & Wilbur, C.S. (1988). Effect of the Johnson & Johnson Live for Life Program on employee smoking. Preventive Medicine, 17, 25-34.

• In the last two decades smoking cessation techniques developed by psychologists have helped millions cease this self-destructive habit. Scientists calculate that 70 percent of all smokers would stop smoking if introduced to rapid smoking or similar psychological treatments, and 40 percent or more would remain abstinent for at least 6 months to a year. Yates, B.T. (1984). How psychology can improve effectiveness and reduce costs of health services. Psychotherapy, 21, 439-451.

B. Alcoholism and Drug Dependency

Experts estimate that drug abuse alone costs General Motors corporation an estimated $520 million to $1.5 billion annually for treatment, absenteeism, and repair of defective work. The Psychiatric Times, March, 1991. In addition, according to an American Medical Association (AMA) study, nearly one dollar in four of total health care spending goes to victims of drug abuse, violence, and other kinds of social behaviour that could be changed. Such behaviour is adding $171 billion to our nation's health care bill, $85 billion of that cost is attributable to alcohol use. New York Times, Feb. 23, 1993.

• 'In Japan, the alcohol attributable costs of medical care were estimated to be 1,095.7 yen or 7% of the total national medical expenditure. Reduced productivity as a result of alcohol use was estimated at about four times that amount, or 4257.3 yen billion. Summing up the total cost of alcohol abuse was estimated at 6,637.5 yen billion.' Nakamura, K., Tanaka, A., & Takano, T. (1993). The social cost of alcohol abuse in Japan. Journal of the Studies of Alcohol, 5, 618-25.

• 'The costs attributable to smoking in Texas continue to rise. The most recent estimates show more than $4 billion in 1990 can be associated with the health care costs from treatments for disease and the indirect costs associated with mortality and morbidity.' Franklin, J. & Williams, A.F. (1993). Annual economic costs attributable to cigarette smoking in Texas. Texas Medicine, 89, 56-60.

• 'Medicaid patients with drug and alcohol problems who received targeted psychological services reduced their subsequent medical costs by [15%] . . . those not receiving psychological assistance increased their medical costs by [90%] . . . .' Lechnyr, R. (1992). Cost savings and effectiveness of mental health services. Journal of the Oregon Psychological Association, 38, 8-12.

• A University of California study found that every $1 spent on drug and alcohol treatment saves society $11.54 in health care and criminal justice costs and lost productivity for business. Coalition '91.

• Scientists have found that failure to receive treatment for alcohol and substance abuse diagnoses can result in a very rapid escalation of individual medical costs. Cummings very recently concluded a study of Medicaid recipients in Hawaii (See Sec I B 2). After a review of medical records, he found that patients diagnosed as chemically dependent who did not use mental health services increased their medical costs by 91% during the study period, com- pared to actual decreases in medical costs by treatment recipients. Some types of intervention produced net decreases of approximately $514 per person in the first twelve months after treatment. Cummings, N.A. (1990). Psychologists: An essential component to cost-effective, innovative care. Paper presented to the American College of Healthcare Executives, Feb, 1990.