International Guidelines for the Estimation of the Avoidable Costs of Substance Abuse

1 Introduction

1.1 Background

Between 1994 and 2002 the Canadian Centre on Substance Abuse (CCSA) held a series of symposia and workshops in Canada and the United States, with the purpose of developing a set of guidelines for estimating the social costs of substance abuse (in particular, alcohol, tobacco and illicit drugs). The guidelines were intended to encourage and facilitate international research, in both developed and developing countries, into the costs of substance abuse.

The meetings brought together international experts involved in this type of research together with policymakers, bureaucrats and NGO representatives interested in the policy applications of such research. As a result of these meetings a team of experts, mainly economists and epidemiologists, from a range of countries (Australia, Canada, Colombia, France, New Zealand and the USA) produced two editions of International guidelines for estimating the costs of substance abuse. These were originally published by the CCSA. The second edition, with minor modifications, was subsequently published by the World Health Organization (see Single et al, 2003) and, as a result, has achieved wide circulation. It has been influential in encouraging the spread of international research projects to estimate the social costs of substance abuse.

As the Guidelines explained, estimates of the costs of substance abuse constitute just one component in a range of potential economic information on substance abuse. The following table, from Single et al, presents a summary of the hierarchy of potential economic information on the costs of substance abuse, together with examples of their possible uses.

Table 1 - Substance abuse cost estimates and their policy uses

Type of estimate	Interpretation of results	Example of policy use
Aggregate costs	Total external costs of substance abuse compared with the alternative situation of no substance abuse	Indication of the size of the substance abuse problem
Avoidable costs	Potential economic benefits from substance abuse harm minimization strategies	Determination of the appropriate level of resources to be devoted to harm minimization strategies
Costs incidence	The distribution of the external costs of substance abuse among various community groupings	Mobilisation of support from various groups (for example, the business community) for anti-substance abuse programs
Disaggregated costs	External costs of substance abuse disaggregated by categories	Economic evaluation (cost-benefit or cost-effectiveness analysis) of harm minimization programs
Budgetary impact	The impact of substance abuse on government expenditures and revenues	Assessment of the case for industry compensation payments to government as a result of abusive use of substances which the industry produces

The Guidelines provide considerable information on estimation of what, in Table 1 above, are referred to as aggregate costs. However, while aggregate cost estimates are extremely valuable for a number of purposes, as an indicator of the overall economic burden borne by the community as a result of substance abuse, they indicate neither the proportion of such aggregate costs which are potentially avoidable nor the nature of the programmes and policies best suited to achieve this cost avoidance. It was agreed by participants at workshops convened to develop the original guidelines that the next logical step in this area of research would be to proceed to the estimation of avoidable costs, which indicate the benefits potentially available to harm minimization programs.

In 2004, at the 46th Session of the Commission on Narcotic Drugs, the Government of Canada informed member states of its intention to launch an international initiative to develop guidelines for estimating avoidable costs of substance abuse. CCSA proposed the convening of a workshop to develop these guidelines. Health Canada agreed to financially support this initiative and pulled together a group of international experts to develop the guidelines. An international workshop was held in Ottawa in June 2005. The workshop attendees represented a wide range of academic disciplines, organizational backgrounds and countries. Two Australian economists, David Collins and Helen Lapsley, were commissioned to produce for the workshop a paper surveying the issues and problems involved in estimating the avoidable costs of substance abuse. Other papers dealing with specific areas of this research exercise were also commissioned for presentation at the workshop. The survey paper and the other commissioned papers formed the basis for discussions at the workshop. The present avoidable cost guidelines represent a revised version of the original survey paper, very substantially rewritten and extended by its original authors in the light of the other commissioned papers and of discussions at the workshop. Where these new avoidable cost guidelines make extensive use of, or reference to, workshop papers or the comments of workshop participants, their authors are also formally acknowledged as joint authors of this report.

It is intended, as far as possible, to avoid overlap between this study and the previously published Guidelines for estimating the aggregate social costs of substance abuse. This report concentrates on estimating the avoidable costs of substance abuse. It does not attempt to discuss the wider issues involved in estimating the aggregate social costs of substance abuse except insofar as they are relevant to the estimation of avoidable costs. It is presumed that readers will already have some familiarity with the original aggregate cost Guidelines.

However, international data on substance abuse have improved and, in some respects, the original Guidelines have the potential for further development. This is particularly true in areas such as the epidemiological evidence about the effects of substance abuse and in the identification of drug-attributable crime. Accordingly, it is hoped that a third edition of the aggregate cost Guidelines will eventually be produced. In the meantime, this new information needs to be acknowledged in the avoidable cost guidelines, even though technically it is more specifically related to the estimation of aggregate costs than to avoidable costs. Thus, the explanation of these developing areas is presented here but, in order to maintain the logical flow of this report, the information is presented in appendices rather than in the main body of the report.

The aggregate cost Guidelines were produced by a group of authors all of whom had practical experience in the estimation of the social costs of substance abuse. On the other hand, since the estimation of substance abuse avoidable costs is such a new area of research, in which there is little published literature, few of the present authors have practical experience in this research area. With avoidable cost projects in various countries likely to be stimulated by the publication of avoidable cost guidelines, it is to be expected that future editions will be able to be substantially revised in the light of the practical experience gained in these projects.

1.2 The nature of avoidable costs

In estimating the aggregate costs of substance abuse, comparison must be made between the actual substance abuse situation and some alternative hypothetical situation, known as the counterfactual situation. This counterfactual, though often not specifically identified, is in most cost studies that of a situation of no past or present abuse of the substance(s) in question. Thus the counterfactual situation is implicitly one in which the community would bear no substance abuse costs. By comparing the actual situation with the counterfactual zero-abuse situation, the extra costs which that abuse imposes on the community can be calculated.

However, the hypothetical counterfactual situation is, as Single et al point out, "hypothetical and not realizable under any circumstances. Estimates of the total costs of drug abuse comprise both avoidable and unavoidable costs. Unavoidable costs comprise the costs which are currently borne relating to drug abuse in the past, together with the costs incurred by the proportion of the population whose level of drug consumption will continue to involve costs. Avoidable costs are those costs which are amenable to public policy initiatives and behavioural changes."

Thus, avoidable cost estimates provide an indication of the benefits potentially available to the community as a whole as a result of directing public resources to the prevention or reduction of substance abuse. They provide valuable economic information on the basis of which a more efficient allocation of productive resources could be achieved. It would be theoretically possible to have a situation in which, although aggregate substance abuse costs were high, avoidable costs were so low as not to justify public expenditures designed to reduce abuse. In practice this is an unlikely scenario but it is one that might well be put forward, as an interpretation of aggregate cost estimates, by sectional interests opposed to the reduction of substance abuse. Although few estimates have been made of avoidable costs, those that have been made (see, for example, Collins and Lapsley, 1996 and 2002) indicate that avoidable costs represent in the order of fifty per cent of aggregate costs. In the Australian context this level of avoidable costs provides potentially very high rates of return on expenditures to reduce substance abuse (Collins and Lapsley, 1999 and 2004).

Avoidable cost estimates do not, on their own, indicate the rates of return which the community might achieve. Cost benefit analysis, or at the very least cost effectiveness analysis, is necessary to produce this type of information. However, without knowledge of the avoidable component of substance abuse costs it is difficult to undertake meaningful cost-benefit analysis of prospective expenditures on prevention and/or treatment.

The process of estimating social costs involves estimating the relevant avoidable proportion of each of the cost categories and applying these proportions to each of the relevant aggregate cost estimates. Since not all substance abuse costs fall on the government sector, governments are also likely to show an interest in the proportions of budgetary costs which are avoidable. The information developed for estimating the avoidable proportions of aggregate costs can also be readily applied to the estimation of avoidable budgetary costs.

1.3 Reasons for estimating avoidable costs

The original Guidelines laid out the four major purposes of guidelines for estimating the aggregate social costs of substance abuse. These were:

1. Economic estimates are frequently used to argue that policies on alcohol, tobacco and other drugs should be given a high priority on the public policy agenda.
   
   
2. Cost estimates help to appropriately target specific problems and policies.
   
   
3. Economic cost studies help to identify information gaps, research needs and desirable refinements to national statistical reporting systems.
   
   
4. The development of improved abuse cost estimates offers the potential to provide baseline measure to determine the efficacy of drug policies and programs.

Avoidable cost estimation can be justified on the same basis.

1.3.1 Priority for substance abuse expenditures

In most countries, the allocation of public funds between competing programs is substantially influenced by pubic servants trained in economics or finance, who are looking to maximize the social rates of return on public expenditures. Accordingly, as part of the decision-making process, they utilize information on economic evaluation of the proposed expenditures. While aggregate cost estimates indicate the economic impact of substance abuse, they do not indicate what proportions of these costs are avoidable, and over what period of time. It is possible that some forms of substance abuse are much more susceptible to prevention measures than others, and so may yield higher gross benefits. Thus, avoidable cost estimates give a better indication of the potential benefits of anti-abuse programs and policies, though they still do not indicate the costs, and the rates of return, of appropriate programs. This issue is considered further below.

1.3.2 Appropriate targeting of specific problems and targets

Estimates of the avoidable costs of substance abuse, in conjunction with estimates of the aggregate costs, provide an extremely valuable information resource for policy analysis and design. This information is of two types:

• Cost estimation data. In the process of developing cost estimates, researchers generate virtually all the information necessary to value the benefits (that is, the reduction in social costs) of programs, once their physical outputs (in terms of , say, improved health outcomes, lower work absenteeism and reduced crime rates) have been determined:
  
  
• Information about the physical outcomes potentially available to specific programs. Essentially, the estimation of avoidable costs involves an examination of the extent to which it is possible to reduce substance abuse and, in the process, what policy measures should be implemented in order to achieve this reduction. As will be seen, this effectively involves an examination of best practice in a range of comparable jurisdictions. Thus the development of avoidable cost estimates will involve an international survey of substance abuse policies and outcomes, and the provision of the resulting information on a systematic basis.

Accordingly, avoidable cost estimation will facilitate both program analysis (through cost benefit analysis) and design of appropriate programs likely to yield the best achievable social rates of return.

1.3.3 Identification of information gaps and research needs

Systematic analysis of avoidable costs is likely to highlight information gaps which, when rectified, will facilitate improved policy design. This information will include answering such questions as:

• What substance abuse outcomes are potentially achievable?
  
  
• How best may these outcomes be achieved?
  
  
• Over what periods of time would these outcomes be achievable?

Since this information, in terms of both scientific analysis and policy analysis, will inevitably not be static, it will be necessary to review and update information concerning potential best practice on a regular basis.

1.3.4 Provision of baseline measures to determine the efficiency of drug policies and programs

Once policy makers have at their disposal measures of best practice substance abuse outcomes, they will be able much more efficiently to evaluate their existing anti-abuse policies and their allocation of public expenditures to and between anti-abuse programs. There is every reason to believe that the provision of avoidable cost estimates should lead to better policy design.

1.4 Reasons for producing avoidable cost guidelines

Almost no research work has been undertaken internationally to estimate the avoidable costs of substance abuse. There has, therefore, been little development of the necessary underlying theory, and data have not been systematically collected for this purpose. These research difficulties in this area are compounded by the fact that research skills from various disciplines are needed, including criminology, economics and epidemiology.

The objective of guidelines in this area of research is to provide the theoretical and data framework for the estimation of the avoidable costs of substance abuse. Like the original Guidelines, this publication is intended to provide a framework for analysis rather than a rigidly prescribed methodology.

It is hoped that these guidelines will encourage and facilitate the development in various countries of avoidable cost studies, leading to the provision of better information bases for the determination of national policies to counter substance abuse. Over time the underlying estimation methodologies will develop and improve. In addition, improvements in scientific knowledge (particularly in the area of epidemiology and criminology) and research methodology will inevitably occur. This suggests that regular revision of these guidelines is indicated.