Examining Variation in Treatment Costs: A Cost Function for Outpatient Methadone Treatment Programs

Abstract

To estimate a hybrid cost function of the relationship between total annual cost for outpatient methadone treatment and output (annual patient days and selected services), input prices (wages and building space costs), and selected program and patient case-mix characteristics. Data are from a multistate study of 159 methadone treatment programs that participated in the Center for Substance Abuse Treatment's Evaluation of the Methadone/LAAM Treatment Program Accreditation Project between 1998 and 2000. Using least squares regression for weighted data, we estimate the relationship between total annual costs and selected output measures, wages, building space costs, and selected program and patient case-mix characteristics. Findings indicate that total annual cost is positively associated with program's annual patient days, with a 10 percent increase in patient days associated with an 8.2 percent increase in total cost. Total annual cost also increases with counselor wages (p<.01), but no significant association is found for nurse wages or monthly building costs. Surprisingly, program characteristics and patient case mix variables do not appear to explain variations in methadone treatment costs. Similar results are found for a model with services as outputs. This study provides important new insights into the determinants of methadone treatment costs. Our findings concur with economic theory in that total annual cost is positively related to counselor wages. However, among our factor inputs, counselor wages are the only significant driver of these costs. Furthermore, our findings suggest that methadone programs may realize economies of scale; however, other important factors, such as patient access, should be considered.