Non-Environmental Cost-Benefit News

Most pharmaceutical statisticians make a contribution to drug development at the study level by designing and analysing clinical studies. There is less involvement at the drug project level, especially when it comes to making a strategic decision for a drug development program. Motivated by the assessment of drug safety, this paper presents a new decision rule on whether or not to continue developing a new drug based on a cost function. The cost function takes into account both type I and type II errors in a decision making problem. It also incorporates both the cost and benefit from a drug development program. This cost-benefit approach enables company senior management to evaluate a drug program objectively and make decisions in a quantitative and rational manner. The probabilities of making correct decisions are illustrated by using a real data example.

by Eric C Yan and Ling Chen
Statistics in Medicine
September 30, 2004. Volume 23, Issue 18; page 2863
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While no one should really be surprised by the vast numbers of offenders returning to communities from prison each year in this country (see Latessa, 2004), a number of key factors associated with the present situation of offender reentry are cause for concern. Indeed, it is these factors that underlie concerns that offender reentry may soon contribute to an increase in national crime rates. Some of these factors include: fewer treatment resources for offenders while in prison, particularly for those in greatest need; the abolition or reduction of parole, which takes away incentives for prisoners to participate in treatment; and less transitional aid (e.g., employment, housing) for prisoners (Petersilia, 2003).


This paper takes as its starting point the current offender reentry problem of diminishing treatment resources. It aims to assess if there is an economic argument for correctional treatment and explores implications for offender reentry. To do so, it updates previous reviews of cost-benefit analyses of correctional treatment programs (Welsh & Farrington, 200Oa, 200Ob). These reviews provide some evidence that correctional treatment is a worthwhile or economically efficient approach to reducing reoffending in the community. It is the position of this paper that if the monetary benefits of correctional treatment programs outweigh their costs, this may be a persuasive argument for increasing treatment resources for offenders. Moreover, this cost-benefit argument may go some way toward addressing some of the pressing concerns facing offender reentry.


Fourteen studies were identified that evaluated the impact of correctional treatment on reoffending in the community and carried out a cost-benefit analysis. Studies that did not perform a cost-benefit analysis were included if they presented sufficient cost and benefit data to enable an assessment of economic efficiency. Table 1 summarizes key features of the 14 correctional treatment studies and reports on program effects on reoffending in the community and cost-benefit findings. Twelve of the studies were carried out in the U.S. and the other two in England. All but one of the studies (Pearson, 1988) carried out its own cost-benefit analysis. This study instead performed a cost analysis, but published data that allowed for the calculation of financial benefits and hence a benefit-cost ratio. The studies are listed in chronological order.


All of the studies with the exception of one (Farrington et al, 2002, Colchester site) yielded a favorable benefit-cost ratio, meaning that program benefits outweighed program costs. It is important to note that the study by Gray and Olson (1989) calculated benefit-cost ratios for each of the three treatments being compared (probation, prison, and jail), but for the purposes of the present discussion, only the analysis of probation will be considered, because probation more closely fits our concern with correctional treatment than does prison or jail. For the 13 studies with favorable benefit-cost ratios, ratios ranged from a low of 1.13:1 to a high of 270:1, meaning that for each monetary unit (one U.S. dollar or one British pound) spent on the programs, society received in return 1.13 units to 270 units in various savings.


Of the 13 studies that carried out their own cost-benefit analyses, the majority were considered high quality, following to some degree the above-noted steps of the recommended cost-benefit analysis methodology. McDougall et al.'s (2003) systematic review of the costs and benefits of sentencing, which included seven of the 14 studies reviewed here, reached the same conclusion. The authors developed an innovative cost-benefit validity scale that ranks the comprehensiveness of cost-benefit analyses from lowest (level 1: cost analysis studies in which benefits are not monetized) to highest (level 5: complete cost-benefit analysis). The cost-benefit validity scale ranking of these seven studies averaged 3.6.


As shown in Table 1, half of the studies (Holahan, 1974; Friedman, 1977; Mallar & Thornton, 1978; Pearson, 1988; Roberts & Camasso, 1991, both sites; Gerstein et al., 1994) assessed and quantified in monetary terms outcomes other than recidivism. Education, employment, health, social service use, and illicit substance use were the different kinds of outcomes monetized in these studies. In five of the studies (Friedman, 1977; Mallar & Thornton, 1978; Pearson, 1988; Roberts & Camasso, 1991, both sites), benefits from improvements in these outcomes exceeded benefits from reduced recidivism.


Four of the studies (Pearson, 1988; Gray & Olson, 1989; Courtright et al, 1997; Robertson et al, 2001) limited their measurement of crime-related benefits to the criminal justice system, whereas the remaining ten assessed both the criminal justice system and crime victim expenses. Financial costs to victims of crime can be divided into two main categories: direct or out-of-pocket (e.g., lost wages, medical expenses) and indirect (e.g., pain, suffering, lost quality of life, fear of future victimization), which may also include the risk of death. Among the ten studies that measured crime victim costs, these costs were mostly limited to direct expenses; only two of these studies also measured indirect crime victim costs (Farrington et al, 2002, both sites). To be fair to the authors, the majority acknowledged the difficulties involved in assessing and quantifying in monetary terms intangible costs to crime victims. These difficulties include the lack of existing estimates of the intangible costs to victims of crime, which first appeared in the published literature in Cohen (1988; for more recent reports, see Cohen, 1998; Cohen et al, 2004), and the doubts of many researchers about the validity of these costs and the underlying theory used in their calculation (Zimring ScHawkins, 1995, p. 138).


The importance of assessing and quantifying intangible costs to crime victims in cost-benefit analyses was illustrated in Cohen's (1988) reanalysis of Austin's (1986; see Table 1) cost-benefit calculations. For example, Cohen estimated that the average rape cost $51,058 (in 1985 dollars), made up of three main components: direct losses, $4,617; pain, suffering, and fear of injury, $43,561; and risk of death, $2,880. Adding the pain and suffering cost component to Austin's (1986) estimates of the direct losses incurred by crime victims, while maintaining the other costs, increased the total costs of the program to approximately $110 million (Cohen, 1988, p. 550), a six-fold increase. This resulted in a reversal of the cost-benefit findings, from producing a dividend on public expenditure (a benefit-cost ratio of 2.82:1) to a loss or an undesirable benefit-cost ratio of 0.45:1 ($49 million divided by $110 million).


This paper has purposely avoided concluding that one intervention was the most economically efficient. This was because of the small number of available studies, the varied methodological rigor of the evaluation designs (four studies employed simple before-after designs with no control group), and the varied sophistication and comprehensiveness of the cost-benefit analyses. Also, despite the wide range of interventions used by the 14 studies (e.g., intensive supervision with monitoring, pretrial diversion with counseling, supported employment), the coverage of correctional intervention modalities is far from complete (see Palmer, 1994; Lipsey & Wilson, 1998; MacKenzie, 2002).


Furthermore, two of the studies reviewed here (Austin, 1986; Gerstein et al, 1994) did not evaluate correctional treatment per se. Austin (1986) evaluated the decision to release offenders from prison prior to the expiration of the prison sentence. This may not be a correctional intervention, but it does represent an alternative to incarceration that has received some attention then and of late (Butterfield, 2002). In the study by Gerstein et al. (1994) that evaluated alcohol and drug abuse prevention services throughout California, not all of the participating subjects were under the authority of the Department of Corrections at the time of treatment. These two studies were included partly because of the paucity of cost-benefit research on correctional treatment.


Implications for Offender Reentry


If there is a cost-benefit argument to be made for correctional treatment in some (but not all) of its various modalities, as the above evidence seems to support, then the first question that needs to be asked is: Is this sufficient grounds for spending more on correctional treatment? Some will answer in the affirmative. Others will hasten to add that there are other considerations that do not neatly fit in the cost-benefit ledger. Indeed, while cost-benefit arguments may be persuasive, other matters may come to dominate, such as other government priorities of the day, other concerns of the public (as revealed in national polls), and institutional and political resistance to change. On the latter, supporters of punitive sentencing regimes and further limiting treatment resources for prisoners can marshal some rather strong evidence that shows that the three decades-long prison build-up has had a sizeable effect on national crime rates in recent years (Spelman, 200Oa, 200Ob; Levitt, 2004; Lynch & Sabol, 2004).


These other, non-economic considerations are by no means peculiar to the criminal justice system; they affect many other areas of government interest when it comes to decisions of whether or not to increase public expenditure. What a pro-prison position truly lacks, however, is evidence of robust cost-benefit accounting that shows that prison provides value for money. (For one example of this, see Piehl and Dilulio, 1995.)


The next question that needs to be asked is: What are some of the cost-benefit arguments, aside from benefits exceeding costs, that can be made in favor of an increase in correctional treatment resources that may benefit offender reentry? Perhaps one of the most important cost-benefit arguments is that benefits from correctional treatment are not limited to a reduction in recidivism. As noted above, in some of the studies benefits from improvements in education, employment, health, social service use, and illicit substance use exceeded benefits from reduced recidivism. Although it is far from conclusive, this is an important finding because it suggests that correctional treatment programs have the potential to influence other important areas of an offender's life and produce, in some cases, substantial economic returns for publicly funded services such as health and welfare.


Another important cost-benefit argument that can be made in support of increasing treatment resources is that the benefits are realized in a relatively short period of time, typically within two years post-treatment and in some cases at the completion of treatment. This may be especially important for offenders returning to communities. The longer it takes them to find a job or housing or to get their life together in general, the greater risk for reoffending.


The short-term time frame in which correctional treatment benefits are realized may also have political significance. Obtaining funding for programs that have the potential to produce immediate benefits is far more appealing because of the short time horizons of politicians (Tonry & Farrington, 1995).


Conclusion


Offender reentry programs are crucial in an effort to reduce recidivism rates. But it may be that what comes before this end stage-in the form of correctional treatment programs -is equally, if not more, important. From the cost-benefit studies reviewed here, it would seem that a case can be made for increasing treatment resources for offenders, and this may improve offenders' chances for a successful return to the community.


Of course, the present concerns with offenders returning to the community are not limited to diminishing correctional treatment resources. So while this paper has focused solely on treatment resources, one could ask if it would also be worthwhile to provide more parole opportunities to offenders (thereby providing more incentives to participate in treatment), and more transitional aid, or some other means of assistance. One of the studies reviewed here (Mallar & Thornton, 1978) found that financial and job placement assistance for released offenders reduced theft crimes, increased employment, and reduced reliance on social services such as welfare. These improvements translated into substantial monetary benefits for society. It may turn out that a program of correctional treatment followed by transitional aid will produce multiplicative rather than additive benefits.


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by Brandon C Welsh. Federal Probation. Washington: Sep 2004.Vol.68, Iss. 2; pg. 9, 5 pgs

by Jerry Avorn, M.D. Price: $27.50 ISBN: 0-375-41483-5


FROM THE PUBLISHER


"This is a comprehensive behind-the-scenes look at issues that affect everyone: our shortage of data comparing the worth of similar drugs for the same condition; alarming lapses in the detection of lethal side effects; the underuse of life-saving medications; lavish marketing campaigns that influence what doctors prescribe; and the resulting upward spiral of costs that places vital drug beyond the reach of many Americans." Using clinical case histories taken from his own work as a practitioner, researcher, and advocate, Dr. Avorn demonstrates the impressive power of the well-conceived prescription as well as the debacles that can result when medications are misused. He describes an innovative program that employs the pharmaceutical industry's own marketing techniques to reduce use of some of the most overprescribed and overpriced products. Powerful Medicines offers timely and practical advice on how the nation can improve its drug-approval process, and how patients can work with doctors to make sure their prescriptions are safe, effective, and as affordable as possible.


FROM THE CRITICS


Publisher's Weekly


In this pragmatic volume, Avorn sets out an impressive plan for the American health care system to get helpful drugs to those who need them, protect patients from dangerous side effects and keep costs within reasonable limits. Avorn, chief of the division of pharmacoepidemiology and pharmacoeconomics at Brigham and Women's Hospital in Boston, argues, "[F]or a sum no greater than our current drug budget, medications could provide all Americans with the most productive and cost-effective interventions in all of health care." Avorn claims, "[W]e waste billions of dollars a year on prescription drugs that are excessively priced, poorly prescribed, or improperly taken." To remedy this situation, reform is needed in how new drugs are approved and marketed. In addition, practicing physicians need access to state-of-the-art information about new medications, including how well they compare to established (and often cheaper) products. Computer technology, Avorn shows, can bring together the latest information on treatment options and drug contraindications. But changes in the pharmaceutical industry itself-of which Avorn does not hold a flattering view-may be necessary to eliminate pressure to prescribe the most heavily advertised and costly new product when old standbys are equally effective. Though this informative and witty book is overly long, it makes a compelling case for prescription sanity and shows how constructive change can realistically be achieved. (Aug. 20) Copyright 2004 Reed Business Information.


Library Journal


Avorn brings 30 years' experience as a physician and researcher to the current debate about pharmaceuticals. In the opening sections, "Benefits" and "Risks," he provides an excellent overview of the research techniques necessary to evaluate a drug's safety and effectiveness, while in "Cost" and "Information" he covers some of the same territory as Merrill Goozner's The $800 Million Pill and Stephen Ceccoli's Pill Politics regarding the development, marketing, and pricing of new drugs. Avorn's analysis, however, goes further than just criticizing the industry-he puts drug costs in the bigger picture of health resource allocation while pointing out the difficulty that both doctors and patients face in trying to find unbiased information. In the fifth and final section, he suggests more rational public policy. Avorn's coverage is thorough and his writing style engaging and even humorous. While accessible to lay readers, this title would also be an appropriate text for health sciences students. Highly recommended.-Eris Weaver, Redwood Health Lib., Petaluma, CA Copyright 2004 Reed Business Information.


Kirkus Reviews


Cogent analysis of how pharmaceutical drugs are approved, promoted, and prescribed in this country, with some well-considered recommendations for improving the present system. According to Avorn (Medicine/Harvard Medical School), Americans waste billions of dollars on prescription drugs that are overpriced, poorly prescribed, and improperly taken. He draws on his extensive experience as researcher and physician to explore the relationships between benefits, risks, and the economic impact of prescription drugs. While the FDA comes under scrutiny for its failure to properly assess the risks of such medications as the diet drug Redux and the diabetes drug Rezulin, this is not another FDA-bashing book. Avorn's picture is bigger. Through case studies, he examines decisions made by the regulatory agencies, pharmaceutical companies, health policymakers, and physicians that reveal faults in the entire system. After examining how benefits and risks are discovered and measured, he turns to the difficult question of how these are balanced against each other when making decisions about a drug's use. Avorn finds that in the real world, the major source of information about drugs is the promotion departments of pharmaceutical companies. Surrounded by "an almost suffocating plethora of information of very uneven quality," physicians have not been prepared by their medical education to deal with it. He proposes an educational outreach program based in medical schools that would send academic "detail men" to doctors' offices just as drug companies do. They would provide neutral, evidence-based assessment of drug choices so that physicians would know which treatments were more better, safer, and morecost-effective. Avorn points to Canada, Australia, and Great Britain as countries whose drug-assessment procedures we can learn from. His final chapters offer concrete, practical ideas for improving the ways in which drugs are evaluated and pertinent information about them is disseminated. Marked by solid scholarship, measured criticism, and pithy comments: an informative and highly readable study that makes a significant contribution to the ongoing discussion of an important health care issue.

Random House/Knopf www.randomhouse.com