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I J 



Medicaid is a state-administered program in which the Federal government matches state 

 payments on a formula basis. While all states are required to meet certain federal requirements 

 with respect to eligibility and benefits, considerable latitude is pennitted in determining 

 eligibility, the inclusion of additional benefits, and the method and level of payment for services. 



In fiscal year 1994, the combined Federal and state payments under the Medicaid program are 

 estimated to reach $146 billion. Of this, total hospital costs (including psychiatric facilities) will 

 represent 28 percent or $41 billion. Since 1980, Medicaid costs have grown at an annual 

 average rate of 13 percent, as opposed to only a 4.4 percent annual increase in the Consumer 

 Price Index (CPI). 



n. METHODS 



Many studies have sought to estimate the cost of substance abuse, in one form or another, to 

 society (See Chapter V). For the most part, these studies have analyzed the cost of one or two 

 substances. None has estimated the costs of all substances to a particular insurer. 



While buUding upon earlier work, we go beyond it in a number of ways. CASA's study 

 quantifies in a single report the total cost of substance abuse in all its forms (tobacco, alcohol, 

 and legal and illegal drugs). It enlarges earlier efforts to incorporate fmdings from 

 epidemiologic research in health care cost analyses. Based on the best available epidemiologic 

 studies, we have determined the proportion of patients who acquired diseases or conditions as 

 a result of the abuse of alcohol, drugs, or tobacco. These related costs are factored into our 

 total cost estimate. Finally, this study suggests areas for further research and for new policy 

 directions to address the problem of substance abuse and its costs. 



The following section briefly describes CASA's methodology for estimating Medicaid inpatient 

 hospital costs related to substance abuse. A technical paper describing this methodology in more 

 detail is being prepared for subsequent publication. 



