Nikitha Kosaraju

HCMG 202

Professor Molly Candon

14 December 2017

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Nikitha causes a market failure since it is
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External Cost of Spreading HIV by Injection Drug Users

the United States between 2005 and 2009, 16.6% of people aged 12 or older
living with HIV/AIDS had used an illicit drug intravenously (The
NSDUH Report, 2010). Not only do drug users share needles and other drug paraphernalia,
but they are also more likely to have unsafe sex. By doing so, HIV infected
drug addicts are potentially spreading the disease to their sexual partners. To
acquire drugs, many addicted individuals are willing to trade sex. In August
2017, a former Philadelphia police narcotics officer, admitted to “trading
heroin and other drugs for sexual favors from women,” illustrating the link
between drugs and sex (Roebuck,
2017). Whether it is through sex, the sharing of drug paraphernalia, or
pregnancy, the outcome is the same: injection drug use increases the spread of

the healthcare market, injection drug addiction is a demand side negative
externality and one of its external costs is the spread of HIV, which causes a
market failure since it is not accounted for in the price of the drug. A market
failure occurs when the price of a good does not incorporate all the relevant
information and therefore, the supply and demand curves are incorrect (Candon,
2017). Hence, the equilibrium price and quantity are suboptimal, creating an
inefficient market (Candon, 2017). To fix this, private or public policies can
be made to shift either the supply or demand curve to produce the optimal
equilibrium (Candon, 2017). One common cause of healthcare market failures is
externalities, which are behaviors by individuals that impose costs or benefits
to others (Candon, 2017). These costs or benefits are not incorporated into
either the supply or demand curve and thus, the price of the good is either too
high or low (Candon, 2017). Injection drug addiction is a demand side negative
externality that carries an external cost not accounted for in the demand
curve. Therefore, there is an overprovision of injection drugs.

Drug addiction
carries many external costs such as drug-related crime and loss of productivity
in society, but the spread of HIV caused by injection drug addiction creates
the biggest external cost in terms of healthcare expenditures. Currently, with
issues like the opioid epidemic in America, the relationship between injection drug
addiction and the spread of HIV is critical due to the economic burden caused
by both diseases. For both the private and public sectors of healthcare, it is
to their benefit to implement policies that would shift the demand curve to the
left and reduce the quantity demanded. This shift in the demand curve would
mean that overall health expenditures would decrease.

abuse in America has been around for centuries. Drug use started with Ancient
Greeks, Romans, and Egyptians using drugs such as peyote, opium, and cannabis (Crocq, 2007). These
drugs were then brought to America through colonization. In the 1800s,
morphine, heroin, and cocaine were used across the country for their curative
properties, but by the 1950s, most illicit drug use was suppressed by the federal
government (Musto,
1991). However, in the 1960s, drugs such as hallucinogens, amphetamines,
and cannabis were introduced, reinvigorating illicit drug use (Paparelli, 2011).

Based on the 2013 National Survey on Drug Use and Health (NSUDH) report, 9.4%
of the American population used illicit drugs within the past month, which had
increased from 8.3% in 2002 (NIDA,
Nationwide Trends, 2015). While marijuana is used the most, common drugs
used intravenously such as cocaine had 1.5 million current users aged 12 or
older and methamphetamine had 595,000 current users (NIDA,
Nationwide Trends, 2015). Not only does drug abuse adversely affect the
users and hurt the people surrounding them, but it also costs society billions
of dollars.

Figure 1. Distribution of past month illicit drug use in
2013 by illicit drug

Source: NIDA,
Nationwide Trends, 2015


Drug abuse and
addiction has imposed a high economic burden on American society. The 2013
NSUDH report stated that the “abuse of tobacco, alcohol, and illicit drugs is
costly to our Nation, exacting more than $740 billion annually in costs related
to crime, lost work productivity, and health care,” illustrating the exorbitant
cost of drug abuse (NIDA,
Trends & Statistics, 2017). Prescription opioids, which can be crushed and
injected by syringe, carry a cost of $78.5 billion, of which approximately 33%
($26 billion) is devoted to healthcare related costs (NIDA,
Trends & Statistics, 2017). While treating drug addiction does lower costs,
drug addiction treatment also lowers the prevalence of viral infections. Drug
users tend to participate in unsafe behaviors that promote infectious disease spread
and therefore, drug use increases healthcare expenditures by introducing more
disease into society.

In particular, the
external cost of HIV spread by injection drug addiction is important due to the
amount of medical savings that could be generated by averting HIV diagnoses. In
2010 dollars, the treatment cost over a lifetime per HIV diagnosis was
estimated at $379,668 (CDC,
HIV Cost-effectiveness, 2017). While certain states tend to have more
financial burden due to higher numbers of HIV diagnoses, the “total lifetime
treatment cost for HIV based on new diagnoses in 2009 was estimated to be $16.6
billion,” illustrating the great financial burden placed on both state and
federal governments (CDC,
HIV Cost-effectiveness, 2017). While HIV diagnoses are only partially
related to injection drug use, they are preventable. Thus, the rate of
prevalence can be decreased, resulting in significant medical savings. For
example, from 1991-2006, American prevention programs averted approximately 361,878
HIV diagnoses, which was estimated to produce $129.9 billion in medical savings
2010). Unlike the price of treating drug addiction, the cost of the spread
of HIV is not incorporated into the market, resulting in an incorrect price off
which the demand and supply curves are generated. To correct the market price
and create an optimal equilibrium price and quantity, the costs per HIV
diagnosis caused by injection drug use must be included.

While injection drug
addiction is incorporated into the injection drug market, its role as an
externality is not since the external cost of spreading HIV has not been
factored in. By not factoring in this cost, the demand curve is wrong and needs
to be shifted to the left to achieve an optimal market. Currently, there is an
overprovision of injection drugs, showing that the price needs to be higher to
lower the quantity demanded. In 2016, 2,224 HIV diagnoses were caused by
injection drug use while another 1,201 diagnoses were due to male-to-male
sexual contact and injection drug use (CDC, HIV
Statistics Overview, 2017). There is a direct correlation between injection
drug abuse and HIV diagnoses due to the sharing of drug paraphernalia, unsafe
sex, and mother-to-child transmission. Since HIV spread is not included in the
market price, the cost of the spread is reflected in the market in other ways,
impacting patients, payers, and providers. With growing national crises such as
the opioid epidemic, the external cost of injection drug addiction will only continue
to grow and adversely affect these players unless the cost is internalized.

Figure 2. Distribution of the number of HIV diagnoses in
2016 by transmission category

Source: CDC, HIV
Statistics Overview, 2017


Overall, the
implication of this market failure is that costs increase, particularly for
payers and patients, to compensate for the suboptimal price currently set in
the market. Patients are faced with higher premiums to cross subsidize the
medical costs of HIV infected drug addicts, who oftentimes do not have their
own health insurance plans. In a study by Cummings et al., the results
indicated that “one-third of those with an illicit drug use disorder were
uninsured” (Cummings,
2014). Due to the Emergency Medical Treatment and Labor Act (EMTALA), uninsured
drug addicted individuals will be treated by hospitals, but are unable to pay.

Health insurance companies are charged higher rates by hospitals to cover the
care of uninsured individuals, leading insurers to charge patients higher
premiums. The net result is higher costs for payers and patients. While providers
should not face changes in costs, they are capable of influencing access to
care. Currently, there is a social stigma to treating drug addicted individuals.

Other patients may not return to see providers if they see drug addicted
individuals in clinics, providing an incentive for providers to forgo treating
drug addicts. While education about HIV could reduce its spread, the main
solution would be to decrease the amount of injection drug addiction overall.

One current solution
is that the federal government has been providing syringe services programs,
which give access to sterile needles and syringes for drug addicts. The federal
government’s goal is to facilitate the safe disposal of used needles and
syringes as well as provide sterile needles and syringes. Oftentimes,
individuals can access these items without a prescription (CDC, Syringe Services Programs,
2017). Additionally, these syringe services programs provide access to
disease testing, referrals to drug treatment facilities, and education
surrounding safe sex and injection procedures. Research surrounding syringe
services programs has shown that these programs “reduce new HIV and viral
hepatitis infections” and they “save health care dollars by preventing
infections,” illustrating that these programs are essential for decreasing the
cost of HIV spread by injection drug addiction (CDC,
Syringe Services Program Info Sheet, 2017). These programs are funded based
on strict guidelines set by the Centers for Disease Control and Prevention (CDC)
and the Substance Abuse and Mental Health Services Administration (SAMHSA). While
it costs the federal government money to run these programs, it is still more
cost-effective to implement syringe services programs than to pay for the
healthcare costs associated with HIV infections.

Figure 3. The connections between injection drug use and the
spread of HIV

Source: CDC,
Syringe Services Programs, 2017


While the federal
government has successfully reduced the spread of HIV by injection drug addicts
through syringe services programs, they could reduce it further by encouraging
injection drug addiction treatment. One method to do so is to provide a
monetary incentive for providers to treat drug addiction in their clinics. Currently,
there is a stigma surrounding treating drug addicts, which may be due to the
societal perception of drug addiction as a moral failing rather than a chronic
disease of the brain. To combat the stigma and increase access to treatment, an
incentive to physicians to provide treatment could be made by increasing
Medicare and/or Medicaid reimbursement rates. By giving an incentive to providers,
the federal government could potentially decrease healthcare costs related to
drug addiction and HIV overall for payers and patients.

Though providing a
monetary incentive to providers should be effective, the federal government
could reduce the spread of HIV by injection drug use even further by removing
the physician waiver requirement to prescribe certain medications known to
assist treatment. For example, buprenorphine binds to the same receptors in the
brain as opioids and relieves craving for the opioid without providing the high
Buprenorphine, 2016). However, physicians must complete eight hours of training
and apply for a physician waiver before they can prescribe buprenorphine (SAMHSA,
Buprenorphine Waiver Management, 2017). The preliminary waiver allows a
physician to treat up to thirty patients with the drug (SAMHSA,
Physician and Program Data, 2017). Physicians can apply for a patient limit
increase to first 100 patients and then after a year, to 275 patients (SAMHSA,
Physician and Program Data, 2017). These regulations present physicians
with a barrier to provide treatment and patients with a barrier to access
treatment. A 2005 congressionally mandated evaluation study found that “the
30-patient limit on individual physician practices, as well as continuing cost
and reimbursement issues, have dampened the full potential of buprenorphine” (SAMHSA,
Physician and Program Data, 2017). There is currently no clear incentive
for providers to obtain this training and waiver. Consequently, an effective
solution to reducing the spread of HIV by injection drug users may be for the
federal government to provide a monetary incentive for treating drug users and
to remove the barriers to prescribing medications that alleviate craving.

While there are
public policies to fight this demand side negative externality, there are no
clear private policies in place to fight either injection drug use or the spread
of HIV caused by injection drug use. Although hospitals do charge private
insurers more to compensate for the care given to uninsured drug addicts due to
EMTALA, private insurers do not directly cover this cost. Instead, they raise
premiums. Therefore, there is no clear incentive for private insurers to drive
the price higher to fix the current suboptimal price in the market. However,
private insurers do have an incentive to treat the drug addictions of their
already insured patients. Under the Affordable Care Act, drug addiction is
considered a preexisting condition so private health insurers cannot deny
coverage to drug addicts or charge them a higher premium. Unfortunately, for
private insurers, drug addicts tend to visit the hospital and stay longer than
other patients, costing health insurance companies thousands of dollars.

Additionally, a diagnosis of HIV would also cost the insurer thousands. Hence,
it would be to private insurers’ benefit to treat as many of their drug
addicted patients as possible since insurers cannot increase these individuals’
premium costs or deny them coverage.

One simple private
solution to encourage drug addiction treatment is for private insurers to provide
education to patients regarding their benefits. In her paper, Cummings and her
colleagues found that private insurance holders with alcohol dependence had
increased access to specialty treatment than the uninsured only if they
understood their benefits (Cummings, 2014).

However, this same relationship was not found for those with drug dependence,
which is most likely due to the illegality of the drugs being used (Cummings, 2014).

Since most private health insurance is provided through an employer, privately
insured drug addicts may be scared to access treatment even if they are aware
that this treatment is covered by their benefits. To decrease injection drug
addiction in their consumer population, private insurers should first provide
their patients with the knowledge that addiction treatment is covered by their
insurance plan, but also with assurance that there would be no backlash if this
treatment was sought out. This provision of education and assurance may lead to
a reduction in injection drug addiction and consequently, the spread of HIV.

Private insurers would benefit from this since their consumers’ overall healthcare
expenditures would decrease, giving the potential for a greater profit margin.

Privately insured patients would experience greater access, and providers would
most likely experience greater demand. Overall, the healthcare expenditures
directed towards drug addiction and HIV would decrease because more individuals
would be receiving treatment.

Typically, demand
side negative externalities can be corrected by implementing a tax on the good,
but in the case of injection drug addiction, this solution is not feasible
since injection drugs are already illicit. For example, cigarettes are taxed at
both the federal and state level to internalize the external cost of smoking.

However, unlike cigarettes, high abuse injection drugs are illegal and
therefore, a tax cannot be set on them. Since a tax is not an option in this
situation, other incentives must be put in place to either decrease injection
drug addiction or decrease the spread of HIV caused by injection drug

The most effective
player in decreasing injection drug use and the spread of HIV is the federal
government. While private insurers do have an incentive to limit injection drug
addiction in their patients, if premiums are already set high enough to make an
adequate profit, private insurers will not feel pressured to incentivize addiction
treatment. Conversely, the federal government has already proven that it can
reduce the spread of HIV through syringe services programs, but it also has the
potential to reduce injection drug abuse by improving access to treatment. By
providing a monetary incentive to providers and removing regulation around
medication-assisted treatments, the federal government could increase access to
addiction treatment. A policy that would increase Medicare reimbursement rates
for physicians that treat drug addiction would succeed because the cost of this
program is still less than the cost of drug addiction and a potential HIV
diagnosis. It is in society’s best interest to treat drug addiction because it
would mean lower healthcare expenditures overall, less HIV diagnoses, less
drug-related crime, etc.

While a critical
view has been presented regarding injection drug addiction as a demand side
negative externality with a focus on the spread of HIV as the external cost,
there is still a lack of information regarding private addiction treatment
facilities and their impact on the issue. The purpose of addiction treatment
facilities is to end drug users’ dependence. However, there is a monetary
incentive for these facilities to not fulfill their goal. These facilities want
to maintain a high demand for their services so that they can charge a higher
price for their services. It would be interesting to have statistics regarding
the rates of success of private addiction treatment facilities and the rate of
HIV diagnoses of injection drug users who have gone to these facilities. Another
limitation of the research regarding this issue is that HIV can be spread in a
few different ways. Between sharing drug paraphernalia and sexual transmission,
it is often difficult to pinpoint exactly which one caused the spread since
many drug users share needles and engage in unsafe sex concurrently.

While all research
comes with its own set of limitations, overall, it is clear that society can help
contain healthcare expenditures in America by reducing rates of injection drug
addiction, which helps prevent the spread of HIV. To reduce costs, there must
be a shift in the healthcare system to promote access to drug addiction
treatment. The federal and state governments are the ideal players to implement
incentives for physicians and other healthcare professionals to treat injection
drug users. Since the potential healthcare expenditure savings are so high, it
is especially worth the federal and state governments’ efforts, time, and money
to internalize the external cost through either the suggested policies above or
through other policies that correct the market price.




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