Return on investment in needle and syringe programs in Australia: report

4.1 Description of the economic model

Page last updated: 2002

4.1.1 Overview

The model used to analyse the financial effects of NSPs examines the direct costs of operating NSPs during the 1990s, and compares those costs to the future financial savings that are anticipated to flow from that investment. In this instance, these savings relate to the direct costs of treatment of cases of HIV and HCV that would otherwise have occurred until death, had it not been for the existence of NSPs. Because the investment in NSPs occurred over a ten year period, while the savings will continue to accrue into the future until all cases avoided have died, the cashflows associated with both are discounted back to a common reference point, namely the commencement of the investment period. The net value of these two cashflow streams after discounting, known as the Net Present Value, takes into account the fact that a dollar today is valued more highly than a dollar in, say, ten years, and thus converts them to a common dollar equivalent. The concept of discounting cashflows thus enables us to assess the current value of future costs and savings for any investment decision.

4.1.2 Direct and indirect costs and benefits

The issue of whether to include both direct and indirect costs and benefits was considered during the course of the design development. It was decided that in undertaking the analysis, only direct costs and benefits will be included.
  • Direct costs include the costs of operating NSPs themselves, the infrastructure associated with their development and operation, and the costs of safe disposal of used syringes and needles. Conceptually, direct costs may also include the costs of volunteers and other unpaid workers in NSPs, and in-kind support provided by host agencies. However, the data reported by State and Territory health authorities were not able to identify or quantify this component, and it is therefore excluded from the analysis.

  • Direct cost offsets or savings are those related to reduced costs due to the prevention or avoidance of HIV and HCV attributable to NSPs. These have been based on the lifetime costs of treatment of the diseases, and are discussed further below.
Indirect costs include productivity losses brought about by increased illness. Examples of indirect benefits include the value of increased productivity due to lives saved and extended employment. Typically, economic evaluations that have included indirect costs and benefits have demonstrated them to be many times the value of direct costs and benefits. In many cases, their inclusion has so overwhelmed the value of the direct benefits, that they have dominated the outcome. However, their measurement has often been the subject of considerable debate and criticism. This is particularly so when dealing with specific sub-populations, in this case injecting drug users.

At the same time, while the major focus of the study is on the public health perspective, it should be recognised that programs of this type may have implications for many other aspects of society that are not reflected in the economic analysis.

Given this history, together with the requirement that this study be based on a strong evidence base and be able to withstand close scrutiny, we have excluded indirect costs and benefits from the main economic analysis. However, it should be recognised that these costs and benefits exist, even if they are not quantified in the analysis.
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