4.1 Background
4.2 Expenditure on NSPs
4.3 Treatment costs avoided
4.4 Return on investment
4.5 Discussion

4.1 Background

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. 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.

In undertaking the analysis, only direct costs and cost offsets have been 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.
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, including indirect costs such as family support, accommodation and income support etc.

4.2 Expenditure on NSPs

Data on expenditure on NSPs from 1990/91 to 1999/2000 are presented in Table 4.1.

Between 1991 and 2000, a total of $150 million (Year 2000 prices) was expended on NSPs across Australia, comprised of $130 million (87%) by government, and $20 million (13%) in consumer expenditure. These data cover expenditure on NSPs operating within the programs managed by State and Territory health authorities. It excludes costs associated with the many retail pharmacies that also sell needles and syringes on a commercial basis, for which reliable data is not available on the number of needles sold or the level of expenditure by consumers.

The trend in expenditure of the period is illustrated in Figure 4.1. Top of page

Table 4.1 Expenditure on NSPs, Australia, 1990-91 to 1999-2000 ($'000) (Year 2000 prices)

1990-1991
1991-1992
1992-1993
1993-1994
1994-1995
1995-1996
1996-1997
1997-1998
1998-1999
1999-2000
Total
Overhead and Infrastructure Costs
$441
$455
$530
$560
$541
$539
$714
$757
$841
$1,153
$6,531
Direct Operating Expenditure on Public NSPs
$7,215
$7,730
$8,172
$8,710
$9,089
$10,251
$12,213
$13,250
$13,690
$15,243
$105,562
Subsidies to Community Pharmacies
$826
$1,045
$1,129
$1,318
$1,497
$1,551
$2,079
$2,347
$2,975
$3,278
$18,045
Consumer Costs
$1,091
$1,183
$1,608
$1,905
$1,865
$1,555
$2,043
$2,625
$2,930
$3,001
$19,807
Total Government Direct Expenditure
$8,042
$8,774
$9,301
$10,028
$10,586
$11,802
$14,292
$15,597
$16,664
$18,521
$123,607
Total Government Expenditure
$8,483
$9,230
$9,831
$10,589
$11,127
$12,341
$15,006
$16,354
$17,505
$19,673
$130,138
Total Expenditure
$9,574
$10,413
$11,438
$12,494
$12,992
$13,897
$17,048
$18,979
$20,435
$22,674
$149,944

Figure 4.1 Expenditure on NSPs, 1990-91 to 1999-2000 (Year 2000 Prices)

Text equivalent below for Figure 4.1 Expenditure on NSPs, 1990-91 to 1999-2000 (Year 2000 Prices)

Text version of Figure 4.1

Top of pageFigures in this description are approximate as they have been read from the graph.

Figure 4.1 shows NSP expenditure in the financial years during the period 1990-91 to 1999-2000:
  • Overhead and infrastructure costs remained below $2,000,000 for the whole period.

  • Direct operating costs increased gradually from $7,000,000 in 1990-1991 to $10,500,000 in 1995-96, before increasing at a faster rate to $15,500,000 in 1999-2000.

  • Subsidies to community pharmacies increased very gradually from $1,000,000 in 1990-1991 to $3,500,000 in 1999-2000.

  • Consumer fees increased very gradually from $1,100,000 in 1990-1991 to $3,000,000 in 1999-2000.

  • Total costs increased gradually from $9,000,000 in 1990-1991 to $14,000,000 in 1995-96, before increasing sharply to $23,000,000 in 1999-2000.

4.3 Treatment costs avoided

Estimates of the lifetime costs of treatment for HIV and HCV cases avoided are based on past and current treatment regimes by disease stage and applied over the projected lifetime of cases, based on known mortality rates. Standardised costs have been used for each component of health care using year 2000 prices, and cover both community-based costs and inpatient costs. A range of data sources have been used for the identification of standardised unit costs.

4.3.1 HIV treatment costs

Figure 4.2 illustrates the annual costs of treatment for the diagnosed cases of HIV avoided as a result of the ten year investment in NSPs. Annual treatment costs rise progressively to the year 2008 as patients progress to later stages of the disease, at which time they peak at approximately $269 million. Thereafter, annual costs decline, brought about mainly by the declining number of patients in the second and third stages of HIV.

Cumulative HIV treatment costs avoided over the lifetime of consumers accumulate throughout the lifetime of survivors, but at a slower rate after about 2008. Total HIV treatment costs avoided over the lifetime of cases are estimated at $7,025 million (undiscounted). These represent the savings that accrue from a combination of the following:
  • Approximately 25,000 cases of HIV avoided, who
  • live for an average of about 24 years after infection, and who
  • incur average treatment costs of nearly $14,000 each year of their life after diagnosis.

Figure 4.2 Annual costs of treatment of diagnosed cases of HIV avoided by NSPs (Not discounted)

Top of pageText equivalent below for Figure 4.2 Annual costs of treatment of diagnosed cases of HIV avoided by NSPs (Not discounted)
Text version of Figure 4.2
Figures in this description are approximate as they have been read from the graph.

Figure 4.2 consists of four graphs:
  • Total HIV costs avoided: this increases sharply from close to 0 in 1991 to $270,000,000 in 2009, before decreasing rapidly to less than $10,000,000 by 2060 and remains stable to 2069.

  • CDV4 greater than 500: increases gradually from less than $10,000,000 in 1991 to $15,000,000 in 1997, before spiking to $80,000,000. The cost of treatment then decreases sharply to less than $10,000,000 by 2012 and remains less than $10,000,000 for all years to 2069.

  • CDV4 less than 500: remains at less than $10,000,000 from 1991 to 1998, before increasing sharply to $130,000,000 in 2008 and decreasing gradually less than $10,000,000 by 2051, remaining stable to 2069.

  • AIDS: increases gradually from less than $10,000,000 in 1991 to $145,000,000 in 2012 and decreasing gradually less than $10,000,000 by 2057, remaining stable to 2069. Top of page

4.3.2 HCV treatment costs

Figure 4.3 illustrates the annual costs of treatment for the diagnosed cases of HCV avoided as a result of the ten year investment in NSPs.

Annual treatment costs rise progressively to the year 2040, at which time they peak at approximately $18.8 million and decline thereafter. The major factor influencing this cost profile is the number of patients who progress to liver failure who, while relatively small in number, have extremely high costs of treatment. Total HCV treatment costs avoided over the lifetime of cases are estimated at $783 million (undiscounted).

Overall, total treatment costs avoided over the life of the cases of HIV and HCV avoided by NSPs are approximately $7,808 million (before discounting). The costs of HIV treatment avoided are approximately ten times those for HCV, which reflects a combination of the number of cases avoided in the first instance, a higher diagnosis rate for HIV than HCV, and higher average annual treatment costs for HIV than for HCV.

Figure 4.3 Annual costs of treatment of diagnosed cases of HCV avoided by NSPs (Not discounted)

Text equivalent below for Figure 4.3 Annual costs of treatment of diagnosed cases of HCV avoided by NSPs (Not discounted)
Text version of Figure 4.3
Top of pageFigures in this description are approximate as they have been read from the graph.

Figure 4.3 consists of 6 graphs:
  • The cost of treatment avoided by NSPs for people with HCV at fibrosis stage 0 and 1 increases gradually from $800,000 in 1991 to $1,900,000 in 2001, before decreasing very gradually to $100,000 in 2066, remaining stable to 2075.

  • The cost of treatment avoided by NSPs for people with HCV at fibrosis stage 2 and 3 increases very gradually from $100,000 in 1991 to $800,000 in 2036, before decreasing very gradually to $100,000 in 2060, remaining stable to 2075.

  • The cost of treatment avoided by NSPs for people with HCV at fibrosis stage 4 (cirrhosis) increases very gradually from $100,000 in 1991 to $800,000 in 2036, before decreasing very gradually to $100,000 in 2063, remaining stable to 2075.

  • The cost of treatment avoided by NSPs for people with HCV with liver failure increases dramatically from $100,000 in 1991 to $14,000,000 in 2042, before decreasing dramatically to $100,000 in 2072.

  • The total cost of treatment avoided by NSPs for people with HCV increases dramatically from $100,000 in 1991 to $18,500,000 in 2040, before decreasing dramatically to $100,000 in 2072.

4.4 Return on investment

The assessment of return on investment from NSPs takes into account the total investment by government and consumers in NSPs during the 1990s, together with anticipated savings resulting from treatment costs avoided for persons who would otherwise have contracted HIV and HCV over their lifetime, were it not for the availability of NSPs during the decade under study.

The calculation of return on investment discounts future cashflows associated with the investment in the NSP program and treatment costs avoided by an agreed discount rate. The discount rate most commonly used in government programs of this nature is 5% per annum. For the purposes of illustration, we have also applied discount rates of 3% and 0%.

4.4.1 HIV impacts

The results of the analysis on return on investment in NSPs to government and in total, having regard to the impacts on HIV alone, are presented in Table 4.2.

The table illustrates that the net savings to government from its investment in NSPs over the lifetime of cases of HIV avoided (after deducting the value of the initial government investment) before discounting are $6,896 million. Discounting these savings at 5% results in a Net Present Value (NPV) of their investment of $2,277 million ($3,415 million at 3% discount rate). When considering the total investment in NSPs (by including consumer expenditure), the equivalent returns are $6,876 million (undiscounted), $2,262 million (discount rate of 5%) and $3,398 million (discount rate of 3%).

The analysis indicates that there have been significant savings accruing to government from the investment in NSPs to date, and that these savings will continue to accrue into the future. This is further illustrated by considering the return achieved to the end of the investment period (i.e. to Year 2000) without taking into account any additional savings that accrue in the future. By the year 2000, government had achieved net savings of $373 million (after deducting the value of their investment), the NPV of which at a discount rate of 5% is $242 million ($287 million at a discount rate of 3%). Top of page

Table 4.2 Net Present Value, 1991 ($million, year 2000 prices) of investment in NSPs for HIV

Government expenditureAll expenditure
Lifetime costs of treatment (5% discount)
$2,277
$2,262
Lifetime costs of treatment (3% discount)
$3,415
$3,398
Lifetime costs of treatment (0% discount)
$6,896
$6,876
To year 2000 (5% discount)
$242
$227
To year 2000 (3% discount)
$287
$270
To year 2000 (0% discount)
$373
$353

4.4.2 HIV and HCV impacts combined

The return on investment in NSPs to government and in total, having regard to the impacts on HIV and HCV combined, are presented in Table 4.3.

The analysis indicates that the incorporation of HCV into the NPV calculations has further increased the savings accruing to government and in total. This is to be expected, as no additional investment has been required, and some 21,000 cases of HCV are estimated to have been avoided. The impact on savings, however, is significantly lower than for HIV, due to the lower annual costs of treatment for the earlier stages of HCV, and the fact that the higher costs associated with the relatively small proportion of patients who progress to liver failure are deferred until much later and are considerably reduced by discounting.

Table 4.3 Net Present Value, 1991 ($million, year 2000 prices) of investment in NSPs for HIV and HCV combined

Government expenditureTotal expenditure
Lifetime costs of treatment (5% discount)
$2,402
$2,386
Lifetime costs of treatment (3% discount)
$3,653
$3,637
Lifetime costs of treatment (0% discount)
$7,678
$7,658
To year 2000 (5% discount)
$255
$240
To year 2000 (3% discount)
$302
$285
To year 2000 (0% discount)
$391
$371
Top of page

4.4.3 Sensitivity analysis

In order to test the robustness of the results, sensitivity analysis has been conducted on a number of the variables affecting the outcomes. These are:
  • Halving the rate of effect of NSPs on HIV. This analysis seeks to address the issue of the extent to which NSPs contribute to the reduction in HIV as opposed to other concomitant activities.

  • Quartering the effect of NSPs on HIV. This analysis further extends the examination of reduced NSP effects on HIV.

  • Doubling the level of investment in NSPs over the ten years. This analysis examines the result of increasing the expenditure on NSPs without any increase in effect on HIV. By so doing, it takes into account the potential contribution of the commercial pharmacy market.

  • Halving the annual treatment costs for HIV. This analysis considers the results of possible future reductions in the costs of HIV treatment.
The outcomes for each of these variations in isolation are illustrated in Table 4.4, applied only to the impact on HIV, and based on a discount rate of 5% in all scenarios.

The analysis indicates that the outcomes previously presented are most sensitive to the impact of NSPs on HIV incidence. This is to be expected because of the nature of the estimation technique employed, which uses the logit scale as its base. Consequently, halving the rate of effect of NSPs on HIV incidence has a proportionally greater effect on the number of cases avoided over time. Nevertheless, even at the most conservative estimate of effect (one-quarter of the original effect estimate) the return on investment on both government expenditure and total expenditure on NSPs is positive. This also holds true for variations to the other input variables in the model. The sensitivity analysis indicates that the results presented are robust, and that the return on investment from NSPs is positive in all other tested scenarios.

The analysis indicates that the outcomes previously presented are most sensitive to the impact of NSPs on HIV incidence. This is to be expected because of the nature of the estimation technique employed. Nevertheless, even at the most conservative estimate of effect (one-quarter of the original effect estimate) the return on investment on both government expenditure and total expenditure on NSPs is positive. This also holds true for variations to the other input variables in the model. The sensitivity analysis indicates that the results presented are robust, and that the return on investment from NSPs is positive in all other tested scenarios.

Table 4.4 Net Present Value, 1991 ($million, year 2000 prices) of investment in NSPs for HIV – Sensitivity Analysis

Lifetime costs of treatmentGovernment expenditureTotal expenditure
Original estimate
$2,277
$2,262
Half NSP effect on HIV
$333
$318
Quarter NSP effect on HIV
$52
$37
Double NSP investment
$2,180
$2,151
Half HIV annual treatment costs
$1,090
$1,075
Top of page

4.5 Discussion

The study indicates that the return on investment will exceed many-fold the original investment in NSPs, and that the original investment had been fully recouped and surpassed by the end of the investment period, before any future savings are taken into account. The investment in NSPs is justified by the effect on HIV alone, with the effect on HCV providing an additional financial benefit. Sensitivity analysis on the main variables used in the analysis indicates that the results are robust under a range of alternative assumptions and scenarios.

A number of observations are offered about the results presented.
  • The factor that has the greatest impact in the financial analysis is the effect of NSPs in reducing the incidence of HIV (and to a lesser extent HCV). As noted previously, however, NSPs typically operate in an environment where a range of public health and other initiatives are in place. It is not possible to isolate the effects of NSPs from other elements in these initiatives. Notwithstanding this point, the sensitivity analysis conducted indicates that even under scenarios where the effect of NSPs on HIV incidence is reduced by 75% of the original estimate, the return on investment from NSPs remains positive.

  • The financial analysis has considered only the direct costs and savings associated with NSPs. There is clearly a greater range of other potential financial savings to be derived from a reduction in HIV and HCV, savings that would accrue to governments, patients and their carers as well as wider society.

  • Estimates of future treatment costs have been based on current treatment regimes. However, methods and costs of treatment can change very quickly, which may have a significant effect on patients, as well the analysis of return on investment. The sensitivity analysis conducted on the results to date indicates that, even if future treatment costs halve, NSPs would continue to be a sound investment strategy.

  • The analysis presented has considered the retrospective investment in NSPs, as well as the direct health care savings accruing from that investment, and assumes that the investment in NSPs ceases in the year 2000. Given the current population of injecting drug users and the level of use of NSP services, together with the demonstrated effect of NSPs on HIV and HCV, it is clear that an ongoing investment in NSPs will continue to avert the incidence of HIV and HCV, and that savings will continue to accrue. Consequently, the model demonstrates not only that the financial return on investment to date in NSPs has been positive, but also that ongoing investment in NSPs is warranted.
Top of page