Susan L. Smith, MN, PhD


March 31, 2003


More than 50% of US healthcare dollars are spent treating conditions related to organ failure or tissue loss. In 2002, the organ transplantation market exceeded $4 billion. Kidney transplantation, the most frequently performed solid organ transplant procedure, accounted for the largest share (76%).[2]The federal government has had a vested interest in kidney transplantation since enactment of the End-Stage Renal Disease (ESRD) Act in 1972, which mandated Medicare reimbursement for the majority of kidney transplantation. The ESRD Program also funds dialysis for patients with ESRD. By the year 2005, it is estimated that more than 500,000 patients in the United States will be receiving care for ESRD,and at any given time approximately 25% of all patients with ESRD have a functioning kidney graft.[3]

Appropriation of healthcare resources is frequently debated, and transplantation is inevitably used as an example of a high-cost treatment that benefits relatively few. It is important, therefore, to clarify the reason that transplantation benefits only a relatively few. It is not because survival rates are low or that outcomes are not good. Quite the contrary, the mortality rate in dialysis patients is 30% to 40% higher than in comparable kidney transplant recipients.[3] The reason that transplantation benefits relatively few patients is the shortage of donor organs. If there were no shortage of donor organs, the cost of transplantation would potentially become an even more important issue because it would benefit many instead of few.

The cost of kidney transplantation has steadily declined and is currently the least expensive treatment option for patients with ESRD. The Medicare cost of caring for someone with a functioning kidney graft is about one sixth the cost of caring for someone on chronic dialysis.[3] Medicare reimbursement for kidney transplantation, however, is at an all-time low, and continued reimbursement by Medicare depends to some degree on transplant programs demonstrating high-quality, cost-effective care.

The Problem With Cost

In spite of its importance, the use of cost as an outcome indicator is conceptually and methodologically problematic, given that most hospital administrative databases are designed to capture claims data and therefore are unable to determine true costs. Charges are used as a proxy for cost, but there is wide variation in the values assigned to charges. Therefore, it is difficult to compare costs or charges across institutions. Furthermore, charges by themselves tell you nothing about the appropriateness of charges. Another problematic aspect is that there is no standardization in cost-accounting systems or risk-adjustment methods across institutions, so it is next to impossible to make valid comparisons.

Several approaches (listed below) are used for the economic and pharmacoeconomic analysis of healthcare interventions, such as diagnostic and treatment procedures and pharmacotherapy. The models used and assumptions for each are very different and are fraught with methodologic limitations.

  • Cost-effectiveness

  • Incremental cost-effectiveness

  • Cost utility

  • Cost-benefit

  • Cost/quality-adjusted life years

  • Lifetime cost

Nonetheless, economic analyses are used to justify high front-end costs such as for immunosuppressive therapies that over time yield optimal clinical and economic benefits and thus are cost-effective. Such analyses are also used to the compare cost and clinical outcomes of 2 forms of therapy, such as tacrolimus vs cyclosporine.


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