References

1. Hojo M, Morimoto T, Maluccio M, Asano T, Morimoto K,Lagman M, et al. Cyclosporine induces cancer progression by acell-autonomous mechanism. Nature 1999;397:530-534.

2. Khanna A, Cairns V, Hosenpud JD. Tacrolimus induces increasedexpression of transforming growth factor-beta1 in mammalianlymphoid as well as nonlymphoid cells. Transplantation 1999;67:614-619.

3. Gressner AM, Lahme B, Mannherz HG, Polzar B. TGF-beta–mediated hepatocellular apoptosis by rat and human hepatomacells and primary rat hepatocytes. J Hepatol 1997;26:1079-1092.

4. Tang B, Bottinger EP, Jakowlew SB, Bagnall KM, Mariano J,Anver MR, et al. Transforming growth factor-beta1 is a new formof tumor suppressor with true haploid insufficiency. Nat Med1998;4:802-807.

5. Freise CE, Ferrell L, Liu T, Ascher NL, Roberts JP. Effect ofsystemic cyclosporine on tumor recurrence after liver transplanta-tion in a model of hepatocellular carcinoma. Transplantation1999;67:510-513.

6. Penn I. Posttransplantation de novo tumors in liver allograftrecipients. Liver Transpl Surg 1996;2:52-59.

7. Watson CJ, Friend PJ, Jamieson NV, Frick TW, Alexander G,Gimson AE, et al. Sirolimus: A potent new immunosuppressantfor liver transplantation. Transplantation 1999;67:505-509.

Discount Pricing and the ‘‘Cost’’ of LiverTransplantationShowstack J, Katz PP, Lake JR, Brown RS Jr,Dudley RA, Belle S, Wiesner RH, Zetterman RK,Everhart J. Resource utilization in livertransplantation: Effects of patient characteristicsand clinical practice. JAMA1999;281:1381-1386. (Reprinted withpermission. Copyright 1999, American MedicalAssociation.)

Abstract

Comments

Liver transplantation remains one of the most expen-sive surgical procedures performed today.1,2 As a result,third-party payers, providers, and public policymakershave an acute interest in containing, if not reducing,costs. Expense management is hardly a minor issue; itis a major concern.

To address these issues, managed care organizationshave resorted to centers of excellence contracting andcase management.3-7 Based on the available evidence,their efforts have apparently been successful. In 1993,the actuarial firm, Milliman & Robertson, estimatedthat the total first-year charges associated with livertransplantation were $302,900.8 By 1996, this figureincreased to $314,500.9 However, in their most recentreport, Milliman & Robertson indicated that the totalfirst-year charges for liver transplantation have de-creased significantly to $244,600.10

Unfortunately, most studies concerning the cost ofliver transplantation have actually focused on nonstand-ardized billed charges, which often bear little relation-ship to actual accounting costs. This issue has beenaddressed at length in the literature.11,12

In an exceptional effort to overcome many of theproblems associated with previous analyses of livertransplantation costs, Showstack et al,13 in a three-center analysis, used a standard price list to valueresource utilization. Although their analysis excludedall professional fees, they were able to examine inexquisite detail the initial transplantation hospitaliza-tion for 711 patients who were aged 16 years or older,had nonfulminant liver disease, and for whom the liverwas the only organ transplanted. Multivariate modelswere tested in an effort to assess the independentassociations of resource utilization with patient demo-graphic and clinical characteristics.

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‘‘Abstract not available’’

The results of their analyses both confirm andelaborate on results previously reported.14-18 Resourceutilization was typically greater for patients who weresickest at the time of transplantation, had alcoholicliver disease as the primary diagnosis, received a donorliver from a deceased person aged 60 years or older,died in the hospital, or received multiple transplants.They also found significant differences in resourceutilization across the three participating centers.13

Based on their results, Showstack et al13 expressedconcern about recommended changes in the allocationof donor livers within the United States. These changes,proposed by the Department of Health and HumanServices (DHHS) and recently endorsed by the Insti-tute of Medicine, are intended to favor transplantationof the ‘‘sickest patients first.’’19 Showstack et al13

correctly concluded that if these policies were imple-mented, there will be a ‘‘ . . .substantial increase in theresources used for liver transplantation in the UnitedStates.’’

The study by Showstack et al13 is eloquent inmethods compared with previous studies, althoughthey incorrectly characterized the results of the Na-tional Cooperative Transplantation Study (NCTS).14,15

In the NCTS, which included surgical and otherprofessional fees, Evans et al15 clearly showed substan-tial differences in transplantation procedure–relatedcharges and hospital length of stay according to avariety of demographic, prognostic, outcome, andtransplant center characteristics. However, unlike Show-stack et al,13 Evans et al15 did not perform multivariateanalyses.

Showstack et al13 also indicate that cost-effectivenesshas not been a serious consideration in the recentnational debate about organ allocation policies. This istrue in part, but in public testimony presented to theDHHS at the National Institutes of Health on Decem-ber 10, 1996, Evans and Kitzmann20 expressed concernthat the proposed DHHS policies would result in thepoorest transplant outcomes being achieved at thegreatest cost. In various contexts, officials representingthe United Network for Organ Sharing also haveexpressed similar concerns.

Ultimately, analyses such as that conducted byShowstack et al13 are of great significance to transplantcenters in their efforts to manage costs. The reasonshould be obvious to most transplant center administra-tors. Managed care contracting based on global orpackage prices requires a complete knowledge of actualcosts, resource utilization, and patient case-mix. Totheir credit, Showstack et al13 help us better understandeach of these. Unfortunately, at this time, most trans-

plant centers are unable to quantify these financialindicators in a meaningful way.

Increasingly, transplant centers are being forced toaggressively compete on the basis of price becauseoutcomes have become similar across centers.21-23 Ineffect, providers are assuming risk relative to theirpatient-selection policies. As a result, in hopes ofremaining financially viable, it is likely transplantcenters will become more conservative in the patientsselected for transplantation. They will eventually recog-nize the financial penalty associated with adversepatient selection. Thus, the highly controversial poli-cies proposed by the DHHS may in principle gainacceptance, but in clinical practice, their goal will notbe achieved.

Finally, note that the pricing policies of transplantcenters are highly variable based on the market penetra-tion of managed care. This is readily apparent in Table1. Clearly, transplant centers associated with hospitalsin highly managed care areas have a policy of aggres-sively marking up their hospital charges relative toactual costs, whereas the policies of transplant hospitalsin markets with low-to-moderate managed care penetra-tion are far more conservative in their pricing policies.Consequently, based on a fee-for-service mentality,transplant hospitals in markets heavily penetrated bymanaged care can offer deep discounts for the servicesthey provide, which is apparent from the gross deduc-tions from patient revenues listed in Table 1.

Table 1. Overall Inpatient Hospital Experience for AllPatient Admissions, 1997

FinancialIndicator

Managed Care MarketPenetration*

High Moderate Low

Gross charges ($) 32,091 16,686 8269Adjusted charges†

($) 14,208 9461 3903Reimbursement

($) 7709 6683 3151Cost ($) 5133 5077 2480Margin ($) 2576 1606 671Margin as a per-

centage of cost(%) 50 32 27

Gross deductionsfrom revenue(%) 46 29 19

*Definition of managed care penetration: high, 59%; moder-ate, 35%; low, 11%.†Case-mix and wage-index adjusted.

Liver Transplantation Worldwide120

Of course, in a market now based on contractedprices, actual accounting costs and markups becomemeaningless considerations for payers intent on mini-mizing the prices they pay for the services theirbeneficiaries require. Payers are not particularly con-cerned about the alleged unprofitability of academicmedical centers.24-27 They are much more interested inmaximizing the size of the discounts they negotiate,even when hospitals with lower markups may offerbetter prices. Thus, the solution should be obvious. Inthe current managed care marketplace, hospitals shouldaggressively mark up their prices, offer reasonably largediscounts, and thereby reap the benefits associated withhigh profitability. Meanwhile, payers can remain disil-lusioned with their discount mentality.

Roger Evans, PhDMayo Clinic

200 First Street, SW,Rochester, MN 55905

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14. Evans RW, Manninen DL, Dong FB. The National CooperativeTransplantation Study: Final report. Seattle: Battelle-SeattleResearch Center, 1991.

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17. Brown RS Jr, Ascher NL, Lake JR, Emond JC, Bacchetti P,Randall HB, Roberts JP. The impact of surgical complicationsafter liver transplantation on resource utilization. Arch Surg1997;132:1098-1103.

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