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On Sale Now at Your HMO: Organ Transplants

January 17, 1995

Discount fever is hitting the high end of medicine: the organ-transplant business.

Renowned transplant centers such as the Cleveland Clinic, Duke University and Johns Hopkins are cutting rates for procedures and follow-up treatments by 30 percent to 60 percent. The centers figure that cheaper prices will help them win big contracts with health-maintenance organizations and other powerful insurers that mandate where their millions of members can go for care.

Hospitals often discount their bills by about 20 percent for their biggest customers. But HMOs lately have been winning much steeper markdowns on fixed-price contracts that cover nearly all the expenses associated with organ transplants. These contracts typically include the cost of obtaining donor organs (the organs themselves cannot be sold), surgery fees, other hospital and physician charges, drugs and as much as a year of follow-up care.

Several medical centers say the rate they give HMOs for a heart transplant has dropped to as little as $110,000; the typical list price for a heart transplant is more than $200,000. Similarly, contracts for bone-marrow transplants have tumbled to as low as $65,000, barely a third of $172,900, this year’s average bill for the procedure, says Richard Hauboldt, an actuary who follows the transplant market for Milliman & Robertson in Milwaukee.

Helping this price-cutting along is new medical technology that lets hospitals discharge patients sooner and complete their care in cheaper outpatient settings. But it also reflects big customers’ ability to demand bargains by playing the nation’s 278 transplant centers against one another.

Dozens of centers typically bid each year for a big HMO’s business _ and only a few make it into the winners’ circle. HMOs say they select transplant centers based on a rigorous review of patients’ survival rates, as well as on evidence that the center can skillfully handle sizable transplant volume. But some doctors and hospital executives take a more skeptical view of these big customers’ priorities.

``Payers are shopping for where they can get the best deal,″ says Peter Brumleve, head of marketing at the Cleveland Clinic. ``They say they’re concerned about quality, cost and access. But the thing they’re most interested in is cost.″

While hospital executives wince at each round of price-cutting, they say they have little choice but to keep playing. Most transplant units need high volume to cover their fixed costs and keep doctors’ skills well-honed. If medical centers balk at doing cut-rate transplants for HMOs, they may find themselves starved for patients.

Some of the most intense price competition surrounds bone-marrow transplants, which are used along with high-dose chemotherapy to treat cancer patients. Traditionally, bone-marrow transplants involved month-long hospital stays and bills of $150,000 or more, chiefly because marrow-transplant patients are at risk of infection. But advances in transplant technology are helping patients regain their infection resistance much faster.

As a result, many centers have trimmed hospital stays for bone-marrow transplants to 21 days or less. For autologous bone-marrow transplants, in which patients get their own, purified marrow after chemotherapy, ``it’s easy to get rates under $100,000,″ says Deborah Grinnell-Miller, a transplant-case manager at Prudential Insurance Co.

Some of the cheapest rates are being posted by Duke University, which has begun doing bone-marrow transplants with just a five-day hospital stay. After that, ``patients come in for their chemotherapy each day and then go to the Hampton Inn across the street, where we lease rooms,″ says William Peters, head of Duke’s bone-marrow transplant program. ``That’s a lot cheaper than the hospital.″ The Hampton Inn is a mid-priced hotel; one whole floor has been designated for transplant patients, whose rooms are antiseptically cleaned.

Duke is pricing its quick transplant at just $65,000, and it expects to get lots of business. ``If an insurer is going to steer all its patients to you, you can take care of people for much more reasonable rates than if you only get certain patients at certain times,″ Dr. Peters says.

In cases of heart transplants, Metropolitan Life Insurance Co. says the hospital stay shrank to 16 days last year from 30 days a year earlier. And Stanford University says its average length of stay for heart-transplant patients is now just 11 days.

``We’ve done a lot of refinement of the procedure, looking to pare it down to the essentials,″ says Bruce Reitz, chairman of Stanford’s department of cardiothoracic surgery. By discharging patients sooner and rethinking details such as the number of tests and X-rays it runs on patients, Stanford has been able to drop its contract price for heart transplants to between $110,000 and $120,000. That’s down from more than $150,000 a few years ago.

At the Cleveland Clinic, even suture inventories are getting fresh scrutiny. The clinic’s department of cardiothoracic surgery cut operating-room costs 15 percent last year, in part by not wasting sutures during surgery, says Toby Cosgrove, the department head.

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