An old post: Government's Policy outlawing "valuable consideration" for organ transplants kills people every day

Saturday, August 14, 2010
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Policy Paper
PHHE 671
Eliyahu Lazovsky
December 1, 2009
Governmental Economic Policies to Increase Supply of Kidneys Available for Transplantation

The purpose of this proposed policy is to increase the numbers of kidneys available for transplantation. The methods will include government tax credits to live donors and the families or estates of deceased donors. Another method will be to align the incentives of current Medicare policies to focus on the current best standards for treatment of ESRD (end stage renal disease) and not merely the current model which focuses on treatment (dialysis treatment) and not on a cure (a kidney transplant.) “Kidney transplantation is the most successful and cost effective treatment for renal failure and should represent the gold standard, yet not all patients receiving dialysis are suitable for transplantation, and there is evidence that selection criteria vary widely” (Oniscu, 2003, p.1).
Currently many people die annually while awaiting a renal transplant, otherwise known as a kidney transplant. “As of June 2008, there were more than 75,000 people on the kidney transplant list in America. Sadly, about 12 of these patients die every day while awaiting a kidney” (Brochure, Alliance for paired donation, 2008, p. 2). Also, on average, people who receive ideal kidney organs for transplants live over 13 years longer compared to those on dialysis (Ojo, 2001, p. 592).
There is currently a government policy forbidding “valuable consideration” which is legalese for money to be exchanged between parties in order for one party to supply a kidney to the other party who is suffering from ESRD. This policy was introduced as an attempt to squelch the market for trafficking of human organs. While the intentions might arguably have been noble at the time the legislation was passed, with the benefit of hindsight, the unintended consequence of this legislation leads to additional thousands of people dying annually who are on the U.S. kidney transplantation waiting registry but succumb to the vagaries of ESRD before a kidney become available for transplantation.
A further complication in the supply of kidneys available for transplantation is that under a change to Medicare passed during the presidency of Richard Nixon, medical care associated with ESRD is covered for all Americans. In other words, we have nationalized health care in the U.S. for the treatment of ESRD. The federal government pays, for among other things, the costs associated with dialysis, which is the treatment given to people who are suffering for ESRD when their kidneys are no longer able to filter out the toxins from their blood streams and so this cleansing is done artificially by a blood dialyzer.
There is a quirk in the federal government’s coverage of ESRD which encourages people to remain on dialysis (a treatment) instead of pursuing a kidney transplant (a cure) because the federal government stops insuring people who formally had ESRD three years after the kidney transplant. This is due to a law passed by Congress in 1999 which made it illegal to pay for the immunosuppressant drugs for more than 3 years after transplantation. This creates an externality whereby people who cannot afford the very expensive anti-rejection medications which can cost up to around $1500 per month (and transplant recipients must take these medications for the remainder of their lives to lower the risk that the graft will be rejected.) opt to remain on dialysis instead of pursuing a transplant.
“Expenditures per patient year show parallel trends, with hemodialysis costs at $71,889 in 2006, compared to $53,327 and $24,951, respectively, for peritoneal dialysis and transplant” (Report, 2008, figures 11.8 and 11.9).
The government lowers the supply of kidneys available, thus distorting the market by lowering the supply of kidney available to the market. The government also reimburses much more money for dialysis than it does for kidney transplants, which are cheaper, and more importantly, cures the patient and improves the patient’s quality of life because they no longer need to be hooked up to a dialysis machine for hours at a time (Medicare spends $150,000 annually on dialysis patients versus $17,000 annually for post transplant patients) (Article, Kidney Transplantation, 2009).
I propose a two pronged approach to deal with the problem. First of all, I propose a $50,000 tax refund for anyone who makes a live or deceased kidney donation. This will cause a larger supply of kidneys to be available for transplantation. Also, since everyone gets the same amount of money from the government, this should work to crowd out the illegal black market for kidney organs.
I also propose a change in the Medicare reimbursement structure to encourage kidney transplants. This should increase the incentive to doctors to perform more transplants with the newly increased supply of kidneys available for transplantation. Also, the government will provide lifetime Medicare coverage to former ESRD patients who receive transplants who do not have their own medical coverage which covers anti-rejection medication to make sure people who could get a transplant but who cannot afford the anti-rejections medications do not opt against transplantation which is actually worse for their health and much more costly in the long run.
There are two very important aspects to these policies. One aspect is that kidney transplantation increases the life expectancy of the patient compared to a patient on dialysis. Additionally, this policy would probably save the government money in the long run because transplants are much cheaper than dialysis and they are a one time occurrence, not something that the government needs to keep paying for year after year like dialysis. Also, the patients for whom the government continues to pay anti-rejection medication, this is substantially cheaper than dialysis treatment.
Economically, the government will focus on subsidizing kidney transplants instead of focusing on subsidizing dialysis. This shift in subsidy strategy will increase the supply of kidneys to the market and the supply curve will shift outward and the new equilibrium point will result in the quantity of kidney transplants shifting out, thus increasing the number of transplants that will take place. This will also decrease the dead weight loss to the society that currently exists from more money being spent on dialysis than the market would demand if not for the government guaranteeing payment for all patients with ESRD. This money can be spent on much better things – like on the kidney transplants themselves.