Financial Outcomes in Transplantation--A Provider's Perspective

Abstract and Introduction

Abstract

Despite a relatively large body of literature on health-care economics, including the economics of transplantation, there is a paucity of literature on financial outcomes of transplant procedures. Yet, there is a great need for transplant professionals to understand the financial elements of their transplant programs. These include, among others, reimbursement, cost and net income. This type of analysis requires a thorough understanding of the complex interactions between payers and providers of care and an understanding of accounting practices within the individual institution including the details of cost accounting. This mini review will address the essential components of the evaluation of financial outcomes in transplantation.

Introduction

In the past, the majority of physicians and surgeons have not paid as much attention to financial outcomes as they have to clinical outcomes. Although health-care economic studies have been used to evaluate new medical treatments and technologies, these analyses have typically focused on cost-effectiveness, and not on financial outcomes. Transplantation procedures have been evaluated for cost-effectiveness utilizing various paradigms, and although the details of these economic evaluations contain multiple assumptions that may question the relevance of the analyses, in general, transplantation is felt to be cost-effective. For example, it is well established that kidney transplantation is cost-effective by reducing cost in the long-term when compared to chronic dialysis. Economic analyses, such as cost-effectiveness studies, measure societal relative values defined by specific economic parameters. For instance, the value of a new technology is evaluated in the context of a pareto-optimal perspective in order to maximize the total societal value. Thus, the cost of an intervention is compared to the cost of other therapeutic options to determine if the intervention in question results in overall cost reduction. Alternatively, the cost of a procedure is compared to the societal gain measured by quality-adjusted life years saved. In most studies, a dollar value is assigned to each life year saved, in order to calculate the potential economic benefit of the intervention under evaluation. In contrast to these types of economic analyses, financial evaluations are calculations of cost versus revenue. Financial outcomes are defined by a number of 'margins'. The bottom line of a financial evaluation consists of a margin which is in turn defined by the reimbursement (revenue) minus the total cost (production cost) for a specific procedure. Financial outcomes in transplantation can be calculated for a specific patient encounter or procedure based on knowledge of the cost allocated to the encounter and of the specific revenue recognized for the particular encounter. Alternatively, aggregate financial evaluations can be performed for a spectrum of services provided for a particular transplant recipient, for a cohort of recipients from a single payer, for organ-specific cohorts and for the transplant program as a whole at a particular institution. An accurate evaluation of the financial outcome for a clinical event is predicated on a clear understanding of the accounting practices that determine cost allocation and revenue recognition, including any reconciliation that may occur downstream in the revenue cycle. One of the caveats of financial analyses is that cost-accounting practices may vary greatly between institutions. For instance, an institution may choose to allocate indirect costs to the transplant cost center, thus magnifying its impact on the profitability of the transplant program, whereas another institution may elect to allocate those costs across the institution as a whole, thus improving the profitability of the transplant cost center. Therefore, any financial evaluation must be adjusted for accounting practices, such as allocation of indirect costs, which may impact the calculation of the production costs. Similarly, the revenue is defined by the type of contractual agreement between the payer and the provider for the particular service provided, as well as by the manner in which the provider recognizes revenue in a particular revenue cycle, especially in the context of reimbursement for bundled services. This mini-review will provide a framework for evaluating financial outcomes in transplantation specifically from a provider perspective.