following a transplant, which is an increase from the initial single year of coverage authorized in 1986.¹ Consistent with the provisions in the 1997 Balanced Budget Act calling for the present report, this chapter investigates the benefits of eliminating the three-year coverage limit on immunosuppressive drugs and the costs to Medicare of that step. The analysis here differs from that in Chapters 3 and 4 because the emphasis is less on the effectiveness of the drugs themselves than on the effects of the coverage limitation on patient outcomes. As this chapter and Appendix D describe, the former is well documented but the latter is not.

The special status of immunosuppressive drugs for transplant recipients has evolved through a complex series of incremental exceptions to the basic framework of Medicare coverage established in 1965. The next section reviews this evolution as context for the analysis of coverage issues that follows. Appendix D, Part 2 provides more detailed background.

When the Medicare program was created, outpatient drugs (and drugs in general) played a markedly smaller role in the treatment of people with serious medical problems. Many people died from conditions that now can be either cured or managed effectively for years by drugs that were not available in 1965. With the growing supply of effective drugs have come higher costs in this as in many other areas of medicine. What was once seen as a minor part of the financial burden of illness is now a major worry for many Medicare beneficiaries and an increasing concern for policymakers.

Nonetheless, coverage for immunosuppressive drugs arose less from concerns about high-cost outpatient drugs in general than from a historical anomaly, the creation by Congress of a special entitlement to Medicare for those diagnosed with permanent kidney failure (end-stage renal disease, or ESRD). For a condition that meant near-certain death, the emerging technologies of dialysis and renal transplantation could be lifesaving. Medicare coverage made these treatments financially accessible and promoted the development of dialysis services around the country (IOM, 1991).

Because transplantation was both rare and risky in 1972, the Medicare amendments mainly affected dialysis, a more developed but still relatively early-stage technology that had been introduced to clinical practice on a limited basis in the early 1960s. As long as ESRD patients were treated with dialysis, they were assured of Medicare benefits—and this remains true today. If, however,