Medicare paid transplant hospitals an estimated $380 million over six years for the cost of acquiring organs that were never transplanted into Medicare patients, according to an audit released in September by the Department of Health and Human Services Office of Inspector General. The inspector general traced the problem to Medicare guidance that conflicts with federal law, and it urged the Centers for Medicare & Medicaid Services to change the rules. CMS did not commit to doing so.
How Medicare pays for organ acquisition
Medicare reimburses certified transplant centers, the roughly 250 hospitals approved by CMS to perform organ transplants, for the reasonable and necessary costs of acquiring kidneys, livers, hearts, lungs, pancreases and intestines. Those costs include payments to organ procurement organizations, transportation, tissue typing, operating room time, surgeons’ fees and the salaries of transplant coordinators.
The bill is large and growing. According to the inspector general’s report, Medicare paid transplant centers more than $3 billion for about 39,000 organs in 2023, up from $1.27 billion for about 22,000 organs in 2011. That is a 160 percent increase in spending, against a 77 percent increase in the number of organs.
Federal law sets a clear limit. Section 1861(v)(1)(A) of the Social Security Act, known as the anti-cross-subsidization principle, says Medicare should not bear costs for people it does not cover. Applied to transplants, that means Medicare should pay organ acquisition costs only for organs used in Medicare-covered transplants, which the agency calls Medicare usable organs. Each hospital’s Medicare share is calculated from the ratio of Medicare usable organs to total usable organs on its annual cost report.
Program errors start with paperwork. The same attention to what Medicare actually paid applies to a beneficiary’s own claims and prescriptions, and a running record of drugs, bills and coverage decisions is what the medication and cost tracker in The Medicare Cost & Coverage Protection Kit is built to keep.
What auditors found in 180 sampled organs
Auditors examined cost reports for hospitals with transplant centers covering reporting periods that ended from 2017 through 2022. Through a multistage random sample, they reviewed 180 organs that 12 transplant centers had reported as Medicare usable, tied to $12,288,194 in Medicare reimbursement.
Of those 180 organs, 125 were in fact used in Medicare-covered transplants. The other 55 were not, yet they had been counted as Medicare usable, producing $2,847,855 in Medicare reimbursement. Forty-three went into transplants that Medicare did not cover, and 12 were never transplanted at all.
Most of the problem involved organs a hospital passed along to another transplant center or to an organ procurement organization. Forty-two sampled organs furnished that way ended up in transplants Medicare did not pay for, yet the reporting hospitals collected $2,460,116 for them. Every one of the 12 sampled centers had at least one such organ. The 12 organs that were never transplanted were used for research, discarded or never surgically removed; in one case, the organ procurement organization did not remove an organ because it determined the donor was not deceased, but the hospital still reported the organ as Medicare usable.
Projecting from the sample, the inspector general estimated that of the $1,406,040,094 Medicare paid transplant centers for organ acquisition during the audit period, $379,895,793 went for organs not used in Medicare-covered transplants. The estimate carries a 90 percent confidence interval of roughly $220.4 million to $539.4 million.
A 1972 kidney assumption still shapes the rules
The gap dates back more than 50 years. When Medicare added its end-stage renal disease benefit in 1972, it presumed that most kidney transplant recipients would be Medicare enrollees. As coverage later expanded to other organs, Medicare’s Provider Reimbursement Manual kept that presumption, instructing transplant centers to count any organ furnished to another center or procurement organization as Medicare usable.
CMS has acknowledged the problem. In a May 2021 proposed rule, the agency wrote that “through unintended consequences, Medicare currently shares in the organ acquisition costs for some organs that are not actually transplanted into Medicare” enrollees. It proposed requiring hospitals to count only organs actually transplanted into Medicare patients. But in the final rule for fiscal year 2022, CMS dropped the change after public comments raised concerns about lost revenue for some providers, including children’s hospitals.
Because the hospitals were following CMS guidance, the inspector general did not recommend recovering the $2.8 million identified in its sample.
Recommendations, CMS’s response and what it means for enrollees
The full audit, OAS-25-07-124, makes two recommendations. The first asks CMS to direct its Medicare administrative contractor to recover $154,210 paid to two transplant centers that could not document five organs they had reported as Medicare usable. One center said it may have wrongly reported three kidneys designated for research; the other could not explain why it reported two additional pancreases. CMS agreed.
The second asks CMS to revise its guidance so that only organs transplanted into Medicare enrollees are counted, a change the inspector general said could have saved Medicare $379,895,793 during the audit period. CMS neither agreed nor disagreed. It pointed to the comments it received on its 2021 proposal, noted that it had requested information on alternative organ-counting methods in its 2023 outpatient payment proposed rule, and said it would consider the findings as it weighs future rulemaking and updates to the reimbursement manual.
For older Americans, the audit is not about what individual patients pay for a transplant. The issue is how hospital costs are divided between Medicare and other payers, including private insurers. But Medicare’s hospital benefits are financed largely through payroll taxes and a trust fund that has faced long-running solvency pressure, and the inspector general’s estimate shows how a decades-old accounting presumption can shift hundreds of millions of dollars onto that program.
Keeping an eye on Medicare spending closer to home
Audits like this one scrutinize how hospitals bill the program, but the costs that land on an enrollee’s own budget, from prescriptions to denied services, need their own tracking.
The Medicare Cost & Coverage Protection Kit includes the new Part D out-of-pocket cap, the prior-authorization appeal steps and 51 state Medicare cost-help packs, which help enrollees see where their own spending stands and where help may be available.
Review personal Medicare costs with The Medicare Cost & Coverage Protection Kit.
This article was prepared with AI assistance and reviewed against the linked official sources.
Warren Cohen is a finance writer based in Phoenix, Arizona, covering personal finance topics including credit, banking, and beginner investing. He earned his degree in business administration from Arizona State University and began his career working in consumer finance, where he gained direct experience with lending and credit systems. He now writes for personal finance websites and fintech platforms, focusing on clear, practical content that helps readers make informed financial decisions.
