On a Saturday morning in September 1972, with less than 30 minutes of floor discussion, a nearly half-empty Senate adopted a far-reaching amendment to the Social Security laws that is costing $2.1 billion this year. Signed into law a month later by Pres. Richard Nixon, the amendment provided Medicare support for virtually anyone with permanent kidney failure.

In 12 years, patient enrollment in the program has swelled from a few thousand to 75,000. And its cost, instead of declining as suggested, has spiraled- from $283 million in the first year to a projected $6 billion by 1990. That, by the way, is when the Medicare part of the Social Security system, left untouched in last year's much-ballyhooed "rescue" of Social Security, is expected to go broke unless Congress comes up with a fix. And Medicare's outlays for treating kidney patients now account for 10 percent of its supplementary medical expenditures (that's for everything except hospitalization).

Of course, the victims of permanent kidney failure -"end-stage renal disease," ArreRp, in government lingo- are being saved. But as I investigated the program, I found that the price being paid, not only by the taxpayers but by the patients themselves in quality of care, is far too high under government financing of treatment.

Congress has wedded itself to a program that turns out to be riddled with all the inadequacies and sometimes tragedies of the typical government boondoggle. I found that cost overruns, mismanagement, and even fraud have beset the government's ESRD program. None of the kidney-treatment providers reimbursed by Medicare has had any incentive to hold down the cost of the pro-and all have had plenty of incentives to do just the opposite. Meanwhile, kidney patients have suffered as the program has stifled treatment innovations and encouraged the use of less-desirable forms of treatment. ESRD patients are becoming the victims of the very program designed to save and enhance their lives.

The ERSD program, with all its unanticipated consequences for patient care and costs to taxpayers, is of special interest to me, for I have been a patient in the program. In September 1979 I walked into my doctor's office thinking I had the flu and came out knowing that I had permanent, irreversible kidney failure. I spent nearly nine months having hemodialysis treatments on a kidney machine three times a week, with a quality of life I don't like to remember but can never forget.

Then on May 5, 1980, my older brother donated a kidney for me, so I could, at the age of 32, begin a normal life again. Side by side, we were wheeled into an operating room and experienced first-hand the technological twilight zone of modern medicine. According to observers, the surgery was flawless, as not a thimble of blood was lost from either of us during the three-hour procedure.

When I awoke following surgery I was immediately relieved to have passed the first test-I was alive. I was told that my new kidney had started functioning right on the operating table. My brother was fine. I was fine. Then my eyes wandered around the intensive-care transplant unit at the University of California, Los Angeles (UCLA), finally settling on the maze of machines and intravenous tubes that were hooked to me. I managed to stay awake for 60 seconds or so, just long enough to gather in what had transpired. My kidney transplant was complete.

I slept until the following day. When I awoke the second time, I learned that my blood chemistry was beginning to stabilize, as the accumulated toxins of a chronic illness slowly disappeared. Like a car with a new fuel filter, the impurities began leaving my system.

Within a week, as my condition improved (without any hint of my body rejecting the new kidney), I became confident that my life would return to normal. A dream come true (and, thanks largely to the government's ESRD program, at no expense to me). I left UCLA on May 12, 1980, and never looked back. Today, my brother and I are both in better shape than we were as teenagers. He swims five miles a week, and I play racquetball regularly. When people see me, it is hard for them to believe I was terminally ill.

Until about 25 years ago, people suffering permanent kidney failure were doomed to certain death. But development of a modern lifesaver, hemodialysis, changed all that. Today, the lives of ESRD patients are being prolonged for years by this phenomenal procedure.

Most simply, hemodialysis is a mechanical process whereby blood is drawn from the body and cleansed of impurities in a process mimicking the body's kidneys. Outside the body, the blood is passed along one side of a man-made membrane, with a special solution on the other. Due to the laws of chemistry and physics, certain molecules pass through the membrane, eliminating waste products and excess fluids. The blood is then returned to the body, in a continuous process of cycling and cleansing.

The history of dialysis is rather short.

As early as 1913, scientists experimented with the external dialysis of blood in laboratory animals, with some degree of success. But it was not until the 1940s that a dialysis machine was used to save a human life. Developed in Nazi-occupied Holland by Dutch physician Willem J. Kolff (see sidebar, page 27), it was used on 17 patients in 1943. Only one survived, but the modern age of hemodialysis was upon us.

From the time of Kolff's brilliant discoveries until 1960, kidney machines were primarily used to treat people with temporary kidney failure. Those with permanent loss of function could only survive as long as they stayed hooked to a machine.

Then in 1960 Belding H. Scribner, a doctor at the University of Washington Medical School in Seattle, devised a way to repeatedly hook and unhook patients from machines, using implanted tubes that are connected outside the skin with a teflon device. Scribner's invention allows for normal circulation until time for a kidney treatment, when the tubes are disconnected from each other and a dialysis machine is "plugged in."

This breakthrough opened the door to a promising new medical frontier. But dialysis treatment, though proven effective in saving lives, was still experimental and expensive. A single machine cost $6,000 (the equivalent of nearly $20,000 today). In addition to Dr. Scribner's dialysis center in Seattle, only a few other treatment facilities existed. The simultaneous availability and scarcity of this new lifesaving technique, and the attention that this disparity invited, led to an increasingly intense bioethical debate.

Researching newspapers and popular magazines from the early '60s, I found numerous dramatic accounts of the dilemmas facing the medical community. A New York Times article in May 1962 referred to the new era of hemodialysis as "one of the most dramatic stories of medical triumph and tragedy in recent history.... A handful of men and women who should be dead by normal medical criteria, are living and leading nearly normal lives.... [But] because facilities for care are limited, inevitable death [from] kidney disease [is in store] for thousands of others."

Later that same year, a Life magazine article described the method by which a seven-member lay committee in Seattle decided who would have access to the limited number of machines in the dialysis unit there. Americans shuddered at such stark ethical choices.

Meanwhile, an expanding government role in health care was at hand that would eventually affect the future of kidney-disease care. In 1965 Medicare and Medicaid were added to the Social Security system to provide government-subsidized insurance for the aged and indigent. Combined with the success and high visibility of hemodialysis, this precedent set the stage for the federal government to consider paying for both dialysis and kidney transplants.

By 1967, 1,000 patients were being maintained on dialysis, a 10-fold increase from 1964. As dialysis centers began increasing in numbers, the issues of availability and patient financing were frequently raised. Treatments were being paid for by a patchwork system including private insurance, the federal government (for veterans, the aged, and indigent), philanthropy, state governments (in a few cases), and the patients themselves. But it seemed to many that the high cost of dialysis would pose a continuing constraint on its availability.

Some patients were dialyzing in their homes with machines costing as much as $10,000 in 1968. Dutch physician Willem Kolff, the inventor of the dialysis machine in the 1940s, told me he was shocked to learn of the high cost of dialysis machinery being used on an experimental basis in the United States when he immigrated here in 1950. Intent on altering this situation, Dr. Kolff continuously pushed to reduce costs. By 1968 he had modified Maytag washing machines into dialysis machines at a fraction of the cost of machines then in use. That same year he sent 21 people home with machines and two months' worth of supplies for a total cost of $360 per patient. Kolff's machine offered considerable promise for bringing dialysis costs within a more widely affordable price range.

The future of kidney transplantation was bright, too. Doctors were beginning to tap the secrets of organ rejection (the rejection of foreign tissue by the recipient's body), a problem that has plagued this remedy since the first human kidney transplant in 1947. Improved success with transplants offered promise as a means of trimming the dialysis population and providing what many medical experts and patients consider the most suitable, life-restoring therapy for kidney disease.

But the improvements in transplant capabilities and the design of cost-saving equipment did not resolve the ethical dilemmas over dialysis. In the first place, the transplant panacea turned out to be more illusion than reality. Initial developments in the 1960s were followed by two decades of disappointment and frustration. Second, Dr. Kolff told me that because of liability uncertainties, Maytag Washing Machine, Inc., advised its salespersons not to sell him and his associates their washing machines through normal channels, and Kolff was forced to obtain the machines "under the counter." Needless to say, these difficulties hampered his efforts to make this cost-saving equipment more widely available.

With neither a cure nor lower costs to patients near at hand, access to dialysis remained a problem. The dramatic nature of machine-dependent treatments, coupled with the proliferation of this rapidly expanding technology, gave rise to frequent publicity and greater public awareness about the controversy. As early as 1965, an NBC-TV report had scolded the government for spending millions on the space race and a comparative pittance on saving the lives of kidney patients. In 1971 a New York man dialyzed himself in front of the House Ways and Means Committee to dramatize the plight of ESRD patients.

The effects of these portrayals of the ESRD predicament should not be minimized. There are, after all, other catastrophic disabilities that affect as many people and cost as much to treat as kidney failure but don't lure as much government money. Richard Rettig, professor of social sciences at the Illinois Institute of Technology, notes that taxpayers are not footing the bill, for example, to treat hemophiliacs, whose numbers exceed those with kidney failure. The central symptom of hemophilia is serious bleeding, and Rettig figures that a quarter of all hemophiliacs "require continuous replacement of fresh whole blood, plasma, and clotting concentrates," a therapy at least as expensive as dialysis.

But with all the attention focused on the plight of ESRD patients in the early '70s, pressure on legislators to "do something" mounted. The federal government responded by funding numerous research grants and pilot dialysis projects. At the same time, however, over 100 pieces of legislation aimed at a more thorough commitment to kidney-disease victims died on the vine. In this light, the hurried passage of ESRD legislation in 1972 more closely resembles a moral exorcism than the informed resolution of a thorny ethical problem.

Despite the persistence of many unresolved policy issues, 10 years of debate over the availability of kidney-disease therapy ended in less than 30 minutes. The Senate and House of Representatives scurried to put new Social Security legislation on the president's desk before the November presidential election, modifying the Social Security benefit structure and revising Medicare provisions. Sweeping commitments to ESRD financing were added to the package of amendments almost as an afterthought.

No hearings on ESRD provisions had been held when Sen. Vance Hartke stepped forward on a Saturday morning, September 30, 1972, to propose that the Social Security system's Medicare coverage be extended to virtually all victims of end-stage renal disease. Only Sen. Wallace Bennett spoke against the proposal, calling it "Christmas in September."

Emotional appeal proved the motive force in passage. Sen. Russell Long, cosponsor of the ESRD amendment, pleaded that "these unfortunate citizens...cannot wait....They need help-it is critical-and that help must come now." The Senate voted 52 to 3 in favor of the amendment. The joint conference committee of the House Ways and Means Committee and the Senate Finance Committee discussed the matter for only a few minutes before voicing their rubber-stamp approval of the ESRD measure. Both the Senate and House accepted the conference committee's report, and President Nixon signed the kidney provisions into law on October 30, 1972.

The measure made 95 percent of the US population eligible for federal support in the event of end-stage renal disease. Medicare would cover 80 percent of the allowable costs of dialysis and of transplants, with "allowable costs" defined by the 1972 bill and by the program's administrators.

For the average patient today, this means that Medicare pays $23,000 a year for dialysis treatment, 80 percent of the total $28,000 annual bill. A transplant costs about $25,000, of which 80 percent is also picked up by Medicare. (At present, 39 states complement the Medicare coverage by assuming responsibility for the remaining 20 percent of Medicare-allowed costs. Private health insurers generally cover the remaining allowable costs in other cases.)

Passage of the ESRD program in 1972 was heralded as a victory by patients, dialysis health-care providers, and well-meaning legislators. But proponents of the funding did not anticipate its consequences.

Senator Hartke told Congress that the program would cost $90-$ 100 million in the first few years. It was, he said, "a minor cost to maintain life." He estimated that fourth-year costs would be perhaps $250 million.

Indeed, Hartke and a handful of other proponents argued that the cost would be likely to decline from that point, as technical breakthroughs lowered treatment costs and kidney transplants reduced the demand for dialysis. Moreover, the cost of the program itself would be offset, Hartke argued, by the fact that dialysis would permit patients to return to work and lead productive lives.

Hartke's predictions proved to be appallingly wide of the mark. The actual cost for the first year was $283 million, nearly $200 million more than his estimated $90-$ 100 million. The fourth-year cost, even when adjusted for inflation, was more than double what Hartke had predicted.

Today, the cost per year has surpassed $2 billion, equal to $800-some million even in Hartke's 1972 dollars. Although inflation-adjusted costs per patient have actually declined, that fact has been obscured by a dramatic and persistent increase in the number of patients treated for kidney failure. When the ESRD amendment passed in 1972, there were just over 5,000. Today, more than 75,000 patients are on dialysis-and the trend has not stopped. The percentage of patients receiving transplants is low. And only a third of all kidney patients hold down a job.

It should have been obvious early on that Congress had made grave fiscal mis-judgments that would eventually come back to haunt the Medicare system. But it was not until 1978 that the legislators ordered the first comprehensive audit of the program to find out what was happening. In 1978 and again in 1981, Congress passed legislation to change ESRD reimbursement provisions. Changes were finally implemented in May 1983.

It is the original provisions, only somewhat modified in last year's reforms, that have shaped kidney treatment in the United States. Close scrutiny of these provisions reveals why it is that costs and patient rolls have soared-and how patients are often the losers.

Medicare reimburses dialysis facilities (hospitals with dialysis units or freestanding dialysis centers) on a per treatment basis. The original ESRD provisions put a $138 ceiling on the allowable cost per treatment, of which Medicare would pay 80 percent. But facilities could request exceptions to the ceiling if their costs exceeded the $138. Medicare also covered some, but not all, of the costs of home dialysis, in which the patient leases equipment for home installation and use. Doctors, for each of their patients treated in a facility-but not at home-were paid 80 percent of a monthly fee that averaged $220.

A multitude of incentives and disincentives are embedded in these reimbursement provisions. Poring through the historical record and what data exist, interviewing scores of medical experts, and talking with patients themselves, I found that these provisions have inevitably affected the cost of the ESRD program. But they also have had a profound effect on the nature of patient care in this country.

Consider, first, the incentives facing kidney doctors-nephrologists-under the ESRD program set up in 1972. These doctors faced financial incentives to put their patients on dialysis in centers instead of at home, to put as many people on dialysis as possible, and to keep them there instead of exploring alternatives. Did doctors respond to these incentives? Information from various sources certainly supports that conclusion.

Kidney dialysis, at four hours a crack and three times a week, is a major inconvenience in a patient's life. Home dialysis obviously affords suitable ESRD victims more flexibility in their lives than in-center dialysis. And at least in the early years of government funding, it may have been cheaper, as well. But the ESRD program covered doctors' charges only if a patient received dialysis in a hospital or independent (nonhospital) center. In addition, the physicians often have an ownership or profit-sharing stake in independent dialysis centers, further boosting their potential revenue from in-center instead of home dialysis.

The rate of home dialysis has fallen dramatically since Congress added ESRD to the Medicare system. In 1972, 40 percent of all dialysis patients were dialyzing at home. Today, that figure stands at just over 10 percent.

For their patients treated in centers, doctors were allowed a monthly fee. Although the fee, which averaged $220, was based on the assumption that they would see their patients 20 times a month, Medicare reimbursement was not tied to the number of actual visits. And in fact I learned that most doctors see their dialysis patients no more than five times a month. One government audit showed that doctors in some facilities were attending their patients an average of 1.12 to 1.56 times per month. So the reimbursement scheme had doctors being paid for services they didn't even perform.

Kidney-machine inventor Dr. Kolff told me that after passage of the ESRD bill, doctors who were "previously uninterested" in treatment for kidney failure became interested in dialysis. "It was not rare to have dialysis physicians making $200,000 per year in 1973," he said. "They would conduct their private practice, just stick their heads into the dialysis facility, then go back to their private practice."

Early in my investigation of this situation, an anesthesiologist told me that nephrologists extend dialysis treatment to every possible patient who has any sign of kidney malfunction, including patients terminally ill with other diseases. This would not be surprising, given the incentives provided by the ESRD payment scheme. So I asked a number of medical experts whether the ESRD program pushes nephrologists in that direction. Not one of them would deny it, every one as much as agreed with it, but not one would speak for the record.

When I found that Arnold S. Reiman, the editor of the New England Journal of Medicine, seemed to be suggesting in a recent article that dialysis is overprescribed, I asked him about this. Reiman carefully noted that "no study has ever been done to assess whether we are dialyzing more patients than we can really hope to benefit." But he went on to say that given the "best available information, the facts are worrisome.... In the United States, no matter how old or what complications he has, a patient is given dialysis. We may be merely prolonging the dying of patients who are far too sick from other complications to benefit from dialysis."

In one study, Reiman and Drummond Rennie compared US dialysis rates with rates in Western Europe in 1980 and 1981, France had the highest dialysis rate in Europe, with 133 patients per million. The United States, on the other hand, had nearly 205 patients per million. National differences in the incidence of different types of kidney disease might explain some of this variation. But the study concluded that such factors are unlikely to account for such a large difference.

I dug up some related and corroborating figures: In 1974, only 5 percent of ESRD patients were over 65 years old. By 1980, the number had grown to 20 percent.

The generous payment of nephrologists may also contribute to their apparent reluctance to refer even suitable kidney patients for transplants. A patient with kidney failure virtually always sees a nephrologist first and is placed on dialysis as an emergency measure to cleanse his blood of toxins. These patients must rely on their nephrologists to advise them of alternatives. But the nephrologist clearly has an incentive, however unconscious, to exaggerate the risks of transplantation, which if successful, removes the patient from dialysis. One dialysis patient even told me she thinks of herself as an "annuity" for her doctor!

The way doctors have been reimbursed under the ESRD program has had obvious consequences for the taxpayers. They are paying for treatment that is not in some cases in the best interests of the patients. They are paying for dialysis treatments year after year for patients who might have been better off with transplants. The costs of the ESRD disincentives to provide kidney transplants are particularly striking. One successful transplant currently runs about $25,000, whereas yearly dialysis costs now add up to $28,000. This is not even to mention yet the costs for potential transplant patients in quality of life.

With an ever-larger percentage of a growing ESRD population dialyzing in hospitals and freestanding centers, the ESRD reimbursement structure facing these institutions has played a large role in overall program costs. But these institutions have had no incentive to reduce the cost to the taxpayer.

Of course, as with other government-funded programs, some of the soaring costs can be traced to outright fraud and abuse. The first comprehensive audits of dialysis providers, performed between 1978 and 1981, turned up not only mismanagement but waste and abuse, including the apparent prevalence of ripoffs-not cost overruns, but ripoffs. Examples included: (1) duplicated dialysis billings (over 300 in one unit alone); (2) fraudulent billing practices; (3) charges (nearly $150,000 for one facility) for treatments that were never given; (4) charges for laboratory tests that were never conducted (7,769 in one unit); and (5) charges for items unrelated to dialysis treatment, including theater tickets, vacations, and the like.

An audit of the ESRD program in one facility gave an indication of how the purchase of dialysis supplies from a related organization could be turned into a profit. The facility had formed a "paper" company to process supply orders: "This company, which had no inventory, personnel, or warehouse, purchased supplies from an outside vendor and then billed the facility for these supplies at 50 percent above what it paid for them." The government, of course, was billed for the marked-up cost.

Although such abuses contributed to the growing ESRD costs, I found, as with nephrologists, that the real problem derives from the incentive structure shaping the decisions of dialysis centers. Incentives worked differently for hospitals than for the private independent dialysis facilities, because the reimbursement setup differed for the two types of centers.

Two factors worked together to push reported hospital costs higher and higher. First, hospitals were to be reimbursed according to a $138 ceiling or costs, whichever was lower. Second, the ESRD provisions permitted exceptions to the ceiling-and they were liberally granted.

My review of ESRD documents showed that exceptions were granted so liberally that over 50 percent of all hospital dialysis facilities were reimbursed at rates exceeding the ceiling. Some received payments more than double the $138 rate, and the average hospital reimbursement rate in 1980 was $159. Though legislation required that audits be performed before an exception was granted, in fact such audits were never done during the entire first eight years of the program. Virtually all requests for exceptions were automatically granted.

Given this reimbursement system, most hospitals, which were treating nearly 50 percent of all in-center dialysis patients in 1980, had no incentive to reduce costs at all. Instead, they had every incentive to increase costs-at least nominally-and simply apply for an exception to the reimbursement rate. The incentive to over-report costs was amplified by the fact that Medicare provided almost complete coverage for dialysis-related costs because of liberal definitions of allowable costs, compared to only about 30 percent of total hospital costs in other departments where stricter definitions of allowable costs applied. Clearly, hospitals could use the ESRD program to subsidize their overall costs.

Hospital representatives themselves admitted at a congressional hearing in 1982 that given the 1972 ESRD program, "it has actually historically been in the hospital's interest to shift as much cost as possible to the outpatient dialysis department, because the federal government reimbursed more money in that department.... [Some] hospitals have large amounts of laundry and linen costs and supply costs [allocated to] the dialysis department, even though the dialysis unit may not use those supplies, primarily because it has been favorable to the hospital's overall reimbursement to do their accounting in that fashion." The first comprehensive program audit had suggested how much such over-reporting was adding to costs. The two randomly selected hospitals studied in depth had over-reported costs by 26 percent and 35 percent. One hospital charged an average of $43 per treatment in excess of its real costs over a four-year period. The facility in question had been granted an exception to the $138 ceiling amounting to $172 per treatment, though its actual costs were well under the ceiling. Because the audited facilities were randomly selected, auditors thought it highly likely that the same overstatement of costs prevailed throughout the system at the time of the audit.

While hospitals had no incentive to reduce the costs of dialysis, independent, nonhospital dialysis centers faced a very different incentive structure. Hospitals were reimbursed according to the $138 ceiling or costs; independents, according to the $138 ceiling or charges, whichever was lower. So, the independents, 75 percent of which are operated for profit, had a huge incentive to reduce actual costs while charging the $138 rate assured by Medicare. By driving down costs they could increase profits-but those cost reductions would not show up in the taxpayers' bill.

It is often charged or implied that the growing costs of the ESRD program should be laid at the feet of the profits available to independent centers. In fact, however, the independent dialysis facilities in general managed to operate within the $138 ceiling. Only 6 percent, compared to 54 percent of hospitals, applied for rate exceptions. So the profit-making centers are a bargain for taxpayers. Yet it seems clear that the ESRD funding provisions kept charges in these centers higher than they would otherwise have been.

Virtually no reliable cost data are available for the early years. But even after nine years of inflation, which meant that by 1982 independents were effectively receiving $60 per treatment in 1973 dollars, the great majority of these facilities still operated in the black.

To get some idea of just how lucrative the government-set rate might have been for independent facilities, I did a few rudimentary calculations using some data. In that year, 385 independent facilities provided 2.1 million dialysis treatments, an average of 5,494 treatments per facility. The Health Care Financing Administration, which administers the Medicare program, estimated that the cost per treatment in 1980 was $107. With reimbursement at $138, this meant an average profit of $31 per treatment and of $170,314 per facility.

That the dialysis program was indeed a profitable one for independent facilities is at least partly confirmed by their proliferation after passage of the ESRD measure. In 1972, only 68 such facilities existed. Within five years, there were 275 independent dialysis facilities, and by 1980 there were 466, nearly a seven-fold increase since the bill had passed.

Approximately 50 percent of these independent facilities are owned by chains, the largest of which, National Medical Care (NMC), now owns about 20 percent of all independent dialysis centers (as well as operating some hospital centers under contract). According to an NMC spokesman, the firm's revenues in 1983 were $311 million, compared to only $1.9 million just over a decade earlier. Net income for NMC was $23 million in 1983.

No doubt independents would have grown even without the 1972 funding provisions, as dialysis became a more common treatment. But it is clear that the $138-per-treatment guarantee nipped in the bud any price competition that might have lowered costs to the public.

All the provisions of the ESRD program worked together to push up patient rolls and keep the cost per patient high. Coupled with the usual potential for abuse that such programs invite, these factors have left the taxpayer to foot the bill for yet another program whose costs have ballooned way beyond initial expectations.

Yet taxpayers are not the only ones to have suffered from the way in which government funding inevitably affects the provision of a service. My investigations revealed that the program has also had perverse consequences for ESRD patients, their quality of life, and their range of alternatives.

Take, for example, the effects of the provisions regarding home dialysis. The 1972 regulations allocated proportionately less financial support for the patient on home dialysis than for one treated in a dialysis facility. Though leasing costs were covered (at 80 percent), neither maintenance costs for dialysis equipment nor utility costs associated with running the equipment were. And many incidental supplies covered as a package in hospitals or independent centers had to be paid for by the patient when on home dialysis.

For the patient, this meant deciding whether the benefits of flexibility provided by home dialysis-among them not only convenience but being able to coordinate dialysis and a job-were worth the extra cost. Coupled with doctors' incentives to put patients in centers, these extra costs to the patient have resulted in a rapid and dramatic decline in patients dialyzing at home.

Perhaps the most tragic consequence of the ESRD program from the patient's perspective has resulted from the incentives for doctors not to pursue transplantation as an alternative. To understand the magnitude of this consequence, it is necessary to know something about the quality of life on dialysis compared with life after transplantation.

A double-edged sword, dialysis is both a blessed lifesaver and a living nightmare. Without dialysis I would not be here. Still, the memory of those treatments, '99 exactly, lingers like a dreaded ghost from the past.

Dialysis treatments come with an array of side-effects, including painful needle punctures, nausea, dizziness, cramps, headaches, and general disorientation. Patients, stripped of their independence, put their lives in the hands of technicians and nurses, thrice weekly, usually for four hours each time. Besides the potential of human error, there is the chance of mechanical breakdown. For example, in October 1983, three Dallas patients died during treatment when an electrical problem caused their blood to overheat.

But what about the patient's well-being in-between treatments? ESRD victims I spoke with are bitter about living "empty," "dull" lives. They suffer chronic fatigue and feel "lousy all the time." Patients cannot travel without arranging for dialysis. One 40-year-old patient in Los Angeles told me that, after 12 years of dialysis, he lives his life in pain, cries himself to sleep, wakes up screaming in the night, and considers himself a "gone goose" if he doesn't get a transplant soon.

Patients' complaints confirm medical wisdom. Transplantation is such a desirable therapy for those who are candidates (by reason of age or relative lack of complications) because the artificial kidney is only a gross substitute for the real organ, and many secondary complications can result from long-term dialysis. Compared to dialysis, transplantation resembles a cure much more than a treatment. Indeed, physicians have noted that "when fully informed of the risks, patients would regard [transplantation] as their treatment of choice." Yet my survey of the transplant community and interviews with transplant coordinators and ESRD patients indicate that Congress indirectly created disincentives to transplantation in the 1972 ESRD provisions, even though funding for transplants was included.

Barbara Schulman, a transplant coordinator with Southern California's Regional Organ Procurement Agency (ROPA), noted that one-third of ESRD patients are candidates for transplantation. Yet the current transplant rate is about 8 percent! With improvements in technology and advances in immunology, she said the biggest hurdles to achieving a higher transplant rate are patient education about relative risks and benefits and public awareness of the need for donor kidneys.

Transplant coordinator Emi Yoshi-hara, also with Southern California's ROPA, told me that "nephrologists still tend to downplay the benefits and emphasize the risks of transplantation" for their patients. Yoshihara pointed a finger at "monetary government incentives for doctors to continue dialyzing their patients."

Patients I spoke with confirmed this picture by what they didn't know about the availability and benefits and risks of transplants. The patient education gap was painfully obvious to me by the time I visited my third dialysis unit. The very sight of a healthy transplant patient (me) seemed to lift patients' spirits and spark their curiosity. I found myself doing much more talking than I had planned on, as patients had dozens of questions about transplantation. I thought to myself: This is the 1980s! Where is the patient education?

I couldn't, and wouldn't dare, answer many of their specific medical questions and was quick to caution patients that my experience was one of the better examples of a successful transplant scenario. Still, they poured out the questions. I was shocked and dismayed that no nephrologist had offered to answer them.

I asked transplant coordinator Barbara Schulman if she thought the ESRD provisions tended to deter doctors from considering transplants for their patients. She responded, "I can't believe that with 6,000 dialysis patients in Los Angeles, less than 10 percent are on the transplant waiting list....It doesn't make sense that they are the only people who want transplanted kidneys." She observed that although "some nephrologists have hundreds of patients; they refer less than 1 percent of them for transplantation."

A statistic cited by Schulman added further evidence: There have never, during the past 10 years, been more than 400 people on Southern California's kidney transplant list, even though the ESRD population continues to grow. In essence, this means that despite important recent advances in transplant technology, the percentage of patients being referred for transplants is actually declining.

Of course, there is the much-publicized problem of the lack of kidneys for transplanting. But a patient isn't even close to getting a transplant if he isn't on a waiting list, and nationwide, I learned, there are only 10,000 patients on waiting lists-about 14 percent of the ESRD population. If patient education were what it should be, that percentage would at least approach the 33 percent estimated to be good candidates for transplants. As a patient who has experienced both dialysis and transplantation, it seems to me that the patient education gap is the most insidious unintended result of the program that taxpayers are underwriting.

Some of the perverse disincentives to control program costs and provide each patient the form of treatment best suited to his situation did not go unnoticed by legislators, ESRD program administrators, health-care providers, or patients. Spiraling costs drew increasing attention to the program. By 1978, Congress finally attempted to revise it, passing a law mandating that administrators devise a reimbursement system that would assure more efficient delivery of dialysis services.

This broad directive could not immediately be implemented, however, since there were no cost data regarding the ESRD program! An audit of the seven-year-old system had to be undertaken to create a data base. Before all the audits were even completed, Congress passed another bill in 1981 amending the 1978 law. The new bill required separate reimbursement rates for hospital-based and independent facilities, instead of an incentive-based single rate. Furthermore, the bill expressed a preference for (but did not mandate) reimbursement formulas that would somehow improve incentives for home dialysis.

Hospitals, dialysis equipment manufacturers, doctors, and independent dialysis centers alike awaited the proposed changes with trepidation. Uncertainties abounded about whether the new guidelines might cut off what had been a very lucrative federal program. The uncertainty even affected the stock performance of dialysis enterprises. For example, the stock of the largest chain of dialysis centers, National Medical Care, fell from $26 per share in the spring of 1980 to $5.50 the following spring.

Finally, in early 1982, almost three years after Congress had first requested reforms of the ESRD reimbursement plan, Medicare administrators presented their new scheme. The proposal reduced from $138 to $128 the reimbursement ceiling for independent facilities. The hospital ceiling was set at $132. All facilities would receive the same rates whether they treated patients in dialysis centers or leased them equipment for home use. Doctors would receive per patient fees based on approximately 12 monthly visits, rather than 20, as previously mandated. Moreover, they would receive the same fee whether they treated patients in a dialysis facility or put them on home dialysis.

A slightly modified version of this proposal was finally implemented in May 1983. It is too soon to tell exactly how the new guidelines will affect costs and treatments. However, initial signs are ominous. For example, a report by the House Committee on Government Operations in October 1982 expressed grave doubts about the new ESRD guidelines. The report noted that the audits done by the Health Care Financing Administration (HCFA) to obtain a data base for its new reimbursement system were "seriously deficient." Auditors did not perform on-site audits. Instead, they did desk audits that could not possibly have insured that reported costs were accurate. As a result, HCFA did not have reliable data on: (1) the comparative costs of home and in-center dialysis; (2) the comparative real costs of hospitals compared to independent dialysis centers; and (3) the real costs of dialysis supplies.

It's not clear what difference good data would have made, however, for HFCA's proposed guidelines ignored the information it did have. For example, although a survey showed that doctors visited patients no more than five times per month, doctors would now be reimbursed based on approximately 12 visits. The rationale for this proposal was that HFCA did not want to encourage doctors to attend their patients as infrequently as they do! All available data suggest that no doctors see their patients at every dialysis session, because it simply is not necessary for this routine technical procedure.

To arrive at the new ceiling reimbursement rates for hospitals and independent facilities, HCFA engaged in little more than statistical gymnastics. Nothing in its data provided any sound basis for setting the hospital rate at $132 ($131 in the final guidelines) per treatment, HCFA's own cost figures suggest that 50 of 64 hospitals for which it has any information will suffer losses under the new rate. Other figures suggest that hospitals so over-reported their costs prior to the new legislation that they will still be able to make ends meet at the reduced reimbursement rates. In any event, one authority who asked not to be identified told me that the new scheme is merely motivating hospitals to shift losses from dialysis incurred under the new system onto other patient groups, rather than really forcing them to cut costs.

Even if the new reimbursement scheme somewhat restrains costs, other nettlesome problems persist. Congress wanted to encourage home dialysis, and so doctors and centers are reimbursed whether patients are on home dialysis or in-center dialysis. But data suggest that home dialysis is not always less costly. Thus dialysis facilities may still be deterred from sending patients home to dialyze. Patients, once again, end up the losers in quality of life.

Nor is there any incentive under the new guidelines to utilize new treatment modes, whether they are cost-saving or more liberating for the patient. The whole system, typical of government-planned programs, is based on current practices and current assumptions about costs, patient needs, available equipment, and so on.

One nephrologist, for example, told me that, with modern equipment, many patients could easily get along on two dialysis treatments per week instead of three. But ESRD regulations are based on the assumption that patients will receive three treatments per week, and that practice routinely continues. Why should a doctor or a patient or a center risk any changes when a willing payer stands at the ready?

Or consider how the system stifles equipment innovations. Kidney-machine inventor Dr. Kolff has now developed a portable dialysis machine that would enable patients to travel, work more easily, and generally lead more-productive, normal lives. But Kolff told me that he is unable to get any American manufacturers interested in making the machine.

The problem is uncertain demand. Prototypes have been made for $6,000 each-the same cost as American machines used in dialysis centers when purchased in volume. Although Kolff's machine could provide dialysis patients with more-satisfying lifestyles, neither nephrologists, equipment makers, nor facility operators have much incentive to introduce their patients to the machines, since it is not clear how they would fit into ESRD reimbursement provisions. So Kolff has gone to a Japanese manufacturer to supply him with prototypes.

What innovations have occurred under the ESRD program have generally fit neatly into the treatment package envisioned under the original funding. An example is the introduction of "reuse." Instead of one-time use, the coil through which blood passes is cleaned with formaldehyde after each treatment and reused. By the beginning of the 1980s, reuse had become popular as a cost-cutting measure (it can cut per treatment costs by $10-$15).

Most experts seem to agree that reuse, done properly, does not jeopardize the quality of care. (One study even suggests that it can improve the dialysis process.) Testimony from patients, however, paints a different picture.

An elderly patient in Los Angeles nearly blew her top when I mentioned reuse. "My clearances [measurements of treatment effectiveness] were much better before we went on reuse," she insisted. "The government cut back its funding, and you know doctors and owners of these dialysis units aren't going to shoulder that burden. The patients are the ones who suffer." A 53-year-old patient, fighting back tears, told me she had a reaction to formaldehyde (used in cleaning the coils) that almost killed her.

Whether or not these patients' testimony accurately assesses reuse, their fears and sense of helplessness point to a key problem in government funding of health care: government influencing the nature of care. "The customer is always right"-but the customer is the government, not the patient.

Ultimately, the government's influence extends to the most fundamental level. "The ESRD program," notes nephrologist and critic of the program Dr. Saijan Dhamidharka, "amounts to deferring to the government questions about who should live and die." Indeed, events leading up to passage of the ESRD program in 1972 suggest that public discomfort with such choices being made at all was a significant factor in the move to government funding.

The problem is, says Dharnidharka, that "government either decides too harshly or too liberally." Either too few patients are treated, or treatment is extended to everyone, unnecessarily in some cases. Moreover, as scrutiny of the ESRD program reveals, patients are channeled into a rigidly defined program that distorts cost, retards innovation, and circumscribes choice of treatment.

The dilemma for reformers is that these consequences are inevitable- there is no way for government to adequately make decisions about individuals' health care. The solution, notes Dharnidharka (though one can be certain that his is not one voice among many in his profession), is to "promote competition and give everyone the right to choose his own destiny."

Under the ESRD program, I received 99 dialysis treatments and one kidney transplant without ever seeing a single bill. I have no idea how much my treatment cost or who paid for what. I signed a lot of papers, and that was that. What would have happened to me, and to thousands of other victims of permanent kidney failure, had the ESRD funding program never been adopted?

Consider, first, the issue of payment. Hemophiliacs, cancer victims, patients requiring heart bypass surgery or even heart transplants-these do not generally receive their health care at the expense of the taxpayers. Experience shows us that as treatments for various illnesses become less than experimental, private health insurers begin to cover many costs. In fact, this was already occurring with dialysis when the government took on funding in 1972.

And there can be little doubt that in the absence of government funding, the total cost of health care for the ESRD population would be far lower than it is today. Without disincentives to home dialysis and transplantation, these potentially cost-saving treatments would be more prevalent. The 40 percent home-dialysis rate prior to passage of the ESRD bill points strongly in this direction. And health insurers, seeing the potential savings in transplants compared to year after year of dialysis, would no doubt promote the transplant alternative-for example, by requiring that every dialysis patient be evaluated for transplantation.

Without the ESRD reimbursement structure, innovations such as Dr. Kolff's portable kidney machine would have a better chance of competing with other alternatives. For anyone who has been tethered to a dialysis machine for four hours at a time, three times a week, in a sterile hospital, at the hospital's convenience, that is an inviting prospect. And the cost of such innovations could be expected to drop as they came into greater use and could be produced in volume. But as it is now, Dr. Kolff can't even get a US manufacturer interested!

Finally, there would likely be greater emphasis on research to solve the problem of kidney failure. While government funding has been aimed at treating the symptom, with only 2 percent of ESRD expenditures going toward research, private-sector groups are deeply involved in solving the problem at its source.

For example, since 20-25 percent of all new ESRD patients have lost kidney function because of diabetes, it is reassuring to know that the American Diabetes Association is dedicated to raising $100 million for research in the 1980s. And since high blood pressure is another leading cause of kidney failure (about 12 percent), it is comforting to know that the American Heart Association spent $106 million on research in 1983.

Nongovernmental alternatives to the ESRD program are credible. Kidney patients would not be left in the lurch if taxpayers were not burdened with this program, with all its inefficiencies and waste. But the kidney-machine nightmare is more than yet another bad dream involving a costly government boondoggle. Kidney patients themselves stand to gain a great deal if, in the words of Dr. Dharnidharka, we were to "promote competition and give everyone the right to choose his own destiny."

Michael Kronman is a free-lance writer and a commercial fisherman.