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OBJECTIVE: Using lung transplantation as a case study, this article addressed the problem of supporting innovative clinical surgery in an era of increasing pressures for cost containment. SUMMARY BACKGROUND DATA: After sporadic attempts at lung transplantation during the 1960s and 1970s, its clinical development began in earnest during the early 1980s. As a result of a wide range of incremental advances, the results have improved significantly. The Health Care Financing Administration, however, has not yet issued a national policy covering lung transplants and has left the coverage decision to the discretion of its regional contractors. METHODS: The authors surveyed the major commercial insurers, the Blue Cross Blue Shield Association, and a sample of Medicare intermediaries to evaluate the coverage of lung transplantation. They also interviewed the National Heart, Lung, and Blood Institute and industrial firms about their support for clinical research. RESULTS: Government and industry funding were limited, and the development and assessment of lung transplants have been financed predominantly by academic institutions through cross-subsidization from patient care and teaching funds. The major private payers and Blue Cross Blue Shield decided to cover this procedure in the early 1990s. Coverage decisions by Medicare intermediaries, however, revealed considerable variability. Moreover, the absence of a specific diagnosis-related group for lung transplants had considerable consequences for institutions in all-payer states, in which payments appeared to be considerably lower than the mean costs of a transplant procedure (about $110,000). CONCLUSIONS: This analysis indicated that there was a growing disparity between the increasing demand for outcomes data about new procedures and the limited resources available for supporting the development and assessment of new operations. It this disparity is not addressed, the rate of surgical innovation may be jeopardized, and timely outcomes data may not be acquired. It was ...