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Should I purchase the robotic machine?
Capital investment $700,000. Depreciated at $100,000 straightline for 7 years.
Annual maintanence fee $200,000.
Investment can produce 2 products with Margins of $4500 and $5000.
First year will produce 18 X $5000; 30 X $5000, with an annual increase of 2%.
Current volume is 22 units per month.
Robotic surgery is not reimbursed at a higher rate than laparoscopic surgery for inpatient cases. For outpatient cases, commercial payors reimbursing as a percent of charges reimburse more because the charge for robotic surgery is higher. Robotic cases have longer OR case time and shorter lengths of stay. On average, the direct margin on outpatient cases is $2,000 more per case than an equivalent case performed laparoscopically. On average, the direct margin on inpatient cases is $500 less per case than an equivalent case performed laparoscopically.
One provider group would like to use the new equipment to perform complex surgical cases. These cases will be inpatient. They estimate an additional 2-3 cases per month would be performed on the new equipment in year one. These cases would be new to the health system (the surgeons are currently performing the procedures at a competitor’s facility). The average direct margin for these cases performed laparoscopically is $5,000.
The health system is hiring a new surgeon who specializes in outpatient surgery utilizing the robot. They estimate an additional 1-2 cases per month would be performed on the new equipment in year one. These cases would be new to the health system. The average direct margin for these cases performed laparoscopically is $3,000.
Current volume averages 22 cases per month. The average length of each robotic case is 3.5 hours.
The annual growth rate for robotic surgery is 2% per year.
The Robot is located in a room that is scheduled based on Block time. One physician group has the room
blocked on Mondays, Tuesday and Thursdays and a second physician group has the room blocked on
Wednesday and Friday mornings. Currently, Friday afternoons are open for add-on cases from any provider
group. Providers can perform any type of case in the OR during their block time and are not required to use
the robot.
The capital cost of the robot is $700,000 with an additional $200,000 annual maintenance fee (operating
expense. Medical equipment is depreciated using straight-line depreciation over 7 years, the capital
equipment will be expensed at a rate of $100,000 per year to the hospital.
Should the purchase be made?
Expert Answer
Answer:
No
Meaning for example, if an insurance company will reimburse a hospital $2000 for a laparoscopic hysterectomy. A straight laparoscopic hysterectomy may cost the hospital $1800, but a robotic hysterectomy may cost $3000, the hospital will lose $1000 for each robotic hysterectomy performed. The fact that the hysterectomy was performed with or without use of a robot makes no difference in this scenario. The hospital will only receive $2000 for either case.
Therefore, the robot could be looked at as an expensive tool that the hospital cannot bill for. Another reason the robot costs more is because of the amount of time it takes for certain cases to be completed.
A robotic hysterectomy takes on average over one hour longer than a laparoscopic hysterectomy, leading to higher expenses in keeping the operating room running and the cost of the robotic materials. Add in the expensive instruments and additional supplies and the surgery will be a financial loss.
For an open radical prostatectomy, Medicare provides a hospital with a small profit. For a robotic prostatectomy, hospitals on average lose over $1400 per case. There has to be some benefit to performing these cases that is not indicated in general expense that makes these procedures worthwhile, otherwise the hospital will constantly operate in the red.
The capital budget shows the new equipment information, upgraded medical equipment, the new da Vinci surgical equipment system, the remodeling project, and the information technology budget. The da Vinci surgical system costs a total of $1.7 million dollars but payments are being made of $250,000 per year for the equipment system with more getting added to it each year.
The robotic console was originally developed for urologic procedures, predominantly prostatectomies. A radical prostatectomy is a delicate and often difficult procedure based on where the prostate is located, the muscles and nerves surrounding it, and the vascularity of the adjacent tissue.
Since the advent of the robot, regular laparoscopic prostatectomies are relatively non-existent, and open procedures are not desirable to perform. Plus there are added patient benefits. Minimal blood loss is desirable for all surgeries because it’s important for general health and well-being of the patient during and after surgery. Higher blood loss equals higher potential for complications throughout the patients’ stay such as infection, healing and necrosis.
If transfusions are needed, that compounds the complications a patient may face. Nerve sparing is important for men who desire to maintain their sexual potency. On average, patients who undergo a robotic prostatectomy had less than average blood loss and a higher incidences of complete bilateral nerve sparing than patients who had an open prostatectomy.
