June 9, 2014

Tiernan: Should you invest in da Vinci? (And what to know if you already have)

Daily Briefing

    Liz Tiernan, a consultant with the Advisory Board's Service Line Strategy Advisor, spoke with the Daily Briefing's Clare Rizer to discuss how hospitals can think about investments in da Vinci surgical robots.

    Q: We last connected with the Service Line Strategy Advisor team about a year ago, after a recent spike in scrutiny of da Vinci surgical robots. Catch us up on where the technology stands today. What kinds of questions are you receiving from our members?

    Tiernan: The questions hospitals are asking us now are very different from the questions they were asking us just a few years ago.

    Even a year ago, many hospitals were asking, "Should we make this investment? What’s the business case for it?" [But] now, almost every hospital recognizes the challenging financial case for the robot. Most markets are crowded, if not saturated, in the U.S., so the business case for this investment is honestly old news. What few understand, though, is how to make the most of an investment they’ve already made. Instead of asking us whether they should invest, hospital leaders are asking, "How do we derive value from this investment we’ve already made?” and “How can we best distribute existing robots across our network?"

    With rising pressures to contain costs and enhance efficiency, the questions we get are much more strategic than they used to be.

    Q: For hospitals that have already made the investment, how can they make the most of it?

    Tiernan: There are a few critical steps that hospitals can take to ensure they’re making the most of this investment.

    First, it's important to ensure that the best surgeons are using the platform. Of course, from the hospital perspective, this means ensuring that the highest volume, most efficient robotic surgeons are on the platform as much as possible, and that they are steering program innovation.

    Second, from a procedure standpoint, it’s critical to ensure that surgeons are using the robot for the most appropriate procedures—and the definition of “appropriateness” needs to extend beyond the clinical realm to the financial one. While the robot may enable LOS savings for certain procedures, these savings aren’t anywhere near significant enough to offset the high cost of this investment. As a result, margin erosion can quickly become an issue if the robotics utilization isn’t closely monitored.

    So, to make the most of a robotics program, a hospital must have clear protocols in place governing utilization of the robot. To keep a program viable, it's really critical to set protocols that outline who can use it, what they can use it for, and when they can use it.

    To ensure accountability, a hospital should also develop a robotic steering committee. A steering committee should be overseen by a high-volume, efficient surgeon leader, but it should also include broader physician and administrative representation.

    Q: Is the robot a financially viable investment for small hospitals?

    Tiernan: The short answer is no. Honestly, we’ve assessed the business case for robotic surgery investment for hundreds of organizations, and in our experience, the investment rarely achieves breakeven, let alone profitability, by year five.

    Why? Well, this really boils down to the investment’s cost.

    Robotics is a very expensive endeavor. First, the upfront capital investment for the da Vinci is significant—running from $1.75 to over $2 million. But costs extend beyond just the platform itself. Average cost per case runs from about $1,500 to $2,000. There’s longer OR time during the learning curve on the platform, and it’s costly to dedicate staff—such as a coordinator and technicians—to the program. For new programs, training staff and physicians likewise carries substantial costs.

    Although some might argue that the robot lowers LOS and brings in new patients to the organization, these gains are incremental compared to the staggering cost. While that might have been a valid argument 5+ years ago, today’s U.S. market is already saturated with robots. There are over 2,000 installed nationwide, so the only savings are really coming from LOS. And frankly, for the overwhelming majority of programs, these LOS savings simply aren’t sufficient to offset the cost of the investment.

    Q: Recognizing that the business case often isn’t there for this investment, why do so many hospitals still invest?

    Tiernan: First, to recruit and retain new surgeons. Today’s surgeons are trained on the robot during residency, and many are more comfortable on it than they are with traditional surgical techniques. Many build robot stipulations into their contracts with hospitals and simply won’t consider organizations that don’t have a robot. In this sense, the robot has really become the standard of care. For hospitals to recruit and retain these new surgeons, having a robot—from their perspective—is simply the cost of doing business.

    Second, to avoid falling behind in the market. Many small hospitals fear becoming obsolete in an evolving market. As a result, they make the investment to keep pace with their competitors and defend their position in the market. Though the future is more about leading with quality, cost-effectiveness, and efficiency than with technology, many small hospitals still fear they will become irrelevant if they forgo certain technology investments—like the da Vinci—that have become the standard of care.

    Finally, many organizations that have made the investment in a robot often feel compelled to continue promoting it. From their perspective, the costs are already sunk, and they might as well promote the capability, even when they know it’s not as profitable on a per case basis as other surgical methods. Not surprisingly, these promotion efforts often fuel further interest in the platform, upping the pressure on an organization to invest in another robot.

    At the end of the day, this investment boils down to a strategic decision. The “right” answer depends on what an organization hopes to gain through the investment. From a purely financial perspective, the investment is almost never justified. However, many programs accept this and move forward anyway because they believe the long-term strategic gains—like surgeon recruitment and retention—justify the financial losses. For some this is true, for many it is not, but helping hospitals navigate these issues keeps us very busy!

    Interested in learning more?

    If your organization doesn't currently have a da Vinci robot, there are many things to consider before making the investment.

    The Advisory Board's Rachel Klein explains why the appeal of the robot has diminished in recent years, and how this expensive technology has changed from a way to differentiate your organization to, in many cases, simply the cost of doing business.

    More from today's Daily Briefing
    1. Current ArticleTiernan: Should you invest in da Vinci? (And what to know if you already have)

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