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April 22, 2014

When a small hospital wants a surgical robot

Daily Briefing

A growing number of small, rural hospitals are considering acquiring a da Vinci robotic system to attract talented surgeons and appeal to new patients, but experts warn that the move is rarely financially viable, Modern Healthcare's Jaimy Lee reports.

FDA OKs first major da Vinci upgrades in five years

Case study: Memorial Hospital of Converse County

Last year, Memorial Hospital of Converse County in Douglas, Wyo., used cash reserves to purchase the $2 million da Vinci surgical robot, making it the second facility in the state to acquire the technology. Memorial officials say they expect surgeons will perform about 100 robotic surgeries annually—far below the volume needed to produce a viable financial return within six years, experts say.

Nonetheless, Memorial CEO Ryan Smith says the equipment, albeit pricey, is already attracting patients who previously would have traveled to other hospitals in Colorado or Utah to undergo robotic surgery. Moreover, he expects the system to help the hospital attract and train a new generation of surgeons and reduce surgical complications and length of stay.

"We did not buy the da Vinci system to get a very high return on investment," Smith says, adding, "It was the right thing to do for our patients."

Feeling the pressure

Many small and rural hospitals believe that emulating Memorial will make them more attractive to both patients and providers. The most recent data available, from a 2010 Wall Street Journal article, show that 131 hospitals with da Vinci systems have 200 beds or less. Overall, about 1,500 U.S. hospitals have installed the system in the last 14 years.

Market analysts say small hospitals feel pressured to buy da Vinci because many surgeons, particularly those in urology and gynecology, received robotic surgical training during their residencies and want to integrate the training into their practice. On the other hand, patients may choose a hospital based on the perception that it has "state-of-the-art" technology.

Small hospitals see the da Vinci "as a tool they need to recruit and retain surgeons and to stay viable," says Liz Tiernan, a consultant at The Advisory Board Company (ABC)."It is considered a standard of care.… but it's rarely financially viable for them," she cautions.

Da Vinci: Is it financially wise?

On top of the $1.5 million to $2 million purchase price, a da Vinci system requires an annual service contract that costs up to $170,000. Moreover, each procedure costs between $1,200 and $2,000 more than a laparoscopic operation due to the need for single-use tools. However, insurers pay the same rates for robotic surgeries and alternative minimally invasive procedures.

As a result, hospitals generally need to perform 150 to 300 procedures annually for six years to offset the upfront costs of buying da Vinci, says ISI Group's Vijay Kumar.

For critical-access hospitals, CMS does help subsidize a portion of the capital expense based on the percentage of Medicare patients, but "it's a big question in terms of priorities and where your scarce resources are best used," says Brock Slabach, senior vice president of the National Rural Health Association. "Patients perceive it to be better. But is the cost worth the benefit?"

The cost-benefit analysis becomes more complex when training and credentialing—a big concern given da Vinci's steep learning curve—is considered. Experts say surgeons need experience with 20 to 30 robotic procedures before they are sufficiently trained. If smaller hospitals are unable to meet the proficiency threshold, it becomes "even more difficulty to justify this decision," says the Advisory Board's Tiernan.

Chris Schabowsky, senior project officer for health devices at the ECRI Institute, urges smaller providers to "consider all of the variables, which includes taking a look at efficacy and cost-effectiveness and really make sure they hammer out their training programs" before they purchase a da Vinci (Lee, Modern Healthcare, 4/19 [subscription required]).

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