Monday, October 06, 2014

CFOs join surgeons in quest for robots

This analyst's report from BTIG tells you all that is wrong with health care in some US academic medical centers today.  An excerpt, with emphasis added:

Subject: Hospital CFO Dinner Takeaways: Two NYC-area Academic Centers Highlight What They're Willing to Spend On, and Where They're Cutting Back

Robotics, imaging, personalized medicine and smart tools are areas of investment, while reducing inpatient care offers savings.

  *   Overall, both hospital CFOs seemed much more positive than a few years ago. One noted his center is running at a 9% operating margin this year and both noted HC reform has not had a major negative impact this year as many had previously feared.

  *   Robotics: These administrators have found that ISRG's (BTIG Neutral Rated) robot helps extend the careers of older surgeons (who may be losing hand steadiness) while helping younger surgeons improve more quickly. They noted that minimally invasive robotic procedures save costs with faster discharge. Both CFOs said their centers profit from robotic surgery and both now have credentialing programs in place. Both seemed more open to additional adoption than a few years ago.

  *   The robot is currently used for urology, gynecology, and cardiology procedures, but surgeons are asking to use it for general surgery. One CFO would like to see more profitable reimbursement rates. This particular center's robots are at capacity, so a new robot would need to be purchased for use in general surgery. A request for an Xi is being evaluated. The other CFO noted that they are in the process of buying four new robots for a new center.


Barry Carol said...

I can’t blame CFO’s for trying to improve the profitability of their hospital(s). If risk-adjusted outcomes are no better with robots than with alternative surgical approaches, payers, especially Medicare, shouldn’t be paying more for them. If overall costs are higher with robots even if patients can be discharged somewhat sooner but intermediate to longer term outcomes are comparable, hospitals wouldn’t be trying to grow this business if it weren’t more profitable for them to do so. Payment incentives matter.

Anonymous said...

wow...if a surgeon doesn't have the hand steadiness to operate without a robot, I'm not sure I want him/her operating on me at all. If the operation needs to be converted to a non-robotic surgery, then what. I think it opens up a dangerous door. Also with the gyn morcellator issues going on, I wonder what issues may come up in the future if we are doing the same in other areas of the body.

Paul Levy said...


I don't believe there is any extra payment for robotic vs regular laparoscopic surgery. Not sure what the siutation is vis-a-vis open surgery.

Paul Levy said...

Barry, This article has more on the topic: Excerpts:

From Medicare’s perspective, the surgical robot simply represents the tool the surgeon has chosen to use in performing the surgery.

“So a hospital doesn’t get reimbursed more or less when they use a robot,” said Sherry Glied, an adjunct professor of health policy and management at Columbia University’s Mailman School of Public Health. The payment for a robotic hysterectomy is the same as for a laparoscopic hysterectomy. Both procedures are done through four small incisions through which a camera and surgical tools are inserted.

But as Glied explained in a 2010 perspective article in the New England Journal of Medicine, the higher spending associated with the robot could indirectly increase hospital payments for robotic surgery over time.

Here’s how: Medicare assigns a unique weight to each DRG, to reflect the average resources needed to provide patient care for that type of diagnosis or procedure. More costly conditions are assigned higher weights. So the DRG for heart transplant has a weight of 26.03, while a healthy newborn’s hospital stay has weight of only 0.17. (The mother’s labor and delivery are accounted for in a separate DRG). A DRG of 1 reflects the average for all inpatient hospital stays.

The weights are then multiplied by a certain dollar amount, adjusted each year to reflect medical inflation and geographical difference, to determine payment rates.

Each year, hospitals submit detailed cost reports to Medicare, which are then used to rebalance the DRG weights. As hospitals get more efficient at providing one type of service and their costs decline, that DRG weight drops. As new technology or other factors make other procedures more expensive, their DRG weights rise.

Glied and her co-author speculated that the adoption of the surgical robot would over time raise the costs incurred by hospitals, and thus indirectly increase the weights for surgeries typically done with the robot.

“We hadn’t looked at that, we were just speculating that when we wrote the paper,” Glied said. “But you might think that over time, because these procedures use more (operating room) time and they also have to reimburse for the cost of the capital, the charges for the underlying procedures might go up.”

And that is exactly what has happened. In 2004, before the robot was in widespread use, the DRG weight for prostate surgery was 1.0835. By 2014, up to 85 percent of prostatectomies were being done robotically, and the weight for that DRG has increased to 1.2928.

That means Medicare reimbursements to hospitals for robotic prostatectomies have increased 19 percent, above and beyond the increase in overall hospital payment rates.

nonlocal MD said...

Excellent and previously unknown information. Great job, Paul.

Barry Carol said...

Thanks Paul. I hadn't thought about it that way before but it makes perfect sense that investments in robotic surgery technology would increase hospitals' costs leading to higher reimbursement from Medicare over time.