Economic questions and considerations
Overview
Robotic surgery, just like any other new technology has economic implications. The economi9c implications influence the development and the adoption of a new technology. The costs and expected revenues from robot assisted surgeries together with the medical implications of the technology are the main factors to be considered before investing in the technology. Healthcare managers will have to determine whether the technology is expensive, has high fixed costs and would require frequent use in order to break even with acceptable charges to the patients, third party financiers and physicians. Economic analysis is also vital in the determination of the healthcare level at which the application of robotic surgery is viable. Robots, mostly used for hysterectomies in women and prostrate surgeries in men, have gained popularity in the recent years. The use of the robots can also be expanded to carry out other procedures such as heart and head surgeries. In 2012, more than 360,000 robot-assisted procedures were conducted globally (Peter van Dam, 2011). More than 2000 robots were installed in medical facilities, in the US. This paper shall analyze the economic questions and considerations of robotic surgery on health institutions, households, medical procedures, health insurance firms and the nation’s finances.
Relevance of costs
Robotic-assisted surgeries, like many other innovative medical technologies are huge contributors to the increase of healthcare costs. Many institutions, physicians and patients adopt them without the clear determination of the impact they would have on the entire costs. This is possibly due to their promise of enhanced medical outcomes. Recent years have seen the number of robot-assisted surgeries triple.
However, literature from the procedures performed shows that the costs of robot-assisted surgeries are higher than the procedures where other technologies such as video-assisted procedures are used. They are also higher than the cost of open surgery. The technology has been used for around twenty types of surgeries. Across all the different surgeries, there was an average additional cost of around $1600 per patient which rose to about $3000 when the costs of the equipment were added (Peter van Dam, 2011). From this data, it seems that the costs can be competitive to open surgery with the exception of complicated surgeries such as cardiac surgery. Because of the high costs, robotic surgery has on some occasions been blamed for the replacement of surgical treatment for non-surgical treatment for some diseases. This pattern matches the evidence from the Medicare database. It shows that patients diagnosed with prostate cancer in 2005 had a higher possibility of undergoing surgery than their counterparts who had been diagnosed three years earlier. This has the potential to increase long term costs as it has been observed that the majority of them still underwent adjuvant radiotherapy after undergoing the robot-assisted surgeries. It is estimated that the replacement of conventional surgeries by robot-assisted surgeries for the full range of procedures would result into an extra $2.5 billion in healthcare costs.
The development of new technologies usually has a financial motive. Adoption of the technology by healthcare providers is usually an economic consideration. Patients choose the technologies because there are advertised to them by the healthcare providers who hope to make nice returns on their investment. From past innovations, it is clear that many healthcare systems are quick to adopt new technologies even when they are more expensive than older technologies (Peter van Dam, 2011). This also happens in instances where there is no proof of clear benefits of the new technology over the older technologies. It is, therefore, important for healthcare providers to determine whether robotics, being expensive, are better than older technologies or open surgery.
Types of costs
Equipment-related costs
The equipment required for robot surgery is capital intensive. Currently, the prices vary $1.2 million to $1.7 million for the necessary set. They also attract $100,000-$130,000 per year service contracts (Ahmed, 2010). There major cost differences between open, older technologies and robot-assisted surgeries. Per-case costs associated with older technologies are relatively low. The technologies can also be applied to a wide range of procedures. Despite the high costs, robotics lack flexibility and can only be a used for a small range of procedures. There is also a high possibility of increased per-case costs. However, fixed costs are dependent on the number of patients operated on over the robotic system’s lifespan. The costs are reduced when there are a high number of patients operated on over its lifespan. When few patients are operated yearly, the costs increase tremendously. This is a disadvantage to hospitals because the costs are not reimbursed. Each instrument in the robot system has a preset number of uses. This leads to increased costs for instruments which can increase the costs per case. Robots are also disadvantageous in that their costs do not decrease with time like other types of equipment. Over the years, there has been an increase in equipment-related costs that exceeds inflation despite a rise in the number of procedures performed nationally. Costs have not decreased since the technology was introduced in the US (Haas, 2011). This is possibly due to lack of market competition.
Operational times
Operative times are necessary in the determination of operation costs. They include the time taken to start the procedure, to perform the surgery and to prepare the theatre for the next surgery. The costs are usually calculated on intervals of 15-30 minutes (Peter van Dam, 2011). Anesthesia-related costs also increase over the same time intervals. Robot-assisted surgeries take longer to set up than older technologies or open surgeries. This increases the costs of robotic surgery.
Training
Robotic surgery takes longer and is expensive to train surgeons. The learning curve ranges between 50 to more than 250 cases depending on the procedure. Learning curve costs are high and varied. For example, the average learning curve cost for robot-assisted prostatectomy is $217,034 (Ahmed, 2010). This is expensive considering that it is an additional cost since the surgeons have undergone training in open surgery and also on the older technologies. Depending on a hospital’s volume, many surgeons may take up to two years to attend to the required number of cases. This means that hospitals have to consider their volumes before investing in robotics. The learning curve is mostly reduced which minimizes training costs in high volume centers. Training in robotic surgery can also be done virtually. Different virtual training products and simulators have been developed to aid in reducing the time taken to train surgeons on robotic surgery.
Hospital stay
The costs of hospital stays represent a significant portion of the overall healthcare costs. Depending on the procedure, robotic surgery reduces hospital stays. Reduction in the number of days spent in hospitals and resumption of healthy lifestyles enhances cost saving. The savings compensate for the high operation costs. This is viable in centers where bed costs are high. Bed costs are variable and are extremely cheap in some centers, and extended hospital stay does not have significant financial implications. The ability of robotic surgery to reduce the time spent in the hospital is not universal for all procedures. In some procedures, the difference is not significant when compared to older technologies.
There is also no proof that long-term morbidity varies significantly between robotic surgery and older technologies or open surgery. However, the technology has been proven to increase the productivity of surgeons. Open surgery and the use of older technologies are time consuming and tiresome which erodes productivity. Improvement of ergonomics is important for enhanced performance in the operating theatre. This has the potential to increase revenues for health facilities.
Cost analysis for various robot-assisted procedures
Urologic surgery
Robot-assisted procedures exceed the other procedures in direct costs, surgical supply costs and operating room costs. The total costs for prostatectomy, including the cost of the equipment, increases by around $2700 per patient above the average cost of open surgery. The additional costs may have negative effects on the overall cost of care for prostate cancer in the US. A similar trend is observed in the cystectomy, a general urologic procedure. In this case, the costs increase by around $1640 per patient for robotic surgery compared to open surgery (Gundeti, 2012).
Gastrointestinal surgery
There is no significant difference in the outcomes of robot-assisted gastrointestinal procedures and use of older technologies or open surgery. The cost of robotic surgery exceeded the other procedures by 1600 dollars. This is complicated by the need for open surgery after the robot-assisted procedure due to injuries caused by the robot’s arms.
Cardiac surgery
Cardiac procedures are complex and attract high costs even for open surgeries. Comparison of robot-assisted and non-robot procedures shows that there are no significant cost differences between the two sets of procedures.
Gynecological surgery
Surgical costs for robotic and non-robotic surgeries vary considerably. Even though clinical outcomes are closely similar, the average costs vary by a minimum of 2,000 dollars (Advincula, 2011). In many gynecological procedures, the time spent in the operation room is higher for the robot-assisted procedures compared to the non-robot procedures.
Pediatric surgery
Robotic surgery has been a huge benefit for pediatric surgery. Apart from enhanced clinical outcomes, robotic surgery is cheaper than open surgery. The average cost of robot-assisted pediatric procedure is 9584 EUR while that of open surgery is 10,521 EUR.
Supply
Currently, only one company has been licensed to market surgical robotic systems. This has seen the company record huge profits and its revenues were not affected by the 2008 recession. The company has consistently recorded a 66%-73% profit from its revenues. Revenues have from the sale of robotic systems has been on the rise with the company reaching the $1.4 billion in 2010. Recent years have seen the company increase the revenues from the sale of instruments by 38%. This gives the company a strong financial position.
The licensed company, Intuitive Surgical, patented or has exclusive rights to more than 2000 patents or patent applications. This has occurred due to the company’s strategy of buying patents for other robotic systems and companies because of its financial might. The company further acquired its largest competitor in 2003. Strict FDA regulations have made it difficult for other companies to enter the market. This means that the company enjoys market dominance without any direct competitor. Without competition, the company’s pricing strategy is not challenged which has led to high acquisition and maintenance costs for surgical robotic systems. This has a negative effect on the growth of the industry and also on the final per-case costs. Competition is vital for improved innovation. The robotic system marketed by the company has not been improved in ten years. The manufacturing company’s marketing efforts have been the sole reasons for the fast adoption of the technology, rather than scientific evidence.
Demand
Aggressive marketing of the technology by Intuitive Surgical Inc has resulted into a high demand for the technology. Marketing efforts have often been directed towards patients who in turn demand the services from their health care providers. Competition has also increased demand for the product. Unlike other industries where prices can be used to edge competition, hospitals can only compete on the quality of the services they offer. This means that hospitals may adopt technologies even when there are no proven benefits to patients in order to be ahead of other hospitals (Peter van Dam, 2011).
The demand for robotic surgery has also been driven by the recent need for the mechanization of the industry. Just like other industries that have experienced technological growth, the medical industry is also fast to adopt new technologies. There is a general assumption that new technologies that automate processes are beneficial. Noting that robotic surgery automates the surgery process, make people make the assumption that the technology reduces risks and is more efficient.
Impact of robotic surgery on hospitals
Overall, robotic surgery results into increased costs for surgical procedures. This is due to the high procurement and maintenance costs. Insurance companies insure robotic surgeries just like other surgeries, which mean that hospitals are not reimbursed for the extra costs. The technology, though expensive, has enabled smaller facilities with minimally-qualified surgeons attract more patients. The technology has also reduced the time taken in operation theatres and also improved surgeons ergonomics. This means that the hospital can attend to many cases in a day which would have a positive impact on its revenues. However, some benefits to patients, such as reduced hospital stays mean that the hospital loses revenues generated by bed costs. From the analysis of the cost implications, it is not clear whether the robotic surgery benefits the hospital’s finances compared to use of other technologies.
It is prudent for hospitals to analyze the level of competition and also their patient volumes (Peter van Dam, 2011). Hospitals should desist from investing in robotic surgery in cases where their competitors are yet to acquire the technology. Hospitals with low patient volumes should also delay acquisition of the equipment and concentrate on increasing their volumes. The purchase of the robot can only be justified in environments where it has the potential attract customers.
Impacts of the technology on the industry
The contribution of competition to the adoption of robotic surgery by hospitals can be equated to business stealing. Business stealing benefits individual hospitals at the expense of the industry. Business stealing, generated from the extended demand model, shows that the adoption of robotic surgery does not benefit the medical industry financially. Business expansion as a result of adoption of the technology is negligible. This means that any expenditure on the technology reduces medical industry’s profits dollar for dollar for dollar. Early adopters of the technology have benefitted significantly where the returns on investments have been close to 15%. However, adoption of the technology in recent years has been financially ineffective.
Small differences in quality can result in large differences in demand in markets where goods are close substitutes. In the absence of price competition, many firms would be willing to make huge investments in small improvements to the quality of their products. In the case of robotic surgery and also the medical industry as whole, profits may motivate providers to make huge investments in the latest technologies even when there are no clear benefits to patients.
Robotic surgery and the economy
Robotic surgery has been proven to be more expensive than open and laparoscopic surgeries. This translates into increased healthcare costs. Addition to the already high costs of healthcare would have negative effects on the economy. Currently, the healthcare budget takes up more than 17% of the country’s Gross Domestic Product (GDP). This is the highest spending on healthcare globally. Healthcare spending has been on the rise since the 1970s and the trend is bound to continue. Increased spending on healthcare has a negative impact on many segments of the economy. Lifestyle diseases are the main causes of mortality in America. The majority of these diseases require surgery for treatment. Increase in surgical costs will result into increased costs and potentially increased premiums. This has a negative impact on job creation because it makes expensive for companies to hire. Increase in wages is also hampered as employers have to shoulder high premiums. Increased allocation of resources to healthcare alienates other spheres of the economy such as education and infrastructure development (Skocpol, 2012). Overall, increased spending in health care lowers the country’s GDP.
Conclusion
Studies have shown that the use of robotic surgery has led to increased healthcare costs even though they have few proven benefits. Hospitals have adopted the technology in order to cope with competition and also because of the demand for robot surgery from patients. The costs can be reduced by reducing the number of instruments used and reducing hospital stays by encouraging early discharge of patients. A hospital can reduce costs by increasing the utility of the equipment. This can be achieved by encouraging multidisciplinary use of the robotic surgical equipment. Hospitals should also restrict robotic surgeries to complex procedures. Capital and maintenance costs should also be reviewed. Manufacturers of other technologies should be encouraged to be more innovative and also make their technologies more available. Continued adoption of robotic surgery in its current state has a negative impact on the medical industry and also the economy.
Reference
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