Economic Efficacy of Orthopaedic Robotic Surgery: A Hospital Perspective

MAKO Surgical is leading the race of robotic technology in the orthopeadic specialty.

How does a hospital justify the $1,000,000 capital expense?

It is estimated that in the United States alone, 600,000 Total Knee Arthroplasties (TKA) were performed in 2010. Growth over the last ten years has eclipsed 140%. Clinical results and patient satisfaction with Total Knee Arthroplasty are positive1

One study polled orthopaedic surgeons and concluded that 26% of those undergoing TKA were Unicompartmental Knee Arthroplasty (UKA) candidates. In the same study, surgeons that were biased against UKA candidates reported only 12% were UKA

candidates.2 For the purpose of this model, 10% will be utilized. Surgeons have a fear of utilizing new instrumentation and new surgical procedures thus it is important to be conservative in growth projections.

1 Golladay, G., Gustke, K., Elson, L. C., & Anderson, C. R. Intraoperative Sensors for Dynamic Feedback During Soft Tissue Balancing Preliminary Results of a Prospective Multicenter Study.

2 Woolson, S. T., Shu, B., & Giori, N. J. (2010). Incidence of radiographic unicompartmental arthritis in patients undergoing knee arthroplasty. Orthopedics, 33(11), 798.

Clinical Information on Unicompartmental Knee Arthroplasty 3

UKA procedures preserve bone stock (patient benefit)

Bone stock preservation mitigates potential Revision TKA (Economic benefit)

UKA preserves ligament and soft tissue (Patient benefit)

Smaller incision and thus less scarring (Patient benefit & Economic benefit)

More cost effective if implant survivorship exceeds 12 years (Economic benefit)

Quicker recovery time for a speedier return to normal activity (Economic benefit)

Earlier release from hospital (Sometimes outpatient procedure)

Patella not everted (Economic and Patient benefit)

Decreased risk of infection due to exposure (Economic and Patient benefit)

Contraindications

3 Saccomanni, B. (2010). Unicompartmental knee arthroplasty: a review of literature. Clinical rheumatology, 29(4), 339-346.

ACL deficient patients (Stabilization hazard)

Extreme varus and valgus deformities (Ligaments are overly lax)

Conflicting opinions on obese patients (Polyethelene wear and tibial subsidence)

Other Important Considerations

Average survivorship is 93% at 10 years

Surgeons that have not performed 20+ UKA’s per year have an 20% failure rate4

Inexperienced UKA surgeons have difficulties re-creating correct alignment

MAKO RIO Interactive Surgical Robot

4 Zimmer Sales Training, Warsaw, IN. September, 2008.

Clinical Benefits5

“Consistently reproducible surgical precision addresses some of the challenges associated with manual techniques”

Accurately and consistently execute the patient specific pre-surgical plan at ± 2mm/±2 degrees

Unique ability to optimally soft-tissue balance the knee pre- and intra- operatively for ideal knee function

3-D visualization and intelligent cutting instruments eliminate conventional custom cutting block and jigs

Tissue sparing and bone conserving for preservation of healthy anatomy

Less invasive, restorative procedure promotes more rapid recovery and shorter hospital stay when compared to traditional total knee arthroplasty

Economic Benefits6

5http://www.makosurgical.com/physicians/products/partial-knee.html . Retrieved 6 April 2013.6http://www.makosurgical.com/assets/files/Hospitals/FinancialSummary_203003r01.pdf . Retrieved 6 April 2013.

Claim a 386% growth in UKA procedures over two year window

Claim a 22% MAKOplasty incremental procedural growth from the first year to the second year

Claim a 14% TKA “Halo Effect” where the hospital attracts patients via the MAKOplasty campaign due to being known as an advanced surgical center. These patients would have selected surgeons at other hospitals

Claim shorter recovery time thereby less expensive to the hospital

Claim significant increased incremental revenue for the hospital

Medicare Scenario MAKOplasty-UKA Total KneeDRG 470 FY-2013 $11,207 $11,207

Cost of Implant** $3,060 $4,284Disposables Specific to Robot $458 N/A $0

Cost of Surgery*** First Study(1) $13,505

Second Study(2) $13,636 Mean Used $13,570 $13,570

Profit -$5,881 -$6,647*http://www.beckershospitalreview.com/lists/average-cost-per-inpatient-day-across-50-states-in-2010.html

**Paid rate by confidential North Carolina non-profit hospital***Identifying costs are extremely difficult due to differences between hospitals, surgeons, cost-accounting methods, etc. I used multiple studies and took a mean.

(1)-King, J. C., Manner, P. A., & Leopold, S. S. (2011). Is minimally invasive total knee arthroplasty associated with lower costs than traditional TKA?. Clinical Orthopaedics and Related Research®, 469(6), 1716-1720.

(2)-Reinalda, M. S., & Lewallen, D. G. (2013). Determinants of Direct Medical Costs in Primary and Revision Total Knee Arthroplasty. Clinical Orthopaedics and Related Research®, 471(1), 206-214.

Factored 13% of total is implant charge based on studyPrivate Insurance Scenario MAKOplasty-UKA Total Knee

DRG 470 Colorado Charges% $61,048 $61,048Cost of Living Adjustment* $58,606 $58,606

Actual Payout $24,806 $24,806Cost of Living Adjustment $23,814 $23,814

Cost of Implant $3,060 $4,284Cost of Disosables $458 $0

Cost of Surgery $13,570 $13,570Profit $6,726 $5,960

(%)http://www.medicare.gov/hospitalcompare/profile.aspx#profSurg=GRP_25&profBdypt=CAT_4&profTab=6&ID=340002&loc=28803&lat=35.5421019&lng=82.5294065&AspxAutoDetectCookieSupport=1

*Compared Asheville and Boulder showing 4% higher rates in Boulder: http://www.payscale.com/cost-of-living-calculator/Colorado-Boulder/North-Carolina-Asheville

Each Week Weeks TotalNumber Procedures* 40 52 2080Medicare Patients** 443

HMO Patients 1637Medicare Percentage 21.3%

HMO Percentage 78.7%*Experience in this specific hospital; Assume 50% case mix of Knee Arthroplasty

**http://www.medicare.gov/hospitalcompare/profile.aspx#profSurg=GRP_25&profBdypt=CAT_4&profTab=6&ID=340002&loc=28803&lat=35.5421019&lng=-82.5294065&AspxAutoDetectCookieSupport=1

TKA Expected Profitability Probability Profit Expected ProfitMedicare 0.213 -$6,647 -$1,416

HMO 0.787 $5,960 $4,690Total Profit on Probability 1 $3,274

UKA Expected Probability Probability Profit Expected ProfitMedicare 0.213 -$5,881 -$1,253

HMO 0.787 $6,726 $5,293Total Profit on Probability 1 $4,040

Value Year 1 Year 2 Year 3 Year 4Current Procedures (Assume 4% Growth) 2018 2,098 2,182 2,270 2,360

TKA Profit $3,274 $6,869,847 $7,144,641 $7,430,427 $7,727,644Current Procedures (Assume 4% Growth) 62 65 67 70 73

UKA Profit $4,040 $262,197 $272,685 $283,592 $294,936Projected Status Quo Profit $7,132,044 $7,417,326 $7,714,019 $8,022,580

Redjustment due to Surgeon Comfort90:10;

TKA:UKA TKA Procedures 90% 1,947 2,025 2,106 2,190

TKA Profit $3,274 $6,374,085 $6,629,049 $6,894,210 $7,169,979UKA Procedures 10% 216 225 234 243

UKA Profit $4,040 $873,933 $908,890 $945,246 $983,056Total Profit with Robot Readjustment $7,248,018 $7,537,939 $7,839,456 $8,153,034Profit Change with Status Quo Figures $115,974 $120,613 $125,437 $130,455

Incremental UKA Procedures (22%) 16 20 24 29

Incremental UKA Profit $4,040 $64,640 $78,861 $96,210 $117,376Incremental Halo Effect TKA Procedures (5%) 2,080 104 109 115 120

Incremental TKA Profit $216,320 $227,136 $238,493 $250,417Gross Profit $396,934 $426,609 $460,140 $498,248

Capital Equipment Four Year Lease $1,000,000 $250,000 $250,000 $250,000 $250,000Yearly Robot Maintenance Fee $85,000 $0 $85,000 $85,000 $85,000

Net Profit $146,934 $91,609 $125,140 $163,248

Conclusions

If the clinical claims are accurate robotic technology is beneficial for patients and surgeons.

Introducing an effective technology can be a profit center for healthcare systems

The KOL’s in individual hospitals must recognize if they have a sufficient patient pool in order to benefit from the technology. The financial benefit of high cost capital equipment is dependent on volume.

This study was unable to account for hospital savings on quicker hospital release, surely adding to hospital profitability.

This study does not consider the financial and clinical benefits of bone sparing procedures that mitigate long-term cost savings from potential expensive revision Total Knee Arthroplasty

As robotic technology develops and becomes more adept at solving other unmet clinical needs, it has the potential to reduce overall healthcare spending based on faster surgical times, lower infection rates, improved accuracy and

decreased probability of human error.

This behavior coincides with the Pauly-Redisch model in non-profit hospitals. One can expect the frontier to expand on the X and Y Axis.