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.

UnitedS tates K nee Arthroplasty:600,000 Cases

700,000 600,000 500,000 400,000
Knee Arthroplasty

600,000 528,000

300,000 200,000 100,000 0 Knee Arthroplasty Total Knee Arthroplasty Unicompartmental Knee Arthroplasty 72,000

Total Knee Arthroplasty Unicompartmental Knee Arthroplasty

Clinical Information on Unicompartmental Knee Arthroplasty3 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)

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

Contraindications 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+ UKAs per year have an 20% failure rate4 Inexperienced UKA surgeons have difficulties re-creating correct alignment

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

MAKO RIO Interactive Surgical Robot 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

http://www.makosurgical.com/physicians/products/partial-knee.html . Retrieved 6 April 2013.

Economic Benefits6 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

http://www.makosurgical.com/assets/files/Hospitals/FinancialSummary_203003r01.pdf . Retrieved 6 April 2013.

Medicare Scenario DRG 470 FY-2013 Cost of Implant** Disposables Cost of Surgery*** First Study(1) Second Study(2) Mean Used Profit Specific to Robot $13,505 $13,636

MAKOplasty-UKA $11,207 $3,060 $458 N/ A

Total Knee $11,207 $4,284 $0

$13,570 -$5,881

$13,570 -$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 study

Private Insurance Scenario DRG 470 Colorado Charges% Cost of Living Adjustment* Actual Payout Cost of Living Adjustment Cost of Implant Cost of Disosables

MAKOplasty-UKA $61,048 $58,606 $24,806 $23,814 $3,060 $458

Total Knee $61,048 $58,606 $24,806 $23,814 $4,284 $0

Cost of Surgery Profit

$13,570 $6,726

$13,570 $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=8 2.5294065&AspxAutoDetectCookieSupport=1 *Compared Asheville and Boulder showing 4% higher rates in Boulder: http://www.payscale.com/cost-of-living-calculator/Colorado-Boulder/North-CarolinaAsheville

Number Procedures* Medicare Patients** HMO Patients Medicare Percentage HMO Percentage

Each Week 40

Weeks 52

Total 2080 443 1637 21.3% 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 Medicare HMO Total Profit on Probability

Probability 0.213 0.787 1

Profit -$6,647 $5,960

Expected Profit -$1,416 $4,690 $3,274

UKA Expected Probability Medicare HMO Total Profit on Probability

Probability 0.213 0.787 1

Profit -$5,881 $6,726

Expected Profit -$1,253 $5,293 $4,040

Current Procedures (Assume 4% Growth) TKA Profit Current Procedures (Assume 4% Growth) UKA Profit Projected Status Quo Profit

Value 2018 $3,274 62 $4,040

Year 1 2,098 $6,869,847 65 $262,197 $7,132,044

Year 2 2,182 $7,144,641 67 $272,685 $7,417,326

Year 3 2,270 $7,430,427 70 $283,592 $7,714,019

Year 4 2,360 $7,727,644 73 $294,936 $8,022,580

Redjustment due to Surgeon Comfort TKA Procedures TKA Profit UKA Procedures UKA Profit Total Profit with Robot Readjustment Profit Change with Status Quo Figures Incremental UKA Procedures (22%) Incremental UKA Profit Incremental Halo Effect TKA Procedures (5%) Incremental TKA Profit Gross Profit Capital Equipment Four Year Lease Yearly Robot Maintenance Fee Net Profit

90:10; TKA:UKA 90% $3,274 10% $4,040

1,947 $6,374,085 216 $873,933 $7,248,018 $115,974 16 $64,640 104 $216,320 $396,934 $250,000 $0 $146,934

2,025 $6,629,049 225 $908,890 $7,537,939 $120,613 20 $78,861 109 $227,136 $426,609 $250,000 $85,000 $91,609

2,106 $6,894,210 234 $945,246 $7,839,456 $125,437 24 $96,210 115 $238,493 $460,140 $250,000 $85,000 $125,140

2,190 $7,169,979 243 $983,056 $8,153,034 $130,455 29 $117,376 120 $250,417 $498,248 $250,000 $85,000 $163,248

$4,040 2,080

$1,000,000 $85,000

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 KOLs 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.