There is no such thing as a cheap robot

If you want to get my dander up then keep talking about “cheap robots!” And “Comparable to lap economics!”

I get it - everyone wants something for nothing. Alright a bit harsh. Everyone wants to deliver the best clinical outcome at the most affordable price.

I’m not blind to this - but I see time and time again claims of “we will reduce costs dramatically.”

Or worse - and almost naively - comparisons of robotic to lap where people say “we will get robotics down to the cost of laparoscopy.”

I do get it… I understand where you are coming from… but for many people you are thinking about his totally wrong.

The logic

In most payment systems the user and the payer are not the same. There is often (through many formulations) a set amount of money to pay for the treatment - no matter oi you do it with a da Vinci robot or a spoon. Of course in the world of complexity there are different “bonus payments” or “Uplifts” in one way or another to allow robotics. Look at robotic prostate vs open. It’s super complex when you look globally and I won’t spill too many words on it right now.

But let’s take a gallbladder - and if I do it laparoscopic or robotic - in many parts of the world I get the same payment (often a diagnosis related group payment) and with my $x thousand dollars I treat the patient and get paid that - end of story. No more cash sloshing about. And often the DRG payments go down as health systems have the spread the utter thinner.

So If I do it with reusable lap instruments it cost me  $A and if I use a robot it costs me $B  (in very basic terms.)

My profit in manual lap is $X - $A = $C

My profit in robotic is $X - $B = $D

And of course…. A is less than B - so I make more profit (careful what I mean there just use the word profit for now)  and so in Lap I make more profit than in robotic. (Or lose less money.)

That its the common logic. The most common logic. But often a simplification of reality. I can’t do the reality of every health system across the globe - and I do not want to just talk about Florida in the private sector. So I’m horribly generalising.

In the end the result is - today we do lap chole manually - and make $C and if we move to robotic we make $D and D could actually be a massive loss. So no way we are moving to robotic. Right? Familiar?

NOTE: This changes a lot depending on your healthcare system, private pay, out of pocket pay, insurers, national funding etc etc etc - but the logic thread is…

“Robots are more expensive than manual lap. “

It is so much more complex

In reality it is so much more complex ,and I could write 100 pages here on the true economics of surgery - patient episode costs - lifetime costs - social impact costs etc etc.

The true health economics around this is vast and complex… and really poorly known.

And let us not forget that you will make more money (or lose less money) in a lap manual case - of course …… ah….unless your lap manual cases all go across the road to a competing hospital because “they use the robot” - and you get $0 because you don’t do the case. And you can’t attract new surgeons because no surgeon is coming to hospital that doesn’t let them use the robot… so you lose specialisation…. Etc etc (not so simple)

In fact - Complex.

And it depends on site of care - a main block vs an ASC etc etc - it’s really really complex.

I think we just have to say that when you look at a true economic picture at a macro level it is super complicated and still poorly measured and understood. (I’m talking true macro level.). And I do not want to dive into this rabbit hole today as you can argue from all sides.

In part the issue is that we are retro fitting new technologies and techniques into legacy payment structures. In part “we just don’t have enough money in healthcare.” Oh and don’t get me started on where that money is spent and who really makes the profit… the health care facility - the surgeon or the insurer - etc etc.

Let’s say - macro - way complex before we even add on “real benefits” vs “marketing benefits” and value and outcomes and and.

Stop me.

What is quantifiable?

Because much of the system is not quantifiable (how much electricity was attributed to that case - how much water etc, the heating…the proportion of staff costs) I think we fall back to only look at areas that are quantifiable and the associated opportunities to reduce those quantifiable costs.

And this is where I want to go today with today’s real theme. Because there are a few narratives floating around that I think we need to discuss. A few “memes” that keep coming up. And as someone that for six years sat in this discussion as a “competitor to Intuitive” at the commercial level - I do want to squash some memes.

One simple quantifiable thing is ”The cost of the capital of the robot.”

That’s an easy one right? If brand A is 20% cheaper than brand B - then each case must be 20% cheaper… right? Simple?

Erm no. It is so complex - even with that simple quantifiable. For example - what are the payment terms? Up front vs pay as you go? Does it include a set of starter cases? Does it require ancillary changes to infrastructure? Do we need to change CSSD? Does it impact other contractual arrangements? Will we lose time on site because people need to go away to be certified?? etc etc

The naive version is: it’s 20% cheaper. The reality is —- is it?

And this is where it starts to drive me nuts - because anyone can waltz in and say “we are 20% cheaper” off list price. Anyone can “offer” a “30% cheaper” than the average price we hear about across the world. But that does not always translate into reality (just on the hardware. Forget the rest.)I saw a classic recently. Company A quoted the hardware part of the deal at $1.5 Million equivalent. Company B quoted at $1.2 Million.

The simple thing is we have a $300K saving on brand B. Right? Easy right?

So the narrative was “we have a $300K saving” from the users. Until… they realised brand A was with simulation back pack, dual console, 200 cases of instruments included, 2 years service included, plus a defined number of training sessions and re-training sessions.

Brand B - the robot.

Ahhhh. So it wasn’t apples with apples you say. Damn right. The devil is always in the details and the paperwork. So when a full analysis was done - it turns out the “robot alone” from company A was $900K of the offer. When stripped out.

“Yeah Steve that’s obvious right?”

No it’s not. Because it’s  easy to send out “We are a more cost effective robot” - aka “Cheaper” but not state the whole story; knowingly or not.

This also translates to instruments. Company C says “our instruments are $1200 each” and company D says “ours are $1800 each.” You’re ahead of me… “But how many lives?” Company C 10 lives - company D 20 lives.”

Of course - and this bring us to cost per case. Because superficial glancing says company C is cheaper.

We must look at drapes - reprocessing (steam vs Sterrad) and all sorts of things. And in fact across Europe when a tender goes out many of these things are well captured in excruciating tender specifications. But often they are not.

I’ve seen two quotes - one where I know they had to reinforce the OR floors to the tune of 2 million - and for the other system no reinforcement needed. But that wasn’t captured !!!!

The upshot is that superficially we can all claim “we will be cheaper” because that is what users and health delivery systems want to hear. It’s the chum in the water. It might even scare Intuitive to drop their prices….  (Not.)

Side note: Intuitive has a range of cost options on capital - from DV5 to Xi - to X - plus they have refurbished XiR. If you think you - with your new systems - are going to beat them to the capital price - dream on.

Oh and we have not even got into leasing and pay per use yet. And how much cash they have to deploy there.

My point is that the meme is “Intuitive has been gouging and if you come in with a cheaper option we are all ears.”

It is so wrong - and many companies are falling into the trap of believing they will be bringing cheaper robots to the world - a trap I will discuss now.

Why it’s a rude awakening for many surgical robotics companies

I know I will ramble hear - but I’m going to discuss - real world costs - profit - service costs - support costs - value - switching costs and more. So stick with me as trying to do this in a logical way is not easy. It is so obvious after six years of living it - but I might not get it down.

“Everything works in excel” - that is one fact I can tell you. But excel doesn’t work in reality.

Now anyone can give the first few systems away. Anyone can absorb that costs. But that gets painful for a company really fast when they must recoup massive R&D costs and sustaining costs.

In the board room the numbers said “Intuitive sells at $2.8 million.” And every idiot believed it. Because that is where the “story made sense.”

And it came from a deal that they heard about in the Middle East where a customer bought an Xi for $2.8 million up front.  FFS !!!!!

Most likely urban legend - at best a one off deal where not all the facts are clear about a distributor via a sub distributor.

But that gets the urban legend headline that sticks. And helps internal story telling.

So if we sell at $1.8 million we are quids in and a lot cheaper than Intuitive. Let’s put that model in Excel. Shift drag to fill the cells and “wow”

Roll forwards - they go out to the “real world” NOT HOME MARKET - and the tender comes in and an Xi was priced in at $900K in a European country. (Forget the details for now) - but the WTF Moment comes in hard. And time and time again they see the capital portions of deals landing at sub $1.2M and excel falls to shit. They have a $600K hole just to tread water in their revenue line.

And … “sorry what do you mean it’s on a lease deal?”No cash up front - what??? Sorry?? But erm that cash flow thing we were relying on?

Oh and in that excel sheet we had one engineer servicing 10 systems - and one training team doing 3 trainings a week - and 1 clinical specialist supporting 5 systems… But we have one system in Paris and one in Berlin….. oh. So now it’s 1:1 support with all that lovely cost.

Oh and we have a distributor in the middle now in country X. And they need to make 40% mark up - and they don’t have an army of service engineers - and they are being squeezed. So they are asking for another 10% discount…. Etc etc.

Oh that’s right, and they are now asking for a free demo system - what ? No? But who’s paying for that.  And the back up system… and spares and and and….

Oh and the customer wants a 6 month free trial… and cases thrown in - before they decide or not if they will even go for your system. Oh and now the excel sheet costs have gone up??? What?? But a clinical sales support specialist was $20K in our home country - what do you mean $90K plus pensions - plus car - plus contributions - plus plus - plus…..And import tax —- ahhh we don’t have that in the country of production — etc etc What do you mean import shipping - tariffs - tax - local tax…..What I’m painting here for the un-initiated is that the costs are way higher than people think in the planning phase back at HQ. There is little to no leverage across clusters of systems - and the revenues are lower and delayed due to lease deals.

Yes the robot was cheaper to build in China - but that’s it! Everything else costs the same in Europe - or Brazil - you don’t get cheaper employees than Intuitive. Those costs are all the same or more.

A robot is not the cost of a robotics program. Get that line into your head. The only thing that counts is the maths over a 7 year period. The total Unit Cost of delivering a robotic service over seven years.

That gives you the real cost per case - cost per support - etc etc.

With that you can look at “what did the customer pay over 7 years? And what did it cost the company to deliver that program at REAL unit costs?”

Because that is what is going to determine if that system was profitable or a black sink hole.

I can assure you now - many companies have had the rubber hit the road in a lot of countries and have realised that the real world is quite different. That the excel sheet was a lie - and now they are half pregnant.

So what can they do? Cut service levels - not have parts in 24H… but one week. Not doing “real training” - not have a back up system - not have back up scopes - not have enough loan systems for evaluations - etc etc.

The rude awakening is not that Intuitive were gouging… it’s that to run a robotics “company” at profit in most countries is F’in expensive. Especially in the early days when you have 5 systems spread across a continent. So no - you can’t make a “cheap” robotics program - support it right and make profit. Thee maths doesn’t add up.

The delusion for customers

For years the company was promising those cheap cases at laparoscopy pricing.

The reality in nearly every tender or RFQ (request for quote) I’ve seen lately is that the “cheaper” robots work out the same cost for case - or worse - even more expensive - with systems that don’t offer the same features or procedures that are cleared vs DV.

The customers were super frustrated with the monopoly - but even more frustrated when the system that lands didn’t make the promised 30% saving - keeps having issues - isn’t quite as feature loaded - and now their sterilisation staff are bitching about trying to run two different cleaning and sterilisation protocols. The OR staff have just about had enough.

The 30% dream was as good a reason as any to change.

Fact 1: Your robot must be as good

Fact 2: You have to make a genuine  30% saving for switching to be a a valid saving

Fact 3: You need to make profit as a company at some point

If you do not hit these 3 you are a delusion to your customers. And I am contacted time and time and time again by users and buyers saying “We had so much hope.” And they end with “But better to buy a daVinci.”And I’m contacted with hospitals moaning “Where’s the support they promised?”

And I pick up emails from company teams across the world saying “The mothership company won’t invest enough… or won’t get us the pricing we thought… They want us to now up the prices and cut the support.”

That is NOT to say that there aren’t happy customers that are satisfied with their new robot alternative. There are. Please don’t get me wrong.

Often it is in the country of manufacture though. And often it is in pockets.

But let’s not be delusional - the numbers speak volumes - people are still buying da Vinci at a 10:1 ratio of all other systems put together. And there are 100 reasons why - and many not as obvious as you think - and many take the “less risky” option - why? Because they need to deliver uninterrupted healthcare at a reasonable price: and have done 1000 cases on a DV  and don’t choose to be part of your experiment on market liberation.

A big challenge of this is that the deluded customers speak to each other - and news spreads fast. I could literally list all the hospitals today that are “not happy.”

I think anyone claiming “we will bring you cheaper” robotics is doing a disservice to themselves and the customer.

Successful programs drive better economics not cheaper robots

Now. I am actually aligned around value. I do believe very strongly that reduced costs with better outcomes are essential - so it may seem odd that I get so antsy about saying “cheap robots”

But let me explain. There is nothing “cheap” about a robot or robotic program. There should never be anything cheap. It’s like saying we have cheap wings on an aeroplane. No passenger wants cheap wings. It just doesn’t sound good.

But what we actually all want is great value - safe - but great value. It needs to be good enough with enough economic benefit to be worthwhile.

Let me explain my theory on how you get costs down in robotic surgery and how you get profits up in the company at the same time. This then brings an aligned “win-win” for the customer and the company.

The most simple way I can say this is “volume.” The biggest single lever you get to drop the cost of a robotics program (per case) is to have the robot busy - being used all day, every day.

On large capital equipment of any kind, in any industry it has to have lots of usage with fast turn around time.

Airlines know this - that’s why they want aeroplanes flying - not parked at the terminal.

If you pay $1 million for a robot and it does 1 case per week - in 50 weeks of the year that’s  350 cases  In 7 years. So forget the consumables for now. Just the hardware has cost you $2,857 each case for the hardware. That’s stupid.

But you get that to 10 cases per week and you drop that hardware cost to $285 per case.

And I know that seems obvious but it is so often overlooked. Volume of usage = price reduction per unit use on capital equipment.

The next big lever is instrument uses (in a pay as you go for instruments) - if an instrument costs $1200 per instrument - 10 lives is $120 per use. But if you get instruments with 30 lives - that now drops that to $40 per use. Use 3 per case = $120 with the capital at $285 - we are now down in the $500 range per case for hardware and instruments. Add in drapes and service and you could easily see sub $1000 cases.

And in a Pay per case model - more lives per instrument means more profit per instrument for the company. And you can drop price per case and still make more profit !!! Wow.

And as a Hopsital - cashflow is important. If you get on a fixed cost - Pay per case usage with all in - paid at the end of the quarter based on usage and you can do 100 cases per quarter…. Your income is ahead of the outgoing; and cashflow even works. Imagine a world where you are doing 150 cases per quarter - with 30 lives instruments - and paying less than $1000 for the case… after you’ve billed and already been paid.

Is that not better economics?

IF a robot is being rationed to the massive 6 hour colon cancer cases only… and you do 4 cases a month - you can never make the robot work. It all seems counter Intuitive - but using the robot for the low acuity cases (as well) - but using the robot all day every day has a disproportionate impact on costs. So that even those low acuity cases now start to make sense (economically) - but you need to be at 300 cases per year over a 7 year period for it to start to really work. Get to 500 and well… everyone is smiling.

And remember,  if you get to 300 cases then it’s deeply into the daily use and daily flow - and that also drives set up - tear down speeds - and hence efficiency. Another key part of the economic equation. (Yes it’s complex.) but volume drives everything.

It still doesn’t mean it is “cheap” but you start to get into the realm of basic apples with apples economics with manual lap. Somewhere I said I wouldn’t go today… but hey.

Again if you want the full economic impact breakdown - then you need to go way deeper on costs, efficiencies, social impact costs, lost opportunity costs, staff retention costs etc etc.

If you want to get to the costs where things like an ASC start to work - with their much lower reimbursement - then we do need totally different thinking - we probably need very different single operator robots that are cut down - single use instruments - etc etc. That’s an entirely different conversation. Not for every ASC - but…. Okay I’ll do that another day.

For the companies - clustering / high volume usage / high instrument lives also helps them. It massively reduces costs. Having three spaced out systems that do 1 case per week is a disaster.

The customers need constant hand holding - they never get off the learning curve. The servicing becomes painful and expensive - leased system do not even pay back the capital. Contracting and minimums becomes friction with the customer. It’s the fuel of nightmares.There are 30 reasons - clustered high volume systems become way more economical and profitable for the company. Volume….

Come back to the aim?

I’ve sort of rambled on a lot today. But we need to come back to the original premise and make sure we all rephrase. Nobody wants a cheap robot. Nobody should promise a cheap robot.

Instead we need the per case costs to drop as close as possible to per case costs of manual laparoscopy. Will we ever get there… I’m not sure - I’ve seen some rusty old seta of instruments out there.

The system must be good - reliable - minimal features - serviced - and provide the needed instruments. And be able to be used at volumes where the costs start to come down when you look at unit cost per procedure over a 7 year window.

Robotics is not going away. The next generation of surgeons will not be asking for more manual laparoscopy. We need to work out how we deliver sustainable robotics at a reasonable price. As I keep shouting - the answer to that is not he promise of a “cheap robot” - because it does not exist. It is not real.

We absolutely need to deliver robots at a fair price - but at a price that means that the companies supplying them make enough profit to stay in business. Someone has to front the cash if a hospital wants a lease deal. There needs to be some profit in the system for R&D and investment in the next installs.

I’d like to see fully committed robotics programs where utilisation across 3 specialties gets to 300 cases per year. That will improve the economics.

I’d like to see maximal numbers of lives per instrument.

I’d like to see clustering of systems.

I’d like to see efficiency gains at every level so that turn over is faster - “time at the terminal” is minimised in airline terms.

What I don’t want to see any more are the words “Cheap robot.”

These are just thoughts and opinions of the author for educational purposes only and to stimulate debate.