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Could Obamacare Now Work in Intuitive Surgical, Inc.'s Favor?

By Brian Stoffel – Feb 14, 2014 at 6:30PM

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A new study, combined with a new ACA program, could help the company. Here's how.

Intuitive Surgical (ISRG -0.94%) has seen its growth arc fundamentally change over the past year. The causes of this downshift were two-fold. First, serious questions about the efficacy of using the company's daVinci Robotic Surgical System for hysterectomies were raised in the medical community.

Second, the onset of the Affordable Care Act -- Obamacare -- left hospitals waiting to see how finances would shake out before making any major purchases.

Source: Intuitive Surgical.

These forces combined last year to bring sales growth of new daVinci systems in the United States to a screeching halt. For the first time in a very long time, Intuitive sold significantly fewer daVinci systems in 2013 than in the previous year. Shares of Intuitive also suffered, falling more than 40% in the process.

Could the tides be turning?
But now, the very two sources of much trouble for Intuitive -- Obamacare and peer reviewed studies -- could combine to help the company's daVinci sales, and its stock, recover.

Dr. Martin Martino of the Lehigh Valley Health Network published findings in the Journal of Minimally Invasive Gynecology that reports fewer incidents of readmission, less blood loss, shorter hospital stays, and fewer costs upon readmission in benign hysterectomy procedures. The results looked like this:

 

daVinci

Laparoscopic

Abdominal

Vaginal

Readmissions

1.00%

2.58%

3.52%

2.41%

Mean Blood Loss

108 ml

315 ml

319 ml

341 ml

Mean Hospital Stay

26 hrs.

51 hrs.

57 hrs.

63 hrs.

Readmission Costs

$33,000

$50,000

$328,000

$51,000

Source: Globenewswire.com. Hospital stay rounded to nearest hour, readmission costs rounded to nearest thousand.

Though shorter hospital stays and less blood loss are certainly good news for hysterectomy patients, this is not a new finding, and it doesn't address the deeper issues that have led to hospitals buying fewer daVincis.

The key finding, therefore, is that readmission rates -- and the costs associated with those readmissions -- are noticeably lower. If we ignore abdominal and vaginal operations (they aren't minimally invasive) and focus solely on laparoscopic ones in comparison to using the daVinci, the cost savings can add up quickly.

Extrapolating the data provided by the researchers, the readmission costs associated with every 100 procedures for benign hysterectomies would look something like this:

 

Estimated Readmission

Cost per Readmission

Total Readmission Costs per 100 Operations

daVinci

1 person

$33,000

$33,000

Laproscopic

2.58 persons

$50,000

$129,000

Simply put, if a hospital decides to forgo the daVinci in favor of more traditional methods, it could ring up an average of $1,000 more in readmission costs per procedure. The average selling price of a daVinci Si-e is about $1.1 million. In one oversimplified sense, then, the daVinci would pay for itself after 1,100 hysterectomies were performed.

But there's an even more important -- less oversimplified -- benefit to this information. As Intuitive Surgical reported, "the Centers for Medicare & Medicaid Services (CMS) has identified readmissions [...] as a major source of health care expenditures and recommends it as a quality measure for patient care." 

As a result of Obamacare, the CMS founded the Readmissions Reduction Program. While the goal of the program is obvious, the important detail to note is the fact that hospitals with excessively high readmission rates will be penalized by receiving less in payments for the procedures they perform.

That's important, and if further studies show the same effects as Lehigh's did, there could be an important, systematic financial incentive for hospitals to purchase daVinci robots.

It will take a while to see how this plays out, but it's some potentially important good news. 

Brian Stoffel owns shares of Intuitive Surgical. The Motley Fool recommends Intuitive Surgical. The Motley Fool owns shares of Intuitive Surgical. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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