An annual review of procedures performed at North Shore General Hospital revealed that urologic surgery has decreased. You are the Vice President of Operations in charge of surgery and you decide to meet with Dr. Jones, the Chief of Surgery, and Dr. Stream, the Chief of Urology, to find out why urological cases have declined by 38%. At this meeting the two surgeons inform you that most of the prostate surgery is done in centers where a robotic surgical system is available. Patients are now very informed consumers and many are arriving in their physicians’ offices with the robotic surgical system printouts in hand. The patients cite the statistics given on less pain, shorter length of stay, and faster return to normal activities of daily living that are posted on the robotic surgical system website and then ask if North Shore has one. When the urologists tell them no, that’s the last time they see the patient. Consumers vote with their feet and wallets; prostate surgery patients are no different. It quickly becomes apparent that if North Shore General Hospital wants to compete, the hospital will need to purchase and operate a robotic surgical system. The physicians also hasten to point out that despite its consumer appeal, only 25 to 30% of the cases are appropriate for the machine. The robotic surgical system robot comes with a price tag of well over a million dollars. The VP of Operations estimates an additional $1,000 will be added to the cost of each prostatic surgery case. Physicians and staff need extensive training on the system. In addition, the robot increases the operating room time and uses more expensive disposable instruments. The positive side of having the robot is that it can be used in other areas such as bariatric surgery, gynecological surgery, and thoracic surgery. And, research has demonstrated that hospitals that acquire robotic surgical systems increased prostatectomy volumes (Neuner, See, Pezzin, Tarima, & Nattinger, 2012). However, it will also increase costs in those areas. Some estimates (Garcia, 2012) are that hospitals can lose over $4,000 per radical prostatectomy. Bottom line, to compete for the urology cases the robot has to be in place, although it has to be considered a loss leader, i.e., a product that brings in customers for other procedures by virtue of having the robotic system at the hospital. You have to decide if you want to bring this capital budget item to your Board of Trustees for review and approval at tomorrow night’s meeting. But before you can do that, you know you need to do your homework. It’s going to be a long night.
Discussion Questions
1. What are the facts in this situation?
2. What are three organizational issues this case illustrates?
3. How would this system fit into North Shore General Hospital’s mission, vision, and value statement? How would it fit into its strategic planning and marketing?
4. Using the information available in this case and from online resources about robotic surgical systems (see the Additional Resources), what types of costs and revenues should you include in a break-even analysis?
5. Which of the costs are fixed, variable, or semivariable? Which costs can you control? Which costs are less controllable?
6. What hidden costs might there be to a robotic surgical system?
7. Based on your findings, what will you recommend to the Board of Trustees about this major capital purchase? Should they invest in this machine, or not?