A meta-analysis comparing robot assisted abdominal surgery to human surgeons was published in this month’s edition of Annals of Internal Medicine. Robot assisted surgery is one of the fields considered to be a disrupter of current medical practice. It checks all the boxes. Robots are touted as having no emotions, no fatigue, lack any learned bias, and no anxiety. They operate based on detailed computer codes that can be debugged and rewritten. They use algorithms to learn from their mistakes, which is the beginning of their “artificial intelligence.
The main manufacturer of robot assisted surgery devices is Intuitive Surgical. They have developed the DaVinci operating system which can be used for common abdominal, gyncological, and urologic procedures. Originally public in 2000 at $9 per share, it has ballooned to $1,050 dollars today. The company has a market cap $125 billion dollars. They have been very successful at convincing hospital systems to adopt their devices for common surgical procedures.
For all the reasons stated above, Intuitive Surgical believes that their machines provide better outcomes for patients. They claim surgeons well trained on their machines will have fewer complications, infections, less post-operative pain, fewer readmissions, and higher surgical volumes.
The company has executed several small clinical trials. Most of them focused on proving their device was “just as good” as a human surgeon. There has also been some independent studies investigating the success of robot assisted surgery.
A recent meta-analysis published in "Annals of Internal Medicine," Investigated these claims.
A meta-analysis is an amalgamation of all of the studies investigating a single topic. It should be narrow in scope and focused on a single hypothesis. In this case, does the DaVinci system outperform human surgeons in terms of safety outcomes, complications, and cost effectiveness.
A meta-analysis should include only high-quality studies. In this case randomized controlled trials. Often times observational studies are excluded due to the unreliability of their data.
In this review, they included 41 trials and a total of 4898 patients in their analysis. The median size was 99 patients. The trials investigated gastrointestinal procedures (stomach, biliary, pancreas, small intestine), colorectal, urology, and gynecology procedures.
They broke down the complication rate between robotic, laproscopic, and open surgery. Open surgery is very much out of favor given the technology trends of the past 30 years. It can be assumed that if a surgeon is electing to do an “open” case, there is some complicating factor leading to that decision.
The table below displays the results. In short, there was really no difference between the modalities.
When they investigated grade 4 and grade 5 complications there was no difference between robotic surgery and laproscopic surgery. Only 8 studies reported long-term outcomes, in which there was no difference. Surgeon experience was recorded in 28 of the studies, in which 36% had extensive experience and 64% had limited experience.
The authors concluded that the supposed benefits of robotic assisted surgery were not supported by available data.
Unlike a game of chess, in which the rules of the game are defined, surgery is complex, unpredictable, with different landscape. Defeating the intelligent human is far more difficult.
When the authors looked at industry funding, they found that 2/3 of the studies were authored by physicians accepted speaking fees, consulting fee, or have received honoraria from device manufactures further muddying the water.
These devices are not cheap. Intuitive surgical sells each Davinci Machine for about $2 million dollars. But that is not where most of the expense is. Each machine comes with a six figure annual service contract . Intuitive surgical owns the instruments used by the DaVinci machine which cannot be recycled indefinitely, so they must be purchased through the company. They have a monopoly on training surgeons to use the device, which is not free. They also collect a royalty for each procedure performed by the Machine.
Intuitive surgical invests heavily in marketing these devices. They pay around $600 million in marketing and sales representatives. About $200 million was allocated to flying around doctors and other specialists on training, selling, and speaking arrangements.
Their device is high technical. It looks flashy, sounds amazing, and if you’re a surgeon, you probably want to use it. Kind of like driving a Ferrari.
Just look at this chart. It is a beauty to behold. They really know how to sell this thing.
However, if you are a CEO or CFO of a hospital system I am having a hard time finding the value proposition. The company is offering an expensive machine, with a pricey annual service contract, a royalty fee, and cost to replace parts after a certain number of procedures (12 or so). Also, the system has to pay to have the surgeon trained on the device.
Choosing between a DaVinci machine and an actual surgeon should be a no brainer. The human surgeon takes on all the cost of training. Another institution likely took on the risk of training the surgeon. They come into their new employment ready to go at full capacity. All they ask in return is a salary and a happy place to work in. The salary costs you less than the Davinci machine, the happy place to work is a more complicated matter. Plus, you need to hire the surgeon anyways to run the DaVinci machine. It's not like the surgery tech can walk into the OR, push a button, and the surgery gets done. Why pay for both, if the machine offers no clear advantage?
Anyone that has worked in the operations of a hospital knows that the biggest puzzle to solve each day is the OR schedule. Emergencies come in bumping surgeons. Some procedures take longer than expected. The surgical techs are on shift work. When 4pm comes around, the on call teams take over, or you have to pay overtime. Sometimes they call in sick. Anesthesia is usually understaffed and running all over the hospital. Coordinating that service can be a nightmare. All of this adds to a very hectic day for these individuals. Adding a device that takes 30-50% longer than a human to do the procedure just makes matters worse.
In return, the Machine does not appear to improve patient outcomes, improve volume, or reduce time per operation. Actually, you may reduce your volume and increase your costs. What the system does get? The right to put up a billboard on I-75, stating they offer robot assisted surgery.
What does the patient get? Probably a longer operating time, and a larger bill.
Where’s the value proposition? Which stakeholder in this scenario actually reaps the rewards? The Intuitive Surgical insiders and shareholders is my guess. Maybe the surgeons like it. Who knows? (I tried to find some satisfaction data, but it was sparse) I'm guessing surgeons do like the device since most of Intuitive Surgical marketing strategy is directed at general surgery residency programs, copying the tobacco company strategy of getting them hooked while they are young.
Intuitive Surgical's biggest issue...Not bringing value to the stakeholder paying the bills. If you can't beat the human surgeon, why does society need you?
So, what am I to do with all of my personal assessments of the medical literature? Well, it’s time to put my money where my mouth is. For the reasons above, I’m going to short this thing ($ISRG). The price is really stretched. The company is up against very high expectations. I may be early, but I think hospital executives are going to come around and realize that the cost of this thing is not justified. Especially after a print like this. For the cost, the machine should be decisively outperforming the pre-trained human. You don’t have to buy the Ferrari, when the reliable Camry (no offense) does the job just as well.
However, the company has a strong bull case. Leading edge technology, recurring revenue stream through service contracts, inability to outsource products, high margins, and its fancy. Everything wall street loves. I could be in for a world of pain. For that reason, I’m going to structure the trade the following way.
I bought a put spread buying the $1000 strike $12.00 and selling the $900 put at $5.50 per contract for a net cost of $6.50 dollars expiring on Oct 15th. This trade has a max gain of $84.50/share ($8,450) if the price goes below $900 dollars before October 15th. I set up a 2nd put spread expiring on January 21st. I bought the $800 dollar put for $12.00 and sold the $700 put for $5.30 for a total cost of $5.70. This trade has a max gain of $84.30/share with the added benefit of a longer time horizon. If both trades work out, I could make around $170.00 per share. The beauty about these contracts is that they are expensive at strike prices that are far apart. You can recoup some of the costs if the trade doesn’t work-out with the potential for a large payday.
This strategy doesn’t have the same potential payday as a true short position would, but I won’t end up divorced if it doesn’t go my way. My impression is smaller hospitals systems and surgery centers on tighter budgets are going to wake up and be very hard sells for Intuitive Surgical. Hopefully they wake up before January 21st.