EXTRACORPOREAL SHOCK-WAVE LITHOTRIPSY: CAPITAL INVESTMENT DECISION DANIEL J. KASE, M.D. BRIAN SALTZMAN, M.D.
From the D e p a r t m e n t of Urology, The Mount Sinai Medical Center, New York, New York
ABSTRACT--This report identifies the various Jactors that affect a hospital's or consortium's decision to purchase and implement extracorporeal shock-wave lithotripsy (ESWL).
~nvironment is charactering medical knowledge, ~'hnologies, and mounting of the new medical techge capital expenditures, pieces of equipment often ions of dollars. ng costs is a climate of reyard health care in the percentage of national reh has continually spiraled edical bill for U.S. health ) percent in 1987 to more [ percent of the gross naU.S. spending on health increase another 15 perm o n e t a r y pressures, hosevaluate expensive new caluation must not only aspect of the expenditure, ce aspect. ,gnized that tertiary care aain objectives: to provide d effective treatment for excellence in training for students, and residents, al as well as basic science the knowledge and treattospitals must assess new to all of these criteria. )resents a completely new
VOLUME XXXVIII, NUMBER 1
and revolutionary method of treating a common medical problem. As such, its importance in e d u c a t i o n and research are self-evident. However, concrete hospital goals such as providing excellence in patient care requires a careful comparison b e t w e e n "standard therapy" and the proposed new technology improvement to determine if the change is cost-effective. The decision whether or not to purchase such costly "state of the art" technology can be broken d o w n into three broad groups: (1) medical, (2) financial, and (3) intangible considerations. E a c h of these categories will be examined as they pertain to the purchase and implementation of high-energy shock-wave therapy for urolithiasis. Medical Considerations
Incidence of stone disease E S W L was developed to treat urolithiasis, a c o m m o n problem affecting the population of the United States. A report by the Health and Public Policy Committee of the American College of Physicians 4 put the annual incidence of urolithiasis at 1 per 1,000, and estimated that approximately 1 in 10 Americans would require treatment for a stone during his or her lifetime. This relatively high incidence of stone disease has had a substantial impact due to its assoc i a t e d m o r b i d i t y . I n 1984 Shuster et al. ~
gathered data on a large group of patients hospitalized for kidney stones; using conservative estimates for hospital costs, number of clays hospitalized, and work days lost, they projected t h a t overall a n n u a l cost to society was $315,000,000. What is ESWL? Before the introduction of extracorporeal shock-wave lithotripsy (ESWL), stone removal techniques were limited to open surgery, transurethral cystoscopic procedures, and more recently, percutaneous methods of stone removal. These methods, all of which are to some degree invasive, have associated morbidities. ESWL technology offered for the first time a noninvasive method for the treatment of urinary calculi. The technique was developed in West Germany where it was first utilized on a large scale clinical basis beginning in 1980. 8,7 ESWL utilizes the principle that high-energy shock waves can be generated outside of the body and focused by using a reflector system onto a specific point within the body. Furthermore, these waves can be propagated through water and into human tissue without loss of energy and without damage to the tissue. The energy of the wave is released only when the wave encounters material of different acoustic impedance--such a difference is encountered at the tissue/stone interface. Stone fragmentation occurs because the pressure released at the surface of the calculi exceeds the internal strength of the stone material, s Repeated exposure to shock waves causes break-up of the stone to smaller and smaller fragments ultimately resuiting in complete disintegration into sand-like material that can be passed spontaneously through the urine. E S W L and other treatments: e]]icacy and morbidity A hospital or consortium deciding whether or not to adopt ESWL technology must evaluate its clinical efficacy and determine by comparison its overall cost effectiveness in contrast with other treatment modalities. A cooperative study between the original six hospitals to utilize ESWL in the United States reported the results of 2,501 treatments. On x-ray examination immediately following the procedure, 72 percent of calculi were pulverized by ESWL to less than 2 mm-sized fragments (a size that is easily passable without symptoms). Complications associated with ESWL were reported in less than 7 48
TABLEI. Fixed costs per year* ]or Dornier HM-3 Lithotriptor Fixed Items Cost $15-5-~0~00(i~ Salaries and wages Fringe benefits (25 % salaries) $ 8,500| Insurance $ 75,oo0 Postage, office supplies, telephone, etc. $ 17,00ff~ Maintenance of lithotriptor $115,000] Building utilities/maintenance $ 9,000| $400,000| Depreciation Interest payment $120,000| $927 Total fixed costs per year
"1985 figures from AHA report.
percent of all patients. ° Another study, from the Methodist Hospital of Indiana, TM reported thi results of 1,416 treatments using ESWL. Thi,c study assessed results of the treatment at three months following the procedure and reported that 95 percent of the patients examined wer~ either stone-free or had asymptomatie frag ments small enough to pass spontaneously with an overall complication rate of only 2 percent! Financial Considerations Capital investment decisions ESWL requires a large capital expenditurli and therefore must be carefully assessed fro~ an economic standpoint. Neuman et al.!i divided the financial data central to capital in! vestment analysis into three main categoriesi cash outflows, cash inflows, and economic lifei Cash outflows include all the monetary reI sources required to purchase, install, and im~ plement the new technology, including opera! tional costs. Cash inflows refer to all revenue~ associated with the capital investment decisionI taking into account third-party reimbursemen policies. Cash outflows and inflows (costs and rei venues) must be considered within framewor!* of the economic life of the technology. ~i A hospital or consortium making a finanei~ assessment of ESWL would need to take int4i account the fixed costs associated with the rnai chine, including the cost of purchasing thii I of full-timi~ lithotriptor, interest costs, salaries the eml~loyees needed to operate machine, c o s ~ of basic supplies, maintenance costs, and d e p r ~ eiation costs (which relate to the economic lif~ of the machine). These costs are fixed in t h ~ they do not vary with the volume of p a t i e n ~ treated. Table I lists the fixed costs of the D o ~ nier HM-3 Lithotriptor, 12 the first six items b ~ ing self-explanatory. Depreciation cost is base~ UROLOGY / JULY 1991 / VOLUMEXXXVIII, NUMBI~I ~
reed capital i n v e s t m e n t cost of The cost of the lithotriptor is as$1,750,000, and renovation costs to • These costs are depreciated over for an a n n u a l d e p r e c i a t i o n of le interest cost is determined based ed $1,000,000 loan. Interest is as12 percent fixed rate over five ing in an interest cost of $120,000 9r f i v e y e a r s . T h e r e m a i n i n g ~apital investment cost is assumed ith existing funds. ble costs associated with the maother hand, are directly related to of procedures performed, and in:t of electrodes, which must be reeach treatment. ~2 E S W L variable ~etrodes are $300/treatment and ~lies $30/treatment for a total cost ment. or consortium must also consider -'osts, which are much more diffiify. W h e n an institution chooses to e sum of money on one piece of ueh as the lithotriptor, it is at the oosing not to spend that same sum something else. In other words, ,~ the capital investment decision "whether the benefits produced by ~igh the benefits or costs foregone the same resources in an alterna-
ms associated with E S W L depend large and the volume of patients rvey of all E S W L units in operated in 1986 r e v e a l e d t h a t t h e L use charge ranged from $1,200 treatment. ~7 of w h a t the use charge is, patient leial. This is because of the high purchasing and operating ESWL, Lthe same whether one patient or ttients are treated per year. W h e n d e m a n d , hospitals and eonsorresider not only current stone part also possible expanded markets ine and competition from other Clearly the volume of patients to he most important variable in decost-effectiveness of purchasing ~logy. 'is
~:~here various approaches to financial ~ l y s i s , are ~! but most institutions w o u l d employ a
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variation of cost analysis that projects costs and revenues over a certain n u m b e r of years, taking into account the time-value of money via techniques of discounting. ~3,~5,~6 Since this type of analysis often requires the quantification of u n k n o w n variables (i.e. volume of patients), sensitivity analysis may be used in determining results. Sensitivity analysis looks at how assigning a range of values to the u n k n o w n variables affects the projected costs and revenues. 11,13,15,16 Other Considerations The ability of a new highly visible treatment technology such as high-energy shock waves to improve a hospital's "reputation and prestige" is also a powerful factor in the decision-making process. One source argues that physicians will desire n e w technology because of " . . . the scope that a well-equipped hospital gives them in their practice, the prestige and sense of security attached to working in a hospital that has all the latest facilities, and the additional income this allows them to earn. "2 The acquisition of such technology w o u l d place an institution on the "leading edge" of a new treatment technology, enhancing its overall perception not only in the eyes of the public but also in the general medical community. This w o u l d assist in attracting quality physicians (and, in turn, their patients) as well as provide the opportunity to conduct clinical and/or basic science research. Competition with other hospitals is also a key concern. If institutions in the community acquire such new technology the standing of adjacent hospitals will be threatened. Consequently, physicians who do not have access to a lithotriptor will lose patients who opt for this procedure. Conclusion Soaring health care costs coupled with rising government restrictions on health care spending have put health care providers under increasing financial pressure. At the same time, advances in medicine are increasingly tied to expensive n e w technology. Those striving to stay on top of these advances must constantly grapple with the kinds of complex medical and financial decisions associated with acquiring new technology. This report outlines the various issues that must be e v a l u a t e d w h e n m a k i n g a capital i n v e s t m e n t decision, i.e. a c q u i r i n g E S W L
technology. These include (1) medical considerations--impact of the technology on patient care; (2) financial concerns--impact on the institution's operating budget; (3) considerations of reputation, prestige, and education. It should be recognized that the capital investment decision for ESWL can be an extremely difficult one, as many of the most important deciding factors are unquantifiable and by their nature, subjeetive. Even to properly assess the impact of the more objective economic concerns would require months of sophisticated data eollection and analysis. In addition, because ESWL is an elective procedure, changing patterns of reimbursement could result in eliminating Medicare and Medicaid patients from the ESWL patient population, is This would not only pose an ethical d i l e m m a for the h e a l t h c a r e p r o v i d e r - - a s ESWL would then become a financially elitist treatment--but would also decrease the number of candidates for the procedure. It is recommended that physicians analyze the process by which the equipment acquisition decision is made. These capital investment decisions have a major impact on the way medical care is delivered within the hospital environment. By understanding the diverse factors that affect the decision to implement new technologies, physicians will be better equipped to play an active role in the decision-making process by which we practice medicine today. 1 Overlook Avenue, Apt. 11 Great Neck, New York 11021
References 1. Castro J: Critical condition, Time Magazine February 1, 1988, pp 42-43. 2. Russell LB: Technology in Hospitals: Medical Advances and Their Diffusion, The Brookings Institution, Washington, DC i 1979. 3. Feeny D: Neglected issues in the diffusion of health care technologies, Int J Tech Assess Health Care 1:681 (1985). 4. Mulley AG, et ah Lithotripsy, Ann Intern Med 103:626 (1985). 5. Shuster J, et ah Economic impact of kidney stones in white male adults, Urology 24:327 (1984). 6. Stamy TA: Extracorporeal shock wave lithotripsy, Mono~ Urol 8:80 (1987). 7. Riehle RA: Extraeorporeal shock wave lithotripsy, Bull N~ Acad Med 62:291 (1986). 8. Carter ED: Sclenhhc and pohtlcal issues m evaluating new~ technology: the case of shock wave lithotripsy, Israeli J Med sei'~ 22:231 (1986). 9. Draeh GW, et ah Report of the United States cooperativel study of extracorporeal shock wave lithotripsy, J Urol 135:112~1 (1986). 1O. Lingeman JE, et ah Extracorporeal shock wave lithotripsy~ the Methodist Hospital of Indiana experience, J Urol 135: 113~ (1986). 11. Neumann BR, e t a h Financial Management: Concepts anff Applications for Health Care Providers, Owings Mills, Maryland;i National Health Publishing, 1984. 12. Alder HC: Lithotripters: Noninvasive Devices for th Treatment of Kidney Stones. Hospital Technology Series Gui& line Report 4(9), AHA-012828. Chicago, IL, American Hospital Assoeiation, 1985. 13. Guyatt G, et ah Guidelines for the clinical and econoraii evaluation of health care technologies, Soc Sei Med 22:39 (1986). 14. Freedman GS, et al: Economic considerations in MR] Appl Radiol 13:55 (1984). I 15. Savin, JM: Financial Analysis Important in Buying High m Teeh Equipment, Modern Healthcare, October, 1985, pp 96-100 16. Cleverly, WO: Essentials of Hospital Finance, Aspen Sys: tems Corporation, Maryland, 1978. 17. Alder HC: Operating Characteristics of U.S. Lithotriptc Facilities, Hospital Technology Series Special Report 6(191 AHA12841, Chicago, IL, American Hospital Association, 1987i 18. Pear R: Hospital's Medieare Profits Drop: Decline Mal Curb Access to Care, The New York Times, Jan. 28, 1988.
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