ROI-Driven Decision-Making for High-Cost Medical Devices

Cost & Return on Investment (ROI) as Primary Adoption Barrier

• Central Message:

  • The speaker repeatedly emphasizes that cost—and specifically the ability to justify it through ROI—is the “main thing” when deciding whether to purchase a new medical device.

  • No other factor (e.g., clinical novelty, peer pressure, marketing) appears to be as decisive as the financial calculus.

• Key Definition:

  • ROI = \frac{\text{Net\ Profit}}{\text{Total\ Investment}} \times 100\%

  • A positive ROI (and preferably a short pay-back period) is required before management will approve expenditure.

• Ethical/Practical Implication:

  • Even devices with potential clinical benefit may be deferred if the breakeven timeline is unclear, illustrating the tension between patient care and financial sustainability.

Breakeven Analysis Process

• Step-wise Decision Path

  1. Calculate Up-Front Investment

  • Example mentioned: purchasing cost ≈ 1 crore INR (≈ 10~\text{million} INR).

  1. Focus on Breakeven—Not Profit Yet

  • First milestone is to “match our breakeven, our investment”; only after recovering the principal do they target profits.

  1. Local Market Assessment

  • Must evaluate demand “in your surrounding area.”

  1. Time-to-Breakeven

  • Implicitly, management asks: “How soon can we cover ₹1 crore?”

• Canonical Formula: \text{Breakeven\ Point (units)} = \frac{\text{Fixed\ Costs}}{\text{Price\ per\ Procedure} - \text{Variable\ Cost\ per\ Procedure}}

  • If the device is used for endoscopy, replace “units” with “number of procedures.”

• Illustrative Example (Hypothetical):

  • Fixed cost = ₹1 crore; variable cost/procedure = ₹1,500; price charged = ₹6,500.

  • Contribution margin/procedure = ₹5,000.

  • \text{Breakeven\ Procedures} = \frac{1\,00\,00\,000}{5\,000} = 20,000 \text{ procedures}.

Sources & Channels for Learning About New Devices

• Informal Inquiry

  • The interviewer tries to ask: “Where do you usually hear about new devices?”

  • Transcript does not contain a concrete answer, but implies that information might come from:

  • Internal departmental interest (e.g., “someone in your department is interested”).

  • External market channels (trade shows, reps, journals) — inferred but not explicitly stated.

Practical Recommendations for Decision Makers

• Quantify Demand Early: Survey regional case load to estimate procedure volume.

• Run Multiple Scenarios: Best-case, expected, worst-case breakeven times.

• Consider Ancillary Revenue: Post-procedure consumables or maintenance contracts can affect ROI.

• Stay Informed: Establish systematic channels (industry conferences, peer networks) to evaluate competing technologies before committing large capital.

Broader Connections & Significance

• Finance vs. Innovation: A common hospital dilemma where capital budgeting disciplines can delay clinically beneficial tech.

• Alignment with Previous Lectures (assumed context):

  • Builds on earlier discussions of capital expenditure (CAPEX) approvals and cost-effectiveness analysis.

• Real-World Relevance: Particularly acute in low- and middle-income settings where ₹1 crore investments represent a sizable share of annual budgets.