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I've been considering how you have this robotic system that you're selling to hospitals, which come in various forms such as hospital systems and individual hospitals. I'm interested in the end buyers. How would you segment these types of buyers?

As you said, the US market is quite different from other regions. We have major hospital conglomerates in almost all cities. For example, 20 years ago, competing hospitals in New York City formed a group called Northwell Health, which started with Long Island Jewish, North Shore University, Long Island Jewish Hospital. They began acquiring smaller hospitals, eventually forming a large conglomerate of 23 or 24 hospitals. Similar trends occurred in other cities, like CMC in Charlotte, which acquired hospitals and changed its name to Atrium. This consolidation is beneficial for us as it provides a single negotiation point for an entire system. Instead of dealing with contracts for 23 different hospitals, we now negotiate a broad contract for Northwell. This simplifies the negotiation process, dealing with the same set of lawyers and terms. It essentially consolidated our business. We also deal with major national players like Kaiser Health, the VA and DoD, and HCA, which is the largest privately owned hospital network in the country. Many of these are now under long-term sole source agreements. For instance, HCA has decided not to purchase a significant share of other companies' robots due to a deal that sets their price.

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Which of these segments are the best fit for Intuitive Surgical to sell into?

The for-profit hospitals are by far the best fit. This is similar to Europe where the private hospitals are the most suitable. The needs of these organizations largely differ because they are all negotiating contracts with national payers. For instance, if I represent HCA, I might have a meeting with Blue Cross Blue Shield to demonstrate the value we provide that they may not understand compared to our competitors.

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Which of these segments are the best fit for Intuitive Surgical to sell into?

I would explain to them that with the use of a robot, we can discharge patients in 2.2 days as opposed to the six days it takes them. Our 30-day readmission rates are half of theirs. I would then propose a negotiation for a 45-day readmission rate, but for a higher payment. In essence, they share the risk with major payers based on their data on robotic performance, which gives them a competitive edge.

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