Study: Hospitals Can Offset Costs by Reducing Energy Use
In the wake of the economic recession and reforms instated by the Affordable Healthcare Act (AHA), the impact to hospitals’ bottom line remains uncertain. According to a recent report by Moody’s, the federal government will cut reimbursements to hospitals by more than $150 billion over the next 10 years. While the AHA increases the number of people who have access to care and lowers the levels of uncompensated care, it still remains to be seen whether the incremental revenue generated will offset the potential compression in margins. And recent cuts due to sequestration muddy the financial waters even more.
Facility managers now must find new ways to reduce costs and maintain already tight operating margins while providing quality care to patients and vital support to their communities. Many have simply looked for ways to trim any remaining fat, but some forward-thinking hospitals and health systems are starting to understand that greater energy efficiency can advance patient-care goals and are devoting more attention and resources to conservation initiatives.
To that end, a groundbreaking new study provides an innovative and cost-effective way for newly constructed hospitals nationwide to offset continuing economic challenges by reducing energy consumption by an average of 62 percent. The study, titled Targeting 100!, identifies a process that integrates architectural, mechanical and central plant systems to deliver significant efficiencies. The biggest breakthrough comes from addressing the reheating of centrally-cooled air — the largest contributor to wasted energy in a hospital — which represents more than 40 percent of annual heating energy usage.
“More than any other single research initiative, Targeting 100! is effectively transforming U.S. healthcare to meet the low-energy and low-carbon future,” said Robin Guenther, the sustainable healthcare design leader at architecture firm Perkins+Will. “Every project team should dive deep into this pool of resources and use it to inform early design decision making.”
By combining energy-reduction design solutions — including sun and daylight shading controls, vacant room sensors, outdoor air supply with heat recovery systems, modified air delivery systems, thermal energy storage, and improved air-tightness and high insulation values in windows and walls — a newly constructed, code-compliant hospital in the range of Targeting 100! saves between $500 and $800 thousand a year in energy costs. By simply redesigning the way that healthcare facilities use energy, they can be both environmentally and financially sound. Hospitals looking to capitalize on AHA incentives to upgrade their current facilities may also improve energy performance by using similar strategies during renovations.
The newly released research, which is discussed in detail at the University of Washington’s Integrated Design Lab’s website, extends an earlier regional study conducted in Seattle in 2007. Those results prompted the U.S. Department of Energy and the Northwest Energy Efficiency Alliance’s BetterBricks to provide the research team — a close collaboration between the IDL and several partners, including NBBJ, one of the nation’s leading healthcare architectural firms, energy and engineering consultants SOLARC, and construction and cost-management firm TBD Consultants — with a $1.3 million grant to determine whether the same results were achievable throughout the United States. The research also included intensive peer review by engineers, general contractors, utilities, hospital CEOs and facilities managers.
“That’s one aspect of our work that makes it unique,” said Heather Burpee, a health-design and energy-efficiency research assistant professor at University of Washington’s Integrated Design Lab. “Our peer reviewers — who came from all aspects of the design, construction and operation of hospitals — provided invaluable guidance and grounded our research in reality. Our primary goal is to get this research into the hands of people who are truly able to make a change.”
The new study looked at six distinct and diverse climate zones in the United States’ most populous regions —including New York City, Los Angeles, Chicago, Houston, Phoenix and Seattle — to determine if integrated design methods could cut energy consumption and operating costs for hospitals nationwide. The team conducted a complete reassessment of the architectural systems, building mechanical systems and central plant systems to find a code-compliant path that achieves the highest-quality, lowest-energy hospital design for the least additional capital cost.
The resulting integrated-design approach delivers a 62 percent average reduction in energy consumption across all climate zones—and a 9 percent year-over-year average return on investment. Depending on the climate zone, local construction and utility costs, and design scheme, hospitals can see up to a 51 percent return on investment. (see NYC building type A plant 2).
“We started this research to confirm our ability to meet high performance goals. What we discovered was a world of complex relationships,” said Duncan Griffin, a principal and sustainable-design expert at architecture firm and study partner NBBJ. “We learned that only through integrated design are we able to realize the true potential of human comfort and high performance in a cost effective way. It’s changing the way we practice architecture today.”
NBBJ has designed several healthcare facilities that incorporate Targeting 100!’s strategies, including Seattle Children’s Bellevue Clinic, the University of Washington Medical Center’s Montlake Tower Expansion, and a large hospital in Northern California. That hospital will see an annual energy cost benefit of approximately $1,325,000 — a return on investment of more than 50 percent that will pay back the provider’s initial investment in less than 2 years. According to the project’s engineer, the total investment needed to implement the energy-reduction strategies amounted to less than one year of typical operating costs.
A Healthier Bottom Line
Hospitals are notorious energy hogs. Because they operate 24/7 and must follow strict lighting, air circulation and heating codes, they eat up 2.5 times the energy as a commercial building of the same size — and emit a similar proportion of CO2 into the atmosphere. According to ENERGY STAR, a program of the U.S. Environmental Protection Agency, the U.S’s 8,000 hospitals spend a whopping $5.5 billion on energy every year and use approximately 5 percent of all energy consumed in the U.S., including transportation, industry, and buildings. A typical hospital’s energy bill runs $1-3 million a year depending on its size and location.
Because energy represents just one or two percent of hospital’s operating costs, energy-efficiency advocates have long struggled to get the attention of the C-suite. But Targeting 100’s results should make even the most conservative administrators take note. Implementing its strategies requires a minimal 3 percent design and construction cost increase but leads to an average 9 percent return on investment each year. An average hospital—functioning at a 2-3 percent operating margin—would need to generate an extra $20-30 million in revenue to have the same impact on the bottom line. Put simply, by reducing operating costs, a hospital can improve its operating margin by 25-33 percent.
Reducing operating costs means putting more cash towards other revenue-generating capital improvements like upgraded MRIs, cutting-edge medical technologies, renovations to aging facilities and increased levels of charity care, which in turn means hospitals are able to provide better service to their patients — and better support to their communities.
A Healthier Planet
The average hospital, many of which rely on power generated by coal, oil and natural gas, dumps about 15,000 tons of carbon into the atmosphere every year. Such emissions lead to and aggravate health conditions linked to poor air quality, like asthma and cardiovascular disease — an obvious inconsistency with the mandate to “first do no harm.” Yet many major players have been slow to go green.
The average energy savings for one Targeting 100! hospital prevents 4,500 tons of carbon from entering the atmosphere each year. According to the EPA’s greenhouse gas equivalencies calculator, that’s the same as the amount of carbon removed from the atmosphere by adding 3,400 acres of forests, taking 850 passenger cars off the road, or removing 600 households from the grid every year. When explosive growth in developing countries is factored in — it’s estimated that over the next decade, China will build as many as twice the number of hospitals currently operating in the U.S. — the implications of reducing the carbon footprint of healthcare institutions worldwide are staggering. By reducing energy use, hospitals improve the health of the global environment and their local environment, as well.
Healthier Patients, Staff and Community
Designers, researchers and health professionals have long recognized that healthy, healing interior environments are imperative for patients, but they are now realizing that abundant daylight, fresh air, views of the outdoors, and individual control of light, temperature and fresh air are crucial for staff comfort, as well.
By incorporating strategies like daylighting and improved air circulation, Targeting 100! makes healing and working spaces healthier and more enjoyable. Better work conditions help recruit and retain high-quality staff, which can reduce a facility’s human-resource related costs by hundreds of thousands of dollars a year.
These same design strategies make hospitals more resilient in times of emergency, energy crisis and natural disaster. A Targeting 100! hospital can run longer on less energy and continue to function when less efficient facilities might be forced to shut their doors — or severely compromise their services and patient health and safety.
The Time Is Now
Facility managers, engineers, architects and builders have often passed up opportunities to design and build healthcare facilities more efficiently because the return on investment was not immediate or because they felt they had no choice but to follow traditional models. But the proven Targeting 100! strategies can be implemented today using existing technologies in any climate zone, meaning it has important national — and even global — implications.
“Targeting 100! has delivered to the healthcare sector a compelling and preferred response to deep cuts in federal reimbursements that will require dramatic reductions in operational costs,” said Richard Beam, the construction and sustainability system director for Providence Health & Services. “It prescribes an energy-efficiency remedy that will ensure our shrinking revenue supports quality patient care in an environmentally responsible way. Targeting 100! is good for the patient — whether the Earth or humankind.”
In the face of widespread uncertainty about the fiscal impact of healthcare reform, these strategies reduce the pressure on hospitals to increase the volume of services to sustain already minimal revenue margins—or to cut corners or shed low-margin services. Forward-thinking, fiscally-healthy facilities can implement these strategies today to provide future opportunities for both gain and good.