How Energy Efficiency can Improve the Financial Health of Healthcare Facilities

Healthcare is the fastest growing sector of the American economy and last year became the leading source of jobs in the country, overtaking the retail and manufacturing sectors as the nation’s largest employer. In fact, the U.S. Department of Labor’s Bureau of Labor Statistics reports that healthcare-related industries account for seven of the top 12 spots on its list of the fastest employee and wage growth industries.

The growth in healthcare is driven largely by an aging population of Baby Boomers (with Generation X coming up quickly behind them), coupled with advances in medicine and the treatment of chronic diseases that have led to longer life expectancies. Economists estimate that Americans spent $3.67 trillion on healthcare in 2018 – a number that’s expected to climb to $5.7 trillion by 2026.

Some portion of that healthcare spending goes toward the energy used in hospitals, nursing homes, rehabilitation centers, medical offices and urgent care facilities. According to the Health Care Climate Council, the U.S. healthcare sector spends $9.6 billion a year on energy. That equates to about 4% of the entire nation’s energy use. In addition, a study done by the engineering society ASHRAE estimates that hospitals use 2.5 times of the amount of energy per square foot consumed by other commercial buildings because of the 24/7 nature of their business and the critical care they provide for sick or elderly patients.

However, comparing healthcare facilities to other commercial buildings in terms of their energy needs is something of a fallacy because of the critical role that energy plays in a healthcare facility’s operation. If an office building or retail store loses power for a few hours, the impact can be measured in lost productivity or lost sales – a frustrating situation to be sure, but hardly a matter of life and death. The same can’t be said for a hospital, though, where the loss of power can have a life-threatening impact on patients in the operating room or connected to life-sustaining medical equipment.

It’s also hard to compare healthcare facilities to other commercial energy users because of the variety of energy-consuming equipment that can be found in those facilities. In addition to heating, ventilation, air conditioning, water heating and lighting, many healthcare buildings also have on-site food service and laundry operations, offices and medical equipment ranging from patient monitors to MRIs. Energy can account for 51% of a hospital’s facilities budget, according to the American Society of Healthcare Engineering, with heating, ventilation and air conditioning claiming up to 40% of that amount.

The single most important reason for healthcare facilities to save energy is to reduce costs and increase operating margins. A survey by Modern Healthcare of 179 hospitals, rehabilitation and acute care facilities found an average operating margin of 3.1%, with 14.5% of the institutions surveyed actually having negative operating margins. In other words, healthcare facilities are really getting squeezed. They face rising labor costs as many employees on the low end of the wage scale – like hospital orderlies, maintenance workers and aides – are receiving higher salaries because of a tighter job market and actions by many states to increase the minimum wage.

At the same time, revenues are declining as health insurers negotiate lower rates for medical services and a larger percentage of patients are covered by Medicare and Medicaid – programs that generally reimburse healthcare facilities at lower rates than private insurers. The rapidly increasing number of older patients on Medicare and Medicaid translates into hospitals making less money on those patients. Saving money through energy efficiency is a way for hospitals to help offset the rise in labor costs and the decline in insurance payments. In fact, cost reductions from energy efficiency improvements boost profitability more dramatically than revenue increases. The federal government’s Energy Star program estimates that every $1 saved in energy costs is equal to $20 in patient revenue for hospitals and $10 for medical offices. Energy Star also states that for-profit hospitals, nursing homes and medical offices that reduce their energy bills by only 5% can increase their earnings by a penny a share.

But while increased profits are desirable, the primary focus of any healthcare facility is patient care. Money that’s not being spent on energy can be invested into improving patient care. Rapid advances in medical technology require hospitals to continually invest in new and better equipment. By freeing up capital from energy costs, hospitals have the cash available to purchase the latest life-saving equipment for their patients.

In addition to the financial benefits that energy efficiency offers for healthcare facilities, there are other advantages to cutting energy use – one of which is fully aligned with the mission of those facilities to promote a healthier population. The Health Care Climate Council reports that healthcare facilities are responsible for 8% of all the commercial building sector’s greenhouse gas emissions. They predict that by the year 2030, a 30% cut in the healthcare industry’s electricity use could reduce greenhouse gas emissions to a level that would prevent an estimated 4,130 premature deaths, 85,000 asthma attacks, 4 million respiratory symptom events and 3,750 hospital visit incidents — saving about $1.2 billion in medical costs. By reducing their energy use and its related greenhouse gas emissions, healthcare facilities can demonstrate their recognition of those emissions as a public health issue and further establish themselves as guardians of their communities’ wellness.

Energy-saving technology also offers the benefit of improving the comfort of patients and visitors by putting control over lighting and temperature levels into the hands of individuals. Instead of the old one-size-fits-all approach of having a single setting for the entire building, personal room controls empower patients to manage their own comfort. Patient health is also protected through energy efficiency, with state-of-the-art HVAC systems contributing to the suppression of hospital-acquired infections. According to research by the Centers for Disease Control, one in 25 patients will suffer at least one infection acquired in the healthcare environment. By using specialized HEPA filters, HVAC systems can reduce particulate matter and support the ongoing efforts of medical personnel to prevent infections.

Hospitals and healthcare facilities also serve as pillars of their communities and are widely admired for the good work they do. By making a commitment to environmental protection and supporting the fight against climate change through energy efficiency, healthcare facilities demonstrate an enhanced level of leadership that will earn them an even greater amount of admiration and respect. This type of leadership by example may even encourage other businesses in the area to adopt similar energy-saving measures for their facilities.

Healthcare is a topic that dominates virtually any political discussion today as the nation grapples with the ever-increasing need of providing quality health services to an ever-expanding population of elderly Americans. As hospitals, nursing homes and other institutions struggle with rising operating costs and declining insurance payments, finding ways to cut expenses without sacrificing patient care has become essential. Investing in energy efficiency upgrades is a cost-effective means of achieving these savings… and so much more.