Is energy efficiency the key to hospital financial health?

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The last decade has been rough on the healthcare industry, for both public and private organizations. The global recession, coupled with rising healthcare costs, has resulted in the universal need to do more with less. Compounding this financial strain, the number of people aged 60 or over is expected to nearly triple from 700 million to 2 billion by the year 2050, putting additional stress on hospitals to meet growing demand from their communities.

How are healthcare organizations handling this increasing financial pressure? Some hospitals are looking to cut both staff and services. A recent article in the Chicago Tribune states that job cuts were part of the 2012 budget-cutting strategy for many major hospitals across the U.S. But nurses, doctors, and health organizations question whether staff cuts can be made without serious impact to patient safety.

This may be one reason why hospital energy management is now gaining more attention as a way to reduce operating costs without sacrificing quality of care. The 2011 Hospital Energy Management Survey, conducted by Health Facilities Management Magazine and ASHE, found that 60% of respondents had either already implemented a strategic energy management plan or planned to do so in the next 2 years.

Energy typically accounts for 2.5% to 5% of a hospital’s total operating costs, and there are many opportunities to reduce energy use or improve efficiency in atypical facility. As Delbert Reed, Director of Facilities Engineering at Ben Taub General Hospital in Houston, Texas states in the HFM/ASHE survey, “There’s a tremendous amount of savings that can be achieved beyond what we’re saving now.” And his hospital is a prime example, with over $800,000 saved per year just by reducing the pressure level on boilers and adjusting air and water temperature settings. While energy management may not be THE key to hospital financial health, healthcare CFOs might want to consider adding it to their overall budget strategy, if they haven’t already done so.

So, what are the options to better manage and reduce hospital energy? Hospitals can often achieve up to 10% in energy savings through simple improvements, such as building optimization, utility rate reviews, and installation of variable speed drives. But the big savings come in the form of a comprehensive energy management strategy that can include ambitious programs such as building upgrades, extensive metering and monitoring of hospital energy use, and creation of an integrated healthcare infrastructure, as well as resource and sustainability planning.

Of course, comprehensive energy management usually requires an aggressive investment and comes with a longer payback period. But it can also offer up to 30% energy savings, which could add up to over a million dollars a year.

What’s more, such programs can often be funded through third-party financing and guaranteed energy savings, a concept known as performance contracting, which mitigates most of the financial risk.

And according to Reed, “For a hospital with a 3 percent operating margin, saving a dollar in energy is equivalent to generating $33 in new revenues.”

What could that extra revenue do for your healthcare facility?

Let us know what type of energy management strategy your hospital has. Leave your comments below.