HEALTHCARE

ROLE OF ENERGY


The healthcare sector consists of four main facility types: medical offices, outpatient health, nursing and assisted living homes, and inpatient hospitals. Core to each provider type’s mission is improving the health of their patients. Hospitals are by far the most energy-intensive type and use on average 259 kBTU per square foot annually. Nursing home/assisted living facilities come in at a distant second at 143 kBTU per square foot, followed by clinic/outpatient centers at 124 kBTU per square foot, and finally medical office buildings at 78 kBTU per square foot.1 In hospitals, the largest percentage of energy goes towards heating (30%), followed by water heating (14%), then cooling (12%). For outpatient facilities, heating accounts for 27% of energy use, followed by ventilation at 24%. Unlike inpatient hospitals, hot water for outpatient facilities accounts for only 2% of energy use.2

Total Energy Consumption by End Use

Historically, hospitals have invested in energy efficiency projects on a one-off basis. According to the Northwest Energy Efficiency Alliance, hospitals have not invested in holistic Strategic Energy Management, in part because of a perceived conflict between healthcare goals and energy efficiency.3 And, because utility spending typically accounts for less than 2% of a hospital’s overall budget (1.4%, according to the National Renewable Energy Laboratory 4), it may be difficult to capture the attention of decision makers facing other competing priorities. Healthcare providers exist to provide medical care and improve the health of their patients.

To that end, many health-related companies and organizations are starting to connect the dots between their mission and their operations’ impacts on human health. The Healthcare Clean Energy Exchange has an online calculator that can provide a healthcare provider with a quantified estimate of the impact of their energy consumption expressed in terms of a corresponding number of annual premature deaths, asthma attacks and direct medical costs. 5 This tool can also be used to calculate the savings in these same metrics from energy efficiency improvements. Hospitals operate on low profit margins, with for-profits averaging 5% and non-profits averaging closer to 2.5%. Private physicians’ offices achieve much higher profits, with net margins typically at 13%.6

YARDSTICKS 1


  • Revenue per Patient Visit (physicians/specialists) – The 2013 national average for per-patient revenue at non-surgical doctors’ offices was $349.14.7
  • Revenue per Adjusted Discharge (hospitals) – The 2012 national average for revenue per patient discharge was $8,465, with large community hospitals earning $8,004 per patient discharge.8
  • Employee Retention Rates – Attracting and retaining talent is an ongoing struggle in the healthcare industry, as demonstrated by high turnover rates. For example, nursing home/assisted living facilities have a yearly retention rate of 73%, while the retention rate for residential caregivers is only 56%.9
  • Occupancy Rates (for Nursing Home/Assisted Living Facilities) – Attracting and retaining residents is an important driver of revenues and profits in nursing homes/assisted living facilities. The average occupancy rate across these facilities was 89.3% at the end of 2014.10

YARDSTICKS 2


  • Revenue per Patient Visit (physicians/specialists) – The 2013 national average for per-patient revenue at non-surgical doctors’ offices was $349.14.7
  • Revenue per Adjusted Discharge (hospitals) – The 2012 national average for revenue per patient discharge was $8,465, with large community hospitals earning $8,004 per patient discharge.8
  • Employee Retention Rates – Attracting and retaining talent is an ongoing struggle in the healthcare industry, as demonstrated by high turnover rates. For example, nursing home/assisted living facilities have a yearly retention rate of 73%, while the retention rate for residential caregivers is only 56%.9
  • Occupancy Rates (for Nursing Home/Assisted Living Facilities) – Attracting and retaining residents is an important driver of revenues and profits in nursing homes/assisted living facilities. The average occupancy rate across these facilities was 89.3% at the end of 2014.10

WIDGET EQUIVALENTS 1


The concept of “widget equivalent” is useful when describing how many units of a company’s given product or service would have to be sold and delivered to generate a top-line revenue figure… that would in turn generate a given amount of bottom-line profit… that would in turn equal the dollar value of a proposed upgrade’s projected savings (considering both energy and other monetized/quantified savings). As an example, if a company sells a $1 widget at a net margin of 5%, one could compare an upgrade that promises to deliver $1,000 in savings to making and selling 20,000 widgets. More specifically, dividing the $1,000 projected savings by $0.05 equals 20,000 widgets. More conservative analyses along the same lines might perform the calculation using contribution margin, EBIT/Sales, EBITDA/Sales, or some other margin. [EBIT is Earnings Before Interest and Taxes, while EBITDA is Earnings Before Interest, Taxes, Depreciation and Amortization.]

  • Profit Margins
    • For-profit hospitals – 5%
    • Non-profit hospitals – 2.5%
    • Private physicians – 13%11
  • Number of patients served – General Physicians serve on average between 18 and 22 patients per day12 and have average per-patient revenues of $349.14.13

The concept of “widget equivalent” is also useful in another context because it helps a prospect visualize the impact of reallocating dollars that are currently wasted paying unnecessarily high utility bills and maintenance expenses to more worthwhile purposes. Most healthcare facilities have a long list of projects that could be funded by the savings generated by energy efficiency initiatives.

  • Piece of medical equipment – One historical barrier to decision-makers in the medical facility industry investing in energy efficiency is that they would rather spend available funds on medical equipment like MRI machines. Such a purchase would provide the organization with a powerful new revenue driver, as well as another important tool for providing patient care. The cost of such diagnostic equipment varies widely, and is in part dependent on whether the equipment is new or refurbished, and whether it is leased or purchased. A proposed energy upgrade’s projected monthly savings could help the facility acquire that new equipment.

WIDGET EQUIVALENTS 2


The concept of “widget equivalent” is useful when describing how many units of a company’s given product or service would have to be sold and delivered to generate a top-line revenue figure… that would in turn generate a given amount of bottom-line profit… that would in turn equal the dollar value of a proposed upgrade’s projected savings (considering both energy and other monetized/quantified savings). As an example, if a company sells a $1 widget at a net margin of 5%, one could compare an upgrade that promises to deliver $1,000 in savings to making and selling 20,000 widgets. More specifically, dividing the $1,000 projected savings by $0.05 equals 20,000 widgets. More conservative analyses along the same lines might perform the calculation using contribution margin, EBIT/Sales, EBITDA/Sales, or some other margin. [EBIT is Earnings Before Interest and Taxes, while EBITDA is Earnings Before Interest, Taxes, Depreciation and Amortization.]

  • Profit Margins
    • For-profit hospitals – 5%
    • Non-profit hospitals – 2.5%
    • Private physicians – 13%11
  • Number of patients served – General Physicians serve on average between 18 and 22 patients per day12 and have average per-patient revenues of $349.14.13

The concept of “widget equivalent” is also useful in another context because it helps a prospect visualize the impact of reallocating dollars that are currently wasted paying unnecessarily high utility bills and maintenance expenses to more worthwhile purposes. Most healthcare facilities have a long list of projects that could be funded by the savings generated by energy efficiency initiatives.

  • Piece of medical equipment – One historical barrier to decision-makers in the medical facility industry investing in energy efficiency is that they would rather spend available funds on medical equipment like MRI machines. Such a purchase would provide the organization with a powerful new revenue driver, as well as another important tool for providing patient care. The cost of such diagnostic equipment varies widely, and is in part dependent on whether the equipment is new or refurbished, and whether it is leased or purchased. A proposed energy upgrade’s projected monthly savings could help the facility acquire that new equipment.

WIDGET EQUIVALENTS 3


The concept of “widget equivalent” is useful when describing how many units of a company’s given product or service would have to be sold and delivered to generate a top-line revenue figure… that would in turn generate a given amount of bottom-line profit… that would in turn equal the dollar value of a proposed upgrade’s projected savings (considering both energy and other monetized/quantified savings). As an example, if a company sells a $1 widget at a net margin of 5%, one could compare an upgrade that promises to deliver $1,000 in savings to making and selling 20,000 widgets. More specifically, dividing the $1,000 projected savings by $0.05 equals 20,000 widgets. More conservative analyses along the same lines might perform the calculation using contribution margin, EBIT/Sales, EBITDA/Sales, or some other margin. [EBIT is Earnings Before Interest and Taxes, while EBITDA is Earnings Before Interest, Taxes, Depreciation and Amortization.]

  • Profit Margins
    • For-profit hospitals – 5%
    • Non-profit hospitals – 2.5%
    • Private physicians – 13%11
  • Number of patients served – General Physicians serve on average between 18 and 22 patients per day12 and have average per-patient revenues of $349.14.13
  • Piece of medical equipment – One historical barrier to decision-makers in the medical facility industry investing in energy efficiency is that they would rather spend available funds on medical equipment like MRI machines. Such a purchase would provide the organization with a powerful new revenue driver, as well as another important tool for providing patient care. The cost of such diagnostic equipment varies widely, and is in part dependent on whether the equipment is new or refurbished, and whether it is leased or purchased. A proposed energy upgrade’s projected monthly savings could help the facility acquire that new equipment.

SOUND BITES


  • Adequate lighting decreases prescription-filling errors. A study found that pharmacists who perceived their lighting as adequate identified more process errors (11.8%) than those pharmacists who perceived their pharmacy lighting as being inadequate (8.5%). In effect, the perception that lighting was adequate resulted in a 38.8% improvement in the ability to detect mistakes during dispensing.14 A second study also found that higher illumination levels reduced dispensing errors by over 30%15. With dispensing errors occurring at a rate of 4 per 250 prescriptions filled, this equates to over 51 million dispensing errors occurring a year nationwide16. A 30% reduction would decrease errors by about 15 million. For a busy pharmacy averaging 250 prescriptions filled per day, that could mean more than 400 fewer dispensing errors per year.
  • Every dollar a healthcare organization saves on energy has the same impact on the profit margin as $40 of revenue in non-profit hospitals or $20 of revenue in for-profit hospitals, assuming the above-referenced profit margins of 2.5% and 5%, respectively. For large hospitals, this can result in millions of dollars of equivalent revenue.
  • Defective HVAC equipment can increase the risk of hospital-acquired infections. An air-handling unit serving a surgical suite for cardiac patients was found to be responsible for increasing the post-operative infection rate to 9% from 1%. Upgrades to the system provided consistent temperature and humidity levels, among other improvements, resulting in a decrease in the infection rate to less than 1%.17
  • Upgrades to HVAC systems may also reduce airborne hospital-acquired infections resulting from poor indoor air quality.18 Hospital-acquired infections on average resulted in 6.5 extra days in the hospital, with the average cost to treat of nearly $14,00019 – charges which go unreimbursed by Medicare and cannot be billed to the patient.

The concept of “widget equivalent” is also useful in another context because it helps a prospect visualize the impact of reallocating dollars that are currently wasted paying unnecessarily high utility bills and maintenance expenses to more worthwhile purposes. Most healthcare facilities have a long list of projects that could be funded by the savings generated by energy efficiency initiatives.

  • Retrocommissioning a hospital’s complex building systems can provide Facility Services departments with a much better understanding of how their systems actually operate and serve as training to improve their technical skills. The Director of Facilities at a large hospital was able to save $180,000 a year (representing a payback of less than one year), without impacting patient comfort. The training his department received by going through the process was extremely valuable as well.20
  • Investing in energy efficiency during good financial times can better position a healthcare organization for periods of decreased revenue. An executive at a Presbyterian Senior Living Center believes that if they had invested in energy efficiency sooner, the results they have achieved so far would have prevented them from needing to lay off 130 workers (4.5% of their staff) when they experienced decreased move-in rates in the wake of the 2008 financial crisis. 21
  • If a hospital’s HVAC equipment is noisy, improved patient outcomes may occur by upgrading to more efficient (and quieter) equipment. Studies have found a link between increased noise levels and stress on patients – from newborns in intensive care units to cardiac patients.22
  • The Center for Health Design analyzed more than 120 independent studies before concluding that clinical outcomes improve when patients receive quality-centered care in a healthcare facility where the temperature, humidity and indoor air quality are effectively managed.

TRADE ORGANIZATIONS AND PUBLICATIONS


    Organizations
  • Ambulatory Surgery Center Association - www.ascassociation.org
  • American Hospital Association – www.aha.org
  • American Medical Association – www.ama.org
  • American Society for Healthcare Engineering - www.ashe.org
  • Children’s Hospital Association - www.childrenshospitals.org
  • Healthcare Financial Management Association - www.hfma.org
  • Healthcare Supply Chain Association - www.supplychainassociation.org
  • National Community Pharmacists Association - www.ncpanet.org
    Publications
  • Journal of Hospital Administration - www.sciedu.ca/journal
  • Healthcare Executive Magazine - www.ache.org/HEOnline/digital/heonline_index.cfm
  • Hospitals & Health Networks - www.hhnmag.com
  • Modern Healthcare - www.modernhealthcare.com
  • Health Leaders Media - www.healthleadersmedia.com
  • Healthcare IT News - www.healthcareitnews.com

SOURCES


[1]National Renewable Energy Laboratory. Advanced Energy Retrofit Guide: Practical Ways to Improve Energy Performance, Healthcare Facilities. Retrieved from http://www.nrel.gov/docs/fy13osti/57864.pdf

[2]United States Energy Information Administration. (2016). 2012 CBECS Survey Data [data file]. Retrieved from http://www.eia.gov/consumption/commercial/data/2012/

[3]Hughes, K. & Price, S. (2015, April 9). NEEA Hospitals Strategic Energy Management (SEM) Initiative: Energy Efficiency Market Transformation and Lasting Impact. NEEA. Retrieved from www.neea.org

[4]National Renewable Energy Laboratory. Advanced Energy Retrofit Guide: Practical Ways to Improve Energy Performance, Healthcare Facilities. Retrieved from: http://www.nrel.gov/docs/fy13osti/57864.pdf

[5]Healthcare Clean Energy Exchange. Healthcare Energy Impact Calculator. Retrieved from http://www.eichealth.org/

[6]Biery, M. E. (2013 December 1). One Thing Aiding Doctors These Days? Margins. Forbes. Retrieved from http://www.forbes.com/sites/sageworks/2013/12/01/business-trends-doctors-offices-industry-data/#3cfbd2126d13

[7]Medical Group Management Association (2014) MGMA Cost Survey: 2014 Report Based on 2013 Data – Summary Findings Report. Retrieved from http://www.mgma.com/Libraries/Assets/Key-Findings-CostSurvey-FINAL.pdf?source

[8]Truven Health Analytics. (2013). How Do You Compare? Truven Health ActionOI Key Financial, Labor, and Operating Metrics. Retrieved from https://truvenhealth.com/portals/0/assets/HOSP_12657_0513_HowDoYouCompare_PRINT.pdf

[9]National Center for Assisted Living. (2015, February). Findings from the NCAL 2013 Assisted Living Staff Vacancy, Retention, and Turnover Survey. Retrieved from: https://www.ahcancal.org/ncal/operations/Documents/VRT%20Report%202013%20FINAL.pdf

[10]National Investment Center for Seniors Housing & Care. (2015, January 9). Seniors Housing Occupancy Continues Recovery, Rent Growth Steady, and Initial Construction Level Shows Marginal Decrease. Retrieved from https://www.nic.org/news-press/seniors-housing-occupancy-continues-recovery-rent-growth-steady-and-initial-construction-level-shows-marginal-decrease/

[11]Biery, M. E. (2013, December 1). One Thing Aiding Doctors These Days? Margins. Forbes. Retrieved from: http://www.forbes.com/sites/sageworks/2013/12/01/business-trends-doctors-offices-industry-data/#3cfbd2126d13

[12]Merritt Hawkins. (2013). 2013 Physician Inpatient/Outpatient Revenue Survey. Retrieved from: http://www.merritthawkins.com/uploadedFiles/MerrittHawkins/Pdf/mha2013revenuesurveyPDF.pdf

[13]Medical Group Management Association. (2014). MGMA Cost Survey: 2014 Report Based on 2013 Data – Summary Findings Report. Retrieved from http://www.mgma.com/Libraries/Assets/Key-Findings-CostSurvey-FINAL.pdf?source

[14]Grasha, A.F. (2001, May 14). Understanding Medication Errors: A Cognitive Systems Approach. Medscape Multispecialty. Retrieved from http://www.medscape.org/viewarticle/418538

[15]Buchanan, T. L., Barker, K. N., Gibson, T., Jiang, B. C., & Pearson, R. E. (1991). Illumination and errors in dispensing. American Journal of Health-System Pharmacy, 48, (2137-2144). Retrieved from http://www.safetyleaders.org/SafePracticeArticles/illumination_and_errors_in_dispensing.pdf

[16]Flynn E. A., Barker, K. N., Carnahan, B. J. (2003). National Observational Study of Prescription Dispensing Accuracy and Safety in 50 Pharmacies. Journal of the American Pharmaceutical Association,43 (2), 191–200. Retrieved from https://www.scriptpro.com/Studies/National-Dispensing-Accuracy-Study/

[17]Rubin M.D., Haya R., Owens, A. J. & Golden, G. (1998). An Investigation to Determine Whether the Built Environment Affects Patients’ Medical Outcomes. The Center for Health Design. Retrieved from: https://www.healthdesign.org/chd/knowledge-repository/investigation-determine-whether-built-environment-affects-patients-medical-

[18]LBNL Indoor Environment Group. Ventilation Rates and Respiratory Illness. Retrieved from https://iaqscience.lbl.gov/vent-illness

[19]Chan, Y. (2016, March 16). Healthcare Energy Efficiency: How to Communicate to the “C” Suite. Ohio Hospital Association. Retrieved from http://ohiohospitals.org/OHA/media/Images/Membership%20Services/Energy/Energy%20Cup/York-Chan-(03-16-16).pdf

[20]National Renewable Energy Laboratory. Advanced Energy Retrofit Guide: Practical Ways to Improve Energy Performance, Healthcare Facilities. Retrieved from: http://www.nrel.gov/docs/fy13osti/57864.pdf

[21]Mitchell, J. (2014, March/April). Smart Energy Savings in Senior Living. LeadingAge Magazine. Volume 4, Number 2. Retrieved from http://www.leadingage.org/Smart_Energy_Savings_in_Senior_Living_V4N2.aspx

[22]Ulrich, R., Zimring, C., Quan, X., Joseph, A., & Choudhary, R. (2004). Role of the Physical Environment in the Hospital of the 21st Century. The Center for Health Design. https://www.healthdesign.org/chd/research/role-physical-environment-hospital-21st-century

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