7/27/2019 Healthcare Energy Wp Tac 5

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White Paper

Energy Eiciency Projects Ensure Healthy Financial Perormance or Healthcare Facilities | 5

As stated previously, energy use in the healthcaremarket has increased by 36 percent since 1995.

Despite this increase, energy efciency initiatives

have historically been overlooked as an option to

reduce costs. Hospital administrators and chie

fnancial ofcers (CFOs) have typically ocused on

implementing new technologies, reducing sta

numbers, and improving processes to reduce

costs. In act, in a recent survey o hospital CFOs,

decreasing utility costs was not even mentioned

as a way to cut expenses.4 And therein lies the

disconnect.

Increased energy costs are consuming profts

that could be reinvested to aid a hospitals growth

and support patient-centric projects. By investing

in energy efciency projects now, hospitals can

reduce ongoing operating costs and reinvest

their savings to purchase new equipment and

technologies. Hospital campuses could be

expanded with a new wing or outpatient centre.

New community care initiatives, such as specialty

clinics or diabetes care or geriatric medicine, could

be launched to address the aging populations

medical needs.

Why is energy being overlooked? Because

energy costs typically represent only 25 percent

o a hospitals total operating budget5, hospital

management ocused on traditional cost-cutting

measures, such as:

Reducing sta numbers and/or sta benefts:

This option could potentially make a nursingshortage even more critical and lead to an increase

in the risk o medical errors. Lower stafng levels

have been linked to higher numbers o adverse

outcomes, such as urinary tract inections,

pneumonia, shock, and ailure to rescue.6

Renegotiating with suppliers: Although

renegotiating pricing with suppliers may improve

the bottom line or one to two years, it is difcult

to sustain such savings over the long term,

especially as the economy begins to improve.

Remove services: Sometimes hospitals choose

to no longer oer specifc services, such as end-

o-lie care or nonmedical procedures. Due to the

poor economic climate that prevailed throughout

2009, hospitals have most likely exhausted this

option. Making additional cuts could jeopardize

patient care and customer service.

Hospital administrators should be armed with

the knowledge that i energy costs increase by

25 percent over the next fve years as predicted,the average hospital proftability could decrease

by up to 0.5 percent. This reduction is signifcant

when you consider that the average hospital has

a proftability o only 3.3percent.7 That translates

to approximately 1/6 o a hospitals profts lost

due to increased energy prices alone. The fgure

below shows the fnancial impact or a fctitious,

average 235-bed hospital. This analysis assumes

that the hospital spends 2.39049 million on

energy/utilities a number based on the average

energy spending by hospitals in the U.S (Figure

3). This amount varies slightly in Europe and rom

hospital to hospital, and depends partly on the

climate zone and current energy efciency, as well

as the hospitals energy intensity (i.e. the number o

operating theatres and types o technology used).

Traditional cost-cutting measuresvs. energy eiciency initiatives

4 Based on average hospital data rom the Hospital Financial Management Association.

5 Students and Directors, EHESP School, Advanced Studies in Public Health. Intermedica Hospital Expo, 2008.

6 Stanton MW, Rutherord MK. Hospital nurse stafng and quality o care. Rockville (MD): Agency or Healthcare Research and Quality; 2004.

Research in Action Issue 14. AHRQ Pub. No. 04-0029.

7 Based on average hospital data rom the Hospital Financial Management Association.

Figure 3. Financial impact o 25% rise in utility costs

Current fnancial

perormance

(,000)

I utility costs

rise 25%

(,000)

Total operating

revenue

159,259 159,259

Total operating

expenses

154,066 155,029

Income (loss) rom

operations

5,193 4,230

Margin 3.3% 2.7%