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%
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