The Rx for Greening a Healthcare Facility
Hospitals evoke images of antiseptic, brightly lit surgery theaters and massive, powerful imaging machines. In the U.S., hospitals are the second most energy-intensive type of commercial space per square foot and most senior decision-makers in the healthcare industry believe energy costs are the least controllable business cost. But that doesn't mean they are. Here's a look at how facility managers can create the business case for greener buildings and energy efficiency improvements in healthcare.
You'd think it wouldn't be this way. You'd think that of all the building types, hospitals -- places of healing, after all -- would be the greenest of them all. While it's true that healthcare has been a laggard in the green building movement, it's not completely out of the game. In fact, the Dell Children's Medical Center of Central Texas, in Austin, recently earned the platinum level LEED certification -- becoming the highest-rated LEED certified hospital to date. And it's not alone among green healthcare centers.
Tools and Resources
• Practice Greenhealth is among the industry groups that help healthcare companies become more sustainable.
Healthcare facilities are so energy- and resource-intensive that they represent a tremendous opportunity for improving energy management, while at the same time lowering operating costs and helping reach the goal of improving human health.
But for facility managers who are eyeing an energy efficiency overhaul, getting buy -- in from the folks in upper management isn't always an easy task. After all, budgets are tight and getting tighter.
The key to success is first proving the potential of an energy makeover, and then conveying its importance in financial terms. In other words: Learning to speak the language that C-level executives understand is essential.
A Case Study for Building a Business Case
When Skanda Skandaverl, the current director of facilities management at Lawrence Memorial Hospital in Lawrence, Kansas, started work at the hospital in the late 1980s, the facility was facing massive energy costs but had no plans for reducing consumption.
The hospital had two main buildings. One was constructed in the 1970s and the other was the original facility and many decades older. An onsite power plant, linked to both structures, provided heat through a boiler system and chiller-based cooling for the summer months. The older building was very poorly insulated, however, and this was extremely taxing the boilers and chillers, which were dated. Plus, the motors that churn an air-exchange system -- something vital to a healthcare setting -- were inefficient.
Skandaverl's initial plea for financing to make upgrades in the power plant failed, but that was an educational process for him, because it illuminated the budgeting priorities in healthcare settings.
"Clinical departments get priority," he says, "followed by new equipment with a good ROI. Budget for facilities management tends to rank very low on list."
And so Skandaverl decided to concentrate his efforts on making efficiency improvements that would cost no or little money but were likely to lead to quick savings. His team improved the insulation in the oldest building. It installed more energy efficient lighting. It tweaked its air handling system so that the building lost less of its conditioned air and was more balanced with outside temperatures. And the results of these efforts were evident in decreasing utility bills.
Armed with these results, Skandaverl again approached management. This time, however, he was buoyed by the results of his low-budget changes. He asked for $20,000 to fund the purchase and installation of smart meters that would improve the operation of chillers, boilers and air handlers. Because he had already shown the energy saving measures could lead to real savings, management granted him the funds and the facility saved $40,000 in energy costs during the first year that the meters were used. For upper management, a net savings of $20,000 plus a return on the investment within six months shed a new bright light on energy efficiency. And it fortified Skandaverl's wish to make energy efficiency an even greater focus.
In 1995, Lawrence Memorial expanded the hospital by 95,000 square feet. Skandaverl and his staff met with the architects and engineers and told them "everything you design has to consider energy savings." The new building incorporated skylights and tall windows, and all of the heating, cooling and lighting systems were energy efficient. It paid off hugely: After completing the expansion, the hospital's energy consumption barely went up. In fact, during one month it went down, prompting a visit from the local utility provider to check on the meters.
Image Courtesy of Lawrence Memorial Hospital
The utility workers told Skandaverl they were pretty sure there was a defective meter, or that there was something wrong with the transformer. "I nearly laughed and I said no, and I explained how I had brought consumption down," he says.
But Skandaverl says his biggest accomplishment came in 2002, when he presented his case to build a new, energy efficient power plant before another planned, major expansion started. The new plant, a 9,000-square-foot facility that cost $8.5 million, was approved because "we had done the homework and in the presentation showed how the hospital would save money and reinvest the savings into the facility," he says.
Business Case Elements
Beyond recognizing that budgets for facilities improvements tend to play second or third fiddle to other capital expenditures, it's also important to present requests for energy efficiency elements -- whether for renovations, expansions or new building construction -- in terms that upper management can understand. "We need to speak the language of the CFO and CEO, which is profit and savings," says Skandaverl.
Calculators and metrics tools (see the "Tools and Resources sidebar") available today did not exist when Skandaverl and other pioneers of energy efficiency in healthcare facilities, such as Richard Beam, director of energy management services for Providence Health and Services, started pushing for more sustainable building practices. Providence, a non-profit, Catholic healthcare system with 230 hospitals, clinics, education and housing facilities across the Northwest, built the first Gold LEED-certified hospital in the U.S. in Newberg, Oregon. The company was also a 2008 Energy Star partner of the year for sustainable energy management.
Beam agrees that making the business case is about making the numbers speak for themselves and about framing proposals in terms of how they'll impact the bottom line while also helping attain the goal of providing better health services. "I am always mindful that energy costs represent 2 percent of the total operating costs within a hospital, so it's not a major portion. If you were talking to a committee that is looking to spend capital, energy efficiency projects have to compete with other needs, some of which are more core to the operation of the hospital. A new MRI machine is going to drive revenue and support the mission. Those are higher priorities and that is the stark reality," he says.
However, that 2 percent can represents major money. The Environmental Protection Agency estimates that healthcare organizations spend more than $8.3 billion on energy each year to meet patient needs, so a compelling argument can be made for spending those dollars differently.
"If we identify an [energy saving] project that costs $300,000 with, say, a three-year payback, we could invest that $300,000 and reduce our operating costs by $100,000 a year and break even in three years. The other option is to reject the measure and continue to write those bigger checks to the utility company year after year after year," explains Beam.
Speaking of utilities, Beam notes that aside from demonstrating and quantifying payback from energy efficiency building projects, facilities staff should also consider outside funding sources.
"One way to make a business case more attractive is to identify what tax credits or other incentives are available for [a specific] project and make sure you insert that in your calculations," Beam says. As an example, he points to Puget Sound Energy, which services some of Providence's facilities in Washington. It is willing to pay up to 100 percent of the incremental costs of employing a measure that will reduce consumption.
In the coming months, states will begin spending the funding for sustainable development that is designated through the American Recovery and Reinvestment Act of 2009. This represents another source of financial backing for greener buildings.
Clark Reed, director of Energy Star's Healthcare Facilities Division, says facilities staff should characterize the money saved through energy efficiency projects as money earned. "Energy savings is bottom line profit," he explains. "That means we didn't have to generate revenue to create it. If a hospital is at 2 percent net operating margin, then for every $50 in revenue, it contributes a dollar to the margin. Say a department is saving $50,000 over a year through energy efficiency. That means it didn't have to raise $2.5 million in revenue to create that profit."
A study of Energy Star healthcare facilities determined that every dollar a nonprofit healthcare organization saves on energy is equivalent to generating new revenues of $20 for hospitals or $10 for medical offices.
Given the economy, funding is extremely difficult to secure in all industries today, so you may not be able to woo management with even the most dazzling business case for energy efficiency. Get creative. Perhaps management will agree to match each dollar of savings that you can generate through low-cost or no-cost efficiency improvement -- which Beam calls the lowest-hanging fruit -- with investment dollars for a larger project at a later date.
"In the past, the facilities departments didn't have a standard way to measure the performance of spending on energy efficiency, or a way to prove the ROI," says Skandaverl.
So take advantage of the metrics tools and calculators available through Energy Star and other programs.
"I call it connecting the board room to the boiler room," says Beam.
In Healthcare, the Bottom Line is Health
First and foremost, the decision-makers in healthcare have a mandate to support and improve patient health. The built environment plays a vital role in that mandate. The 1995 expansion at Lawrence Memorial created a very sun-lit building, which not only lowered heating costs but also boosted employee morale and likely aided recovery for patients. And the hospital's use of smart meters and sensors not only save energy, they also trigger supplemental heating or cooling systems to kick in as soon as problems are detected with the main systems, ensuring a more consistent and comfortable environment inside the building.
So going beyond the dollars and cents, it's important to connect the dots between improving the efficiency and comfort of the built environment with improving the health and vitality of the people inside the buildings.
Facilities managers increasingly play an important role in overall sustainability initiatives in healthcare settings. "It used to be just energy that we worked on," says Beam, "but now people from all over the company call me and ask about things like waste reduction, waste of materials, carpet, and paints with low volatile organic compounds. So my role has changed significantly in last five years."