S PE C IAL ADV ERT ISING SE CT ION NOVEMBER 2013 KEYS TO ENERGY SUSTAINABILITY IN HOSPITALS SPECIAL ADVERTISING SECTION In Stockholm, a new hospital is going up: The prestigious Karolinska Institute is rebuilding. With 1,000 beds, it will have an energy-use intensity (EUI) of roughly 50.a In the United States, the average hospital has an EUI of 250. What do they know in Sweden that we don’t? They know how to use common, ordinary energy strategies in an innovative way. One U.S. hospital executive who toured the area to see firsthand that the numbers were real commented, “These are strategies we could use today, under our own codes and standards and with our current technology.” The sponsor of that seeing-is-believing tour was the University of Washington’s Integrated Design Lab (IDL), developer of Targeting 100!, a road map to radically more energy-efficient hospitals at little additional first capital cost investment from the owner. Building on seven years of research, the IDL has generated its own cost, energy, and architectural models capable of achieving the 2030 Challenge for 2010-15: a 60 percent reduction in energy use (approximately 100 KBtu/square foot per year) by hospitals, which account for 5.5 percent of all energy consumed by commercial buildings, even though they represent less than 1 percent of all commercial buildings and 2 percent of all commercial floor space.b WHAT’S POSSIBLE The strategies IDL has imported from northern Europe, says director Joel Loveland, are largely designed to solve the perennial problem of ventilation, the primary energy driver in a. As defined at the ENERGY STAR website: “[EUI is] a unit of measurement that describes a building’s energy use. EUI represents the energy consumed by a building relative to its size. A building’s EUI is calculated by taking the total energy consumed in one year (measured in kBtu) and dividing it by the total floor space of the building.” b.Issued by Architecture 2030 to the global building community with the goal of ultimately reversing the growth rate of greenhouse gases: architecture2030.org/2030_challenge/the_2030_ challenge. 116 NOVEMBER 2013 healthcare financial management IDL has demonstrated that hospitals have many opportunities to increase energy efficiency as long as they set goals at the beginning of a new building project and the effort is led from the top. hospitals. “Moving massive amounts of air around huge spaces causes ‘reheat,’ in which the air is conditioned to the lowest cooling need (usually someplace in the middle of the building with no windows) and must then be reheated for the rest of the area, where it’s too cold,” Loveland says. “We’ve shown that hospitals can almost eliminate the need for reheating by reducing loads and changing how heat is distributed in the building.” One way of capturing that heat is to decouple the heating/cooling system from the ventilation system, which results in better air quality and individualized thermal control and contributes to a cut of 60 percent in energy use. The Targeting 100! approach involves moving from the mechanical-system level to the higher-enterprise level, says Loveland’s IDL colleague, Heather Burpee, research assistant professor, health design and energy efficiency. Under this approach, managers concentrate first on reducing loads and then apply energyefficient technologies or strategies to those reduced loads, Burpee says. SPECIAL ADVERTISING SECTION “For example, we cut the heating load in the building by using daylighting and solar control with high-quality envelope construction,” Burpee says. “With less solar gain, we don’t need as big a chiller, which means we save money up front. This savings can then be used on external shading strategies to further cut the load.” Some of the technologies that can then be applied are commonplace in most other building types but are only now emerging in health care. For example, displacement ventilation, which involves bringing fresh air in at the floor and letting it displace the hot, stale air at the ceiling level, was recently accepted by the National Institutes of Health as an acceptable method for ventilating patient care areas. “Ventilation has been a very intransigent problem because of the epidemiology implications and the fear of litigation,” Loveland says. “But European hospitals have been using displacement ventilation systems for more than a decade.” Over half a dozen years of research, IDL has demonstrated that hospitals have many opportunities to increase energy efficiency as long as they set goals at the beginning of a new building project and the effort is led from the top. WHAT’S HAPPENING According to Burpee, every dollar saved on energy by a hospital with a 4 percent operating margin is equivalent to $25 in gross revenue. That formula takes on special significance in the context of reform, says Andrew Quirk, senior vice president and national leader of Skanska USA Building’s Healthcare Center of Excellence. “In the face of decreased payment and rising penalties for poor outcomes, hospitals need to look at other ways to bolster revenue and make their bottom line more robust,” Quirk says. Quirk’s advice for hospital leadership? “Be courageous.” “Energy sustainability offers potentially huge dividends, both socially and economically, in terms of savings and revenue. With the shift in emphasis to the outpatient setting, in particular, there’s an opportunity to build new medical office buildings or surgery centers—or retrofit old ones—to be more efficient.” For the most part, says Quirk, hospitals convinced of this are going after low-hanging fruit that offers a sizeable bang for the buck, such as: > Buying new plumbing fixtures, including low-flow faucets and toilets and urinals that don’t use any water > Upgrading lighting systems to include LED lighting > Using occupancy sensors, so lights go off when no one’s in the room > Getting newer, more efficient motors for large pieces of equipment, such as chillers and boilers But some organizations are starting to set their sights on higher-hanging fruit in the form of the central energy plant (CEP). “There are hospitals now that are starting to replace major CEP components—new chillers, boilers, air handlers—or build brand-new CEPs that have a smaller footprint and use highly efficient equipment,” Quirk says. (See the exhibit on page 118.) There are also hospitals, Quirk explains, that are moving to the next level: co-generation (“co-gen”), using multiple sources of energy. The idea is to use the best energy at the lowest cost at the right time of day or season—for example, using electricity at night, when it’s hfma.org NOVEMBER 2013 117 SPECIAL ADVERTISING SECTION Becoming more energy efficient is a laudable goal. Becoming energy independent is something else entirely. cheapest, and switching over to gas-run equipment during the day, when it’s most expensive. “A co-gen plant is more costly to put in, but that investment will start paying dividends as the overall energy cost goes down,” Quirk says. “In this, as in other aspects of sustainability, health care needs to look to other industries— such as big-box retail—for best practices.” Quirk’s advice for hospital leadership? “Be courageous.” “Some of the technology is new, but someone has to be the first, or second, or third to implement fresh strategies,” Quirk says. “Many ENERGY-EFFICIENT ROI Expenditures on EnergyEfficient Features Savings/ Year ROI (Years) Revenue Generation/ 15 Years 500,000square-foot hospital $1,725,000 $600,000 2.7 $7.8 million 250,000square-foot hospital $560,000 $200,000 2.8 $2.4 million Source: Skanska USA. Figures are from actual Skanska USA Building projects, in which chillers-boilers, controls, lighting, and fixtures were chosen for maximum energy efficiency. 118 NOVEMBER 2013 healthcare financial management hospitals don’t realize that they can—and should— demand that their architects design any new facility to new energy expectations: 60 percent less energy use, for example, and an ROI of three years for the incremental costs. And then when presented with new solutions to achieve this, hospitals need to have faith in the people and the science to move forward.” A PROFILE IN COURAGE: GUNDERSEN HEALTH SYSTEM Becoming more energy efficient is a laudable goal. Becoming energy independent is something else entirely. Gundersen Health System, LaCrosse, Wis., which includes a 325-bed tertiary care hospital and 41 clinics, is on track to become the first U.S. health system to produce more clean, renewable energy than it consumes from fossil fuel sources in 2014, six years after it launched its environmental program. Called Envision®, the program committed Gundersen to: > Meeting 100 percent of its energy needs by improving energy efficiency and creating renewable energy > Using environmentally and economically sustainable business practices > Partnering with communities to encourage sustainable economic growth and development > Using a portfolio of green energy projects as a tool to reduce the cost of patient care “I really have to give our CEO [Jeffrey Thompson, MD] and our board of governors a lot of credit,” says Envision® executive director Jeff Rich. “It takes a lot of courage, foresight, and leadership to set such a big goal and stay with it for six years.” In the same way that Targeting 100! focuses first on reducing loads, Envision® spent much of its first two years on efficiency measures before moving on to renewable energy projects. Those measures included retrofitting light fixtures with updated technology ($265,000/year savings) and reprogramming SPECIAL ADVERTISING SECTION the cooling system ($65,000/year savings); together, they led to a 25 percent improvement in energy efficiency, saving $1.3 million annually in energy costs on an investment of $2 million. (See the exhibit below.) “Instead of importing natural gas from other states and nations, we’re now fueling our boiler with woodchips from our region, providing a revenue source for local companies for whom they are a waste product,” Rich says. Most hospitals across the country can save 20 to 30 percent on their energy bills if they focus on energy conservation, but few of them do, Rich says. “The best thing to do as a good environmental steward is to take those first steps before even thinking about going forward with renewables, because dollar for dollar, that’s where you get the most return—and then when you are ready for renewables, you don’t have to go as far.” The hospital also capitalizes on the fact that the ground temperature in northern latitudes is a constant 50 degrees 100 feet below the surface by using a geothermal heat pump. In the summertime, Rich explains, they bring up that colder air to cool the facilities. “And in the wintertime, we start with 50 degrees rather than bringing in colder outside air, which saves a lot of money on our heating bill. This will be the biggest energy saver in the new replacement hospital we will start building next year.” When you are ready for renewables, Rich’s advice is to conduct a feasibility study first, understand your geography, and leverage what you have near you. For example, Gundersen is surrounded by forests, streams, and agriculture, so it takes advantage of things like biomass (the use of organic materials such as wood or crop residues for fuel) and biogas (think cows), rather than going after solar in a major way. (See the sidebar on page 120.) Renewable energy projects can take two to four years to develop, due to extensive permitting and contracting, although the construction cycle is usually just months in length, Rich says. So, it’s important to spend a little bit of time and money up front, making sure the project will be able to deliver the anticipated ROI. 390 370 350 330 310 290 270 250 Millions Millions ENERGY CONSERVATION RESULTS, GUNDERSEN HEALTH SYSTEM 5.5 5 4.5 4 3.5 3 2008 2008 2009 2010 2011 2012 2009 2010 2011 2012 Utility Bill KBtu Source: Envision®, Gundersen Health System. Starting with a baseline of a $5.3 million spend on natural gas and electricity, Gundersen Health System spent $3.9 million in 2012, despite having added square footage since the Envision® program began. hfma.org NOVEMBER 2013 119 SPECIAL ADVERTISING SECTION It’s important to spend a little bit of time and money up front, making sure the project will be able to deliver the anticipated ROI. “The road map we developed in 2008 has changed several times; not every project goes forward,” Rich says. “We have a set of criteria and thresholds we have to meet, and we also don’t want to take undue risk, where something is maybe on the bleeding edge vs. the leading ENVISION® RENEWABLE ENERGY PROJECTS La Crosse Campus Underground Parking Garage Photovoltaic –Installed in July 2008 Onsite Day Care Center Solar Hot Water –Installed in April 2010 GL Wind 4.95 MW Lewiston, Minn., Project –Installed in December 2011 La Crosse County Landfill Gas Project (1.137 MW) on GL Onalaska Campus –Installed in March 2012 Cashton Greens 4.998 MW Wind Project –Installed in May 2012 Onalaska Renal Solar Hot Water –Installed in June 2012 Biomass Boiler –Installed in March 2013 Middleton Dairy Manure Digester –Production initiated in October 2013 Sun Prairie Dairy Manure Digester –Targeted production for March 2014 120 NOVEMBER 2013 healthcare financial management edge. We tried to do a low-impact, free-flow, river hydro application that did not pan out. We spent about six months developing that, and the economics got to be such that they were really no better than a wind project, and yet the risk was much higher.” On the other hand, Rich says, sometimes things come along that you can’t anticipate, like partnerships. As a not-for-profit health system, Gundersen does not have a large tax liability and therefore cannot use most of the tax benefits available from state and federal incentive programs for renewable energy, but it has pursued several joint ventures with local partners that could. One example is a twoturbine wind site in Lewiston, Minn. WHAT’S NEEDED In the past three or four years, Thomas A. Miroslaw, CEM, vice president and global energy manager, energy and sustainability services, Jones Lang LaSalle (JLL), and his JLL colleagues have observed energy management in many hospitals and hospital systems. Miroslaw says a good portion of them don’t have an energy plan. They work hard to procure energy as cost-effectively as they can, and when they’re ready to build a new facility, they often talk about sustainable operations and will build to LEED specifications. “Then you go into some of their older facilities, and you see that they could have spent the money there and had a bigger impact from an energy efficiency perspective,” Miroslaw says. “If they are doing something innovative in the existing footprint, like LED lighting for parking structures, it’s often at the facility manager level, where they cobble together some of their capital dollars. But it’s not necessarily being driven by a higher calling, by a CEO or CFO who’s interested in building a more sustainable enterprise, so it takes a long time to trickle up.” '• &• • ' '' % %! # % • ! • ! "%&• "(& ! • ( ' "!& *! %&• ! • ! %&• %"&&•' • "(!'%,•& " # ,•* ' • ") %! ! ! ! •'"•" ' !• ! ! ! !' •% #"%' ! •% $( % •#"& ' "!• "! !'& •"%•&'% ! ' ! !' ,•'%(&'• % ! # • ) ( ' "!• ! • ) &"%,•& %) & •• (%• +# % ! #%" && "! &• !• +# %' ,• ! ) ( ' "!•! ' & •• ( ' "!• "%• •#%") • • '•" •,"(% •& %) &• "%• • % • !' ' & • %" •) ( ' "!&•" •# ,& #% ' &•'"• " ' "!•" •#(% "&# ' •&,&' & ••• & •#% %!•* ,•,"(%• ) ( ' "!• ! • ) &"%,•! • &'• "!%" •-• ( ' • •-• "• • •-• ! " #% ! # ) ( ' "! " *** #% ! # ) ( ' "! " • "% • !) ' •,"(•'"• "!' '•(& • ! •'"• '%( ,• • ! '' %• %! # &• % SPECIAL ADVERTISING SECTION Even when a hospital has achieved certain goals, it’s just as important to maintain that level of conservation and sustainability and continue to look for new opportunities to mitigate rises in energy prices. For example, Miroslaw points out, utility companies come knocking at the doors of their biggest customers on a fairly regular basis, offering incentives to help meet their regulatory mandates for energy efficiency improvements. In such cases, a facility manager might have some discretionary money to use as matching funds for what are often relatively small projects. But that manager doesn’t always report to the C-suite. Facility managers are also unlikely to be in a position to establish, commit to, and monitor enterprisewide energy goals—or to remain vigilant even when those goals have been met. Even when a hospital has achieved certain goals, says Miroslaw, it’s just as important to maintain that level of conservation and sustainability and continue to look for new opportunities to mitigate rises in energy prices, for example. Ten years ago, he points out, nobody knew that LEDs would replace fluorescent lights as easily as they have. “You may not achieve 6 percent savings every year—because you do have to keep the lights on—but if you take your eye off the target, you’re going to move in the wrong direction, 2 or 3 percent a year,” Miroslaw says. In fact, most hospital CFOs don’t know how much their organizations have saved on energy 122 NOVEMBER 2013 healthcare financial management in recent years, Miroslaw says. “They’re looking at it from a large capital investment perspective. Presented with a 30-year-old chiller that is clearly inefficient but would cost $2 million to replace, what the CFO wants to know is, is it still running? Because a new one may take five to eight years to pay for itself, and it’s competing with a new suite for a physician who’s going to bring in millions of dollars in new revenue in a year.” What hospitals really need, says Miroslaw, is a focused energy/sustainability manager. But could such a position pay for itself? “Absolutely—given that energy accounts for probably 25 to 30 percent of hospitals’ operational expenses; given that, typically, a 10 percent savings is achievable without major investment; and given the finding that every energy dollar saved is equivalent to $25 in gross revenue,” Miroslaw says. It doesn’t have to be someone in the C-suite, Mirsolaw says, “although that would be ideal, especially at an enterprise level, but they should certainly report to the top executives.” And it should be someone who can look at sustainability from a program perspective, in the broadest sense: Are we recycling everything we should? Are we being good stewards of the environment? How can we take advantage of the green energy possibilities when we’re remodeling a wing? How can we change behavior at all levels of our organization? Someone, in fact, like Kay Winokur, RN, MHA, vice president, quality, safety and accreditation, Beaumont Health System. A PROFILE IN FOCUS: BEAUMONT HEALTH SYSTEM Beaumont, a three-hospital regional health system with 1,700 total beds headquartered in Royal Oak, Mich., launched its Green & Sustainability five-year plan in 2012 with two purposes in mind: becoming better stewards of Big Enough to have experience in every aspect of healthcare real estate... Small Enough to understand that your experience matters most. When it comes to healthcare real estate, you need the resources of a big firm and the personalized attention of a small company. Lillibridge has access to capital that can strengthen your healthcare organization, as well as a team of professionals that will put it all together for you. Our experts can acquire and manage your existing MOBs more efficiently, or assist you in building a new facility in just the right spot. When you need us, just whistle! Michael O. Lincoln, Executive Vice President (312) 676-4777 or [email protected] Lillibridge.com (877) 545-5430 SPECIAL ADVERTISING SECTION its own and the world’s resources and lowering the cost of health care. Using the Healthier Hospitals Initiative as a framework, the system committed to meeting the six challenges generated by Practice Green Health:c > Engaged leadership > Healthier food > Leaner energy > Less waste > Smarter purchasing > Safer chemicals Spearheaded by Winokur, the system has so far implemented 55 projects that have resulted in $2.1 million in savings. Fifteen of those were capital energy projects, which cost $922,099 and, collectively, are saving Beaumont $1.3 million annually. These projects are designed to c. This initiative is a call to action for healthcare organizations to join the shift to a more sustainable business model and a challenge for them to address the health and environmental impacts of their industry: healthierhospitals.org/about-hhi/what-we-do. ENERGY PROJECTS & ENERGY STAR Energy Saving Projects Capital projects with less than a two-year payback 55 projects in 2012 ENERGY PROJECTS 2012 Energy project expense $922,099 Rebates $306,510 Full-year energy savings $2,138,063 Energy Star 0-to-100-point rating scale Determines how effective your organization is compared with other hospitals that are also in Energy Star’s system 2011 2012 Royal Oak 15 23 Troy 55 62 Grosse Pointe 5 39 Source: Jones Lang Lasalle, Beaumont Health System. Having already reached a 3 percent reduction in energy consumption, Beaumont Health System is in the bottom 50 percentile of ENERGY STAR’s rating of participating hospitals—“Not that great,” says Winokur, “but quite a rise from where we started, in the bottom 25th percentile.” 124 NOVEMBER 2013 healthcare financial management drive down energy use by 3 percent by implementing more efficient systems, including changing out T12 lighting fixtures to more efficient T8 ones, upgrading parking decks/lot lighting to LED, and adding variable frequency drive to air handling units and chiller pumps. (See the exhibit below.) Key to getting this done in such a short time, says Winokur, is stakeholder engagement, starting with systematic communication with leadership. The Green Steering Committee— about 15 to 20 people responsible for making things happen in the plan’s six different focus areas, who meet once a month, go over performance metrics, and plot next steps—reports progress to the community, the executive management committee, organizational leadership, and the medical staff. The system issues an annual sustainability report. The other two foundational elements of the plan, Winokur explains, are the system’s capital investments and, just as important, its attempts to change human behavior, centered around two innovations: green officers and kaizens. Green officers. Of Beaumont’s 14,000 employees, 500 have already become certified green officers—in essence, the system’s ambassadors for spreading the message and changing behavior throughout all three campuses. Having taken a two-hour course designed to educate frontline staff on all six Green & Sustainable program challenges, including a pre- and post-test, green officers are tasked with taking the initiatives back to their departments, modeling green behaviors, recruiting more green officers, and looking for ways Beaumont can become even more green. You can recognize green officers, Winokur says, by the snazzy team logo pins on their ID badges. “They’re invited to bimonthly town SPECIAL ADVERTISING SECTION halls, where we bring in inspiring and educational speakers from inside and outside the hospital. We ask them to post developments in their departments on our internal Green Team Blog, so others can learn. And I always send them emails when something of interest comes across my desk.” Kaizens. Kaizen is a Japanese term for an improvement that you can make rapidly and, if it doesn’t work, change back equally rapidly. A kaizen energy conservation team—consisting of a hospital administrator (Winokur), a plumber, an electrician, an IT specialist, a project manager, and the energy manager—meets two days a month to tour different areas of the hospital and look for down-and-dirty ways to save energy. To date, their suggestions have saved Beaumont more than $60,000 in annual utility costs, Winokur says. Examples demonstrate the range of possibilities hiding in the open in today’s hospitals: > Drinking fountain coolers were unplugged, except for 20 fountains, on which refill stations for water bottles were installed. Savings: $14,000/year. > Timers were installed on 110 commercialsized coffeepots, which have a water line plumbed right into them; instead of heating water 24/7, they now come on and off at 6 a.m. and 6 p.m., respectively. Savings: $34,000/year. > Public and staff restrooms were converted to low-flow toilets and urinals, reducing water usage by 5,040,000 gallons annually. Savings: $257,040/year. SUCCESSFUL REAL ESTATE MONETIZATION FUNDS STRATEGIC GROWTH “We are very exceptionally pleased with the work done by Raymond James to bring this transaction to a successful conclusion, and with the flexibility the transaction will provide us as we continue to expand in geography, scope and scale, taking a leading role in health care transformation for the benefit of the patients and communities we serve.” – Hal Teitelbaum, MD, JD, MBA, Managing Partner & CEO, Crystal Run Healthcare and to-be-developed real estate, including MOB, ambulatory surgery centers and administrative offices. In recommending the appropriate financing alternatives, we considered each asset’s importance related to Crystal Run’s strategic plan, economic development tax credits, and the asset’s marketability and value to investors. Following the SOA we conducted a monetization of a portfolio of six buildings totaling over 362,000 sf to help finance Crystal Run’s ACO Crystal Run Healthcare is a nationally recognized and cutting-edge multispecialty physician enterprise with over 300 physicians practicing in the Hudson Valley of New York State. The company is one of six accredited physician-hospital network ACOs. strategy. The marketing process was highly competitive, generating proposals from a wide universe of buyers. The monetization generated $141,000,000 of sales proceeds, which significantly exceeded the capital required for the ACO strategy, providing liquidity and We executed a Real Estate Strategic Options Assessment (SOA) capital for growth. For further information, contact Laca Wong- for Crystal Run with respect to the organization’s portfolio of owned Hammond at 212.314.0406. H EA LT HCAREF INA NCE @R AYM ONDJAM ES.C OM // R JHE ALT HCAR E FI NANC E .C OM CHICAGO // MEMPHIS // NEW YORK // PHILADELPHIA // ST. PETERSBURG This testimonial may not be representative of the experience of other clients and is no guarantee of future performance or success. Past performance is not indicative of future results. ©2013 Raymond James & Associates, Inc., member New York Stock Exchange/SIPC. 13-PF-0093 CW 10 /13 hfma.org NOVEMBER 2013 125 SPECIAL ADVERTISING SECTION > Hallway lights, previously left on 24/7, were turned off and signs put on their switches. Savings: $15,983/year. “You have to change the culture as well as the lights,” says Winokur. “In our environment, a light on in your office meant you’re here. If you left for a two-hour meeting and turned the light off, everyone would think you’d gone home for the day. Now, if you walk down the hall and someone’s not in their office and the light’s on, that’s considered a breach of green etiquette.” BENDING THE COST CURVE A common concern among hospital executives is that costs associated with sustainability interventions will outstrip any savings accrued. Not so, report researchers in an issue brief issued last winter by The Commonwealth Fund.d Based on data from a study of five hospitals, which reduced energy use from a low of 3.1 percent to a high of 24.2 percent for a fiveyear cumulative net savings per square foot of 72 cents, the researchers concluded that such d.Kaplan, S., et al., Issue Brief: Can Sustainable Hospitals Help Bend the Health Care Cost Curve? The Commonwealth Fund, November 2012. ONLINE RESOURCES Healthier Hospitals Initiative healthierhospitals.org Targeting 100! www.idlseattle.com/t100 Integrated Design Lab, University of Washington idlseattle.com Gundersen Health System Envision® Program gundersenenvision.org Practice Greenhealth practicegreenhealth.org 126 NOVEMBER 2013 healthcare financial management An organizational culture of commitment to sustainability, set by the board and top leadership, was as important a factor in cost savings as the settings of the specific activities undertaken. costs are relatively small and that investments yield positive returns within a short time frame. “Projecting the study hospitals’ savings to hospitals nationwide, we conclude that just a few environmentally friendly interventions [e.g., lighting upgrades, variable-frequency drives, high-efficiency electric motors, steam insulating jackets, occupancy sensors for public areas, zone air handler scheduling, thermostatic valves on radiators/heaters] could produce more than $5 billion in five years and triple that figure after 10 years. We also found that an organizational culture of commitment to sustainability, set by the board and top leadership, was as important a factor in cost savings as the settings of the specific activities undertaken.” It appears as though a growing number of courageous and focused hospitals have gotten the message. ■ Healthcare Financial Management Association Three Westbrook Corporate Center, Suite 600, Westchester, Illinois 60154
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