keys to energy sustainability in hospitals

S PE C IAL ADV ERT ISING SE CT ION NOVEMBER 2013
KEYS TO
ENERGY
SUSTAINABILITY
IN HOSPITALS
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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.
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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.
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“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
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NOVEMBER 2013
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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.
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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.”
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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
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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
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aspect of healthcare real estate...
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When it comes to healthcare real estate, you need the resources of a big firm and the
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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!
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(312) 676-4777 or [email protected]
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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.”
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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
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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
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> 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
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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