Sustainable Health Care: Protecting Hospitals’ Financial Health

Hospitals consume vast amounts of energy and generate huge streams of hazardous waste, so how they approach sustainability is important to environmental health. But the reverse is not necessarily true, at least according to some critics. Environmental sustainability, they say, is not essential to the well-being of the health care industry.

No one argues that health care in general — and hospitals in particular — need to reduce costs, especially as the Affordable Care Act comes online. But according to Scott D. Ramsey, a physician, health economist and researcher at the Fred Hutchinson Cancer Research Center in Seattle, “Sustainability is not a primary factor to really bend the curve in terms of reduced care costs for patients.”

He points to expensive new medical technologies and over utilization of tests and drugs as the main factors affecting costs. Victor Fuchs, a Stanford professor of economics and health policy, agrees, pointing out that the U.S. has a two-to-one ratio of specialists to primary-care doctors (it’s 50/50 in many other countries), and that these specialists “spend more money and use more exotic interventions and also get paid more per hour of work.” This is the reason, he says, that today, the per-person health care spending for Americans is twice the outlay it is in most of Europe.

“Green technology can help, but it won’t fundamentally alter the landscape,” Ramsey concludes. Other experts agree. “Going green is not goal number one or even goal number two,” says Mark Pauly, a professor of health care management at Wharton. “It’s not something facilities are going to commit an enormous amount of resources to.” Arnold “Skip” Rosoff, an emeritus professor of legal studies and business ethics at Wharton, goes even further. “Green is pretty far down on the priority list,” he says. “Maybe it’s 14th or 27th in terms of the dollar amounts saved compared to something that might be third on the list, like doctors’ salaries.”

Pauly believes that hospitals will eventually start to pay attention to sustainability, but only “when there’s enough external pressure on the hospitals to make them worry about it.” Rosoff sees the issue in more purely financial terms. “There’s certainly a tremendous amount of lip service paid to this, but I would think it’s the trustees of nonprofit hospitals or medical groups that are the most likely to be concerned with sustainability. At a for-profit facility, if energy efficiency is going to ultimately make money, that’s when the bean counters will decide to spend money on it.”

Others in the health care community believe it’s past time for the bean counters to start paying attention. According to Edward Emmett, a physician who is director of academic programs in occupational medicine at the University of Pennsylvania School of Medicine, “Health care systems lag many other industries both in the adoption of community-friendly goals for sustainable facilities, purchases and processes, and in their record of reaping financial rewards from sustainable practices. Given that health care costs are themselves widely considered unsustainable, this area seems ripe for improvement.”

Seema Wadhwa, director of sustainability at Inova Health Systems (a nonprofit with five hospitals in Virginia), says green “has a seat at our table” — and cost cutting has a lot to do with it. “We’ve had $1 million in annual savings through our sustainable health care initiatives,” she says. “It’s getting beyond just caring about the environment to really being a smart business decision that hospitals can’t afford not to do.”

According to Gary Cohen, a key figure in the creation of the initiatives Health Care Without Harm (in 1996) and Practice Greenhealth (in 2008), “The economic case for waste reduction and energy efficiency is very strong and does not require any commitment to sustainability, just a commitment to removing wasteful practices in the system. We produced a paper with the Commonwealth Fund that shows that if all the hospitals in the U.S. were reducing waste, implementing simple energy-efficiency measures and doing device reprocessing, we would save $10 billion on health care costs. In the constrained environment of health care reform, the economic case is critical.”

“The economic case for waste reduction and energy efficiency is very strong and does not require any commitment to sustainability….” –Gary Cohen

Just how important is sustainability to an institution’s success in the health care marketplace? “Can sustainability help capture market share?” asked Libby Bernick, a senior vice president of the Trucost research firm, at a recent Wharton conference titled, “Metrics that Matter, Messages that Motivate.” “The value is greater than zero — it’s significant, and it opens people’s eyes. Integrating sustainability into business models is critical to protect and grow market leadership, but you do need to show there is a financial benefit that affects the bottom line.”

Start with Energy

If there is one environmental budget item that seriously impacts the bottom line, it’s energy consumption. Midwest-centered Gundersen Lutheran, which some say is probably the greenest hospital chain in the country, estimates that most facilities can save 20% to 30% annually on their utility bills through conservation programs.

Greenwich Hospital in Connecticut received a mediocre Energy Star score of 47 (on a 100-scale), but after a major retrofit with a net cost of $113,000, it was rated at a passing 88 in 2010 and is now saving 1.7 million kilowatt-hours of electricity and $303,000 annually. The payback on that work was just six months.

Mary Larsen, environmental stewardship manager at Advocate Lutheran, which owns 11 hospitals in Illinois (and is not affiliated with Gundersen), put its core beliefs into practice by building, in Park Ridge, Ill., the first LEED Gold-certified patient tower in the Midwest. The eight-story, 192-bed facility has a green roof and a porous pavement driveway, reducing storm water runoff, and native plantings to reduce the need for irrigation. The building’s energy efficiency is 25% better than required by code. Forty three percent of the facility was built with recycled materials, and 93% of construction waste was also recycled.

All major Advocate construction projects will now meet at least LEED Silver designation. The 11 Advocate hospitals are known for their waste reduction efforts, and the chain’s Advocate Illinois Masonic Medical Center in Chicago is one of the most energy-efficient health facilities in the U.S.

Larsen says that Advocate is “seeing bottom-line benefits to environmental stewardship. When we conserve resources, we can’t help but save money.” She notes that the chain has realized $3 million in annual savings since 2008 from energy conservation measures. Energy consumption has been reduced 15%, weather adjusted.

Anne Papageorge is vice president of facilities and real estate services at the University of Pennsylvania. She said at the Wharton conference that the school’s green building program grew out of its Climate Action Plan, adopted in 2009 and calling for (among other things) a 17% cut in campus energy use from the 2007 baseline by 2014.

According to Papageorge, “Waste is very visible, and the challenge to address it is growing as we try to reduce our carbon footprint. We haven’t yet achieved the reductions we initially projected.” She added that buildings are a big source of energy waste, and Penn is well into the process of retrofitting its campus facilities. “If the buildings don’t become more efficient, we’ll pay higher utility rates,” Papageorge said.

Approximately 10% of the university’s emissions are from health care-related and clinical buildings, according to the Climate Action Plan. A hurdle to getting buy-in from faculty and staff was ensuring that any facility energy-efficiency work would not affect research, Papageorge said. Key features in Penn’s environmentally friendly medical buildings include efficient heating and cooling, optimized day lighting and advanced recycling.

Such improvements in energy efficiency are usually among the first steps that hospitals take towards sustainability. Less common but catching on fast is a switch to renewable energy, sometimes generated by the hospital itself.

Gundersen’s $6 million annual utility bill was growing by $350,000 every year when it set its goal of becoming energy independent in 2014. Considering the chain’s consumption footprint and recent 25% expansion, that was an ambitious undertaking. But Gundersen is closing in on its objective, thanks in large part to its own production of clean energy. The health system’s in-house grid produced electricity worth $889,000 in 2013. (As a point of comparison, its savings from recycling, reusing and remanufacturing totaled $535,000 in 2012, compared to a 2012 baseline.)

The key for Gundersen was building in its own wind, solar, biomass boiler (burning woodchips, it provides more than 60% of the health campus’ heat) and hydrokinetic energy facilities.

“We’ve had $1 million in annual savings through our sustainable health care initiatives.” –Seema Wadhwa

According to Jeff Rich, executive director of Envision, Gundersen’s environmental arm, Gundersen’s big investment in renewable energy will pay for itself in seven years. “We’re taking some pretty bold steps, but so far our successes outnumber our failures,” he says. “We’re already saving significant dollars.” Rich adds that the chain’s management sees the program as “two-sided green,” meaning it’s both a good investment, reducing costs to patients, and also a human health benefit because it reduces harmful emissions.

That last point is important to Gundersen, a mission-driven non-profit. “In 2008,” says Rich, “we did an energy audit and saw the opportunity to be more efficient with a 30% energy improvement in two years. At the same time, we were planning a new hospital that could actually have a net-zero energy balance. From there, we looked at what it would take to have the entire health system offset its energy use. By the end of 2008, we had convinced ourselves it was the right thing to do, both from a mission viewpoint, because fossil fuel combustion is harmful to health, and as a long-term hedge against inflation. Now, as our manure digesters are coming on line, we’re very close to achieving our goal.”

Gundersen is not alone in its generation of clean power. Johnson & Johnson’s Titusville, New Jersey solar installation totals 4.1 megawatts, providing 70% of the power for the health campus there. Worldwide, the company has more than 20 solar facilities, with over 18 megawatts of generating capacity. Johnson & Johnson’s total clean energy portfolio includes the following installations: 34 solar, 10 cogeneration, three biomass, three geothermal and two wind. According to the EPA, the company is the seventh-largest purchaser of renewable energy in the U.S.

Brian Boyd, Johnson & Johnson’s vice president of environment, health, safety and sustainability, said, “When we began our efforts in renewable energy, the corporate finance team was skeptical about the investment. But the average return from our clean energy investment is 19%, and we’re near to exceeding our goal of 50 megawatts of renewable generating capacity by 2015.” He made his comments at the Wharton conference, which was sponsored by Wharton’s Initiative for Global Environmental Leadership (IGEL) and Johnson & Johnson.

Use Less, Unplug More and Improve Performance 

One place that hospitals are looking for energy savings is medical imaging, which harbors some of health care’s most expensive and energy-intensive machines. According to the Department of Energy, “plug loads” represent about 16% to 18% of a hospital’s total site energy, and the single biggest plug load is imaging equipment. CT and MRI scanners are major energy users. Hugh Zettel, senior director for global marketing operations and Ecomagination leader at GE Healthcare, says that sophisticated MRI and CT scan machines “require significant amounts of energy to fulfill their clinical mission, as well as stringent room temperature requirements to ensure optimum performance.”

Hospitals can add to their bottom lines by simply unplugging machines that are not in use. Prasanth M. Prasanna, a physician at the University of Maryland Medical Center’s radiology department, conducted an efficiency survey in his own department. According to his 2011 account in the Journal of American Radiology, if all the equipment were shut down after an eight-hour work day, and electricity were 11 cents a kilowatt-hour, the annual energy savings would be 83,866 kWh, with a value to the department of $9,225.33.

The machines themselves can help minimize their energy consumption. The latest MRI and CT machines incorporate computerized energy-saving modes that Zettel says “gracefully shuts them down during off-hours and restarts them when appropriate.” That not only saves electricity, but also stops the machines from generating heat — reducing climate control costs. The electricity savings can be more than 20% annually.

Unplugging inactive machines would mean even more if the machines were used less often. And over-utilization of imagining equipment is a growing concern in hospitals. “Expensive new medical technologies are in some ways becoming less efficient,” said Scott Ramsey at the Wharton conference. “We’re conducting more tests and using more drugs in many cases with marginal outcomes.”

Radisphere is a Connecticut-based company that advises hospitals and health care providers on reducing over-utilization. According to Hank Schlissberg, chief strategy officer at the company, “By adopting a value-based radiology model — including following national standards to improve patient care and cut waste — we’ll likely diminish radiology’s current carbon footprint.”

To prove his point, Schlissberg says that CT scan ordering rates “vary by more than 100% at hospitals today, and curtailing this over-utilization will likely save energy by reducing the number of tests performed.”

Minimize Single-use, Maximize Reuse

For many years, single-use devices were considered essential to the practice of modern medicine, the only sure way to guarantee an instruments’ sterility. Disposing of these devices greatly increases a hospital’s waste stream. And since bio-hazardous “red-bag” waste is 10 times more costly to dispose of than regular municipal waste, disposing of single-use devices is an expensive proposition, according to Laura Wenger, executive director Practice Greenhealth (PGH).

“At the same time, we were planning a new hospital that could actually have a net-zero energy balance.” –Jeff Rich

Despite the environmental and waste disposal costs, the medical community was wary when companies started recycling these devices by reprocessing them. But as doctors, nurses and hospitals learn more about reprocessing, their resistance is fading. Wenger explains that the reprocessing companies put the devices through extensive sterilization and quality checks. “Every single reprocessed device has to be checked one by one, whereas new devices from original equipment manufacturers only have to be batch tested.”

This level of quality control is helping overcome hospitals’ initial reluctance to use reprocessed devices, says Wenger, as is the fact that “the FDA continues to approve more and more devices for reprocessing all the time.” And it doesn’t hurt that the reprocessed devices are generally priced 50% lower than new equipment.

Driven by reduced waste disposal costs and significantly lower purchasing costs, the market for reprocessed devices has been heating up in recent years. The acquisition of the two major reprocessing companies by large corporations — Sterilmed by Johnson & Johnson in 2011 and Ascent Healthcare Solutions by Stryker Corporation in 2009 — testifies to the vibrancy of the market.

While the market in the U.S. is developing quickly, several concerns are slowing things down in the European Union. One of the primary concerns is over who takes responsibility for the safety of the devices. In the U.S., explains Erol Odabasi, director of sustainability at Johnson & Johnson, this issue has already been resolved. “When we reprocess a device, all the liabilities transfer to Sterilmed. The original manufacturer does not maintain any of those liabilities, even though the device still has their label on it.”

Odabasi adds that these valid concerns demonstrate why device reprocessing needs to be highly regulated. “There’s a lot of risk, and the question of how far out in the future this will become standard procedure is up for debate,” Odabasi says. “But the certainty that reprocessing is part of the future is not up for debate. There are tremendous budgetary pressures in the health care system globally, and economic pressures will force the issue.”

Takeaways

  1. Sustainability is not the number one priority at health care facilities, but it’s getting a seat at the table. There is ample evidence that “going green” cannot only be beneficial to patients, but also to hospital bottom lines. Savings, according to one recent survey, could total $15 billion over 10 years. Top priorities: Appoint a sustainability officer and look for savings.
  2. Energy savings are low-hanging fruit for health care, but don’t always receive consideration. Conservation programs could result in 20% to 30% reductions in annual bills. Top priorities: Get a handle on your facility’s energy costs, adopt conservation measures and investigate renewable options (such as rooftop solar).
  3. There is a booming market in repurposed medical devices, which are not only half the cost of single-use equipment but also reduce medical waste disposal expenses. Further savings can be realized with the use of energy-efficient medical imaging. Top priorities: Use remanufactured devices and efficient machines where feasible.

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