Why a New Path May Unlock Needed Hospital Upgrades

Hospital networks, and the healthcare real estate sector generally, have an aging infrastructure problem. Critical, essential systems — such as steam or chiller systems and their associated components — are often 30 to 50 years old, inefficient and incurring thousands in maintenance and operating costs.

“Older hospitals often have oversized, inefficient steam systems, originally designed for in-house laundry, which is now usually outsourced. Compressed air for pneumatics is another common source of waste. Some older pneumatic systems often leak so much you can hear hissing – that air is costly as it has been compressed and dried prior to its distribution,” said Ian Larson, SVP of the Solutions group at Redaptive. “Today’s hospitals are spending hundreds of thousands of dollars to maintain systems like these. And, if the systems fail, some hospitals may need to close down wings or operating rooms due to heating/cooling or humidity issues — a huge loss in opportunity revenue, to be sure, but also a black eye with regulatory bodies.”

To combat old infrastructure, Larson recommends a new model: Energy-as-a-Service (EaaS), which can be both cost-effective and provide more clarity to overall operations.

EaaS emerges as cost-effective alternative

In the old model, hospitals continue to spend maintaining old systems and shell out big bucks for high energy bills. If they try to reduce these costs, hospitals submit capital requests for new equipment, which are often greatly reduced or value engineered before they’re approved. As a result, the facilities group buys, less-efficient equipment that ends up costing more over its lifetime.

A performance-based model, EaaS, offers a different approach for cash-strapped hospital networks of all sizes looking for energy savings. Hospitals can upgrade their infrastructure and equipment without the upfront capital, moving CapEx to off-balance sheet OpEx payments. Reactive maintenance costs are reduced for that new equipment in the early years with OEM warranties almost to zero, and at end of life near where they are today resulting in approximately 50% over the term, according to Larson.

“One large hospital we worked with converted from a fluorescent to an LED system, incurring a savings of $268,000 a year,” he said. “When that same hospital replaces other old equipment with new equipment it will add up to $850,000 in savings annually and about $175,000 in one-time rebates to drive down the cost of implementation. That’s just the energy and rebates. Maintenance cost reduction will add several hundred thousand dollars of additional savings annually. It’s pretty significant from an efficiency standpoint.”

Building out the case for EaaS

When hospital networks transition to EaaS, the benefits extend to their reporting strategies. Most hospitals monitor their greenhouse gas emissions to Energy Star or GRESB (Global Real Estate Sustainability Benchmark) standards. This makes the ability to meter, measure and verify emissions critical. Some are also reporting to their boards or even state agencies. With EaaS, hospitals have their emissions information tracked and at hand, which rolls right into their reporting strategy.

Larson emphasizes that EaaS isn’t just for the nation’s under-capitalized facilities. “Even well-capitalized hospitals can benefit from EaaS. It’s a great opportunity: often, energy efficiency can match or even beat the cost of capital that hospitals will have. In almost every case I’ve seen, there’s a very good argument for Energy-as-a-Service.”

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