Infrastructure replacement vs. new construction: Equally impactful to revenue generation & mission

A recent hospital construction survey showed that 68 percent of management views facility capital investments and the mission as directly connected while 86 percent of respondents said the impact of patient satisfaction on design is “very important.”  There is increased pressure to demonstrate the flexibility and cost efficiency of current facilities versus constructing new facilities. The design and construction of new spaces, new hospitals and new service delivery environments is a well-oiled machine. There is no doubt that when you build or renovate a hospital to incorporate a new or improved line of service, you will see an impact to top line revenue and bottom line results.  But, is that enough?

Interestingly, this same survey also reports that 72 percent of these same managers expressed interest in knowing more about energy management trends. This interest continues to gain momentum due to the prevalence of rising energy costs across the country.  Kentucky is no different, in fact, there is a utility rate increase case being reviewed right now by the Kentucky Public Service Commission. But, healthcare organizations can protect themselves from rising costs. Energy management and a proactive approach to infrastructure modernization helps improve reliability, meet and exceed compliance standards, and reduce risks, failures and increased costs of operation.

Through energy management strategies and infrastructure replacement project implementation, hospitals not only eliminate the need to invest capital on failing assets, emergency or planned, but alleviate operational and clinical concerns. These investments are paid for through energy savings. By partnering with a certified and experienced energy services company (ESCO), operational strategies to reduce and manage consumption can be developed.  ESCO’s couple high return energy savings opportunities like new lighting technology or building automation, with low return, but much needed, heavy metal equipment replacements. Energy savings cover the investment and, in many cases, throws off positive cash flow that can be directed back into the business to support the mission.

However, these projects are often difficult to get approved and funded. While over 80% of all capital decisions are being made by executives, many healthcare organizations, since 2009, have downsized middle management ranks and placed more scrutiny on lower dollar capital decisions. It is common that CEO approval authority levels are significantly decreased, some as low as five figures. Larger investments are now requiring either committee or Board consent. Committee structures for capital allocation approvals have become commonplace within nearly all healthcare organizations. Unite these challenges with those of ever-changing regulations, budget constraints and capital competition and that’s enough to cause any hospital administrator to cringe at the thought of considering a non-patient-facing project.

The Bottom Line

Hospital administrators can rank energy savings and infrastructure replacement projects using their core goals, keeping energy management and equipment replacement strategies aligned with the mission. Core goals include the reduction of infection, improvement and control of indoor air quality, or meeting regulatory requirements of the Joint Commission or HFAP. Moreover, administrators recognize that a dollar saved can contribute significantly to the bottom line with less risk than other revenue generating endeavors.

It is a difficult paradigm shift to imagine, using precious capital to invest in areas that can’t be seen or applied to direct medical care. The point is, the capital is already being spent. Aging or inefficient building infrastructure is spending precious funding on higher energy bills and increased operation and maintenance costs. Those costs don’t even consider that as facility engineers and technicians retire, it will get harder and more expensive to replace that expertise.

Energy related initiatives like migrating to wireless building automation technology, upgrading to LED lighting and combined cycle chiller & boiler plants provide benefits that are two or three-fold. Wireless building automation will provide flexibility when new services require space reconfigurations, they provide building analytics for management of indoor air quality, energy consumption and asset capabilities, and they provide information storage; information that is living in a technician today, will live in a fully backed up system tomorrow. Countless studies on LED lighting have proven that it dramatically enhances productivity and comfort, while generating savings immediately.  Combined cycle chiller & boiler plants provide reliability, redundancy and reduce costs significantly.

The bottom line is that with fewer and fewer ways to drive cost out of the business of healthcare delivery, reconsidering what used to be a fix on fail philosophy provides a significant means to do just that.

-Janet Lively is in business development and Angie Stokes  is the healthcare vertical market leader at Harshaw Trane.