As energy prices have plummeted, healthcare providers have reaped the benefit of some of the lowest prices for petroleum and natural gas in recent years. But energy costs are volatile, so group purchasing organizations have been helping health systems, which are under pressure to cut costs across the board, lock in prices.
Facility management is a non-traditional space for GPOs, which concentrate on contracts in the medical-surgical and pharmaceutical fields as their core business. But some GPOs have invested in energy consulting and related services to help their members reduce some of their most expensive non-labor expenses.
Healthcare facilities–both inpatient and outpatient–spent roughly $7.4 billion on energy in 2003, the most recent year for which expenditure data is available from the U.S. Energy Information Administration. Those expenditures came at a rate of about $57,800 a building, or $2.35 per square foot.
Some hospitals have turned to sustainability measures to cut costs: La Crosse, Wis.-based Gundersen Health System famously runs entirely on self-produced energy, and Kaiser Permanente announced last year that it will use renewable energy for 50% of its California power needs. That is expected to bring long-term savings over the next two decades.
In deregulated states, where customers can choose their energy suppliers, many GPOs have contracts for energy procurement consultancies like Hospital Energy, which can broker systemwide deals with energy suppliers. They also have contracts for utility bill pay services such as Ecova, which aggregate providers' bills across locations and track consumption and cost. There also are energy audit companies that examine energy usage and check for billing errors.
Chicago-based real estate management firm Jones Lang Lasalle performs energy audits for hospitals and manages sustainability programs that help hospitals lower their energy costs, often through simple, inexpensive solutions such as changing behavior and procedures to more efficiently manage building systems. The company, which has contracts with some GPOs, can also evaluate data from bill payment companies or procurement agencies and help hospitals understand how they can improve, said Tom Miroslaw, JLL's vice president of healthcare energy and sustainability services.
“I've run into any number of hospital networks that we've done consulting with that use bill payment or bill aggregation providers but they're not using the data,” Miroslaw said. “They can do a lot of things that I'm not sure are being fully utilized because the hospital doesn't have a plan for energy sustainability.”
Intalere, the St. Louis-based GPO formerly known as Amerinet, provides energy-related contracts with third-party groups, but it also offers in-house consulting to help its members reach their energy goals. The company's consultants advise members on what procurement or bill pay companies they should use. They can also discuss lighting and building automation systems, helping hospitals calculate the return on investment they would see from facility improvements.
Health systems normally pay consulting fees if Intalere's facility management experts are engaged in a long-term project or training staff, but the GPO likely wouldn't charge a member who is just looking for advice on what contractors will work best for their situation, said Mike Reid, Intalere's vice president of construction, capital and facility services.
Reid said Intalere's team of facility management specialists differentiates the GPO from its competitors that are simply “throwing a contract” at providers. He echoed the sentiment of Intalere CEO Brent Johnson, who has repeatedly emphasized that the company is shifting from a GPO to a professional supply-chain organization, underscoring its ability to fully manage non-labor spend, beyond traditional strategic sourcing.
“There's a bar code on every gauze, sponge and Band-Aid … but when you start talking about kilowatt-hours, those are just overhead costs that can chew away at bottom line,” Reid said. “At the end of the day we're going to squeeze every penny out of gauze, sponges and Band-Aids, but we also want to make sure … that we are going to be there helping you with those (overhead) costs as well.”
Nashville-based HealthTrust takes it a step further: The GPO decided in the 1990s that it would offer energy procurement consultants and bill pay services through an in-house team, adding to the many services that GPOs offer today outside of their traditional strategic sourcing role, including consulting, revenue-cycle management and analytic services. Expertise and structure for the program came from the GPO's majority owner, HCA, which, because of its size and scale, had already been managing its own energy procurement.
Through its EnergyTrust program, HealthTrust manages utility contracts for over 900 healthcare facilities in deregulated markets. They have gas contracts in 43 states and electricity contracts in 11 of the 14 deregulated states.
In 2014, EnergyTrust members saw combined savings of $32 million in electric and natural gas expenses. Savings in 2015 won't be as significant of plummeting utility prices, but the company still helps hospitals find healthy savings, HealthTrust Chief Operating Officer Michael Berryhill said.
The EnergyTrust program doesn't drive major profit for HealthTrust, but it brings value to the GPO's overall brand, he added. "We're not in it to make money, we're in it to save our clients money; that is purely our mission."
HealthTrust charges an additional fee for the program, the utility bill pay service, but none of the EnergyTrust services are required under the GPO's committed model, which requires members to use HealthTrust contracts for at least 80% of their non-labor spend. But Berryhill estimated 85% of members in deregulated markets take advantage of the program.
Offering energy services as an in-house product means HealthTrust can collect comprehensive data on members' energy usage, and ultimately forces the GPO to be more invested in the long-term feasibility of deals and not just their initial value, Berryhill said.
“We have a very strong provider orientation because we are one,” Berryhill said. “We're not just a broker or a third party that's cutting an energy deal and moving to the next client. We're managing those deals, thinking about long-term strategy, and thinking about risk and how the market fares.”