LED Lighting and HVAC Tax Aspects of Energy-Efficient Hospitals

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The U.S. Supreme Court, in National Federation of Independent Business vs. Sebelius, affirmed the constitutionality of the Patient Protection and Affordable Care Act, commonly called Obamacare1. The Act’s “Individual Mandate” requires Americans to have minimum health insurance. Under a portion of the act called the “value based purchasing program”, hospitals will be remunerated on the basis of quality of care and a low readmission rate. Low wattage LED lighting and energy efficient HVAC greatly reduces hospital operating and maintenance costs. This allows hospitals to devote more resources to improving their quality of care. Hospitals find that LED lighting has important advantages related to specialized hospital function room areas including MRI scanning and infant care.

Tax Opportunities

Pursuant to Energy Policy Act (EPAct) Section 179D, buildings making qualifying energy-reducing investments in their new or existing locations can obtain immediate tax deductions of up to $1.80 per square foot.

If the building project doesn't qualify for the maximum $1.80 per square foot immediate tax deduction, there are tax deductions of up to $0.60 per square foot for each of the three major building subsystems: lighting, HVAC (heating, ventilating, and air conditioning), and the building envelope. The building envelope is every item on the building’s exterior perimeter that touches the outside world including roof, walls, insulation, doors, windows and foundation. Designers of energy efficient hospitals can earn tax incentives on government owned hospital projects including state, county, city, and Veterans Administration hospitals.

Energy Reduction: A Major Step Forward For Hospitals

As result of their 24/7 operations, hospitals use roughly two-and-a-half times the amount of energy as similar sized commercial buildings. This helps explain why hospitals alone account for 4% of U.S. energy consumed. It is estimated that U.S. hospitals spend over $6.5 billion annually on energy costs, equal to about 15% of hospital profits.

Compared to other buildings categories, hospitals have only recently addressed the need for major energy improvements. These initiatives have opened huge opportunities for the hospital sector. A recent study released at the CleanMed conference revealed that U.S. hospitals can achieve a 60% overall energy reduction2. This translates into annual savings of over $700,000 for a new hospital built to code. The "valued based purchasing" program will reduce the unnecessary readmissions, which is an estimated cost of $17.5 billion annually. These large reductions in operating costs and improved efficiency allows hospitals to focus on what's most important: patient care.

LED Lighting Shines Among Hospitals

Energy use constitutes as one of the largest costs in hospitals, but it is also one of the most controllable costs. LED lighting is exceptionally efficient, which pays particular dividends in hospitals where lights operate day and night. LEDs boast life-spans in excess of twice the average span of a conventional bulb, and require far less maintenance. As sticker prices continue to fall for LEDs, the cost-benefit analysis has shifted markedly in favor of LEDs.

In addition to their efficiency, LEDs are also noted for meaningful contributions to quality of care itself. Below are some such advantages:

•LED lighting is favorable for MRI diagnostic areas due to its light quality and its endurance within such an environment due to filaments unaffected by magnetic fields.

•LEDs conform to AIA Guidelines for Design and Construction of Hospital and Health Care Facilities by eliminating mercury3.

•LED lighting is being used as a healing agent to help ameliorate the side-effects of chemotherapy and improve infant skin diseases.

•CT and Ultrasound scan rooms have adapted dimmable LED bulbs and tubes for improved examination and patient comfort.

•The higher lumen output of LEDs helps reduce errors made by medical practitioners in examination and surgical rooms.

HVAC Strengthens Hospital’s Structure

Since hospitals are human-occupied, 24/7 facilities, HVAC is the largest building energy cost item. However, the role of HVAC in hospital care cannot be understated. Hospital HVAC systems are responsible for heating, cooling and ventilation, but also infection control, removal of harmful toxins, and providing environments conducive for medical procedures and patient recovery. Energy efficient ventilation allows hospitals to maintain low pressures for highly contaminated rooms to reduce the spread of infection and maintain high pressure in operating rooms to increase airflow. Hospital HVAC systems can also detect fires and eliminate smoke from exits and enclosures. Energy efficient chillers and energy efficient air changeover ventilation systems are often eligible for EPAct tax incentives4.

HVAC technology therefore presents a major opportunity to help hospitals both cut costs and improve quality of care. Specific HVAC controls include heat recovery (to recover 40% of all heat energy used), in-room environment tempering, vacancy air control, geothermal, and thermal energy storage systems.

Geothermal Trends in Hospitals

Geothermal heat pumps provide large HVAC energy savings measures suitable for hospitals. Geothermal systems, which also carry a 10% tax credit on to themselves, can provide both heating and cooling. This technology can drastically reduce gas consumption and operating costs by 24 to 40 percent. Geothermal at the Musokogee Community Hospital in Oklahoma, for example, saved approximately $50,000 in energy costs per year5. The constant volume air handlers employed by geothermal technology also eliminates the need for large, noisy, cooling towers, reducing water usage and chemical treatments.

Hospital Leadership: Veterans Administration Joins the Hospital Energy Alliance

The Department of Energy’s Hospital Energy Alliance has emphasized energy cost reduction in the hospital sector. As a Hospital Energy Alliance committee member, the Veterans Administration complies with federal mandates by pursuing LEED certification. NORESCO, an energy services company and a leader in energy efficient planning, partnered with the VA to implement large-scale facility upgrades in Los Angeles6. Upgrades include direct digital HVAC controls, timers for air conditioning window units, more efficient ventilation, and retrofit lighting. Three Los Angeles VA Healthcare centers are estimated to have a first year’s savings of $1 million and a total of $24 million over the 19-year contract. Carbon admissions are expected to decrease by 4,000 metric tons. The VA has also invested in solar power, wind turbines, and geothermal energy for medical centers.

The following table illustrates the potential EPAct tax benefits related to a few of the nation's largest VA Hospitals:

EPAct Potential Government Building Designer Tax Benefits

LED Lighting and HVAC Tax Aspects of Energy Efficient Hospitals

Conclusion

Hospitals have realized cost savings and therapeutic qualities of LED lighting and HVAC technologies. Although some people feel that Obamacare may lead to a slowing of cost inflation, these investment improve hospital service quality. They ensure better post-discharge by reducing Medicare reimbursements for hospitals with high readmissions rates. The major energy overhaul to hospitals reduces emissions and operating costs. In a financially strong industry segment, hospitals and healthcare organizations are moving quickly to an energy efficient platform and undertaking these long waited improvements. EPAct tax incentives will further accelerate this process.

Citations:

1. “Supreme Court of United States, National Federation of Independent Business vs. Sebelius.” Supreme Court of the United States. http://www.supremecourt.gov/opinions/11pdf/11-393c3a2.pdf.

2. NBBJ. "Hospitals Can Reduce Energy Use by 60%." SubstainableBusiness.com. http://www.sustainablebusiness.com/index.cfm/go/news.viewpressrelease/id/168

3. “The Best Lighting Choice for Hospitals.” My Led Lighting Guide. http://www.myledlightingguide.com/Article.aspx?ArticleID=22

4. Goulding, Charles, Goldman, Jacob, Most, Joseph. "The Energy Tax Aspects of Chillers." Corporate Business Taxation Monthly.

5. “First Hospital Designed to Earn the ENERGY STAR: Muskogee Community Hospital.” Energy Star. http://www.energystar.gov/index.cfm?c=healthcare.ashe_mar_apr_2009.

6. NORESCO to Implement Energy Savings Performance Contract for U.S. Department of Veterans Affairs in Los Angeles.” PR Newswire. http://www.prnewswire.com/news-releases/noresco-to-implement-energy-savings-performance-contract-for-us-department-of-veterans-affairs-in-los-angeles-163839666.html.

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