Major Hospital Network Tax Planning For Large Energy Cost Savings as of January 1, 2014

The nation's major hospital networks are consolidating and becoming much larger property owners in the new Obama healthcare era. Hospital owners are often the largest land owners, employers and energy users in the jurisdictions they operate in.

One of the prime anticipated beneficiaries of the expected extension and expansion of the Section 179D benefits potentially available as of January 1, 2014 is hospitals and, in particular, not-for-profit hospitals. The hospital sector has lagged in achieving building energy efficiency as compared to other property sectors and pre-January 1, 2014 the not-for-profit sector has not been able to benefit from building energy efficiency tax savings. Studies indicate that as a result of their 24/7 operation, patient comfort and other needs that hospitals utilize 2.5 times the amount of energy as similar sized commercial buildings which presents a tremendous cost savings opportunity .

With new legislative proposals the current EPAct tax incentives is anticipated to increase and for the first time include not-for-profit hospitals.

Current Law

Pursuant to Energy Policy Act (EPAct) Section 179D, warehouse and building owners or tenants 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 EPAct Section 179D $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, 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.

Proposed Law

Under the proposal to extend EPAct the $1.80 would increase to $3.00, meaning $1.00 each for lighting, HVAC and the building envelope. Most importantly, benefits would now be available for design teams working on not-for-profit hospitals.

Potential Savings for Largest Not-for-Profit Hospitals in the U.S.

The table below demonstrates the largest not-for-profit hospitals in the United States

and their potential EPAct tax benefits:

Potential Savings for Largest Health Systems in US

The table below demonstrates the largest health systems by hospital ownership in the

United States and their corresponding potential EPAct benefits:

Federal Government Should Reward Energy Efficiency

The Federal government is already the largest healthcare system customer and is about to get much bigger with the addition of 30 million more insured. The federal government may want to take the Wal-Mart supply chain approach where suppliers are financially rewarded if they make their facilities more energy efficient or increase their percentage of self generated energy.

Hospital Energy Efficiency

Due to their 24/7 operating requirements and large human occupancy levels from combined patient and staff levels, hospitals consume tremendous amounts of energy. The 24 hour operation provides a 200 to a 300 improvement in economic payback from the same efficiency percentage available in a building only used 5 days a week and for normal business hours.

Hospitals and LED Lighting

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 mercury .

•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.

Hospitals and Energy Efficient HVAC

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 incentives .

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.


Not-for-profit hospitals make up the largest ownership percentage of all hospitals and should not be treated differently for tax purposes than for profit hospitals and government hospitals. Our entire country would benefit from a material reduction in hospital related energy costs.


Charles R. Goulding, Robert Goulding, and Raymond Kumar. (2009) The Energy Tax Aspects of Hospitals. Corporate Business Taxation Monthly. November issue, pages 15-16 & 38.

Charles R. Goulding, Jacob Goldman, & Christopher Winslow. (2011). The EPAct and Alternative Energy Tax Aspects of Walmart’s Supplier Sustainability Program. June issue, pages 13-16 & 42 -43.

“The Best Lighting Choice for Hospitals.” My LED Lighting Guide.

Charles R. Goulding, Jacob Goldman, & Joseph Most. (2010). The Energy Tax Aspects of Chillers. Corporate Business Taxation Monthly. October issue, page 15 -16, 41-42

Article Citation list