Abby Burns (00:09):
From Advisory Board, we are bringing you a Radio Advisory, your weekly download on how to untangle healthcare's most pressing challenges. I'm Abby Burns.

(00:19):
Today's episode is the first in our run-up to Advisory Board's final in-person summit of the year, all around the pivots that health systems and their partners need to make to improve the sustainability of our care delivery infrastructure into 2025 and beyond. With that as our baseline, on Radio Advisory, we're going to spend the next few weeks looking at three areas where we think health leaders should be thinking or acting differently to succeed into the future.

(00:45):
There's perhaps no better place to start this run-up than talking about environmental sustainability. We know that climate change has had a massive impact on population health. We've all seen the rise in weather related health events. But climate change isn't just affecting the health of our populations, it's affecting the health of our healthcare businesses, and that's a problem because there's still a knowledge gap and an action gap when we talk about promoting environmental sustainability.

(01:11):
To help us break down how and why advancing environmental sustainability is actually a good business practice, I've invited Advisory Board expert Miles Cottier. Miles, great to have you back on Radio Advisory.

Miles Cottier (01:25):
Thank you for having me, Abby. Good to be back.

Abby Burns (01:28):
Miles, you have been on the podcast before talking about environmental sustainability. You are our resident climate change expert, but as we gear up for Advisory Board's Strategy Summit in a few weeks, you asked to come back and put environmental sustainability back in the spotlight. Why?

Miles Cottier (01:47):
A good question to start off with, very deep question. I like it. When we talk about sustainability a lot of the time in healthcare, as you and your listeners know, we usually are referring to, I would say, financial sustainability, maybe operational sustainability, sustainable growth, those kinds of things. But I think most of the population would really think about it in terms of environmental sustainability, and I think that needs to be part of that conversation.

(02:14):
Climate change is a much bigger threat to financial sustainability than perhaps people realize and many people are even aware of outside of healthcare. When I came on about a year ago, I think it was now, it was more of a 101, this is the problem. This is how we need to get healthcare leaders to sit up and take notice. Again, that's a very much a 101 so if any of your listeners are interested, that's the first place I'd go to.

Abby Burns (02:39):
We'll put that episode in the show notes.

Miles Cottier (02:41):
Well, we also did a session with Boston Medical Center and how they were thinking about sustainability in terms of their finances and environment. I think, increasingly, those kinds of stories aren't in a vacuum. More systems are starting to think climate change is a big risk for us. It's bringing a load of different risks that exposed to. We need to up our defenses against some of those risks. We need to run at sustainability to mitigate those risks, but also to make gains in other areas as well. That's why I wanted to bring it back up in the conversation.

Abby Burns (03:14):
Give me a pulse for where systems are. You mentioned that systems are starting to think about environmental sustainability as increasingly important. Where is the average system in recognizing the dual opportunity and threat that you outlined?

Miles Cottier (03:29):
I'd say encouragingly across the US, the conversation has progressed a little bit more than where it was this time last year. There's various reasons why, which I'm sure we'll get into, especially around the regulatory environment. I would say there has been a general shift in acceptance that this is something that we need to do from the health system C-suite. We still have a long way to go. Most organizations still aren't investing a huge amount in this, both in terms of time and money, but the conversations are starting to happen. I think a lot of the advocacy groups are doing a lot to bring people together and create a voice of reason within the industry. It's starting to happen, but there is very much a spectrum in terms of how far organizations have progressed up to this point.

Abby Burns (04:14):
It sounds like that spectrum has moved from a very small subset of health systems are focused and actively doing work on this to everyone that has it on their radar, maybe a smaller set of folks taking action on it.

Miles Cottier (04:26):
I think what it comes down to is the fact that there are just so many other things on health system executives' lists.

Abby Burns (04:32):
That's exactly what I was going to ask. Where does this fall on the priority list?

Miles Cottier (04:37):
It depends who you talk to and where they are and what kind of organization they run and who they are as a person.

Abby Burns (04:42):
Hmm, good point.

Miles Cottier (04:43):
There are lots of variables. It used to be not even in the top 50. I mean, that's the kind of extent of the ground we have to make up here.

Abby Burns (04:52):
And used to be being?

Miles Cottier (04:55):
Five years ago, 10 years ago, it was not even in the top 50. And I'd say these days, it's starting to appear more and more in the top 10, maybe in some more progressive organizations have been the top five. It's slowly working its way up the health system executives' to-do list.

Abby Burns (05:13):
It also seems like given the focus on climate policy over the past few years, there might be some downward regulatory pressure that is helping push environmental sustainability up the priority list. I'm thinking in particular the IRA which invested $370 billion almost into renewable energy sources.

Miles Cottier (05:38):
Yeah, yeah. I mean, what we saw certainly from maybe April, March, 2022, which I think was when HHS released their climate pledge, that was the first indication that people are actually trying to create some structures around getting people on board with this. And then, we started to see a sudden uptick in whether or not it was incentives or pledges or regulation or penalties creep in from other places in the industry as well. We had the joint commission do something around voluntary accreditation. I think we had CMS talking about certain things, we had the CC talking about certain things. And up until about spring this year at some point, it was very much on the rise, that regulation was pushing people to really sit up and take notice and make some waves here.

Abby Burns (06:25):
And I'm guessing I know what you're referencing from this spring, but what happened to change that?

Miles Cottier (06:31):
The Chevron decision changed that, and again, I'm not the person to talk in depth about this. What I will say is I think it's just made the regulatory direction we were going in very unclear, but my take, and this is the take that I want listeners to take away as well, even if that pathway to regulation in this post Chevron world is very unclear, there are still some very, very unignorable market forces that are going to force people to act regardless of what happens in that Chevron world.

Abby Burns (07:07):
Okay. What is the business case here?

Miles Cottier (07:10):
I think the business case stems from the risks that are associated with climate change and how they impact the way that you run your business. It's happening everywhere. It's happening to all industries. Maybe healthcare has been somewhat shielded from those risks, but I think they're very apparent now and they're going to continue to impact the way that we run our business in the future. I think that's the way that health systems need to start to think about some of these things. They are very exposed to some of these risks right now. And by risks, I know that's again one of those terms in healthcare which we throw around awful lot. When we talk about risks, we are talking about things like investors favoring companies with good AESG ratings, for example.

Abby Burns (07:52):
Ability to borrow capital.

Miles Cottier (07:54):
Exactly right. They're very risk averse right now, so that's considered like a safe investment. You can think more so from the public scrutiny side of things. That's obviously front and center for a lot of the public opinion at the moment. Your patient's care, they are starting to make the connection between what you're doing when it comes to sustainability and the Hippocratic Code, which you swore to uphold as an organization.

(08:18):
The same happens with staff as well. Staff are very wary. They want their employer to do more. They want to take part themselves in whatever initiatives that you're doing. I think some of them are starting to use environmental sustainability or lack thereof as a differentiator for being able to choose their employer as well. These are all very risks which are happening across the board for health systems and whether or not they see them now or whether or not they see them in five or 10 years, there's still very much a risk that we'll have to deal with at some point.

Abby Burns (08:47):
I think that's so compelling because you just laid out a number of different, essentially macro areas that we know health system leaders care about, their bottom line, their ability to borrow capital, their reputation, your ability to recruit and retain workforce, which we know is pretty much at the top of every executive's priority list.

(09:07):
What I'm hearing is this mindset shift of sustainability isn't just good for the planet, it's actually good for healthcare business, and we've been talking about being good for your business as essentially mitigating some of the key risks that you're facing. But I think you'll also tell me that there is opportunity to advance some objectives that health systems are working toward.

Miles Cottier (09:34):
Yeah, exactly. I mean, first and foremost, when we speak to organizations, we try and help them make the connection between the climate or environmental sustainability and the things that they care about, whether that's their mission or whether that's some of their more specific, more nuanced, strategic objectives. If you are able to make those connections, you can actually use environmental sustainability as a lever, or lever as you would say in the US, which I hate, that you can pull to make gains in those areas. Whether we're talking about things like staff engagement or cost control, environmental sustainability and the actions that you take in that world can actually help you make progress. And I think some of those connections are surprising to people.

Abby Burns (10:15):
I want to talk about cost control in particular because we know this is a major focus for health systems right now. Margins are extremely compressed, and even if they might be going up on average, we know there's really wide variability and health systems across the country are super focused on cost mitigation. It might feel a little bit counterintuitive to think that potentially investing dollars in something like green infrastructure, for example, is a cost control measure. What's the cost benefit analysis here?

Miles Cottier (10:50):
That's a good question. I think the area we've seen the most amount of movement here is probably around in terms of stabilizing energy costs. I think, well, everyone, regardless of whether or not you work in healthcare or not, will know that energy prices are really volatile, very unstable at the moment. And climate change, actually this is one of the risks that we're talking about, climate change is very much testing the resilience of the energy grid and putting more pressure on the stability of energy costs and energy supply. We're starting to see organizations utilize alternative ways to get their energy, to get it for a longer period of time, to get it at a more guaranteed cost over the long run and protect them against some of these changes that climate change could make worse as well.

(11:34):
We did a piece last year on something called Renewable Power Purchasing Agreements, which I'm not going to go into huge amounts of depth because they're really complicated and we did make a piece last year, which is up on the website, which talks about how organizations are using some of these things, some of these tools, which is basically generating clean renewable energy at stable costs over a stable period of time to hedge against some of these operational expense risks that they're facing.

Abby Burns (12:00):
What is the cost associated with something like the type of contract you just mentioned?

Miles Cottier (12:05):
Ordinarily, when you're thinking about generating clean energy, I think most people would go, "Yeah, but I have to buy the solar panels. I have to buy the wind turbines," or whatever it is. "I have to buy the storage for the energy that's produced." With these types of agreements, you're actually shifting the risk onto a third party, a developer they're called. They basically come along, build, maintain, operate the stuff for you, and you buy the energy from them directly without touching the grid, so the risk has actually shifted onto the developer themselves and the risk that you take on is simply that you are fixing the energy cost for 15, 20, 30 years.

(12:44):
Obviously, if the price goes down, then that's when the risk kicks in. But I don't think any of us envisage that's going to happen, that energy prices are going to plummet that much over the next few years.

Abby Burns (12:55):
And you said that these are emerging. Are there any examples of health systems that have actually used this and started to see savings from it?

Miles Cottier (13:05):
I know for a fact that Kaiser has a load of these kinds of things in place. I don't have all of the figures but I'm pretty sure they've run these kinds of agreements, or certainly they generate their own renewable power at over 100 sites all across the Western US. Kaiser would be the first example I'd point to, but you could probably find a load of organizations that are doing similar things.

(13:26):
What I have seen over the past few weeks when I've been researching for the summit is the tax credit that is available under the Inflation Reduction Act, which I know we talked about being something that might be up in the air post Chevron, being about 2.75 cents per kilowatt-hour produced. Now, that might just arbitrarily feel vague for most people.

Abby Burns (13:50):
Yeah, you might've just seen my eyes glass over.

Miles Cottier (13:53):
One of the things that I found when I was researching this for the summit was how significant the tax breaks were under the IRA, which we did talk about was is up in the air post Chevron, the average energy cost roughly across the US at the moment is just under 17 cents per kilowatt-hour produced.

Abby Burns (14:13):
17 cents per kilowatt-hour produced. Okay.

Miles Cottier (14:17):
The tax credits that are available to developers and therefore can get kicked back to the health system, it is just under three cents. If you are producing renewable energy, you could get three cents per kilowatt-hour produced back as a tax credit.

Abby Burns (14:32):
That's a pretty meaningful percentage.

Miles Cottier (14:34):
It's pretty significant, and it's obviously not available to every single organization. It depends on your tax status. But the point being that a lot of people aren't even aware that these kinds of kickbacks, these kinds of tax incentives, are available. And I think just sometimes it's worth pulling up and having a look and seeing what's available, seeing what you can access, and starting to have conversations with those different in kind people who can help you make progress to achieving those things. These kinds of contracts are big, long, difficult things to negotiate.

Abby Burns (15:04):
Yeah, the complexity feels pretty high.

Miles Cottier (15:07):
It's high, it's high. I'm not going to lie. It's not going to be right for everyone, and obviously do your due diligence. But I think even if you are able to shift some of your energy dependence off of the fossil fuel based grid and onto some sort of renewable thing, then that's going to make a big difference.

(15:23):
Anecdotally, we spoke to Gundersen Health System and they did a pretty good job of moving away from the fossil fuel grid toward renewables to a point where they actually, I think they achieved energy independence, and I think somewhere saved in the realm of, well, several million dollars, $3 million, $2 million, I think annually by doing that. This is my favorite bit of the story, because they do such a good job, they've actually spun off their sustainability enterprise expertise into a consulting entity.

Abby Burns (15:55):
Wow.

Miles Cottier (15:56):
I think they call it Enoration. So, orgs are actually starting to use sustainability as a revenue diversification tool now as well, which is certainly something that we have never thought about before.

Abby Burns (16:05):
I love that example. And by the way, know Gundersen, it's a not-for-profit system based in Wisconsin about a $1 billion system, so the $3 million in savings annually feels significant.

(17:21):
Miles, do other examples come to mind of ways that you're seeing health systems leverage sustainability actually toward growth? We've talked about cost mitigation, but what about the other side of the coin?

Miles Cottier (17:34):
From the growth world, the thing I've seen the most is really around new facilities, building new hospitals, building new ASCs, whatever it may be, expanding your campus.

Abby Burns (17:43):
Which was the topic of your conversation with Bob Biggio from Boston Medical Center last year on the podcast, and we can put that episode in the show notes.

Miles Cottier (17:51):
It was, yeah, so I'd encourage people to go and have a listen to that if they want a more in-depth analysis on this. What I have seen though, and this is actually slightly... I don't know if it's concerning or if it's surprising or alarming or all of it, when I was pulling some data around new facility bills, between 2020 and 2023, there was a 58% increase in healthcare construction spending in three years.

Abby Burns (18:14):
Wow.

Miles Cottier (18:15):
And I know that that's probably tagged to some of the more macro market dynamics and things that-

Abby Burns (18:22):
Inflation.

Miles Cottier (18:23):
Exactly, inflation and some conflicts elsewhere in the world that are impacting that, but that's a significant amount of money. That's a scary amount of money. The problem is, and this is very much coming up in conversations we're having across the board at the moment, it's much harder to get the capital to pay for those bills at the moment. I think, the last I looked, about 50 health systems were downgraded by the credit rating agencies last year. I think it's around 20 or 30 this year, it's slightly better, but the interest rates are obviously higher than they were. It's much harder to get good loans. It's much harder to get good value on your money as an investor, so naturally, it's harder to get something that's worthwhile pursuing as a health system and at the same time, from the investor perspective, they're a lot more risk averse. They're not dabbling in things that maybe they would've done five years ago.

(19:10):
What sustainability does is, as many people will know who are listening to this, it does give you access to a lot of that capital, which previously would've been locked to you, through things like green bonds and green loans, which is what we talk about in the BMC podcast, and DSG lives in that world as well. The idea that making clear progress on sustainability goals makes you a very attractive prospect for investors. And again, I'm not going to go into huge amounts of detail there, but we have written some pieces on that, which are on the website as well.

Abby Burns (19:39):
And you mentioned supply chain, and we know that, again, in past episodes, our guests have explained that supply chain actually accounts for 70 to 80% of health system, in particular health systems emissions, so actually huge opportunity to improve sustainability through supply chain.

Miles Cottier (19:59):
Yeah, yeah. What I would say is this probably all lives within the CFO's world. One of the people I spoke to on the phone about this the other day said, "It's being green, makes green," or, "Being green, saves green."

Abby Burns (20:12):
Ah, a little play on words.

Miles Cottier (20:15):
Exactly. Following the money is probably the way to do this. I mean, it's the way that we think, and I think a lot of the time health systems give the role of sustainability to VP of facilities, maybe. That's usually the person that it goes to, under the purview of the CFO, but not directly owned by the CFO. The most progressive organizations we've spoken to have really made it the CFO's problem. It's really on their plate to make the connection, to find those new projects and make the connection between growth or cost control and environmental sustainability.

Abby Burns (20:48):
What does that look like in practice?

Miles Cottier (20:50):
What I think is important to address is what it looks like in practice for organizations who haven't made it the CFO's problem or just the C-suite's problem in general. I would say roughly four buckets of organizations that we see there are those that it's just not an objective. It's not something we think about and therefore we don't give it to anyone. I'd say that's relatively rare at this point, but it still happens.

(21:12):
And then, we have a bucket of organizations who tend to let it happen, let sustainability happen at the grassroots level organically, which is great, something you should absolutely run at, but I would say insufficient in the scale that we need to significantly reduce your footprint. We see for those that mean well, a lot of organizations who delegate a person or maybe an isolated team to do this, but it's not their full-time job.

Abby Burns (21:43):
Off the side of their desk.

Miles Cottier (21:43):
Exactly. There's limited connection to the decision-makers in the system, so they can't actually get that much done. And then, there's a lot of organizations which just say, "You know what? We'll pay the consultancies to do a lot of this work for us," which is fine, but it's very expensive.

Abby Burns (21:56):
Miles, none of the four buckets that you just named include systems that have this as an executive priority.

Miles Cottier (22:03):
Exactly. That's the point. That is the secret fifth bucket I've been dangling in front of your listeners as a carrot. If we could make this an executive priority, which again, I realize is not something that you could just do overnight. It requires a lot of thinking. It requires a lot of changes in the way that we think, the way that we prioritize things in healthcare. But if we are able to do that, then suddenly we're able to make the significant differences and start to move the needle a little bit more toward that sustainable future, whatever that may look like for your organization.

Abby Burns (22:36):
Miles, we're coming up on time here and I want to leave listeners with some action steps. If the idea of, if I was to focus right now on promoting sustainability, holistic sustainability, is we're talking about pivots that healthcare organizations need to make for a sustainable future. What are steps that any leader, regardless of maybe which bucket their organization falls into or where they are at in their environmental sustainability journey, what are steps that any leader can take today to support moving their organization toward environmental sustainability?

Miles Cottier (23:16):
I would say start off by connecting climate change to your mission. Helping people one way or another. That's why we're all talking to healthcare leaders. That's why we are healthcare leaders. It's to help people. If we can make the connection between climate change, or on the flip side, environmental sustainability and improving the health of our community, then that's a really good first step.

(23:38):
One of the things I would say is, if you can, don't hire green leaders from the outside. Source that from within the organization, harness the passion that you already have. And we haven't even spoken about staffing, but we know how engaging some of this work is for staff and how it can really affect their decision to stay with an employer, caring about sustainability, involving them in the decisions you're making about sustainability. Focus on that. Use that organic grassroots capability that you have. I would say any way that you can just continuously scan and hear what other people in the industry or outside of industry are doing that you can copy, that's a good thing. We've seen organizations do things like news clubs or book clubs, where they bring in things from stuff they've read and say, "Let's try this. Let's give this a go." And that marries quite well with the grassroots initiatives.

Abby Burns (24:28):
Right. That spirit of innovation.

Miles Cottier (24:30):
Exactly. And again, if we're talking about our mission, connect it to our mission, then we should really be involving the people at the heart of our mission in those decisions as well. If we can involve our patients, we can evolve our communities in both sourcing and actioning some of those projects that we're talking about, that's going to do wonders not only for our progress, but also for our branding, our reputation.

(24:52):
And then, I'd say if you're in a position to sign the HHS pledge, that is a good place to go because it's standing up and saying, "This is something we're committed to. This is something we're going towards." And at the very least, you've got to come to the Advisory Board Summit to hear more. I mean, that's an obvious first step on this journey.

Abby Burns (25:12):
Well, Miles, thank you for coming on Radio Advisory.

Miles Cottier (25:15):
Thanks for having me.

Abby Burns (25:23):
Miles said that one thing listeners can do today is to tie environmental sustainability back to your mission, but I think it's just as important, and the points that he made today are to tie it back to your organizational priorities too. Spot the ways that going green can help your bottom line, unlock your ability to borrow capital, even help your ability to recruit and retain staff.

(25:45):
This business case is going to be the focus of a session at our upcoming summit in Phoenix, Arizona on September 10th and 11th. I'll put the link to register in the show notes and we can continue the conversation because, remember, as always, we're here to help.

(26:18):
If you like Radio Advisory, please share it with your networks, subscribe wherever you get your podcasts, and leave a rating and a review. Radio advisory is a production of Advisory Board. This episode was produced by me, Abby Burns, as well as Chloe Bakst, Kristin Myers and Atticus Raasch. The episode was edited by Katy Anderson with technical support provided by Dan Tayag, Chris Phelps, and Joe Shrum. Additional support was provided by Carson Sisk, Leanne Elston, and Erin Collins. We'll see you next week.