Daily Briefing

Boston Medical Center's path to sustainability with green financing

Hospitals and health systems across the globe are looking towards environmental sustainability. However, in a tumultuous economic environment, it can be challenging to balance sustainability efforts with bottom-line necessities while operating under tight margins.

Advisory Board's environmental sustainability expert Miles Cottier sat down with Bob Biggio, SVP of Facilities & Support Services at Boston Medical Center, to discuss long-term green financing strategies. Throughout the discussion, they explore Boston Medical Center's medical campus redesign, issuing of "Green Bonds," and their efforts balance sustainability with efficiency and cost-savings.

Read a lightly edited excerpt from the interview below and download the episode for the full conversation.

Miles Cottier: I want to talk about firstly what brought you to this moment. You joined BMC in 2011. What led you to start working at BMC in the first place?

Bob Biggio: Well, at the time Boston Medical Center was on a brink of receivership. They had been through a number of difficult financial years, and so Boston Medical Center's the largest safety net hospital in New England. And for me, given that Massachusetts was at the forefront of healthcare reform and the financial situation in the organization, it felt like a really good place to do proof of concept for trying to reduce the overhead costs and expense of a hospital facilities to drive more financial resources directly to the mission and patient care.

Cottier: And those financial challenges, I think certainly aren't unique for health systems, right? Costs are high right now. Margins are thin or non-existent in some cases, I think it feels like we're trapped in somewhat of a cycle. What was your process for identifying facilities, projects that could generate cost savings for BMC?

Biggio: Well, the first thing I did here at BMC was an assessment of our full real estate portfolio to determine how much square footage we should have for the volume of patients that we were seeing. And so for me, step one is just being sure that we had the right amount of rationalizing the correct amount of square footage, and then targeting a plan as to how we would reduce the square footage to get rid of any excess.

And then from there, focus on energy efficiency, trying to identify projects. I really started low on the tree, if you will, and just worked my way up. And so I tried, at first I looked for projects with a three-year return on investment. And then by the end we were looking at about eight-year return on investment.

Cottier: So looking more specifically at that campus redesign, we'll call it. So you looked at BMC's facility footprint, you rationalized it. What barriers did you come up against initially?

Biggio: I think that the biggest barrier was really the financial situation of the organization, having been on the brink of receivership at the time, and the estimated investment that would be required to reduce the square footage by consolidating our campus was $300 to $400 million.

The reduced 300,000 to 400,000 square feet. And so to convince the board and the senior management of the organization to make that kind of investment given the financial situation of the organization was the biggest hurdle.

Cottier: So how did you work out how much money you would need to spend to generate long-term savings for this project? You said that you have an upfront figure that you came to the board with. Where did those costs come from?

Biggio: So at the time we had essentially two full inpatient buildings. BMC is a product of a merger, and so there were essentially two hospitals separated by one city block. So what I did is, I looked at what it would require for us to build the infrastructure in a single footprint that would accommodate all of the inpatient beds, the operating rooms, and other patient care equipment that would be required into a single footprint, and use that plan essentially to develop a high level capital estimate for the project.

Cottier: Sure. And you are talking about clinical space?

Biggio: Yes.

Cottier: And I think it's important for any hospital not to sacrifice volumes, or throughput, or anything like that, especially for a safety net hospital like BMC. How did you ensure you were maintaining patient volumes while you were undergoing this rationalization consolidation of BMC's footprint?

Biggio: Well, for BMC, we essentially had to fully renovate an operating hospital, so it was about 47 phases of construction. In order to accomplish the project, it had to be phased into small pockets of construction. And so it was about a four-year project to get it all done.

Cottier: And coming back to the kind of question of why we are here and especially why I'm here, I think, the redesign ended up having some pretty significant environmental benefits as well. Like we've said, BMC is a safety net hospital, so you are providing care to everyone regardless of their insurance status or their ability to pay. And I think many people probably wouldn't necessarily expect an organization like BMC to make such significant progress, such huge leaps toward environmental sustainability. Why did BMC make this such a priority when there were and still are plenty of excuses not to do so?

Biggio: I guess the first thing I would say is because we're a safety net hospital, I think we felt the financial pressures of healthcare reform here in the US earlier than other hospitals. For me, I think both environmental sustainability and financial sustainability go hand in hand. So reducing the energy costs and the overhead expense of our facilities both reduces the environmental impact as well as improves the financials of the organization. And so that's the lens that we looked at it from.

The other lens that made it rise to the top from an importance perspective is that if you think about what healthcare reform is asking of the US healthcare system, it's to go upstream and keep our community healthier and prevent them from needing our hospital facilities. And so what better place to start then with the environment if you're trying to keep your community healthy?

Cottier: I'm glad that lots of people believed in the safety net aspect of things. And again, this is something that's slowly trickling into other parts of the health system, but I can't imagine there was no pushback at all. Right? Did you receive pushback from your leadership at BMC?

Biggio: I think there was significant hesitancy. I don't know if I'd call it pushback, but there was hesitancy. And I can still recall a conversation I had with our CEO Kate Walsh at the time, where she asked whether we could really afford to do this as an organization. And my reply to her was that "I don't think we could afford not to do it."

That as the financial pressures of healthcare reform continued to bear down on the organization, the inefficiency created by the split campus that we had at the time, it was going to get heavier and heavier and it was going to feel like we were dragging an anchor, in the end that that configuration was costing us about $25 to $35 million a year in excess overhead expense that if we consolidated, I estimated we could eliminate.

Cottier: Well, Bob, as part of this project and as part of the series of projects you did, restructuring BMC, you were also the first hospital in the U.S. to issue a green bond. For those listeners who aren't aware of what green bonds are because they're relatively new to the market, they're similar to normal corporate bonds, but the capital generated from issuance has to be invested in specific green projects that have measurable, reportable environmental benefits. What made you decide that a green bond was something you wanted to pursue at BMC?

Biggio: Well, when we were preparing to do the bond offering, the organization that was helping to facilitate that for us came with the idea of a green bond, whether we would be open to issuing it as a green bond. And given that so much of the work we were doing was kind of foundational to do with sustainability, it just felt like the right thing to do. It really wasn't a difficult decision for us. It aligned with all the work we had been doing and we're planning to do. And so it was a pretty easy decision for us.

Cottier: Did it feel in any way risky since no other hospital in the U.S. had gone down that route before?

Biggio: I don't think we perceived it as risky. I think we believed that it would open up the likelihood of broader investor group, broaden the amount of folks that would be willing to make the investments into BMC, which was particularly important to us given the financial challenges we were in at the time. And so again, I think it was pretty easy decision for us.

Cottier: Are you noticing any more facilities across your footprint or across the U.S. more generally using green financing mechanisms like green bonds or green loans at all?

Biggio: So we actually just did our second bond offering, which is a sustainability bond. We were the first hospital in the U.S. to do that as well. So, I don't think enough organizations are following, but I would strongly encourage them to do it. We, in both bond offerings, they were significantly oversubscribed. In fact, on the second one we had to go pull it back and go back out to the market with a reduced rate. It definitely resulted in improved rates and a savings for us over the long term.

Cottier: Well, like we said, they're relatively new mechanisms to them, to the market at large, let alone for healthcare. So I think that's probably why many systems are slow to adopt these kind of mechanisms. But let's pull up a level. If you had to go back to 2011 or 2012 and do the entire facility redesign again, what would you do differently and why?

Biggio: I have to tell you, I don't think there's a lot we would do differently. I think overall we've been really pleased as an organization with the way the entire project and the results of the process that we put in place have worked out for us.

And in fact, during the recent pandemic, Kate Walsh, our CEO at the time, said that she doesn't think we would've been able to do nearly as well through the pandemic had we not done the work we had done as our campus redesign and consolidation.

Cottier: Wow. Now, at this point, I think many, many leaders listening to the episode are probably in somewhat of a similar financial situation now to what BMC was in 10 years ago, let's say. Add in also that layer of growing social and regulatory pressures around things like ESG, right? And around things like environmental sustainability. What advice would you have for other health systems trying to balance sustainability with efficiency and cost savings?

Biggio: A lot of places that talk about how they need to hire sustainability people to work on this initiative, and what I tell people is this isn't an add-on service that you create a new department for. It really needs to be embedded into the work you already do. And so I would really encourage people to think about the resources they already have on their campuses in their organizations and how they really embed this into the work that they do.

The second piece of advice I would give folks is I hear lots of people say that they don't want to be bleeding edge, but if you look at the speed at which our world is changing today, I would argue that if you're not cutting edge in the things that you're doing, you're probably not doing enough. The reality is the world is just changing too fast for people to sit back and just wait for things to be tried and true, and proven. You have to step out in front and lead.

Infographic: Three ways your climate change inaction will hurt your bottom line

Download our infographic to quickly learn how climate change will exacerbate organizational pressures and drive up your bottom-line operating costs.






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