Insight

Five ways hospitals can adopt a servitisation approach to become more environmentally sustainable

By Kaede Gordon, Jenna Phillips

Jan 03, 2023

Environmental sustainability is increasingly a priority across industries as the climate crisis continues, and is now influencing the healthcare delivery sector. Proactively identifying and adopting business models that will increase their environmental sustainability can also result in lower costs and increased operational efficiency. Servitisation is a model that has been relatively underused by healthcare delivery organisations and can be applied to products and services in which hospitals already allocate significant spend.

Servitisation refers to business models wherein a customer, in this case a healthcare delivery organisation, pays a fixed fee per unit of service consumed, while the ownership of the system remains with the service provider. One example of a mature, hospital-centric servitised solution is Philips’ LED lighting program, into which hospitals can opt for a monthly fee. Philips retains ownership of the lights and performs installation, maintenance, and replacements when needed, removing the risk and responsibility of lighting management from the customer.

A servitisation business model offers advantages toward achieving environmental sustainability objectives. Because it puts the burden of ownership on the manufacturer who is compensated with recurring revenue, the manufacturer is incentivised to invest in the full life cycle of their products rather than creating cheaper, more transactional products. This shift should spur manufacturers to design and merchandise items with durability and longevity in mind.

Servitisation also incentivises modularity and circularity in design and merchandising whereby product parts can be replaced, repaired, or upgraded without replacing the whole product.  

We have identified five opportunities for healthcare organisations to implement servitisation without major disruption to their business practices: 

1. Lighting

Lighting can be particularly compelling due to its high cost burden. In a study done on two representative hospitals, between 20 and 28.9 percent of energy cost was allocated to lighting. Philips has conducted and published case studies at hospitals across the US and boasts up to 50 percent energy savings with LED lighting and up to 80 percent through lighting controls.

2. Cooling

Hospitals are kept cold to reduce bacteria growth, condensation, and cross-contamination. Keeping facilities cool also helps HVAC systems to operate at optimal efficiency, which is critical in a healthcare environment. Cooling, like lighting, can be implemented as a service that delivers both financial and sustainability-focused results. Cooling-as-a-service (CAAS) can reduce spend by up to 20 percent and reduce carbon emissions by up to 49 percent, with the potential to continuously expand as the industry scales. Hospitals spend over $6.5 billion on energy annually, with up to four percent of this cost allocated to cooling, making CAAS an attractive initial servitisation opportunity at healthcare delivery organisations. 

3. Energy sourcing

Energy is already sourced by healthcare organisations and other businesses as a service, whereby a utility provider delivers an energy subscription to a hospital. As renewable energy sources become more mainstream, transitioning to solar power as a service can be a disruption-free way for hospitals to move to reduced carbon emissions without taking on risk and responsibility for owned solar panels and required maintenance. Using a servitised provider that leases solar panels to the hospital and takes responsibility for maintenance, lowers the upfront investment necessary for a hospital to transition to a renewable energy source. Furthermore, engaging a servitised solar expert means that the solution will be built and delivered to meet the specific needs of the organization.

4. Mail and correspondence

Hospital systems are heavy users of paper correspondence, documents, and mail to communicate with patients and other stakeholders. In fact, hospitals create over five million tons of waste per year, 85 percent of which is nonhazardous. Of this nonhazardous waste, slightly over half of it is paper-based waste, comprising at least two million tons of paper waste from hospitals annually and representing a massive sustainability challenge.

Hospitals can gain operational efficiencies and reduce paper waste by engaging a third-party service that facilitates large-scale digitisation of documents and correspondence. Completing this digital transformation can increase efficiency, streamline processes, and cut down on hospitals’ paper footprint.

5. Medical devices and durables

Finally, hospitals can engage with their durable goods providers to servitise healthcare-specific medical devices and durables like hospital beds, surgical instruments, and even large-scale diagnostic and imaging machines. This approach is already taken frequently with laundry and linens, as well as onsite food services.

Rather than disposing of owned products and devices at the end of their life when they are broken or insufficiently safe and effective, hospitals can return them to their owner for an updated or upgraded version, or host repairers onsite to remediate any breakage or other issues. The same model can apply to large-scale diagnostic and imaging machines. Rather than purchasing massive pieces of equipment that can cost millions, hospitals can enter long-term, service-based leases with the manufacturer who will maintain, repair, upgrade and, eventually, replace the machine at the end of its useful life. This approach streamlines administration and financials, as well as decreasing the number of carbon-intensive machines that are produced and sold.

Servitising medical devices has the added benefit of giving hospitals additional insights into the usage and cost of ownership of the devices, or can offset costs through data sharing with the equipment manufacturers. GE, for example, provides an asset performance management service, which allows hospitals to locate and connect their medical devices, as well as providing data outputs which can optimize utilisation, ultimately saving money.

Implementation challenges 

Implementing a servitised business model for hospitals may yield challenges, including uncertainty around adopting new ways of working, engaging the multi-stakeholder environment, and changing status quo procurement approaches. While logistics and workforce issues may present onsite implementation difficulties, these challenges can largely be managed locally.

A significant challenge is that healthcare provider organisations often purchase goods and services through group purchasing organisations (GPOs). Indeed, up to 72 percent of procured goods in the hospital industry may be procured via GPOs. To the extent that provider organisations purchase through these organisations, the opportunity to servitise may be limited. However, many hospitals are already working to create GPOs that source more sustainable options. GPOs are also already voluntarily creating sustainability standards and emphasising sustainability in their operations. Hospitals still have indirect control over their GPO spend, and thus should prioritise engaging GPOs that have similar values and are aligned with their internal sustainability standards.

Facilitating and incentivising servitisation in the healthcare delivery sector is a challenge of both supply and demand. Despite that fact that emergent servitised offerings in the healthcare industry as well as broader offerings in other industries have shown success from perspectives of both environmental sustainability and cost savings, servitisation is still new in the healthcare sector. To achieve the transition to a servitised business model that furthers sustainability objectives, more healthcare delivery organisations must demonstrate willingness to engage with novel entrants and new business models, and service providers must learn from their healthcare delivery system customers to ensure they are creating and marketing solutions that meet the needs of the industry. Servitisation represents a sizeable opportunity to lower costs, increase efficiency, and improve the sustainable outcomes of healthcare delivery organisations.

About the authors

Kaede Gordon PA sustainability expert
Jenna Phillips PA healthcare expert Jenna collaborates with stakeholders throughout the healthcare system to design and implement complex strategy initiatives

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