Midland Health Strives to Overhaul West Texas Healthcare

Every business has a goal, but Midland Health has a mission: make a profound and lasting impact on the Midland County community by improving the health of its people. To this end, Midland created a master plan to renovate its facilities to enhance patient care.

In 2009, a new patient tower at Midland Memorial Hospital (Scharbauer Patient Tower) seemed to be the first big step toward realizing this mission. But when the tower opened in 2012, Midland Health knew they had a problem. The tower was consuming vastly more energy than expected, due in large part to inadequate commissioning. Bernhard was selected to retro-commission the new patient tower and a partnership began.

Midland has trusted Bernhard with more than 25 projects over the last 10 years. As a tax-supported hospital, Midland recognizes energy efficiency as a key aspect to the realization of its mission and its role as a good steward of taxpayer money and trust.

This partnership has now entered into yet another exciting chapter. Bernhard and Midland Health announced in December 2020 a 15-year energy asset concession arrangement which provides $16.2 million in immediate unrestricted cash to Midland Health, while also addressing significant capital renewal, deferred maintenance, and energy optimization priorities at Midland Health’s main and west campuses.

But that’s not all: Brought to Midland Health exclusively through the TPC group purchasing framework, the Bernhard-Midland transaction is further reinforced by significant economy-of-scale savings available only to TPC member hospitals. After awarding a 2018 energy services contract to Bernhard and its partner, ProStar Energy (subsidiary of Dallas Cowboys), TPC has worked with Midland Health and other TPC hospitals to launch Bernhard-ProStar’s innovative service offering. Midland Health, as a longstanding Bernhard client, is the first member hospital to enroll in the program.

The Midland Health transaction underscores Midland’s commitment to its mission, its patients and the future by addressing many visible and invisible concerns facing the health care system in West Texas and across the nation. These included:

Difficulty recruiting and retaining operations and maintenance personnel because of competition with the oil and gas industry, coupled with an aging O&M workforce
A large backlog of capital renewal and deferred maintenance at the west campus identified in the master plan
Aversion to taking on debt to fund infrastructure improvements because of competing priorities, including the master plan project
Ongoing, costly repairs and expensive rental equipment at the west campus due to aging and obsolete equipment

Because of Bernhard’s intimate knowledge of Midland’s facilities, expertise in cutting-edge project delivery methods, and endorsement by TPC, Midland was certain that Bernhard’s prowess offered the right solution to their challenges.

“Advancing our partnership through an Energy Asset Concession Arrangement just made sense. This transaction aligned with Bernhard’s expertise, will provide significant improvements to our utility plant, provide long-term energy efficiency and position the hospital to continue to provide high quality care to Midland and our surrounding community for years to come.”– Stephen Bowerman, Midland Health COO/CFO

Over the course of due diligence, Bernhard worked with Midland to develop an upfront scope of work with the aim of reducing Midland’s backlog of necessary capital improvements, and achieving an appropriate internal rate of return (IRR). Together, the teams developed a final scope of work that delivers comprehensive value to the hospital’s central energy plant and surrounding facilities.

In this Energy Asset Concession, Bernhard will accept the responsibility for operating, maintaining, renewing and replacing existing infrastructure in the central energy plant in addition to making infrastructure improvements across both campuses that result in guaranteed energy savings.

It’s easy to miss the true value of these savings. Not only will the transaction achieve approximately $664K in annual energy savings for the hospital, but an upfront cash payment of $16.2M will be given to the hospital to use at its discretion. Because of the risk transfer, this payment is treated as off-balance sheet and therefore protects the debt capacity for potential future projects, enabling the facility to make vast strides toward its mission and immediately enhance patient care.

Ultimately, the partnership will fund approximately $19M in infrastructure improvements, eliminate $3M in future capital renewal and replacement costs from Midland’s budget, and provide $16.2M in upfront cash. With a partner like Bernhard who truly understands its mission, challenges and efficient solutions, Midland will be able to accelerate its master plan and realize its mission of improving the health of its community.

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