Making the Decision to
Outsource Linen and Laundry
Service
Edward McCauley B.S., M.B.A.
CEO, United Hospital Services
2009 ASHES Annual Conference
September 20-24, 2009
Reno, NV
Topics to Cover
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Different Types of Healthcare Laundries
Management Structure of Laundries
Keep OPL vs. Outsource Computation
Pound vs. Piece Pricing
Causes of Linen Losses
Products and Services Offered
Linen Service Contract Language
Linen Service Installation
Evaluation of Linen Service
Summary and Questions
2009 ASHES Annual Conference
September 20-24, 2009
Reno, NV
Ways to Provide Linen and
Laundry Service to Healthcare
Facilities
2009 ASHES Annual Conference
September 20-24, 2009
Reno, NV
Ways to Provide Linen and
Laundry Service
• On-Premise Laundry (OPL)
– Laundry is on the campus of the hospital
– Typically only provide service to main hospital and
some clinics
• COG Service (Customer Owned Goods)
– Hospital contracts with independent operator to wash
the hospital’s linens
– Usually on a per pound basis
– Constant push/pull concerning linen loss
2009 ASHES Annual Conference
September 20-24, 2009
Reno, NV
Ways to Provide Linen and Laundry Service
Continued
• Rental Service
– Hospital contracts with outside service to provide
linen service
– Can be mom and pop business or national like
Angelica or Crothall
• Central / Cooperative
– Hospital has some ownership position in the laundry
– Hospital members sit on the board of directors
2009 ASHES Annual Conference
September 20-24, 2009
Reno, NV
Management Structure of
Linen and Laundry Services
2009 ASHES Annual Conference
September 20-24, 2009
Reno, NV
Management Structure
• Hospital Managed
– Managers can be full time laundry managers
or have other responsibilities such as
Environmental Services
• Contract Management
– For example Crothall, Sodexho, Aramark, etc
– Can run on-premise laundries, rental
laundries, or cooperatives
– Will have dual reporting responsibilities
2009 ASHES Annual Conference
September 20-24, 2009
Reno, NV
Management Structure
Continued
• Proprietorship / Corporation
– Own and run their own laundry companies
– Examples would be Paris Healthcare, Unitex
and Angelica Healthcare
• Independent
– Manager hired by cooperative to run the
laundry
– Reports singularly to the board of directors
– Example would be United Hospital Services
2009 ASHES Annual Conference
September 20-24, 2009
Reno, NV
Maintain OPL or Outsource
2009 ASHES Annual Conference
September 20-24, 2009
Reno, NV
Reasons for Maintaining the
OPL
• Keep control of size, type, availability and
quality of linens
• Keep long term laundry employees
employed
• Distribution of linens not subject to
weather and natural disasters
2009 ASHES Annual Conference
September 20-24, 2009
Reno, NV
Reasons for Outsourcing
• Space – Hospitals can put existing space to use
for revenue producing services
• Core Competency – Administration does not
want to spend time managing something they do
not understand
• Capital Expense Avoidance – Administration
does not want to retool the laundry because of
high capital expenditure
• Cost – Outsourcing may be less costly than an
OPL
2009 ASHES Annual Conference
September 20-24, 2009
Reno, NV
2009 ASHES Annual Conference
September 20-24, 2009
Reno, NV
2009 ASHES Annual Conference
September 20-24, 2009
Reno, NV
2009 ASHES Annual Conference
September 20-24, 2009
Reno, NV
What to Consider When
Choosing Your Linen and
Laundry Provider
2009 ASHES Annual Conference
September 20-24, 2009
Reno, NV
Pricing
• Pound Pricing
– For example, everything costs $0.48 / lb
– Easy and simple however not accurate or
flexible
– Problem is that if any improvements are made
in the process for certain items or conversely
other items’ processing cost increase, the
pricing cannot be changed for just those items
– What’s included and what’s not included?
2009 ASHES Annual Conference
September 20-24, 2009
Reno, NV
Example 1
• The product mix of the hospital and thus the
laundry could change which would shift the cost
structure of the laundry
– Hospital switches from disposable OR program to
reusable
– Hospital switches from 100% poly reusable Iso gowns
to disposable
– Hospital switches from disposable adult pads to
reusable
2009 ASHES Annual Conference
September 20-24, 2009
Reno, NV
Piece Pricing
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More complicated
Needs sophisticated software systems
Extremely accurate and effective
Can do costing and usage benchmarking
down to the item
• Can adjust pricing on pieces that need
adjusting
2009 ASHES Annual Conference
September 20-24, 2009
Reno, NV
Piece Pricing
Continued
• Every piece of linen sent to the hospital is
accounted for by the laundry
• Weight will also be known for
benchmarking purposes
2009 ASHES Annual Conference
September 20-24, 2009
Reno, NV
Piece Pricing Example
Item
Items
Delivered
Piece
Total Item Rental
Total
Weight
Weight
Price Per
(in pounds) (in pounds) Item
Sheet
18,000
1.02
18,360
$0.35
$6,300.00
Bath Towel
25,000
0.32
8,000
$0.15
$3,750.00
Thermal Blanket
10,000
3.78
37,800
$1.50
$15,000.00
Scrub Top
2,200
0.35
990
$.75
$1,650.00
Scrub Bottom
2,300
0.47
1,058
$.75
$1,725.00
Underpad
14,000
1.4
19,600
$0.65
$9,100.00
Wash Cloth
65,000
0.15
9,750
$0.05
$3,250.00
8,000
0.2
1,600
$0.60
$4,800.00
18,500
0.25
4,625
$0.15
$2,775.00
Insp. Surg Towel
Pillowcase
Total
2009 ASHES Annual Conference
September 20-24, 2009
Reno, NV
101,783
$48,350.00
Life Cycle Cost
Every piece of linen has a unique purchase price and life
cycle, if any of these variables change the price for that
item should change.
Item
Sheets
Rentals
In Service
In Service Units Dollars
Purchase
Cost Per
Price / Piece Serving
Servings
Per Piece
1500000
35000 $
100,100.00
$
2.86
$
0.067
42.86
Bath Towels
890000
85000 $
90,000.00
$
1.06
$
0.10
10.47
Blankets
215000
12000 $
75,000.00
$
6.25
$
0.35
17.92
Gowns
850500
45000 $
150,000.00
$
3.33
$
0.18
18.90
Diaper
45000
8000 $
5,200.00
$
0.65
$
0.12
5.63
2009 ASHES Annual Conference
September 20-24, 2009
Reno, NV
Processing Cost Considerations
• Every piece of linen has a unique processing
cost
•
•
•
•
•
•
Does the product need to be counted or sorted?
Does product need light or heavy wash?
Ironed or Folded? Fold by hand or Machine?
Light Table Inspected or Uninspected?
Packaged or non-packaged
Hourly production rate
2009 ASHES Annual Conference
September 20-24, 2009
Reno, NV
Linen Losses
2009 ASHES Annual Conference
September 20-24, 2009
Reno, NV
Rule of thumb – Roughly 25% of
linen losses are due to the
laundry ragging out linen and the
remaining 75% is due to the
hospitals losing and abusing linen
2009 ASHES Annual Conference
September 20-24, 2009
Reno, NV
Causes of Linen Loss
• How do linen losses occur?
– Ambulance transfers from hospital to nursing
homes
– Ambulance ER visits
– Misuse and abuse of linen by hospital
personnel
– Theft of linen by employees, patients, and
visitors
– Ragout by laundry
2009 ASHES Annual Conference
September 20-24, 2009
Reno, NV
How the Laundry Bills for Losses
• How are linen losses billed back to the
hospital?
– Option 1 - Losses are included in the rental
price of linen
– Option 2 – Losses are charged back to
hospital separately
• Loss charge Methods
– Fixed charge
– Count linen in and out
– Formula based on Soiled Linen Weight
2009 ASHES Annual Conference
September 20-24, 2009
Reno, NV
Example of Soiled Linen Weight
Method
Hospital
Soil
Clean
Soil to Clean
Variance
Target
Loss
Variance Charge Amt
Charge
Cost
Total Charge
Hospital A
2,100,000
2,150,000
-2.38%
5%
7.38% $0.45
$71,410.71
Hospital B
1,000,000
900,000
10.00%
5%
0.00% $0.45
$
-
Hospital C
750,000
700,000
6.67%
5%
0.00% $0.45
$
-
Hospital D
14,000
15,000
-7.14%
5%
12.14% $0.45
3,758,000
3,765,000
-0.19%
5%
$0.45
Total
2009 ASHES Annual Conference
September 20-24, 2009
Reno, NV
$819.64
$72,230.36
Value Added Products and
Services
2009 ASHES Annual Conference
September 20-24, 2009
Reno, NV
Value Added Products
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•
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•
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Scrubs and warm-ups
Reusable isolation gowns
Reusable OR linens and packs
Dietary linens
Pediatric linens
Incontinent products
Specialty linens – VIP, OB/GYN, sleep lab, etc
Mops and mats
2009 ASHES Annual Conference
September 20-24, 2009
Reno, NV
Value Added Services
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•
•
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Professional customer service representatives
Clinics and other off site delivery service
Exchange cart make up
Computer based linen management tools such as
Control Tex, Linen Helper, ABS, etc
• Linen room management
• Linen Cost / Usage benchmarking
– Cost per pound, adjusted patient day, specific linen item usage
compared to national, regional, and local benchmarking
2009 ASHES Annual Conference
September 20-24, 2009
Reno, NV
Pounds and Cost Benchmarking
Facility
Name
Pounds
Shipped
Hospital A
210,174
16.82
12.5 $108,454.00 $
8.68 $
7.75
Hospital B
129,628
13.77
12.5 $ 81,003.00 $
8.60 $
7.75
Hospital C
134,116
10.89
12.5 $ 65,653.00 $
5.33 $
7.75
Hospital D
115,309
13.76
12.5 $ 62,844.00 $
7.50 $
7.75
Hospital E
75,562
17.11
12.5 $ 38,754.00 $
9.14 $
7.75
2009 ASHES Annual Conference
September 20-24, 2009
Reno, NV
Pounds Per Adj Average
Patient Day
Lbs/APD Cost
Cost
Cost Per Adj Benchmarking
Patient Day Average
Linen Usage Benchmarking
Item
Hospital A Per
Adjusted Patient
Day
Average System
Per Adjusted
Patient Day
Bath Blanket
1.14
0.92
Bath Towel
2.19
2.21
Draw Sheet
0.24
0.38
Bed Sheet
1.73
2.74
Knit Contour
0.50
0.55
Isolation Gown
5.96
2.98
Pillow Case
2.12
2.11
Thermal Spread
0.69
0.45
Under Pad
0.56
1.52
Washcloth
7.64
5.55
Patient Gown
IV Gown
0.13
0.07
0.56
0.61
Scrub Shirts
Scrub Pants
Pounds
Cost
0.53
0.55
13.98
0.29
0.29
14.13
2009 ASHES Annual Conference
September 20-24, 2009
Reno, NV
$
8.21
$
7.32
Value Added Services
Continued
• Linen Awareness Day presentations
– Educates nursing and staff on the costs
of abusing and misusing linens
– Create awareness of linen theft
– Discharge bed make up policy, proper
linen usage
– Cost of having excess linens in rooms
– Interactive games and display
2009 ASHES Annual Conference
September 20-24, 2009
Reno, NV
Linen Awareness Day
2009 ASHES Annual Conference
September 20-24, 2009
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Linen Awareness Day
2009 ASHES Annual Conference
September 20-24, 2009
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Contract Specifics
2009 ASHES Annual Conference
September 20-24, 2009
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Contracts
• Contract Length – Standard is three years,
can do one year for COG
• Billing period / terms
– Benefit for paying early – 2% 10; net 30
– Penalty for late payment – 1 to 1 ½% per
month
2009 ASHES Annual Conference
September 20-24, 2009
Reno, NV
Contracts
Continued
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•
•
•
Guarantee not to exceed clause
Agreeable out clause – Most laundries will not give an unconditional
out clause because of the significant capital investment in serving a
new customer. Certainly should have an out clause for breach of
contract
All miscellaneous charges identified such as delivery costs, energy
costs, specialty linen loss charges, cart rental, exchange cart makeup, etc
Does contract clearly state how and when laundry can increase
prices?
2009 ASHES Annual Conference
September 20-24, 2009
Reno, NV
Intangibles
2009 ASHES Annual Conference
September 20-24, 2009
Reno, NV
The Intangibles
• Par of linen that the laundry puts in service
for new customers
• HLAC Accreditation or ISO 9001
Certification
• Does the laundry offer a buyout package
for hospital linen and equipment
2009 ASHES Annual Conference
September 20-24, 2009
Reno, NV
Tour of the Laundry
• Tour the laundry before committing to a contractor
• What to look for on the tour?
– General condition of the building tells a lot about how the service
operates
• If dirty, cluttered, and disorganized then quality is likely to be
substandard
– Boiler / Mechanical room should be neat and organized with all
equipment working properly
– Soil operators should be following universal precautions
– Air flow in plant should be sufficient so that it is not overly hot
even in the summer months
2009 ASHES Annual Conference
September 20-24, 2009
Reno, NV
Tour of the Laundry
Continued
– Lint buildup should not be visible anywhere.
• Ask to open a panel on a piece of equipment to see if lint is
present
– Is there a Quality Control (QC) program in place to
deal with stains and mends?
– Does the laundry properly segregate clean from
soiled linens in the plant? On the trucks?
– Ask to see reciprocal agreement contracts and
business insurance certificates
– Proximity to the plant? – How close are you?
2009 ASHES Annual Conference
September 20-24, 2009
Reno, NV
If Dealing with a Cooperative
• Can you become a member / owner?
• If so:
– Can you get a “seat at the table”?
– How does the cooperative handle excess
cash and profits? Rebates?
– Will you earn equity in the laundry?
2009 ASHES Annual Conference
September 20-24, 2009
Reno, NV
Setting up the Installation
2009 ASHES Annual Conference
September 20-24, 2009
Reno, NV
Setting up the Installation
• Must be well planned 60-90 days in advance so that
linen, carts, and hamper stands can be ordered and
received
– For example, a 300 bed hospital may require $150,000 in linen,
$40,000 in carts, and $3,000 in hampers
• Installation team needs to get with hospital personnel to
identify all types of linens and services to be used.
– If some products do not match, then alternatives need to found
• Laundry should purchase 7-10 par of general linens, 1014 par of OR and pediatric linens, and 3-5 par of delivery
and/or exchange carts
2009 ASHES Annual Conference
September 20-24, 2009
Reno, NV
Setting up the Installation
Continued
• Schedule the installation and de-installation on
the same day
– Both parties should go through the entire hospital
pulling old linen out and putting new linen in
– May take 3-6 people to install depending on hospital
size and time constraints
– Laundry must deliver 4-5 par of linen on the initial
installation day
2009 ASHES Annual Conference
September 20-24, 2009
Reno, NV
Placing Orders
2009 ASHES Annual Conference
September 20-24, 2009
Reno, NV
Placing Orders
• COG vs Rental
– COG – Process what is sorted or weighed in
soil
• 24 or 48 hour processing
• % of total
• Stain and mending
– Rental – Typically a standard order system
that is set up for bulk delivery
• Standards are set up hospital wide for each item
based on usage, not pars
2009 ASHES Annual Conference
September 20-24, 2009
Reno, NV
Placing Orders
Continued
– Standards are adjusted every 6-8 weeks to
reflect more recent usage patterns
– Daily standards also reflect 5, 6, or 7 days a
week delivery
• If less than 7 days of delivery, then standards
include a buildup each day for the weekend
• Inventory quota sheet – make adjustments twice a
week
2009 ASHES Annual Conference
September 20-24, 2009
Reno, NV
Example of Hospital Daily
Standards
Item
Required Per
Week
Bath Blanket
2415
415
400
400
400
400
400
Bath Towel
6300
1050
1050
1050
1050
1050
1050
Draw Sheet
700
130
110
110
110
110
130
Bed Sheet
4200
700
700
700
700
700
700
Knit Contour
2975
500
500
490
490
495
500
Isolation Gown
10500
1750
1750
1750
1750
1750
1750
Pillow Case
7350
1225
1225
1225
1225
1225
1225
Thermal Spread
2625
440
440
435
430
440
440
Under Pad
4725
790
785
785
785
785
795
Washcloth
23100
3850
3850
3850
3850
3850
3850
Patient Gown
IV Gown
525
2660
90
450
90
450
90
440
85
440
85
440
85
440
Infant Gowns
70
70
0
0
0
0
0
2009 ASHES Annual Conference
September 20-24, 2009
Reno, NV
Monday Tuesday Wednesday Thursday Friday Saturday
Quota Sheet Example
Hospital A
Week of
_______________________________
Daily
reserve
Shelf Current from
Mon
reserve standar standar
d
Monday count
d
50%
101
Isolation gownmicro
2300
4,600
767
3,067
Patient Gown
IV/Telemetry
Gown
188
375
63
330
660
1,150
105
Pillowcase
Magna Patient
Gown
106
ADJ
+/-
Tuesday
Tues
count
ADJ
+/-
Wed
Wed
count
ADJ
+/- Thursday
Thurs
count
ADJ
+/-
Friday
Fri
count
ADJ
+/- Saturday
3,833
4,600
5,367
6,133
6,900
250
313
375
438
500
563
110
440
550
660
770
880
990
2,300
383
1,533
1,917
2,300
2,683
3,067
3,450
25
50
8
33
42
50
58
67
75
Sheet
1,400
2,800
467
1,867
2,333
2,800
3,267
3,733
4,200
107
Contour Sheet
375
750
125
500
625
750
875
1,000
1,125
108
Draw Sheet
400
800
133
533
667
800
933
1,067
1,200
110
Bath Towel
800
1,600
267
1,067
1,333
1,600
1,867
2,133
2,400
1,425
2,850
475
1,900
2,375
2,850
3,325
3,800
4,275
67
80
93
107
120
7,917
9,500
11,083
12,667
14,250
792
950
1,108
1,267
1,425
102
103
104
111 Magna I.V. Gown
112
Washcloth
40
80
13
53
114
Thermal Spread
4,750
9,500
1,583
6,333
120
Bath Blanket
475
950
158
633
2009 ASHES Annual Conference
September 20-24, 2009
Reno, NV
Placing Orders
Continued
– If the laundry is packing exchange carts
• Typically just the floor units – other ancillary units
packed off the residual that comes back to the
linen room
• Exchange carts turn into soil collection carts by
moving the shelves
• Could have a system where all clean residual carts
are sent back to the laundry for packing, then
would have to separate clean and soiled carts
2009 ASHES Annual Conference
September 20-24, 2009
Reno, NV
Measuring the Effectiveness
of the Linen Program
2009 ASHES Annual Conference
September 20-24, 2009
Reno, NV
How will you measure once you
outsource?
• National benchmarks such as the TRSA
Comparative Operation Revenues and
Expense Profile for the Healthcare
Maintenance Industry
– Database for OPL, Rental, cooperative and
COG laundries for revenues, expenses,
pounds and usages
2009 ASHES Annual Conference
September 20-24, 2009
Reno, NV
Example of TRSA Benchmark
2009 ASHES Annual Conference
September 20-24, 2009
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Benchmarking
• Plant Benchmarks
– On time delivery percentage
– Fill rates
– Cost per adjusted patient day
• Survey
– Ask about effectiveness of outsourced products and
services and compare year over year results
– Who to ask?
• Hospital nursing
• Environmental and linen room staffs
2009 ASHES Annual Conference
September 20-24, 2009
Reno, NV
Summary
•
•
•
•
•
•
•
•
•
•
•
Different ways of Providing Linen and Laundry Service
Management Structure of Laundries
Keep or Outsource the OPL worksheet
Linen Losses
Considerations for Choosing a Linen Provider
Value Added Products and Services
Contract language
Intangibles
Installation
Order Taking Process
Effectiveness and Evaluation
2009 ASHES Annual Conference
September 20-24, 2009
Reno, NV
Questions?
2009 ASHES Annual Conference
September 20-24, 2009
Reno, NV