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Linen Management

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Three Principle Laundry Operating Forms

The healthcare laundry industry is populated by three principle operating Forms, each with its own set of subordinate derivations: (i) the on-premise laundry, typically operated by the host in-stitution; (ii) the shared or cooperative central laundry, typically operated by one or more owner institutions to the benefit of all its members and customers; and (iii) the commercial launderer or linen supplier, typically operated for profit by business entities not associated with its customers.

Institutional Linen Losses

The customers of these Forms of laundry service all use linen of various kinds and quantities in the course of providing healthcare services to their patients.For a multitude of reasons, the linens wear out or are damaged during use, sometimes they are thrown away, or they may be casually pilfered by the institution’s professional staff, employees, visitors and patients (collectively, these generally are referred to as “losses”).We believe that the annual cost of such “lost” goods throughout the United States is on the order of one billion dollars and, so, institutional linen loss is a significant consideration.As professional industry consultants and contract managers for over sixty years, it has been the Victor Kramer Company’s typical experience that all but the tiniest fraction of the total linen loss occurs at the institution.

The Laundry Operator as Agent for Linen Replacement

In all cases except for the commercial launderer, the operator (one or more individuals collectively representing the laundry owner’s interests) usually is responsible for managing and maintaining the linen inventory, and for buying goods needed to replace institutional linen losses (though not relevant to the case at hand, the commercial launderer only washes goods purchased by its customers).

Managing the Linen Replacement Function

Since every laundry operator must financially control his “business” in accord with a budget, linen purchasing and other financial activities it manages cannot be casual (linen replacement typically constitutes the second largest expense category of a laundry’s budget, after payroll).Hence, and foras long as there has been an organized industry, laundry operators have developed and used financial tools to aid in the preparation of their budgets and to guide associated day-to-day spending decisions.

In the healthcare segment of the industry, one of the most important and pervasively used of these tools is the rationalization of operating expenses with the quantity (weight) of goods sold: in other words, the operator reduces his costs to units of measure he can use to compare his performance with that of his peers and his own past experience in order to (i) “forecast” those costs going-forward, (ii) make decisions as to pricing for new customers, or (iii) evaluate cost containment programs.In this industry, we typically speak of and evaluate costs in terms of dollars (or pennies) per pound of goods delivered, and linen replacement is no exception.

Defining and Calculating Unit Linen Replacement Expense

When the industry speaks to unit linen replacement, it quite often loosely refers to it as “the cost of linens purchased divided by the weight of goods produced” – however, some clarification is required since: (i) all linen replacements constitute purchases but not all linen purchases constitute replacement; (ii) there are three generally accepted ways for defining the weight of goods produced by a laundry; and (iii) some operations have a mix of linen supply and launder-only customers, the latter of which do not use the operator’s inventory.Hence, to accurately convey information as to unit linen replacement cost, a more precise expression for unit linen replacement would be “the cost of all linens purchased to replace inventory losses during a given period of time divided by the net weight of all clean goods shipped to the customers who use that inventory during the same period”.

Factors That Affect Unit Linen Replacement Expense

The range of unit linen replacement costs across the nation is broad and one must be cautious when characterizing any institution’s experience in this regard because of the multitude of factors that can act to affect that cost – for example, one cannot legitimately claim simply on the basis of a high linen replacement cost that an institution does not have effective linen control systems in place, or that its laundry is stealing linens in wholesale fashion, any more than one may surmise the obverse at an institution with a low replacement expense.Just as important is the realization that a “national average” unit replacement cost is virtually meaningless when evaluating an institution’s experience (for this and other reasons, more progressive operators within the industry have developed additional measures to evaluate replacement expense).

A.Linen Prices

The price paid for a given linen article can vary widely between purchasers: sometimes, this has to do with geography or volume, or differences in the article’s precise specifications, but mostly it’s a result of purchasing wherewithal (by which we mean a buyer’s capacity, efforts and desire to secure the lowest possible price) – in the absence of competition or a financial incentive on the part of the buyer to exercise greater effort, there will be nothing to restrain a vendor from charging the otherwise highest possible price.

B.Linen Control Systems

Since linens are accessible to the vast majority of persons visiting or working in a healthcare institution, and as their value is often regarded as inconsequential, the danger of an orphaned interest in linen control and the associated financial penalties can be substantial.Ingredients essential to the success of a linen control system are focused administrative effort, an empowered sponsor, broad awareness and de-centralized conservation incentives – absence ofthese factors will undermine or even preventefforts to: improve security and control access; develop better purchasing, distribution, usage and conservation policies; raise cost awareness; prevent abuse and misuse; and so on.

Of special note as regards a functional control system’s affect on linen replacement cost is an appreciation of the influence an on-premise laundry operator can have in fostering the desired outcome (especially if compared to the result when such influence is not present).For this reason, it is quite common to observe dramatic increases in losses when a Hospital closes its on-premise laundry in favor of commercial service.

C.Standards of Quality

Beyond the minimum set of standards an article must have in order to properly serve the goal of good patient care, there are a host of optional specifications that can greatly affect the cost of its manufacture and, hence, its selling price – these include differences in thread count (density of the weave), type and origin of materials, dyed colors and patterns, monogramming, finished size and weight, appurtenances (snaps and ties), and degree of manufacturing quality.

For instance, a 130 thread/inch 66" by 108" cotton bed sheet made in Pakistan of materials produced there can cost half as much as a 180 thread/inch 72" by 118" sheet made of domestically produced goods, or only a third as much as that same sheet monogrammed with the customer’s logo. All other things being equal, unit replacement expense at an institution purchasing “no frill” goods could be half that of another which buys “top-of-the-line”, simply because of these differences.

D.Location, Linen Mix, Usage & Disposables

Other important factors that affect unit replacement expense include:

Location:Hospitals located in rural areas tend to lose less linen to pilferage than those in urban settings.Large institutions, perhaps because these are more common to urban environments, tend towards higher pilferage rates than smaller ones.

Linen Mix:A typical healthcare laundry will supply its customers from a mix of perhaps sixty items (a third of these may be different size scrub wear items); some have less items in their inventory, and some a great deal more.All other things being equal, the institution with the more extensive mix typically will experience the higher cost.

Usage:Perhaps as a corollary to awareness and acceptance of responsibility for linen conservation, institutions with low usage rates also tend to have low replacement costs.

Disposables:Hospitals that use disposable counterparts to such items as underpads, diapers, surgical drapes, and the like, also tend to have much lower replacement costs than those which don’t.

E.Weight Measurements

Finally, the method for determining the denominator in the linen replacement cost cal-culation also can have affect on its magnitude and, hence, evaluations of efficiency.If weight is understated, unit replacement cost will be artificially inflated, and vice versa if overstated.

Range of Unit Linen Replacement Expenses

A sampling of actual unit linen replacement expense for fifty-six U.S. hospitals served by thirteen laundry facilities producing almost 85 million clean-lbs/year ranged from $0.07/lb to more than $0.24/lb:the unit costs associated with fifty percent of these pounds fall within a narrower range of between about $0.12/lb to $0.18/lb; the sample average was $0.154/lb.

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