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Outsourcing Linen Services

For the processing of reusable textiles, hospitals and nursing home managers may choose to operate their own laundry or outsource this department to a qualified healthcare textile services company. Historically, conventional wisdom among some administrators was that operating an on-premise laundry was more economical and ensured a ready supply of textile items when needed. However, in recent years that belief has begun to be challenged. The emerging trend is to outsource linen services for financial, operational and even environmental reasons.

According to Modern Healthcare magazine, laundry services are now the third most outsourced service in healthcare facilities; even more notably is that laundry services is also the segment of operations being outsourced, in fact, the fastest in the healthcare industry. There are several trends that are leading hospital, nursing home, surgical center and other medical facility managers to outsource:

Why Choose to Outsource Your Laundry?

Rising Cost of Operating a LaundryIn this decade, there has been a sharp increase in the cost of the resources necessary to operate a laundry. Between 2003 and 2004, natural gas prices rose by 20.5% and by an additional 30% in 2007 Water and sewer rates also have increased.  The trend will continue to send prices higher as  Chemical costs also have been rising as the price of the core resources to produce them – such as Electricity and fuel – have doubled and even tripled in price. Other operating expenses that also are making running a laundry more expensive are production labor and employee benefits. Go to top

Cost of Upgrading to Efficient EquipmentLinen service companies have been able to counteract increases in energy, water, chemical and labor costs through the implementation of innovative laundry equipment. However, these upgrades, which have been commonplace in the healthcare textile services industry this decade, are costly. Not only is the laundry equipment more expensive – for example, a highly-efficient tunnel washer averages about  $ 3 million each – but in order to get the maximum benefit of the technology a laundry often must be retrofitted or tear down to build a new one. When faced with the millions of dollars in expense necessary to upgrade or build a new laundry, administrators are increasingly choosing to invest those funds in their core business of healthcare and outsource their laundry services.

Cost of Keeping Up with Growth – As the Baby Boomer generation ages, the number of patients and medical procedures in hospitals, nursing homes and surgical centers continues to rise. This is leading to an increase in linen/laundry volume. Many laundries run by healthcare facilities can no longer keep up with the growth. New equipment and added personnel are required, driving up costs. Go to top

For example, a 1.1 million square-foot Medical Center in Louisville, KY recently closed its on-premise laundry as the number of adjusted patient days rose by nearly 10%. What was the potential cost of keeping its on-premise laundry open? Including linen replacement ($400,000), wages/benefits ($682,770) and utilities ($165,272), the yearly charges for the On-premise laundry (OPL) totaled more than $1.58 million. That comes out to about 59 cents per lb. in processing costs. What’s more, to keep up with the growth, the facility would have needed another $500,000 in new equipment.

Focus on Providing Healthcare In all industries, not just healthcare, there is a trend to specialize on the organizations core functions and outsource other activities. Given the importance and difficulty of operating a modern healthcare facility, administrators increasingly see running a laundry as taking critical personnel resources and funding away from providing quality healthcare to its community.

Improve Linen UtilizationEvidence is emerging that hospitals and nursing home facilties that outsource are seeing improved linen utilization rates. Go to top

Space ConsiderationsAs administrators consider how to increase operating revenue, determining how a facility space is currently utilized is an important research point. When they look at an on-premise laundry, they see an expense where there could see revenue. The square footage now used for a laundry can instead house new medical equipment or provide space for a added physical therapy treatment, or more patient beds or general storage. This issue is especially pertinate when a facility is faced with the cost of expanding its current facility.

Is your on-premise laundry calculating all of its operating costs and poundage accurately?

If you are operating an on-premise laundry and considering outsourcing, you should begin by conducting a study to determine the actual cost  of processing a pound of textiles. This begins by accurately determining the amount of pounds processed by the on-premise laundry. Because the cost per pound is directly related to the amount of pounds of laundry washed, laundry managers may inflate the number of pounds they process in order to show they are efficient. However, in these cases, administrators are not getting a true picture of their on-premise laundry costs and may be making decisions on false data. Healthcare laundry consultants can assist in accurately determining laundry weight; you  may contact a consultant for assistants. Go to top

Beyond determining the accurate weight of the goods processed, the following are line items that must be taken into account when determining the cost of operating an on-premise laundry:

Laundry Production PayrollPayroll costs for wages paid to hourly employees who handle linen, including laundry production, soiled sort, washroom, flatwork, ironing, tumble dry operation, etc.

Management PayrollEmployees who handle linen inspection; linen control; janitorial services; machinery repairs and maintenance; and internal linen distribution.

Employee BenefitsIncludes payment of social security, workers compensation, holidays, one-or-two week vacations, health insurance (varies), union contributions, etc. Go to top

Laundry ChemicalsAll detergents, alkalis, bleach, sour, fabric softener, bacteriostatic agents, starch, etc.

Maintenance, Repair, and Parts CostsIncludes all machine repair parts, lubricants, drive belts, iron pads and covers, tools, boiler treatment and water softener salt.

UtilitiesGas, electricity, fuel oil and water account for a large part of expenses.

Taxes, Licenses & PermitsTaxes, licenses and operating permits paid by the facility and allocated to laundry operations. Go to top

Equipment Depreciation Costs Equipment experiences wear every time it is operated. Replacement costs must be considered.

Insurance / Other Business ExpensesInsurance, lease charges, safety expenses, uniforms, training, and other expenses allocated to the OPL.

What are the environmental benefits of outsourcing?

Because of the significant investment the healthcare textile services industry has made in upgrading to more efficient equipment in this decade, outsourcing generally will help a healthcare organization reduce its overall environmental footprint. Go to top

Talking Points

If your healthcare organization is currently laundering its own textiles, you should consider the answers to the following questions in order to help determine whether or not to outsource:

  • Have we considered outsourcing laundry services?

Has the healthcare organization determined what is the cost per pound it currently pays for processing its own laundry? Have administrators invited local healthcare textile service companies in to conduct an assessment?

  • Do we know the accurate cost of processing our own laundry?

Ask how the laundry determines the total number of pounds it processes. Can this number be verified independently by a consultant or outside service? If the amount of poundage is overstated, administrators will not get an accurate cost of operations or properly determine how environmentally efficient the operation is. Be sure that the laundry is accounting for all of the cost of laundry operations as noted earlier in this section. Go to top

  • What is the environmental impact of doing our own laundry?

Determine how much water, energy and chemicals are used to process one pound of textiles. Ask if these figures can be benchmarked against previous periods – as equipment ages it becomes less efficient. Also, ask if these totals have been benchmarked against healthcare textile service companies and other on-premise laundries.

  • How efficient is our equipment?

Are washers using more than 1.5 to 2 gallons of water per pound of textiles laundered? If so, your organization may be wasting water resources. Also, compare the efficiency of dryers or ironers to new models; how much more efficient is the new technology? Go to top

  • Are we reclaiming water and energy in our laundering process?

In modern healthcare textile service laundries, water and energy can be captured and reused using new technologies. Is your organization using these technologies to reduce the amount of natural gas, oil and water it is using in its laundering process?

  • Can the laundry handle increased volume?

If, as trends suggest, that healthcare services will increase as the Baby Boomer generation ages, will your organization’s on-premise laundry be able to handle the increased volume of textiles that will be necessary? If so, how cost- and energy-efficient will the operation be with the increased volume? How much would it cost to upgrade equipment, add employees and expand laundry space to meet the increased need?

  • Can we better use the space we now dedicate to the laundry?

Determine what the organization’s current revenue per square foot is. By eliminating the laundry, how could that number be increased? Options include adding new medical equipment, patient beds or surgical space. Go to top

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