Pennsylvania Hospital Goes From OPL to Linen Service

Linen Services "partnership" helps boost efficiency, lower costs

By Carol Brzozowski Gardner

THE NATION'S OLDEST HOSPITAL has saved nearly $1 million a year by closing its on-premise laundry operations and contracting with linen services. Built in 1751 by Dr. Thomas Bond and Benjamin Franklin, the nonprofit Pennsylvania Hospital in Philadelphia has saved $930,000 per year since the hospital closed its on-premise laundry facility in July 1996, says Steve Wanta, director of engineering services and materials management.

Prior to the transition, the hospital had been processing 2,724,000 lb. of linen laundry at a cost of 81 cents a pound, with a total annual cost of $2.2 million (with the fiscal year ending June 30). The costs included replacement linen costs. The in-house laundry occupied 15,000 square feet at a site 10 miles from the hospital campus. The location required soiled and clean linen to be transported daily to and from the hospital. At the time of its closure, there were 38 employees dedicated to laundry services.

"We've decreased our cost per pound by 35 cents, which adds up to a 42% savings," Wanta says about the switch to a linen service. The hospital went to outsourcing as part of a hospital-wide re-engineering program that included such departments as food service and laundry. In an analysis of laundry services, it had been discovered that costs were on the rise. Problems with the in-house laundry operation were the basis of those rising costs, including the average age of the equipment (20 years), inefficient process and layout and transportation costs.

The hospital formed a committee to study the operation and recommend changes. The study concluded that equipment replacement could cost up to $1.1 million and that new equipment would require additional space. Ultimately, the decision was to outsource and the contract for linen services went to Penn Health Care in Camden, N.J

"Not only have we saved a significant amount of money, but we've maintained a high quality of service, from inventory control to delivery times," Wanta adds. In the most recent fiscal year 1998, the annual cost to outsource 2,559,089 lb. was $1.1 million, or 46 cents a pound. The decision did not come without some reservations, however. "Preliminary quotes received from outside vendors showed outsourcing would reduce costs but also raised a number of concerns that might impact the ability of the hospital to meet its patients' needs," Wanta explains.

Among those concerns:

• Loss of control of the linen inventory.
• Potential for inconsistent delivery schedules.
• Methods for handling linen shortages.
• The need to have several days' linen supply on site.
• Ensuring the quality of the laundered product.
• The impact of any supplier shutdowns or labor problems.

"Each of the identified concerns were defined and methods for dealing with them were addressed during the final bidding process," Wanta says.

The hospital then sought a vendor with hospital experience. It was recognized that an experienced vendor could provide expertise that would help to better manage our linen utilization within the hospital," Wanta says. "Therefore, it was important to the hospital that the successful bidder partner with and provide assistance beyond just laundry services. Wanta says the hospital interviewed three vendors, "and we felt that the service out of Penn would have been better, simply because in our interviewing process, we felt they knew a lot more and they were better. Their price, however, was right down there with everybody else's-the price differences weren't that significant."

Wanta says another factor important to the hospital was the inspection of Penn's facilities, which it has conducted on several occasions. "(A vendor) has to show us that they can do the job in a way that meets all of these standards, that their employees aren't in a sweatshop, that they have benefits and those kinds of things, because if they don't have those things, we probably wouldn't do business with them; it would be almost unethical," Wanta says.
Additionally, it was important to partner with the vendor to work on cost reduction, Wanta says. "That partnership includes things like helping us to maintain inventory control and helping us to choose the right kinds of suppliers for giving us information on scrub systems, for example, and working with us in our value analysis committee to look at gowns and see how many gowns we really need to have," he says.

For instance, with Penn's help, the hospital went from 53 types of gowns to five. "That came from their knowledge of the business and other hospitals, and their efforts to work with us in our committees helped further reduce our costs," Wanta says. "If they don't put that kind of a service into their operations, chances are what will happen over time is the lowest bidder will win the deal and they may not be the best."

Wanta agrees with linen services industry sentiment that a hospital is in the job of providing health care, not running a laundry facility. "A private laundry can operate at a lower margin than we can in terms of cost," he concedes. "Where they may pay their employees $8 or $9 an hour, we would pay ours $10 or $11 an hour, so there's a differential right there.
"Second, you have the aspect of the equipment, the evolution of the equipment and the cost of that equipment," he adds. "If you're servicing a number of sites, obviously you can keep up with the latest and most efficient technology, whereas if you have an on-site laundry, after 10 to 15 years, you need to purchase another half-million dollars of equipment to update your laundry. It's really hard to justify all of that, and I can't help but see where the costs on a hospital laundry would be greater than one of a major linen services company.

Reaction from the hospital staff to the change has been positive, Wanta says. "It wasn't the outsourcing that really was the most significant and noticeable thing to them, but when we outsourced, we also re-energized the whole supply chain," he says.

Rules were set up that are essential to the operation, such as the provision of a full day's linen to each of the nursing units and the provision that all soiled linen must go out each day. Prior to that, nursing units were receiving piecemeal deliveries from its in-house laundry, "and it wasn't as consistent as one delivery a day or two deliveries a day at a given time by Penn," says Wanta. "While the cleanliness was comparable, they saw improvements in the operations." The hospital occupies 1.1 million square feet in the center of Philadelphia and has 505 licensed beds.

The Pennsylvania Hospital scenario is becoming a more common one, says Peter Corr, TRSA's manager of marketing, sales and service. "With increased pressure to cut costs, healthcare administrators are vying to outsource their laundry operations," Corr says. "At the present time, more than 35% of hospitals outsource their laundry operations."

To hospitals wrestling with the decision of on-premise laundries vs. outsourcing, Wanta says if a hospital has newly-installed equipment, it might not make sense to outsource until the end of the capital recovery period. But in other cases, "from an economic perspective, it would make sense to take a very close look at outsourcing, since we were able to reduce our costs by 42%. We think that it wouldn't be too hard for any other hospital to do the same thing." Wanta says some hospitals cannot outsource for lack of space. "We had to make some changes in the facility to accomplish this outsourcing," he explains. "We had to add more units and we had to keep a three days' supply of carts somewhere, which are needed for long weekends, weather problems and other backups. We needed space to keep those carts, so we demolished some rooms down on the basement level and made that space.