Benchmarking report: rental and commercial laundry operating expense lowest - Surgical Business

Healthcare Purchasing News,  Sept, 2002  by Peter Corr

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Independent consultants Phillips & Associates Management Information Services have produced a benchmarking report called Comparative Operating Revenues and Expense Profile for the Healthcare Textile Maintenance Industry. The reports, which had been produced every other year but are now released annually, analyze and determine line-by-line revenue and expense items for commercial COG (customer-owned goods) laundries, healthcare linen rental laundries, central laundries, self operated hospital laundries and self-operated nursing home laundries.

"The data come from two confidential sources," says Glenn Phillips, principal with Minneapolis-based Phillips & Associates. "The first source is from actual client data collected by Phillips & Associates in the performance of actual assignment tasks. The second source is the firm's own software that is used daily by hundreds of laundries throughout the world." Phillips says annually his company's MIS department cleans up and archives the past year's database, and in the process the data is placed in the firm's own database. The plant information in the reports covers six geographical regions of the United States--Northwest, Southwest, North Central, South Central, Northeast and Southeast.

The latest report published in 2001 reflects data for 2000. Phillips says that data were collected for 472 laundries in the United States processing healthcare linen. The average processing volume of the plants was 5.6 million pounds annually. Of the 472 laundries, 54 were central laundries, 81 were commercial COG laundries, 61 were healthcare linen rental laundries, 133 were self-operated hospital laundries, and 143 were self-operated nursing home laundries. Average annual production was 6,037,540 pounds, 9,444,800 pounds, 13,170,370 pounds, 4,776,700 pounds and 826,743 pounds, respectively.

"We recognize that there is a statistical imbalance in the number of laundries represented in this data. However, the imbalance is based on nothing more than the information we had available when the data was prepared," Phillips says.

The data is broken out on a line-item basis under "Revenues" and "Operating Expense." A trend examination of the latest 2000 and the 1998 reports shows the following. Note: All costs are costs per pound.

The data show that rental laundries and COG laundries have lower costs for the selected operational areas. It is interesting to note that a "Contract Management Survey" by Hospital and Health Networks magazine shows that 48.8 percent of hospitals currently outsource their laundry/linen. About 66 percent said the reason was to obtain operational cost savings or to capitate costs.

The report analyzes other operating expenses, such as maintenance and power plant wages, building maintenance cost, building depreciation, water and sewer, etc. It also analyzes general and administrative expenses and revenues. The complete reports are available from the Textile Rental Services Association of America, Alexandria, VA.

Operating expense

PLANT POWER - ELECTRICITY (COST PER POUND)

                                                      Hosp.
      Central L       COG             Rental          Laundry

1998  $0.0150         $0.0140         $0.0145         $0.0178
2000  $0.0157         $0.0146         $0.0151         $0.0200

      Nursing Home
      Laundry

1998  $0.0173
2000  $0.0199

PLANT FUEL -- NATURAL GAS (COST PER POUND)

                                                      Hosp.
      Central L       COG             Rental          Laundry

1998  $0.0215         $0.0200         $0.0207         $0.0250
2000  $0.0221         $0.0206         $0.0214         $0.0263

      Nursing Home
      Laundry

1998  $0.0318
2000  $0.0334

PLANT PRODUCTION LABOR -- WAGES (COST PER POUND)

                                                      Hosp.
      Central L       COG             Rental          Laundry

1998  $0.0950         $0.0884         $0.0860         $0.1250
2000  $0.0960         $0.0912         $0.0868         $0.1271

      Nursing Home
      Laundry

1998  $0.1450
2000  $0.1479

PRODUCTION SUPPLIES -- CHEMICALS

                                                      Hosp.
      Central L       COG             Rental          Laundry

1998  $0.0120         $0.0112         $0.0116         $0.0146
2000  $0.0132         $0.0123         $0.0127         $0.0164

      Nursing Home
      Laundry

1998  $0.0240
2000  $0.0243

PLANT EMPLOYEE BENEFITS (COST PER POUND)

                                                      Hosp.
      Central L       COG             Rental          Laundry

1998  0.028 cents/lb  0.022 cents/lb  0.027 cents/lb  0.032 cents/lb
2000  0.028 cents/lb  0.026 cents/lb  0.027 cents/lb  0.032 cents/lb

      Nursing Home
      Laundry

1998  0.042 cents/lb
2000  0.043 cents/lb

TOTAL PLANT EXPENSE (COST PER POUND)

                                                      Hosp.
      Central L       COG             Rental          Laundry

1998  $0.2609         $0.2396         $0.2371         $0.3035
2000  $0.2733         $0.2572         $0.2595         $0.3111

      Nursing Home
      Laundry

1998  $0.3515
2000  $0.3727

EQUIPMENT MAINTENANCE COST (COST PER POUND)

                                                      Hosp.
      Central L       COG             Rental          Laundry

1998  $0.0075         $0.0070         $0.0072         $0.0130
2000  $0.0076         $0.0070         $0.0073         $0.0142

      Nursing Home
      Laundry

1998  $0.0183
2000  $0.0185