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Moving from Customer-owned Goods to Rental Services (Part 1)

Healthcare linens have been trending toward rental services for several years

CHICAGO — Linen rental is advantageous for both laundry services and their customers.

Healthcare providers have been moving toward rental for some time while hospitality customers still like the branding options of owning the goods. But how has the pandemic affected customers’ attitudes toward customer-owned goods (COG) and rental? And what does it mean for laundry operations?

American Laundry News reached out to the Healthcare Linen Alliance (HLA), the American Reusable Textile Association (ARTA), the Association for Linen Management (ALM), and TRSA, the association for linen, uniform and facility services, to find out what their laundry and linen service members are experiencing regarding COG vs. rental.

HEALTHCARE GOODS

“The pandemic just continued to accelerate the existing move to rental linens from customer-owned linens (COG), a trend that has been underway for several years now,” says Rick Gaffney, who heads business development and partnerships for HLA, which is made up of seven healthcare laundries offering services to hospitals and medical facilities across North America.

“Members … have seen a significant swing toward rental textiles, a trend we believe is most likely permanent.”

Gaffney says that even before the pandemic, most of the business of its members was heavily skewed toward rental textiles while acknowledging a good amount of COG volumes remain in some geographies.

Gary Fuller at Century Linen in upstate New York, part of HLA, reports that his rental-to-COG ratio was about 95% to 5% before the pandemic and remains at that relative ratio today.

Century Linen picked up some added COG business when hospitals added customer-owned isolation gowns and other customer-owned personal protective equipment (PPE) cover garments, including scrubs and lab coats. Most of this PPE surge happened when the pandemic started.

Fuller says he has seen supply chains slowing and textile prices increasing for hospital customers that still buy and supply their own linens. Hospitals are starting to find it a lot more difficult to source the linens they need. 

He adds that with the purchasing power of Century Linen, as an Alliance member, his company’s rental programs give his hospital customers many more options and assurance of supply. This is critical to hospitals in this ongoing pandemic environment.

Randy Bartsch, the CEO of Ecotex Healthcare Linen Service, part of HLA and a member of ARTA comments that he hasn’t seen a change in his business mix either. He says that almost 100% of the linen Ecotex supplies to its Canadian hospital clients is on a full-service, rental basis. 

Ecotex, which also operates several healthcare laundries supporting hospitals in the U.S. Midwest, serves a relatively small volume of COG products for hospitals but shares that this has been slowly declining.

“Hospitals today are looking for full-service solutions and an assurance that we can supply their complete linen needs,” Bartsch says. “Our linen rental programs provide the best control for our customers, where we take on and manage the risk of linen shortages.”

Continued consolidation of hospitals and health systems, as well as consolidation on the healthcare laundry supply side of the business, have both driven this macro trend toward rental textiles.

The largest laundry operators in the country, including groups like HLA, that are processing more than 750 million pounds of linen a year have strong purchasing power. This makes rental programs much more price competitive compared to smaller, single-plant laundries that may not have the pricing leverage with textile and other suppliers and rely on their hospital customers to purchase the linen inventory they need. 

Bartsch says another contributing factor to this trend is staffing at hospitals. Staffing issues, including front-line labor shortages and departmental supervision, when combined with the lack of experience with linen due to turnover and training, make conversions to linen rental programs an easy decision for hospital administrations to make, allowing them to focus on their core business: patient care.

Another Alliance member, Mark Carter of Up To Date Laundry in Baltimore, also reports his hospital customers are looking for rental solutions due to the many staffing issues caused by the pandemic.

Hospitals feel that they can save money and have more control with a well-run rental program. They are looking for a laundry supplier that will partner with them and help with linen utilization and identify sources of loss.

Rental programs have come up in customer conversations when discussing money-saving alternatives. Transportation costs have increased during the pandemic and costs savings can come with those rental conversions by potentially making fewer trips to the customer increasing efficiencies.

Carter’s rental business has increased by 19% during the pandemic, much of it as a result of new rental conversions. He feels these changes will be permanent because of their flexibility with textile purchases offering a better assurance of supply versus a hospital sometimes being locked into long-term supply chain decisions. 

Karl Fillip II, CEO of Atlanta-based NOVO Health Services, reports that 98% of its business is rental. He says the synergies created through better purchasing power as a result of rental programs are better for them and their customers since they don’t have to allocate resources toward ordering, receiving, maintaining inventories and issuing purchase orders for textile goods.

Productivity and efficiency in a rental plant are on average 50% better than in a COG plant. These savings ultimately go back to the customer as NOVO uses its lower costs to win new business.

“This is a big deal when the healthcare laundries are facing pandemic-related staffing issues of their own,” Fillip says.

He also feels that the trend toward rental linen is permanent and feels that the issues that would drive a customer back to COG in the future will not be the result of a pandemic but a laundry operator issue like poor order fulfillment rates, late deliveries or insufficient finances, which ultimately result in poor quality and declining service.

“What hospital administrator would want to authorize a couple of million dollars to buy linen inventory and invest in additional staffing if they are in a rental program today?” he says. “Better to find a good healthcare rental laundry and linen supplier to manage the whole program.”

Andy Kratky, president of Emerald Textiles LLC in California, responds that the customer base in their market is and remains predominately rental, both pre- and post-pandemic.

There are certain customers in California that continue with COG programs; however, these customers have begun to review the impact of moving to a rental program as well.

Emerald’s perspective is that managing linen is not their customer’s core competency and, in their experience, customers on COG programs experience increased costs related to linen procurement.

The company has not experienced any dramatic changes in the way customers view its linen programs. Mixing COG in with rental can affect laundry operations that create a higher level of inefficiency, which in turn increase costs. Emerald says it is fortunate to have a single, dedicated laundry plant in the Northern California region that can process most of its COG customers.

The pandemic has not affected the storage or delivery of the rental or COG linens, but customers have expressed concerns about linen replacement costs increasing and having sufficient inventory to support the healthcare system. 

Emerald works with its customers on linen management and how to mitigate increased replacement costs. They assure their customers that there will be sufficient inventory to support their health system needs, and ultimately the patient.

Kratky believes COG customers will continue to migrate toward rental because they can better use their capital in areas of their business other than to purchase linens.

The pandemic has changed the business in many ways, but the remaining COG healthcare laundry business is slowly and steadily moving towards linen rental programs, Gaffney shares.

COG programs can be run most efficiently if there is a partnership with laundries accepting and storing customer-owned linens onsite and helping the hospitals with controlling weekly linen inventory injections.

A monthly inventory would then be taken and given to the hospital so they can reorder their linens in a timely manner to assure supply.

Linda Fairbanks, executive director of ALM, spoke with about 10 of its members and also found that healthcare textiles products continue to be mostly rental and a shift to COG isn’t likely.

“Typical COG for specialty items such as patient slings, cubical curtains, etc., continues but not the standard hospital textile products,” she says. “They continue to be rental goods.

“Most members indicated that while there may have been initial concerns over isolation gowns and/or scrubs that this has settled back into pre-COVID patterns.

“Most hospitals seem to have benefited from good relationships and communication with their laundry providers, and if there were substantial increases needed for products, they reached out to their laundry processor to have them secure greater volume and avoided the need to purchase COG.”

Fairbanks adds that some healthcare facilities may have used COG as a stopgap measure to supply shortages, but they have already returned to rental goods.

“Hospitals that have purchased reusable COG for backup and emergency preparedness measures will want to be sure to monitor the storage situation so that those emergency goods are fit for use when needed,” she says.

Check back Thursday for a look into the hospitality status of COG vs. rental.

Moving from Customer-owned Goods to Rental Services

(Image licensed by Ingram Image)

Have a question or comment? E-mail our editor Matt Poe at [email protected].