Cleaning Up Your Linen Services ContractsPerhaps this scenario sounds familiar: You’re about to leave the office and get a head start on the weekend when your VP of Facilities calls.
Cleaning Up Your Linen Services Contracts
Perhaps this scenario sounds familiar: You’re about to leave the office and get a head start on the weekend when your VP of Facilities calls.
The linen truck was late again and delivered only half the order this morning, so another vendor had to be called to bring more linens, including gowns for the ER. What can we do about this, the VP asks. You explain that Supply Chain is trying to negotiate with the vendor for better pricing and improved service, but so far without success.
This kind of problem happens more often than it should. Many times, because contracts are not strong enough or expectations are not clearly laid out, the relationship with your linen service provider goes south. So what do you do when your linen negotiations get dirty? Here’s a list of tips and tricks to help you successfully negotiate a stronger linen agreement while reducing costs.
Pricing without agitation. For COG linens (Customer-Owned Goods), the price may be per pound or per each piece. Pricing for Rental (supplier-owned) linens may be per pound, per pound + processing, or per each piece. COG linens may not be cheaper than rental linens. Rental linens are washed in bulk with other hospitals’ linens at the laundry facility. COGs are washed separately to be sure that each hospital gets its own linens back. If your hospital requires your linens to be laundered in isolation, the COG rate may be lower than the rental rate, but your rental rate may be higher than average.
Additional fees that you may see in your agreement are:
- Linen replacement fees. Linens may be lost, stolen, or taken to another facility when the patient is transferred. RFID tracking devices can be used to locate missing linens or linens that are being hoarded. Generally, linen replacement fees are charged only for linens lost in excess, as many times the vendor’s processing costs will account for general wear and tear or linens that need to be “ragged out” or discontinued from use. Your linen partner should be willing to work with your organization to try to change habits and provide education on how to minimize excessive linen loss prior to charging you a fee. To ensure this, we recommend that your contract include a pledge that the vendor will partner prior to charging a linen replacement fee and that both parties will mutually agree to the fee if it comes to that.
- Delivery Charges. Generally, you will see these fees only if the linen service provider is delivering linens directly to the floor and stocking the shelves. If your contract does not include this service, but includes delivery charges, we recommend negotiating them out.
- Fuel Surcharges. Vendors should add fuel surcharges only if the cost of diesel fuel exceeds a certain amount. To obtain a list of what would be considered reasonable, ask us for either a Benchmark Report or a Category Overview report.
- Cart Make-Up Fees. Unless your organization has a really complex cart make-up schedule, you should be able to negotiate these fees out, as the linen service provider has built into its workflow to make up carts anyway.
- Account Management Fees. Some companies charge account management fees, but this is not standard in the industry. You should remove any account management fees from your agreement.
Get into the essential details of your linen spend by performing an audit. Vendors in this category often accidentally charge rates incorrectly. We recommend auditing your invoices to ensure that the vendor is charging you according to your contract. Furthermore, if your healthcare system is paying linen replacement fees, we recommend investigating solutions to reduce the linen loss.
Benchmark data will allow you to clean up your contracts. Over time, pricing for linen services hasn’t changed significantly. Avoid automatic price escalators, as the industry hasn’t indicated increases. Use TractManager’s Spend Analytics Spot Check tool to compare your rate to other rates nationally. Should there be an opportunity to reduce your rate, TractManager’s purchased services experts can determine the true potential savings by benchmarking based on regionality and volumes.
Know the other suppliers who can brighten your day. Review TractManager’s Spend Analytics National Dashboard to find other service providers in your region to consider. Don’t rule out providers not directly in your area, as many have truck fleets supporting their distribution.
Contract terms that won’t put your through the wringer. The business terms in your contract will determine whether service in your linen partnership is a washout or a Cinderella story that goes from rags to riches. Here are few clauses to include in your agreement that will set you up for success:
- Contract Term & Termination: Three years is a common term length. Generally, we do not see termination for convenience in these agreements due to the large amount of capital the service provider must invest up-front to partner with the hospital. When we do see termination for convenience, it is typically after a set amount of time (e.g., 2 years or the initial term of the contract), and there is a penalty tied to it. The penalty should not exceed 50% of the remaining value of the contract, which would be based on current utilization.
- Avoid Price Increases: Price Increases shouldn’t be included due to stagnation of the market for the last decade.
- Lost Linen Charges: Add language to avoid a lost linen charge and create a partnership to reduce loss.
- Service Level Agreements (SLAs): The main SLAs that we see in linen service agreements are related to reject linens, fill rate, customer satisfaction, and late delivery fees.
- Reject Linen SLA: Credits should be applied for linen rejected (e.g., with large stains or holes in it). The vendor should incur a penalty if the amount rejected exceeds a specified threshold. Specify your quality expectations, including size of a stain that’s acceptable (e.g., less than 1 inch), and no stains that appear to be blood.
- Fill Rate SLA: Fill rates should be 95% or higher.
- Customer Satisfaction SLA: Should be at 85% or higher.
- Late Delivery SLA: Outline penalties for late delivery. Delays may impact moving patients into rooms.
- Disaster Plan: Include disaster plan provisions, such as receiving additional linen deliveries during a surge of patients due to a disaster. Your service provider may opt to partner with other linen companies to address special circumstances. Identify alternate routes for urgent delivery during a natural disaster.
- Information Security: If you have linens that incorporate RFID tags, you will want to include information security to ensure you are protecting your network.
Negotiation strategies that put some starch in your agreements. Having the right strategy to tackle your linen services is key. Here are a few of our favorites to help set you up for success!
- Negotiate directly with vendors when you have limited local suppliers to choose from. Benchmark data is critical for those negotiations.
- Request RFPs from several vendors. This approach leads to savings, but you need plenty of lead time before your contract expires. RFPs help you clarify competitors and competitive rates.
- Consolidate your vendors if your linen service includes 5 or 6 suppliers. If you have a multi-facility organization, consolidating to one master agreement can save money.
Want to get the best deal on your linen services contracts? Leave the negotiations to TractManager’s purchased services experts.
TractManager’s experts shared these linen services contract negotiation tips during one of our recent Table Talks—informal discussions about Strategic Sourcing strategies. Please join us for the next Table Talk session to discover additional best practices.
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Skilled negotiators are like musical virtuosos. They have an extensive repertoire of tactics from which to draw, and they know when and how to make them a part of their performance. But negotiating healthcare contracts for capital, purchased services, and IT services can test the artistry of even the most masterful negotiator.