Cleveland Clinic was seeing a decline in the cleanliness of its annual 18 million pounds of laundered linens. Supply chain managers there were scrambling because they were receiving as little as half the clean linens they needed for patients.
So, two years ago, the health system explored alternatives to its laundry outsourcing contract with industry giant Sodexo, which was scaling back its healthcare laundry business.
Then last year, Cleveland Clinic came up with an unprecedented solution. It awarded a competitively bid contract to Evergreen Cooperative Laundry, a not-for-profit, worker-owned company, to handle all the laundry for 36 care sites including its main hospital and several regional hospitals. The twin goals were to improve the quality and reliability of laundry services and provide good-paying jobs with benefits to local residents.
Cleveland Clinic bought the old Sodexo facility in Cleveland’s east-side Collinwood neighborhood and invested heavily in renovating it, installing state-of-the-art equipment that conserves energy and water. It contracted with Evergreen to run the operations.
While Cleveland Clinic declined to say how much it invested, Gerald O'Neill, CEO of American Laundry Systems, who consulted with the health system on the facility overhaul, said the total cost was about $22 million.
The initiative is part of a growing national movement by hospital systems to use their purchasing power as anchor institutions to build wealth in their surrounding communities, thus improving overall health and wellbeing.
Now Cleveland Clinic says it’s getting a nearly 100% “fill rate” on its clean linen. Evergreen has tripled its full-time laundry staff to nearly 150, more than half of whom are ex-convicts who otherwise would have a hard time finding good-paying jobs with benefits. And Evergreen says its Cleveland Clinic division in Collinwood has been profitable since the partnership started in early 2018, with the worker-owners receiving profit-sharing bonuses.
“We could have divided the laundry work among different providers, but quality would be a problem,” said Simrit Sandhu, Cleveland Clinic’s supply chain chief. “We could have run our own laundry, but it’s not our expertise. This was the best way to ensure quality and care for the community, too.”
The partners now want to expand to serve other customers, given that Cleveland Clinic uses only a little more than half the facility’s 30-million pound annual capacity.
A number of major systems across the country are similarly eyeing laundry services as one opportunity for community investment, particularly given growing problems with commercial suppliers. They are considering replicating the Cleveland Clinic/Evergreen model, said David Zuckerman, director for the Democracy Collaborative’s Healthcare Anchor Network, which helped establish the Evergreen Cooperatives in Cleveland in 2009.
Other founding sponsors of the cooperative were the city of Cleveland, University Hospitals, Case Western Reserve University, and the Cleveland Foundation.
“In making supply chain decisions around cost and quality, health systems also need to consider community impact,” Zuckerman said. “It’s the triple aim for purchasing."
A visit to Evergreen’s 80,000-square-foot plant shows that, in contrast to most on-premises hospital laundries, its facility is shiny new, air-conditioned, highly automated and spotlessly clean, with no lint visibly floating through the air and endangering workers’ health.
The machines are ergonomically designed so that workers don’t have to bend or lift above their shoulders. Heat exchangers sharply reduce energy use for hot water. All work stations have digital productivity displays with red, yellow and green color codes to help workers up their production levels and receive bonuses.
“Large laundry providers didn’t want to invest and they were closing facilities,” said Gerry Knotek, Cleveland Clinic’s senior director of linen and laundry. “This partnership gives us a reliable supply, better control of inventory, and we’re getting the linen we need and on time.”
Evergreen CEO John McMicken said he gets frequent calls and visits from other health system’s representatives considering a similar model. Some want Evergreen to work with them to launch a worker-owned cooperative laundry in their markets.
One interested group is Rush University Medical Center and other Chicago systems that are collaborating to strengthen their surrounding communities economically through an organization called West Side United. It includes Lurie Children’s Hospital, Amita Health, Cook County Health, Sinai Health System and the University of Illinois Hospital.
“The Rush System, along with other hospitals in West Side United, are currently exploring how some portion of the millions of pounds of laundry our hospitals generate could be processed on the West Side,” said Rush spokesman Charlie Jolie. “That’s a lot of jobs, and every single new job makes West Side communities healthier.”
The interest in the cooperative laundry model grows at least partly out of changes in the commercial laundry industry that have led to capacity shortages in some markets. It’s an estimated $30 billion industry in the U.S., with healthcare accounting for about $12 billion of that annually, according to Joseph Ricci, CEO of TRSA, an industry trade group.
Over the past 20 years, most hospitals have shifted their laundry operations from on-premises facilities and cooperatives with other hospitals to commercial suppliers.
Private equity investors have acquired many laundry companies. But it’s a low-margin, slow-growth business that isn’t producing the large and fast returns those investors prefer, Ricci said. Plus, hospitals increasingly are pressing for price reductions that are forcing commercial operators to consider whether they want to continue serving that market.
The recent exit of two hospital laundry vendors, Crothall Healthcare in the Chicago area and Clarus Linen Systems in Syracuse, N.Y., set off alarms for hospital supply chain executives, though a few other companies such as Unitex are expanding.
While Ricci argues that commercial vendors generally can handle laundry needs more cost-efficiently than hospital-run services because of their greater volume, he sees a not-for-profit cooperative like Evergreen as an interesting new financing model for the capital-intensive laundry industry.
“It’s an alternative to bringing in private equity,” he said. “But it’s too early tell if the Cleveland Clinic model will be productive and profitable.”
Evergreen employees, however, already see the cooperative laundry as a success. Many have taken advantage of their company’s home-ownership program, which allows workers voted in as owners to buy a three-bedroom home with a mortgage of $400 or less per month, paid off within five years.
They also receive checking and savings accounts—often their first ever—financial literacy and management training, and access to a small-dollar loan program as an alternative to predatory payday loans. The financial literacy training is key because the worker-owners meet four times a year to examine their company’s financial performance.
Tymika Thomas started at Evergreen in 2017 after serving five years in prison for robbery. Thomas, who’s 44 and takes care of her five children and three grandchildren, started on the production line feeding hospital gowns into the machines and soon was promoted. She’s now supervisor of the surgical pack department, in charge of quality control. She said top positions pay $14 to $16 an hour.
“Laundry isn’t for everyone, with the heat and standing in one spot,” she said. “But the housing and credit programs help you build wealth. The support systems are tremendous, and it’s like family. I love working here.”
The Cleveland Clinic's Sandhu said she’s talking with Evergreen about expanding the goods and services provided by the cooperative, including fresh produce from the cooperative's hydroponic greenhouse for the health system’s food service. Other new services being explored are landscaping, janitorial and housekeeping services.
The Cleveland partnership is a good model of how health systems can use supply chain purchasing decisions to sustainably address their communities’ social needs that play a huge role in overall health, said Zuckerman of the Healthcare Anchor Network, which now includes 46 health systems.
“Health systems are being asked to roll out all these programs to address the social needs of patients, but there’s no revenue stream and it’s not a core competency,” he said. “The question is how do we bake this into everyday business practices.”
