Cincinnati's Catholic Health Partners hasn't always put a premium on supplier diversity. In fact, back in 2007,which really isn't that long ago, less than one percent of its total spending on supplies and services was on minority firms.
Today, it's important enough for Ohio's fourth-largest employer (and largest health system) to take the trouble of releasing a self-congratulatory press release on the achievement of reaching nearly 10% (or $92.6 million) of its total spending on women-and minority-owned businesses.
Beyond the obvious public relations value of such an accomplishment, what's so important about supplier diversity? To find out, I spoke with Michael Connelly, the system's chief executive officer.
"It was pretty appalling," he says, of the 2007 number.
Connelly says all the right things about spending on so-called diverse businesses. At one percent, it doesn't come close to reflecting the makeup of the community. As a religious-based nonprofit organization, Catholic Health Partners has a commitment to reflect its community in its business practices. Neither does a one percent spending level on diverse businesses reflect the makeup of the
management and staff of CHP.
"The issue is to make sure those who were never in the bidding process to begin with are included," says Connelly. "It's the right thing to do."
Fine. I get it. Those are admirable reasons.
But as our conversation progressed, I discovered, to my surprise, that increasing that diversity spending level is less important for the public relations and feel-good reasons many people assume it is. In fact, it's more important ultimately not only because it extends to include elements of the community that didn't benefit from CHP's huge purchasing power in the past, but also because CHP wasn't able to benefit from them either.
As Connelly says, less-visible benefits accrue to organizations that keep close tabs on this metric. Focusing on improving diversity spending, if it costs are low, is the right leadership move for an industry that claims it is all about reducing waste in healthcare.
"There's another important aspect to this and [that is] the belief that this is stimulating competition," Connelly says. "In the end we get better quality at better cost, because you in effect throw a new competitor into the mix. Everyone wins from doing this."
Everyone, that is, except maybe overpriced vendors, because let's dispel one myth right now. It's not that any of these women-owned or minority businesses get preferential treatment. They have to win the bid on price just like everyone else. When I asked about this, Connelly responded with true incredulity, but I had to ask the question.
"Of course they have to win the bid," he says.
It's about leadership, not necessarily about righting a wrong, and leadership requires synthesizing the important reasons surrounding any initiative, and making sure that not only do those initiatives provide solid thinking on the social and political reasons such changes are undertaken, but also for business reasons.
Why not go with the status quo?
Building up your diversity spending it not as easy as it sounds. Some lines of business are traditionally not places where women- or minority-owned businesses can effectively compete.
"It's hard to get a minority banking vendor, for example," says Connelly.
Many hospitals or healthcare facilities spend a lot on big supplier vendors, many of which, like GE and Johnson & Johnson, are huge multinational corporations, owned by shareholders—not women or minorities. Second, it's difficult to get certified as a minority vendor under CHP's definitions.
"You could have a sham deal where person is the minority lead," Connelly says, "but how much is really happening for the community with that person?"
To weed out that activity, CHP follows best practices developed from Procter & Gamble and healthcare powerhouses like Kaiser to encourage and qualify minority contractors.
How diverse is the contractors' workforce? Those and other qualifications can be measured, and are, in CHP's calculations. CHP has a diversity council which Connelly chairs, for its management and staff. That group's interest in diverse spending goals led to collection of data on how best to improve, thanks to advice from a retired P&G executive who comes from one of a group of large corporations that have achieved a billion dollars in diversity spending.
That executive made a compelling pitch to CHP about involving other Cincinnati and regional hospitals in rallying around this initiative. "The Cincinnati Health Council became the vehicle," says Connelly.
Hospitals and health systems in the area sponsored a diversity supplier symposium. Now in its fourth year, it brings together vendors and national public speakers to help women- and minority-owned businesses compete.
"No one likes to see disparity," he says, "so having a win-win that advances quality and lower costs, and reduces disparity is very rewarding."
Philip Betbeze is the senior leadership editor at HealthLeaders.