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Hospitals take on supplier diversity programs

Materials Management in Health Care

Eddie Mims is always on the move. A retired Air Force colonel who was director of the Air Force's Outreach Program Office for minority businesses, Mims umpires high school baseball, sits on the boards of several organizations and hosts his own public access television program.

Now he focuses his energies on finding minority vendors for University Health System in San Antonio , which operates a 472-bed county hospital. Mims, an African-American, became the hospital's first supplier diversity coordinator last September, as UHC sought to boost minority participation in supply and service contracts.

Outside the hospital, Mims is always on the lookout for small businesses that are women- or minority-owned, the grouping usually sought by diversity programs across the country. “A lot of businesses don't know about our contracts,” he says. “We reach out to small businesses because they don't have the staff to run down various solicitations for contracts.”

Inside the hospital, Mims meets with buyers, department heads and others, asking them to contract with the companies. He says his greatest challenge is “getting the staff convinced that you can get diverse companies that step up and satisfy their requirements.”

He relies mostly on persuasion. Bolstering his work, he has a rank in the organization equal to the purchasing director's and he comes armed with a few in-house rules on soliciting minority contracts. For example, anyone with a contract worth more than $2,000 must get at least one bid from a minority vendor.

To help staff reach that goal—and also raise their actual minority purchasing—Mims has created a directory of vendors with 1,112 names so far, mostly of minority-owned businesses. He also monitors minority hiring in each department and issues regular reports to UHC executives. The reports, printed out on spreadsheets, are three inches thick, he says.

Getting departments to change buying habits “is extremely difficult,” Mims says. “People are accustomed to doing business the way they have been.”

He tries to defuse misconceptions about minority contracting, such as that the firms will be paid more. “It's a myth that it will cost more or that they can't do the work, or that it's a waste of time,” Mims says. In fact, Mims and others say very few diversity programs in the nation pay more for minority contracts.

Mims' argument is that minority contracts can enrich the mix of available contractors, represent small firms that are more responsive to the hospital's needs, and help UHC pay back its substantial minority patient base. San Antonio is 60 percent Hispanic, 8 percent black and has number of women-owned businesses.

Mims says he looks beyond the minority label to determine the quality of the firms he recommends to hospital staff. “I never ask anyone to hire a SWMBE just because it's a SWMBE,” he says, referring to the term he uses for the firms, “small women- or minority business enterprises.” He reports that UHC did more than $7 million in business with SWMBEs in the first quarter of 2005.

Supplier diversity programs are at only a smattering of large hospitals around the country, according to estimates. The ground rules are that firms usually have to be at least 51 percent minority-owned, and in addition to women, minorities are usually defined as blacks, Hispanics, Native Americans, and Americans with ethnic roots in East Asia and the Indian Subcontinent who are U.S. citizens. Sometimes veterans are included, but Arab-Americans are not—even in a place like Detroit , which has one of the largest concentrations of Arab-Americans and one of the richest supplier diversity climates in the country.

Aiming at soft goals

The key reason why most hospitals do not even have a diversity program is that no one is required to meet minority purchasing quotas. The U.S. Supreme Court outlawed that in 1989, according to the Center for Policy Alternatives in Washington , D.C.

However, the federal government and at least two states— Texas and North Carolina —do set “goals” for minority contracting by companies. They are not considered quotas because there are no official sanctions for companies that do not meet them.

In the federal case, these goals apply only to private companies that have contracts of more than $500,000 with federal agencies and subcontract their business, according to information from the U.S. Department of Health and Human Services. Hospital diversity officials say the federal goals are rarely applied to hospitals and may not even apply to grants from the National Institutes of Health.

Meanwhile, the state minority purchasing goals apply only to state agencies, but these include large state university hospitals and hospitals that have substantial state funding.

North Carolina 's goal began at 4 percent for each agency in the 1990s and is now set at 10 percent, according to Bridgett Wall, director of the Historically Underutilized Business office at the North Carolina Department of Administration. Wall reported that UNC Health Care System in Chapel Hill and Duke University Medical Center in Durham have diversity programs.

In Texas , the minority goals are based on type of contract: 26.1 percent of all purchases for building construction, 33 percent for non-professional services and 57.2 percent for special trade construction, according to state law. Until recently, however, nothing much happened to state agencies that fell short, says Richard Hubner, executive director of the Houston Minority Business Council. But things are changing with the increasing presence of minorities in the legislature, Hubner says. Two years ago, he says, lawmakers began demanding accountability from state agencies.

Jerry Fuller, assistant vice president for procurement at the University of Texas Health Science Center at Houston , felt the heat. “We were told we were below the 25 th percentile, compared with other state agencies, and that it might affect our funding,” he says. Fuller went out and hired a diversity director, who has been steadily increasing minority supply contracts. In Dallas , Parkland Memorial Hospital and Baylor Health Care System recently started diversity programs.

Mims says the crackdown has not affected University Health System because it does not receive substantial state funding. But state requirements do affect M.D. Anderson Cancer Center in Houston , which does receive state funding. Marian Nimon, program manager for state and federal small business program at the hospital, says it also has internal goals. For purchases under $15,000, the goal is to place half of non-committed purchases to HUBs. In fiscal year 2004, she says, the hospital spent 15.5 percent of its reportable purchases with minority suppliers.

Getting a program started

Mims says a lot of people want to expand minority contracts, but it takes preparation. “Most people think it's the right thing to do but they don't have a plan,” he says.

While Texas hospitals rush to meet stricter state rules, large hospitals in Detroit have been voluntarily running programs for more than eight years. In addition to the Big Three automakers, which all have rich diversity programs, there are the Big Three health care organizations: Detroit Medical Center , Henry Ford Health System and St. John Health System. In 1997, the three joined forces to improve their diversity programs.

“We're right in the middle of a city that is 80 percent African-American,” says Robert A. Scavone, vice president for corporate services at Michigan Minority Business Development Council in Detroit . “Minority contracts bring value to the community.”

When the collaboration started, Scavone was vice president for corporate services at Henry Ford, overseeing purchasing and the supplier diversity program. At that time, only 3 percent of the three organizations' purchases were with minorities. When the project concluded three years later, the minority share was 16 percent.

The hospitals implemented their diversity programs in stages. First, they needed to get an idea where in the hospital contracts with minorities were strongest and weakest, so they gathered data on purchasing patterns. They also identified contract areas where there were plenty of suppliers, such as housekeeping, construction and promotional items, and others where there were sufficient numbers.

Then Scavone met with department heads and brainstormed on ways to increase minority participation. For example, if the contract was too big for a small minority business, it might be split up or two minority firms might create a joint venture.

“We really changed the way we did business in the supply chain,” Scavone says.

Occasionally he also stepped in to ease frictions between hospital departments and vendors. “If something goes wrong, the knee jerk reaction is going to be, ‘I knew that was going to happen.' We tried to talk that out.”

“Contracts depend on relationships,” Scavone adds. “If you don't have a diversity program, you're not going to know minority vendors from Adam. You have to build relationships. You have to bring people together.”

Delores Givans, corporate director for the supplier diversity program at St. John Health, says her organization now has a goal of 25 percent of subcontracts going to minorities. Because departments are now well accustomed to the program, “it's very rare that you get someone who won't do it.”

Deborah Williams, marketing support manager for materials resource management at Detroit Medical Center , reports similar success, though it varies greatly by department. There are still relatively few minority contractors for medical-surgical products, pharmaceutical distribution and waste management, she says.

Successes with ‘mentoring'

One essential ingredient in raising minority participation is a process called mentoring, in which hospitals help minority firms improve their ability to do the work. Darryl R. Hart , president of Commodity Sourcing Group, a minority-owned company that provides hospital supply-chain management, credits mentoring at Henry Ford with giving CSG a start in health care.

When Hart, who is African-American, started his company in 1997, it was entirely in the automotive field. He says Henry Ford personnel helped convince him to try health care and lent him IT personnel to help set up a computer system for invoicing and confirmation of shipping and delivery. Henry Ford also spun off several non-core businesses to CSG, including a linen service that he now subcontracts out.

Now CSG makes $15 million a year in revenues, entirely in health care, including several other hospitals besides Henry Ford. In 2004, Inc. 500 Magazine named it the 16 th fastest growing company in the nation. But Hart insists that his success comes mainly from hard work, and not from any special treatment from Henry Ford. “At the end of the day,” he says “we are measured on the quality of the services we deliver.”

Alicia Torres, founder and CEO of Rosebud Solutions, an Ann Arbor, Mich.-based company that offers barcode software to manage medical equipment and sterile processing, has a similar view. Torres, who is Hispanic, joined the Michigan Minority Business Development Council in Detroit where she met Nancy Schlichting, president and CEO of Henry Ford. Although Rosebud was already an established company, Torres got some new business from Henry Ford.

“MMBDC is a great organization,” she says, “but at this point, it doesn't help my business much.” However, she concedes that direct entrée to people like Schlichting is invaluable for a start-up company.

Minority firms go national

Perhaps the ultimate test of minority vendors is on the national level, where group purchasing organizations operate. Most minority-owned firms are usually too small to extend services such as housekeeping and warehousing nationwide, but with a little help, there are some ways to do it.

For example, Williams at the Detroit Medical Center says a small minority-owned manufacturer of exam gloves has contracted with Dublin, Ohio-based Cardinal Health for nationwide distribution.

GPOs such as Novation, Premier and Broadlane are also helping out. Cathy Denning, RN, senior director of contract and program services at Novation, says the company has a program to seek out minority-owned businesses, a category that also includes women and, in a new addition, veterans. When choosing these companies, she says, Novation sometimes puts aside its usual rule to always pick the “low best bidder”—the lowest bidder of those with the same quality. This decision is made with the help of member-driven task forces for companies that they consider of equal quality to the actual lowest bidder.

Novation has 28 national contracts with minority businesses and its regions also negotiate an unknown number of regional contracts with minorities. In addition, Denning says 30 more Novation minority contracts are negotiated for just one member. She says the company saw $34.8 million in member purchases from minority- and women-owned businesses in 2004, a 41 percent increase over 2003.

Diversity still has a long way to go

Mims says people in University Health System who contract with minority-owned companies have been satisfied. “I don't recall anyone coming up and saying that a company was not able to deliver,” he says.

But minority-owned companies still lag well behind other companies. Among federal contracts, for example, the Center for Policy Alternatives reports that of a total of $219 billion awarded in 2001, minority- and women-owned companies won less than $9 billion of them.

The number of minority-owned businesses is also quite low. The National Minority Supplier Development Council reports that while minorities represent 26 percent of Americans, minority businesses represent only 13 percent of the total number, 6 percent of gross receipts, and only 2 to 3 percent of corporate purchases.

“Do we have a long way to go? Absolutely,” says Scavone at the Michigan Minority Business Development Council. “But our country is changing very rapidly. Minorities have a buying power of $1.3 trillion now. Forty years from now, it will be $6.1 trillion.”

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