Inclusive, local sourcing

Purchasing for people and place

Across the country, healthcare institutions are recognizing that they can creatively leverage their supply chains to address the upstream economic and environmental conditions that have the greatest impact on the health of local residents. In doing so, they can create family-supporting local jobs and build community wealth. This toolkit on local and diverse purchasing showcases examples of how hospitals and health systems are reevaluating their roles as their community’s largest purchasers, understanding that a thriving local economy is fundamental to a healthy community.

The Business Impact Case

Inclusive, local purchasing contributes to better institutional and community outcomes. Incorporating these priorities into your institution’s operations can:

  • Address supply chain needs and gaps
  • Create a more efficient and resilient supply chain
  • Generate a thriving local business community
  • Improve the quality of local jobs
  • Increase community impact by targeting underserved neighborhoods
  • Leverage existing philanthropic and public funds
  • Align sustainability, diversity and inclusion, and community benefit priorities
  • Reduce unnecessary and costly utilization of medical services
  • Strengthen your reputation as the provider of choice for your community

The sourcing of goods, services, and food that your hospital or health system does every day, when aligned with your mission, can help build local wealth in the communities you serve. Local spending has a multiplier effect that can increase local economic activity beyond that one purchase. For instance, dollars spent at independent local businesses will recirculate in the community at a greater rate than money spent at national chains.1American Independent Business Alliance, “The Multiplier Effect of Local Independent Businesses,” accessed July 7, 2016, www.amiba.net/resources/multiplier-effect/. By supporting diverse and locally owned vendors and helping to incubate new community enterprises to fill supply chain gaps, hospital and health systems like yours can leverage existing resources to drive local economic growth and build a culture of health in their communities.

This toolkit can help your institution get started. It highlights the concrete steps health systems are taking to shift policies to support local and diverse businesses and institutionalize and build upon these practices going forward. It focuses on two primary strategies for increasing local and diverse purchasing: creating connections and building capacity.

Connection strategies” focus on connecting existing local and diverse vendors to contracting opportunities within your institution. Often, traditional procurement practices create barriers for local and diverse vendors—even cost-competitive local and diverse vendors. Adjusting internal practices to facilitate connections with local vendors not only shifts procurement dollars in a way that fosters local employment, which in turn promotes community health, but it also grows these businesses over time, allowing for a more responsive and resilient supply chain.

Capacity strategies”  increase the ability of the local business community to meet health system supply chain needs—growing the capacity of existing businesses as well as helping to incubate new businesses. A capacity building approach helps address supply chain gaps, meet specific product needs, and improve the efficiency and resiliency of the supply chain. Capacity building initiatives often incorporate philanthropic or public funding, bringing additional financial resources to the table. Moreover, such business development efforts can incorporate important strategies to maximize impact through inclusive economic development. Specifically, they can create job opportunities for the populations that experience the greatest barriers to employment and cultivate wealth-building opportunities with employee ownership. Capacity strategies are most effective when employed in combination with internal policies that encourage connections with local vendors.

The Widening Gap

Economic and racial divides are driving health disparities across the country:

  • 22 percent of children are living in poverty, a percentage that has not changed since 1960.2Annie E. Casey Foundation, “Kids Count Data Book: State Trends in Child Well-Being,” Baltimore: Annie E. Casey Foundation, 2016, 6, www.aecf.org/m/databook/2016KCDB_FINAL-embargoed.pdf.
  • Ignoring racial inequities will cost the country $2.1 trillion annually.3Thomas A. LaVeist, Darrell Gaskin, and Patrick Richard, “Estimating the Economic Burden of Racial Health Inequalities in the United States,” International Journal of Health Services vol. 41, Issue 2 (2011).
  • The number of people living in concentrated poverty has doubled from seven to fourteen million since 2000.4Elizabeth Kneebone and Natalie Holmes, “U.S. Concentrated Poverty in the Wake of the Great Recession,” Washington DC: Brookings Institution, 2016, accessed July 2016, www.brookings.edu/research/reports2/2016/03/31-concentrated-poverty-recession-kneebone-holmes.
  • Median white net household wealth is thirteen times greater than African-American net wealth and ten times greater than Latino net wealth.5Rakesh Kochhar and Richard Fry, “Wealth Inequality has Widened along Racial, Ethnic Lines since End of Great Recession,” Washington, DC: Pew Research Center, December 12, 2014, accessed May, 2016, www.pewresearch.org/fact-tank/2014/12/12/racial-wealth-gaps-great-recession.
  • The average difference in lifespan after age fifty between the richest and the poorest Americans has more than doubled—to fourteen years—since the 1970s.6Sabrina Tavernise, “Disparity in Life Spans of the Rich and the Poor Is Growing,” New York Times, February 12, 2016, accessed May, 2016, www.nytimes.com/2016/02/13/health/disparity-in-life-spans-of-the-rich- and-the-poor-is-growing.html.

The potential impact of these strategies is significant. Nationally, health systems spend more than $340 billion every year on goods and services; but many of those dollars leak out of their local communities and do not reach the populations facing the greatest health disparities.7American Hospital Association, “Economic Contribution of Hospitals Often Over Overlooked,” Chicago, IL: American Hospital Association, June 2011, www.aha.org/content/11/11econcontrib.pdf; American Hospital Association, “Fast Facts on US Hospitals,” American Hospital Association, accessed September 2015, www.aha.org/research/rc/stat-studies/fast-facts.shtml.  Approximately 72 percent of all health system purchases are made through group purchasing organizations (GPOs) —which limit opportunities for local businesses to compete for contracts.8Akanksha Jayanthi, “50 Things to Know about the Country’s Largest GPOs,” Beckers Hospital Review, July 18, 2016, www.beckershospitalreview.com/hospital-management-administration/50-things-to-know-about-the-country-s-largest-gpos.html. Only a tiny portion of health system purchasing—less than 2 percent—flows to businesses owned by minorities and/or women.9The Network Journal, “B2B: National Minority Medical Suppliers Association,” New York, NY: The Network Journal, Oct 2004, http:// www.tnj.com/archives/2004/october/b2b. Improving the health of communities and patients will require rethinking existing procurement and sourcing practices in order to build a robust local economy that benefits all residents.

Fortunately, across the country, innovative “buy local,” supplier diversity and sustainable sourcing strategies are now underway and gaining momentum at hospitals and health systems. Health systems are reevaluating their relationships with their GPO partners to increase local and regional purchasing, and reflect other institutional values in their supply chain practices. They are demonstrating that healthcare institutions can reorient purchasing in a cost-effective manner to prioritize community, diversity and sustainability—all critical components of a healthy community.

This movement toward intentionally aligning and activating all of the operational and intellectual resources of an institution—including its supply chain—to benefit the total health, resilience and economic security of the community is increasingly being understood as the “anchor mission” of healthcare. Hospitals and health systems have an opportunity to adopt a holistic approach that links sensible long-term business practices with a commitment to aligning institutional resources like procurement spend to make good on the promise of health to local communities.

How to use this toolkit

This toolkit offers a guide for how to leverage hiring practices to advance inclusive, local job creation and career development for communities experiencing the greatest health and wealth disparities.

Key Terms

Defining the critical vocabulary for inclusive, local sourcing.

References   [ + ]

1. American Independent Business Alliance, “The Multiplier Effect of Local Independent Businesses,” accessed July 7, 2016, www.amiba.net/resources/multiplier-effect/.
2. Annie E. Casey Foundation, “Kids Count Data Book: State Trends in Child Well-Being,” Baltimore: Annie E. Casey Foundation, 2016, 6, www.aecf.org/m/databook/2016KCDB_FINAL-embargoed.pdf.
3. Thomas A. LaVeist, Darrell Gaskin, and Patrick Richard, “Estimating the Economic Burden of Racial Health Inequalities in the United States,” International Journal of Health Services vol. 41, Issue 2 (2011).
4. Elizabeth Kneebone and Natalie Holmes, “U.S. Concentrated Poverty in the Wake of the Great Recession,” Washington DC: Brookings Institution, 2016, accessed July 2016, www.brookings.edu/research/reports2/2016/03/31-concentrated-poverty-recession-kneebone-holmes.
5. Rakesh Kochhar and Richard Fry, “Wealth Inequality has Widened along Racial, Ethnic Lines since End of Great Recession,” Washington, DC: Pew Research Center, December 12, 2014, accessed May, 2016, www.pewresearch.org/fact-tank/2014/12/12/racial-wealth-gaps-great-recession.
6. Sabrina Tavernise, “Disparity in Life Spans of the Rich and the Poor Is Growing,” New York Times, February 12, 2016, accessed May, 2016, www.nytimes.com/2016/02/13/health/disparity-in-life-spans-of-the-rich- and-the-poor-is-growing.html.
7. American Hospital Association, “Economic Contribution of Hospitals Often Over Overlooked,” Chicago, IL: American Hospital Association, June 2011, www.aha.org/content/11/11econcontrib.pdf; American Hospital Association, “Fast Facts on US Hospitals,” American Hospital Association, accessed September 2015, www.aha.org/research/rc/stat-studies/fast-facts.shtml.
8. Akanksha Jayanthi, “50 Things to Know about the Country’s Largest GPOs,” Beckers Hospital Review, July 18, 2016, www.beckershospitalreview.com/hospital-management-administration/50-things-to-know-about-the-country-s-largest-gpos.html.
9. The Network Journal, “B2B: National Minority Medical Suppliers Association,” New York, NY: The Network Journal, Oct 2004, http:// www.tnj.com/archives/2004/october/b2b.