For people working to make U.S. health care purchasing more green, it’s not data that’s lacking, it’s discovering the meaningful part. “That’s the big question now: How can we leverage technology in a way that converts data into meaningful information that purchasing managers can use to do their jobs better?” asked JoAnna Abrams, CEO of MindClick, a supply chain sustainability company.
If such information were available, it could revolutionize hospital procurement, saving money for everyone involved; reduce health care’s impact on the environment; improve the health of patients, hospital staff and the public; motivate manufacturers to invest more in sustainable products; and spark innovation all along the supply chain.
But as things stand now, the information is not generally available. “What there’s almost none of — and this is where we have tried to focus some of our work in sustainable procurement — is support for the buyers actually making the purchasing decisions,” said Eric Olson, senior vice president at Business for Social Responsibility (BSR), a global nonprofit that develops sustainable business strategies and solutions. “Big companies make commitments to all these wonderful things, but people down in the guts, who have to actually do the buying, don’t really know how to do that. Or if they do know how to do it, they don’t know how to also keep their job, because sooner or later they’re going come against a trade off between unit cost and these other important attributes.”
Learning from Other Industries
As different as they are, the electronics and apparel industries share a similar history when it comes to their supply chains. Both were exposed in the media for abusing the environment and the people laboring to make their products; both suffered real financial pain as a result of the negative press; and both responded by creating data-driven coalitions of otherwise competitive companies to address the environmental, social and governance (ESG) issues involved.
When the electronics industry began working on the challenge with BSR in 2004, it quickly became apparent that, “improvement was not going to be driven if all the suppliers in east Asia and elsewhere were being presented with large numbers of conflicting requirements from buyers,” Olson explained. “We needed to get together, agree on root causes, agree on what acceptable and good practices would look like, and then we had to agree on the protocols that would guide everything from auditing to remediation.”
Things did not go smoothly at first. There were stormy meetings, as the group of eight companies went through the “storming and norming” phase of building a collaborative team. But eventually the storms abated, as “we found pre-competitive space in one of the most competitive industries on the planet,” said Olson. By working on common issues that would benefit all concerned, the group came to see clearly the value of what could only be done together.
The group was spun off by BSR in 2008, and today the Electronic Industry Citizenship Coalition (EICC) has 100 members that generate combined annual revenues exceeding $3 trillion. All of these companies — which directly employ more than 5.5 million people and have another 3.5 million contributing to the production of their products — abide by the EICC Code of Conduct, governing labor, ethics, environment, and health and safety.
While there are still plenty of challenges facing the EICC, Olson said that successes to date have included these three key elements:
- Getting the governance right: “What are we trying to achieve, what are the rights and responsibilities of those who join, what truly are pre-competitive issues where we can afford and benefit from collaborating, and what areas are just out of bounds?”
- Investing in the right transparency mechanisms: “We’re tantalizingly close to a step-change. The infrastructure has just gotten so much better, with the cloud offering the ability to share information without having the mother of all management software systems.”
- Taking a practical approach: “We’ve had to satisfy ourselves with a subset of information that we can actually get our hands on, believe and take action on when we get it. The train wrecks have been when people overbuilt — went for way more information than they were ever going to be able to take action on.”
In 2010, a remarkably similar process led to the creation of the Sustainable Apparel Coalition (SAC). At the time, “buyers throughout the industry were receiving an ever-increasing number of audits and surveys,” said Scott Miller, director of business development for SAC. Many of the questions were redundant, he said. “And nothing was getting better. The manufacturers were simply becoming expert audit takers.”
In response to the situation, the senior management at Walmart approached the senior management at Patagonia about coming together to develop a universal standard for the measurement of sustainability in the apparel industry. Joined by 10 other companies, the group consulted with other stakeholders and came up with the Higg Index. (The name isn’t significant; it was painstakingly devised to be inoffensive in all languages.)
The Higg Index was first created in Excel and focused only on environmental sustainability. As feedback came in, SAC made revisions, moved from spreadsheets to a sophisticated, transparent online platform and expanded the index to encompass social and labor issues. Today, more than 6,000 manufacturers and suppliers contribute to the Higg Index, now including both footwear and home textiles. Other industries, including glassware and tableware, also use the Higg Index, because they see major retail customers (such as Macy’s, Target and Walmart) using it.
As EICC did, SAC worked hard to create a pre-competitive space where competitors “can literally sit at the same table, as sustainability professionals, and collaborate on improving practices in the supply chain,” noted Miller.
Where Health Care Fits In
The challenge facing health care is both the same and different. All three industries — electronics, apparel and health care — have faced essentially the same obstacle to sustainability: the redundant collection of disparate data that cannot be meaningfully integrated into the purchasing process.
But Abrams pointed out some clear differences.
While the apparel and information and communications technology (ICT) industries have complicated global supply chains, their suppliers are generally confined to certain key industries. Neither electronics nor apparel “deals with the huge array of manufacturers that health care does, where you can be talking about everything from endotracheal tubes to baby formula,” said MindClick’s Abrams.
“There is also a much more manageable number of players in those other industries,” Abrams added. One hundred companies are members of EICC and SAC has 174 members. “In health care, you’ve got 5,000 hospitals alone, plus all the manufacturers, plus all the GPOs, plus all the clinical services that are in non-hospital settings. The scale of this thing is absolutely massive.”
Still, the experiences of SAC and EICC point to some essential ingredients that any solution in health care ignores at its peril, including most clearly a collaborative system that eliminates redundant and irrelevant data collection, provides transparency and translates data into actionable information. Just as important, SAC and EICC succeeded by starting slowly and growing incrementally over time.
These lessons have not been lost on health care professionals, who are now in the early stages of creating their own collaborative effort to green hospitals’ supply chains.
A Daunting Task
A great deal of time, effort and money will be required to make such an index a reality. “And at the end of the day there has to be an ROI,” said Abrams. “The way we approach this is to look at what each stakeholder is looking to get out of the index.”
Suppliers want to know how they compare to the competition. If a manufacturer’s product scores better than a competitor’s, it can use that information to help increase market share. If its product performs poorly, a manufacturer can work to improve the product, provided, of course, that the market justifies the investment. That’s another benefit of a sustainable health care index: It allows suppliers to see how robust the market is for a product with specific EPP attributes.
Hospitals and other providers are driven by their mission, and by the changing economics of health care under the Affordable Care Act, to protect and improve the health of the communities they serve. They can use a sustainability index to steer clear of products that can actually aggravate the very conditions they are spending precious resources to alleviate and cure.
And with solid metrics to work with, they will be able to evaluate the complex tradeoffs between short-term and long-term costs. Such metrics are less likely to be helpful in marketing, at least in the near future. While a hospital may promote its overall sustainability, it is unlikely to showcase incremental reductions in its use of harmful materials.
Group purchasing organizations (GPOs) stand to benefit from an index in a variety of ways. Kevin Lewis, national program coordinator at one of the largest GPOs, Premier Inc., noted that as its 3,600 hospital members increasingly look for EPP data they can use in purchasing, suppliers not now on contract with the company will be motivated to sign on. In addition, said Abrams, “Contracting is really the tip of the iceberg.” GPOs are really in the business of providing valuable analytics to their members so they will benefit by having a third party that cost effectively provides verified information they can integrate into their own analytical tools.
Strength in Numbers
As a demonstration of what a sustainable health care index could achieve, six companies recently participated in a case study: Premier, Johnson & Johnson, Steelcase (a furniture and furnishings company) and three health care providers, Edward-Elmhurst Health, Anne Arundel Health and Fairview Health. The results from Edward-Elmhurst were first released at the conference on “Sustainability & Health Care: Creating & Capturing Value” at Wharton, co-sponsored by Johnson & Johnson and Wharton’s Initiative for Global Environmental Leadership (IGEL). Since then, results from the other two health care systems have also been released, so “now all three hospitals are in a position to see how they compare to each other,” explained Abrams, whose company, MindClick, is at the center of the initiative.
The case study focused on three categories — endotracheal tubes, furniture and sutures — and used the Environmentally Preferable Purchasing (EPP) data already being collected. Although the EPP data includes responses to only 25 questions, and only the data from one GPO and two suppliers was used, once that data was matched with a line item list of the purchases Edward-Elmhurst had made in all three categories during the 12 months preceding September 2015, MindClick had more than 300,000 data points to work with.
To translate those data points into usable information, the MindClick team identified which questions were relevant in each category and sorted responses into three simple categories: Starter, Achiever and Leader. The study revealed that 66% of the $60,000 Edwards-Elmhurst spent on endotracheal tubes during the year went for products that earned Achiever status. The remaining 34% was spent on products not on contract with Premier, and therefore with unknown EPP performance.
The story was even better in the sutures category: 91% of the hospital’s spending was on products at the Leader level from Ethicon, which not only dominates in market share, but also performs at the Leader level across its entire reported product line. No EPP information was available for furniture, because Edwards-Elmhurst purchased all of its furniture during the year from distributors, not Premier. (A what-if scenario demonstrated that if the hospital had purchased products available from Steelcase, 88% would have been at the Leader level, with the remaining 12% rated as Achievers.)
In total, Edwards-Elmhurst learned that 50% of the money it spent in the three categories purchased products that positively contributed to human and environmental health, but that the other half did not. This knowledge gave the hospital a benchmark against which to measure its progress in the years ahead.
As in the ICT and apparel industries, health care is building its index slowly and carefully. During the coming year, MindClick will be working with a pilot group of hospitals and a pilot group of categories to create the first phase of the Healthcare Sustainable Purchasing Index (HSPI). Two advisory councils, one for providers and one for suppliers, are also being formed to identify the questions that are most pertinent in each category.
Based on the experiences in other industries, the HSPI will continue growing over the coming years, sharpening the questions that are asked, enlisting the participation of more suppliers, GPOs and providers and building out the robust technology engine that will power the whole enterprise. As it does so, the index will help green a health care supply chain that represents 18% of the nation’s GDP.