How California’s Law Requiring Annual Diversity Reports Is Affecting Hospitals

Healthcare workers at St. Joseph Hospital in Orange, Calif., on Dec. 16, 2020. John Fredricks/The Epoch Times

Commentary

On Sept. 6, 2019, I voted against Assembly Bill (AB) 962 on the floor of the California State Senate. AB 962, authored by Assemblywoman Autumn R. Burke (D-Inglewood), is legislation requiring hospitals to file reports with the state on the diversity of their suppliers. It’s now a few years later, so let’s reflect on the outcome.

If you look AB 962 up on California’s legislative information website, you’ll find that the “bill would require a licensed hospital with operating expenses of $50,000,000 or more, and a licensed hospital with operating expenses of $25,000,000 or more that is part of a hospital system, to annually submit a report to the [Office of Statewide Health Planning and Development] on its minority, women, LGBT, and disabled veteran business enterprise procurement efforts.”

It would also “require the office to convene a hospital diversity commission comprised of a member of the public and health care, diversity, and procurement stakeholders who are appointed by the Director of Statewide Health Planning and Development for specified terms of office.”

Although it might be difficult to impose an affirmative action approach to implementing quotas on hospitals from a constitutional standpoint, Sacramento felt it could at least mandate reporting requirements to determine how hospitals were doing of their own free will. After all, hospitals do receive Medi-Cal (California Medicaid) funds to assist those who need a safety net for services rendered.

Requirement Costs

The obvious opponent of the bill was the California Hospital Association. They argued that “although hospitals may wish to engage with minority or women owned companies, the lack of diversity in this area of manufacturing means that they simply do not have that option.” And “the cost of complying with this bill adds costs to the health care system.”

While I served as an Orange County Supervisor, I spent my first four years on the CalOptima Board of Directors. This gave me firsthand knowledge of the operation of health care in the County and made me quite aware of the low profit margins with which hospitals operate. One hospital even came to CalOptima nearly every day to pick up reimbursement checks because its cash flow was that precarious.

For another mandate on health care providers, the cost is ultimately borne by the patients and then passed on in the way of higher medical insurance premiums. So, I agreed with the industry’s argument regarding the cost of complying.

While serving in the California State Legislature, I observed the pursuit of “feel-good” policies by my colleagues. But these proposals would add regulations and administrative costs to the impacted parties. Who can argue against promoting diversity in one of the state’s health sectors? But I’ve always preferred market pressures in the pursuit of appropriate policies and procedures.

The government should not intervene unless there is severe abuse in the marketplace. Hospitals suggested they were willing to pursue the initiative but without the heavy hand of Sacramento, providing another good reason to oppose the bill.

Lastly, Sacramento also has an insatiable appetite to establish commissions, something I regularly opposed when considering how to vote. Although he was not very successful, Governor Schwarzenegger’s emphasis on “blowing up the boxes” of government made sense, so I voted against establishing new ones in legislative proposals.

AB 962 passed with all 29 Democratic Senators in support and the 11 Republican Senators voting in opposition. It would be signed by Governor Newsom a month later, on Oct. 12. Its diversity reporting mandate now affects some 350 California hospitals.

Many businesses see supplier diversity programs as a means of improving their image and making them more desirable for customers. And the tools are there to determine if a supplier is certified to qualify.

When you need a hospital, are you going to ask for their procurement report before being admitted? Probably not. If I’m on my way to the Emergency Room, I’m just hoping the best physicians, equipment and medical supplies will be there when I arrive. And all at a reasonable cost.

Hospital Compliance

So how is the implementation of AB 962 working? Are the hospitals complying with this new mandate?

With the threat of civil penalties, it looks like most of them submitted diversity reports for the year 2021. The documents are available to the public online, a requirement of the bill.

Let’s compare and contrast the responses from two hospitals located in my former Senate District.

The opening request is the provision of the hospital’s “Supplier Diversity Policy Statement.” College Hospital in Costa Mesa was direct enough to simply state it “will create a mission statement for our purchasing department as well as devise a policy that demonstrates awareness and promotes supplier diversity.” It looks like it will have to evolve into meeting certain specific goals, such as matching the diversity of its community.

Kaiser Permanente Foundation Hospital in Irvine really stepped up to the plate, responding that “The Supply Chain Services Impact Spending Department, (formerly known as National Supplier Diversity and hereafter referred to as Impact Spending) maintains procurement guidelines for the use of diverse suppliers to be used ... by ... employees responsible for purchasing. It is policy to prefer to use a qualified diverse supplier whenever one is both available and able to meet [the hospital’s] business terms and conditions at a competitive price. [The hospital] is not obligated to use a diverse supplier over others when they are not able to meet the business requirements including pricing.”

Concerning outreach and communication, the first hospital candidly stated it “will maintain our current relationship with our suppliers, however we will welcome the opportunity to establish new partnerships with diverse businesses.” The second was more direct, stating “we strongly recommend all prospective suppliers and service providers register on our portal ... [giving our] decision makers access to your company’s information when conducting supplier searches. Be sure to update your registration annually.”

On supplier certification, College Hospital declared that it would “support all organizations no matter the diversity.” Meanwhile, Kaiser boldly communicated that it “proudly supports the National Minority Supplier Development Council, the Women Business Enterprise National Council, the National Gay and Lesbian Chamber of Commerce as corporate members.”

Filing the report gives hospital management a tool to balance cost concerns with equitable allocation to competitive suppliers. The goal is equality of opportunity. Successful hospitals focus on quality, cost, and liability. If they succeed in achieving these, then equity, inclusion, and diversity will also be addressed.

Views expressed in this article are opinions of the author and do not necessarily reflect the views of The Epoch Times.