How to Help Hospitals Become the New Force of Change for Inner Cities

Written by Kim Zeuli and Liz Holden

The protests that have shaken Baltimore recently quickly expanded beyond the death of Freddie Gray, a young man in police custody, and into the conditions facing low-income minority residents nationally. Many of these residents live in inner cities with high unemployment and poverty rates.

Our friends at Grist recently wrote a compelling article about the potential role anchor organizations, including hospitals, can play in reviving inner city Baltimore. They highlight the role of John Hopkins University and hospital, but Baltimore is home to 12 nonprofit hospitals. Eight of the 12 are located in its inner city, more than in any other U.S. city. Previous ICIC research found that every year, these hospitals spend a total of over half a billion dollars on community benefits, and an additional $283 million on subsidized direct care.

Across the United States, hospitals create more inner city jobs than any other sector. In 77 of the nation’s 100 largest inner cities, hospitals are the largest employer, and 20 percent of the nation’s nonprofit hospitals are located in inner cities.  The economic development impact of hospitals has been most closely linked to their ability to create accessible jobs for inner city residents. The degree to which they have done this has not been extensively studied, but should be. Likewise, hospitals are major purchasers of goods and services from other businesses. In 2012 alone, hospitals spent over $757 billion. What we don’t know is the extent to which hospitals in inner cities have purchased from inner city businesses.

What we do know is that in Baltimore and other cities across the U.S., a number of hospitals have chosen to redefine their inner city impact, from passive to purposeful, creating career pathways for inner city residents and shifting more procurement to inner city businesses.  Recent ICIC research, featured in the Winter 2015 edition of the International Economic Development Council’s Economic Development Journal and an upcoming ICIC report to be released next week, delved into case studies of several nonprofit hospitals that have begun investing significantly in their communities, driving economic and community growth.

Just a few miles from where Freddie Gray grew up, Baltimore’s Bon Secours Hospital was an early leader, launching their first community development programs in 1995. Bon Secours also recognized early on that more of their operating expenses could be shifted to local small businesses. In 2011, the hospital made six percent of its total procurement in its immediate West Baltimore neighborhood and 37 percent of total procurement within the city of Baltimore. In the same year, the hospital began a push to increase its purchasing from women- and minority-owned businesses. By working with local diversity councils and other nearby anchors and using a database created by Equifax, the hospital increased its minority vendors from four percent to six percent of its total spending. A number of other spending shifts have been identified; these would bring the hospital’s local diversity spending to nine percent of its total.

These community development initiatives stem in part from “enlightened self-interest” – the knowledge that a healthier, safer local community will make it easier to hire and retain employees, create a more attractive environment for patients and decrease the number of preventable illnesses and injuries that land neighborhood residents in the hospital, often for charitable care. “It’s not just the immediate interventions of hospitals, but the intermediate ones, that will make those direct interventions more likely to succeed,” Eduardo Gerardo, Bon Secour’s Director of Community Commitment and Social Investments, said. The well-documented correlation between social environment and health means that investments in community well-being will likely ultimately result in cost savings for hospitals.

Rochester, Minnesota offers an additional example of how hospitals and cities can both benefit from hospitals’ economic development activities. In Rochester, the Mayo Clinic has a long history of investing in both physical community infrastructure and in local businesses through its Mayo Clinic Ventures arm. In 2013, the hospital announced an ambitious public-private partnership, Destination Medical Center, aimed at establishing Rochester as a global medical destination through expansion of the Mayo Clinic and improvement of Rochester’s infrastructure and services. Subsequently, Mayo and many of the same public and private participants launched the Mayo Clinic Business Accelerator in a city-owned office space. The Accelerator houses twelve businesses and is aimed at keeping startups in the area.

In Texas, the state-run Historically Underutilized Business (HUB) program paved the way for Houston’s MD Anderson Hospital to initiate a supplier diversity program. Although it has been difficult for the hospital, a highly specialized cancer treatment center, to source many of its goods from HUBs, which must be at least 51 percent owned by a woman, minority or service-disabled-veteran, the hospital has made strides in certain areas. For example, 24.1 percent of total construction spending and 66.1 percent of total professional services spending in 2013 went to HUBs. MD Anderson also established a mentor-protégé program to connect small suppliers with larger, more established ones for business mentoring.

Cincinnati’s Health Careers Collaborative (HCC) works even more directly with local residents. HCC, created by a hospital and two universities and now expanded to include eight partners, was created to strengthen local residents’ skills and enhance their ability to meet the needs of local healthcare organizations. The program had a net cost per participant of $102 – and a net benefit of $4,869 per participant, for a total benefit of $2.6 million.

In Los Angeles, leadership at the new Martin Luther King, Jr. Medical Center has been paying close attention to these exemplary national leaders. Today the hospital is in the early stages of a plan, created with ICIC’s help, to both develop the local workforce and support small local suppliers. The original hospital was created in response to race riots in the Watts neighborhood that took place in 1965, but struggled with quality of care and eventually closed in 2007. The new hospital is designed to not only provide excellent community health care, but also to drive economic growth in the surrounding inner city neighborhoods. As we learned during our work, it can be difficult for a hospital to implement a new economic development strategy. Despite the fact that the goals were outlined, “There was no road map for how this would be implemented,” said Carolyn Hull, Executive Director at Los Angeles County Economic Development Corporation/L.A. Plan.

Although a few hospitals are leading the way to increased investment in economic and community development, they tend to be an exception. Economic development professionals can help facilitate hospitals’ community investment through three sets of actions: motivation, guidance and implementation support.

• Motivation – Hospitals’ community economic development ventures are often presented as a purely philanthropic venture. In actuality, these efforts have the potential to benefit both the community and the hospital, and discussions of potential projects should be framed in such a way. “Best practice” examples such as the ones highlighted above, which can boast quantifiable benefits from their investments, can provide evidence.
• Guidance – One important lesson from pioneering hospitals has been the importance of community involvement and input into the economic development process. Community advisory boards and community health needs assessments create an opportunity for economic development professionals to keep hospital decision makers appraised of local concerns, opportunities and potential partners.
• Implementation support – The Patient Protection and Affordable Care Act (ACA) contains provisions requiring hospitals to carry out community development implementation plans and to elicit community input. Economic development professionals can take a role in these required processes and ensure that hospitals’ efforts are aligned with community needs.

Bon Secours, the Mayo Clinic and others serve as groundbreaking examples of the ways hospitals and communities can benefit from these economic development projects. While these projects are still rare, economic development professionals can help to encourage and facilitate such efforts and unleash a powerful economic driver of inner city growth.