Electronic Health Reporter

By Les Popiolek, Chief Executive Officer, Valify.

Financial pressure has become a persistent reality for hospitals and health systems. Hospital expenses increased 17.5% between 2019 and 2022, and more than half of hospitals ended 2022 operating at a loss. Although performance has improved from those historic lows, the underlying cost pressures have not gone away. In 2025, total hospital expenses grew another 7.5%, more than twice the rate of growth in hospital prices, with increases across workforce, supplies, and drugs.

These pressures make disciplined expense management increasingly important. Yet hospital operators have limited flexibility across many of their largest expense categories. About 60% of total hospital expenses in 2025 went to the workforce needed to provide around-the-clock care, while supplies and drugs also continued to rise. Hospitals cannot simply reduce these resources without considering the potential consequences for capacity, quality, and patient care.

That makes indirect and outsourced spend – commonly referred to as purchased services – an increasingly important opportunity. Purchased services encompass a broad range of essential functions, from facilities management and information technology to revenue cycle, clinical engineering, food services, security, and other outsourced operations. Purchased services expense per calendar day increased approximately 9% year over year in September 2025, according to Kaufman Hall hospital performance data.

While cost pressures in these categories continue to rise, so does the opportunity to manage them more effectively. The challenge is that hospital operators responsible for departmental expense budgets often lack the visibility, data and tools needed to define a clear path to savings.

A clearer view of purchased services spending across departments, vendors, contracts, invoices, and general ledger accounts is therefore critical to enabling operators to support the organization’s budget targets. Without that visibility, expenses may already be incurred or contractually committed before operators have an opportunity to effectively plan and manage them. With it, health systems can identify pricing differences, coordinate vendor relationships, strengthen negotiations and prioritize savings opportunities without compromising the services on which their organizations depend.

Hospitals Lack Visibility into Their Purchased Services Spend

One reason hospital operators are challenged to meet expense budget targets for indirect and outsourced services is limited visibility into current spending.

Purchased services data is frequently fragmented across departments, contracts, accounts payable systems and enterprise resource planning platforms. Individual departments may independently manage relationships with the same supplier or purchase similar services from different suppliers. At the same time, purchased services invoices may be applied inconsistently across multiple general ledger codes. Large “catch-all” expense accounts and unoptimized ERP data structures can make it difficult for operators to determine precisely where spending is occurring and how it compares across departments or facilities.

The result is not simply a reporting problem. It limits an organization’s ability to actively manage spending before decisions become financial commitments.

For example, one department might negotiate favorable pricing for a particular service while another department contracts separately for the same or a similar service at a higher rate. A contract might also automatically renew with limited scrutiny while annual price escalators continue to increase costs. These differences can weaken the health system’s negotiating leverage by fragmenting purchasing volume and obscuring the organization’s total relationship with a supplier.

Classification compounds the problem. Without a standardized taxonomy for purchased services, such as UNSPSC, similar expenses may be categorized differently across facilities or assigned to broad general ledger accounts. Operators are then left without consistent, actionable insight into the line-item expenses they are expected to manage.

Inconsistent, one-off approaches to purchased services management make it difficult for operators to consistently achieve budgeted expense targets. Health systems instead need a unified view of spending and a repeatable process for identifying, capturing, and sustaining savings.

A Framework for Better Spend Intelligence

Health systems need a framework that increases visibility into purchased-services spending and establishes a consistent process for organizing, comparing, and acting on information across the enterprise. Four capabilities are particularly important:

1. Consolidate spend data. Create a unified, drill-down view of purchased services spending across departments, vendors, contracts, invoices, and general ledger accounts. Connecting these data sources helps operators identify duplicate agreements, fragmented supplier relationships, unexpected pricing differences, and other opportunities that may be difficult to see within individual systems.
2. Standardize service classifications. Apply a consistent taxonomy to purchased services so similar expenses are categorized the same way across departments and facilities. Accurate classification gives operators a more reliable view of what they are spending and enables meaningful comparisons across the health system.
3. Benchmark performance. Compare spending, utilization, and pricing across facilities within an integrated delivery network and, where appropriate, against external market benchmarks. Benchmarking can help operators identify unexpected variances, determine where costs may be above market and enter supplier negotiations with stronger supporting data.
4. Prioritize high-impact opportunities. Focus first on categories where the combination of spend, pricing variance and addressable opportunity offers the greatest potential financial impact. Prioritization allows operators to direct limited resources toward initiatives most likely to support near-term budget objectives.

This framework provides a starting point, but identifying an opportunity is not the same as capturing or sustaining it. Hospitals must also consider service quality, operational continuity, contractual requirements, and staff workload. The lowest-priced option is not necessarily the option that delivers the greatest value.

A sustainable purchased services strategy therefore requires more than periodic sourcing exercises. It requires an operating model that continually connects financial insight with operational decision-making.

Sustaining Savings Beyond Initial Analysis

Purchased services savings can deteriorate quickly if they are treated as one-time initiatives.

Centralizing spend information, for example, creates value only if the data remains current and operators continue to use it. Supplier consolidation can improve purchasing leverage, but reducing the number of vendors alone will not sustain savings without ongoing visibility into pricing, utilization, performance, contract terms, and changing service requirements.

Technology can help institutionalize that discipline. Analytics platforms can continuously organize and analyze purchased services data, identify spending patterns and variances, apply relevant benchmarks, and provide operators with information they can use when managing budgets or negotiating with suppliers. Just as importantly, a shared data foundation can keep finance, supply chain and operational leaders working from the same view of the organization’s spending.

Cross-functional coordination is essential. Finance can establish budget expectations and provide enterprise-level financial visibility. Supply chain can bring sourcing expertise, contracting discipline and market intelligence. Operators can assess service requirements, utilization, and performance within the departments they manage.

Each function has a different role, but sustainable savings depend on those roles working together rather than operating in separate silos.

For some health systems, establishing that capability may also require external expertise to supplement internal teams, particularly across specialized purchased services categories where market pricing, contract structures and supplier dynamics can be difficult to assess.

Cost Containment Starts with Clearer Spend Insights

Financial pressures on hospitals are unlikely to disappear. Rising labor, drug, supply, and administrative expenses continue to challenge organizations already operating within narrow margins. At the same time, many of the largest expense categories offer limited flexibility without potentially affecting access, staffing, or patient care.

Purchased services are different.

These expenses support essential hospital operations, but fragmented contracts, inconsistent categorization, limited visibility, and decentralized purchasing can leave significant opportunities unmanaged. Improving performance does not require indiscriminate reductions in services. It requires giving hospital operators the information and processes they need to make better decisions about the expenses they already control.

Health systems that create a unified view of purchased services spend can more readily identify pricing disparities, understand supplier relationships, strengthen negotiating leverage and focus resources on opportunities with the greatest financial impact. They can also evaluate those opportunities in the context of service quality, operational requirements, and patient experience.

In an environment where every margin point matters, sustainable cost containment depends on transparency, accountability, and discipline. By turning purchased services from a fragmented expense category into a continuously managed source of spend intelligence, hospitals can give operators a clearer path toward meeting budget targets – and create a more durable foundation for financial performance.