The Healthcare CEO’s Framework for Evaluating Purchased Services Performance

Introduction

Purchased services have become a significant driver of healthcare operating costs, yet executive oversight of the category often varies from one department to the next. One facility tracks vendor spend closely. 

Another leaves it to whoever signed the original contract. 

A third assumes finance is watching, while finance assumes the supply chain owns it. 

All of these methods do not paint the full picture for leadership.

As non-labor costs are on the rise, there needs to be a common method by which health system leaders can measure the performance of purchased services, improve financial governance, and ensure efficient operations in the future.

This model presents four pillars that can be measured and assist executive teams in understanding their current position and future opportunities.

Why Purchased Services Belong on the Leadership Reportcard

Purchased services support nearly every function inside a health system, including clinical operations, facilities, revenue cycle, and information technology. 

Environmental services keep patient areas clean and compliant. Staffing agencies fill clinical gaps during volume surges. 

IT vendors keep systems running. Facility maintenance is concerned with the physical plant operations.

Due to its extensive involvement of various departments, Facility Maintenance is not assigned a single point of executive responsibility like Labor and Capital Expenditure.

As spending continues to increase across this category, executive leaders need clear visibility into vendor relationships, contract performance, and realized savings, the same way they already track labor cost per adjusted discharge or capital return on investment.

The data supports the urgency:

• Purchased services can represent 20 to 45 percent of total hospital expenses, according to the American Hospital Association.
• Non labor hospital expenses per patient have increased since 2019, according to the American Hospital Association’s Costs of Caring reports.
• HFMA reports continued growth in purchased services and other non labor expenses, adding pressure to hospital financial performance.

Executive oversight of this category is not simply a finance exercise. 

The result is improved efficiencies, clearer vendor accountability, and, ultimately, a more solid base for patient care, because money saved through purchased services can then be directed toward clinical needs instead of absorbed by vendor costs that aren’t managed.

It’s also a governance problem.

If no executive owns purchased services performance, contract renewals happen automatically, pricing goes higher without anyone realizing it, and savings achieved in one negotiation vanish in the next budget year.

A CEO who treats purchased services with the same rigor applied to labor and capital spend closes that gap before it compounds.

The Four-Pillar Purchased Services Performance Framework

A useful evaluation framework does not need to be complicated. It needs to ask the right questions and require evidence, not assumptions, in response. The following four pillars give a CEO a consistent structure to apply at every quarterly review.

Each pillar answers a distinct question, but they work together. Visibility without vendor structure just produces a bigger spreadsheet. 

Vendor structure without contract discipline erodes over time as terms expire unnoticed. Contract discipline without savings realization confirms a contract exists but not that it is actually saving money. 

A CEO who reviews all four together gets a far more honest read on performance than one who reviews any single pillar in isolation.

Valify supports these four pillars through Spend Analytics Technology, PinPoint Benchmarks, Accelerated Sourcing, Advisory Services, and the WorkPlan dashboard, creating a connected approach to purchased services management rather than four disconnected tools solving four separate problems. 

This is important, as a CEO who is conducting the pillars every quarter should be able to go straight from a question to an answer based on the information provided instead of another question that takes an additional month to answer.

Five Questions Every Hospital Leader Should Ask During the Next Quarterly Business Review

A framework can only be of use if it is present within the discussion. 

The following questions translate the four pillars that a CEO could ask during their next quarterly business review.

1. What percentage of purchased services spend is fully categorized today?
2. How does our vendor footprint compare with peer health systems for our highest spend categories?
3. What percentage of purchased services spend is managed through current preferred agreements?
4. How much of our reported savings is reflected in invoiced spend and financial results?
5. Which purchased services category presents the greatest opportunity over the next 90 days?

None of these questions require a supply chain background to ask. 

What they require is a leadership team willing to expect a specific, evidence-backed answer rather than a general assurance that things are under control.

What Strong Purchased Services Performance Means

For companies that have mature purchased services programs, there is always integration between spend visibility, benchmarking, sourcing, and compliance to ensure continuous improvement. Some of the common signs of high performance are:

• 10 to 30 percent savings in addressed purchased services categories through data-driven sourcing and benchmarking
• Vendor portfolios aligned with operational needs and peer performance, rather than shaped by history or convenience
• 80 percent or more of purchased services spend managed through active negotiated agreements
• Ongoing measurement of realized savings, contract compliance, and invoice-level spend, not just contract rate at signing

With more than $1 trillion processed in total categorized spend, 645,000+ vendors, and 1,400+ unique purchased services categories across seven lines of business. Valify serves 2,600+ hospitals (447,000+ beds) and delivers 95% spend categorization with 99% accuracy, and clients commonly achieve 10%–30% savings across targeted categories. 

Valify translates insights into measurable financial results.

Evaluate Your Purchased Services Performance

Every health system has a unique purchased services profile shaped by its size, region, and vendor history. 

Comparing spend visibility, vendor structure, contract performance, and realized savings against peer organizations provides a clear, evidence-based path to stronger financial and operational performance.

A benchmarking conversation with Valify helps executive leaders establish priorities, measure progress, and build a purchased services strategy that holds up beyond a single budget cycle. 

Valify’s approach combines Spend Analytics Technology with hands-on advisory support, so the four-pillar framework described here is not just a scorecard but a practical starting point for a working improvement plan.

Schedule a benchmarking conversation with the Valify team to see where your health system stands against peer data today.

FAQs

What is considered purchased services in a hospital budget? 

Purchased services generally refer to non-labor, non-supply expenses a hospital pays for outside services, including environmental services, staffing agencies, facility maintenance, IT services, and other contracted support functions that keep daily operations running.

Why do purchased services receive less executive oversight than labor or supplies? 

The owner and expenditures for labor and supplies are usually singular and standardized. However, expenditures on purchased services are numerous and dispersed throughout several departments and vendors, and therefore, cannot be easily classified and controlled without a proper system in place.

What savings can hospitals achieve through purchasing services improvements?

Health systems that apply data-driven sourcing and benchmarking to purchased services commonly see savings in the range of 10 to 30 percent within addressed categories, depending on prior vendor fragmentation and contract age.

Who should own the purchased services’ performance inside a health system? 

Ownership is generally vested in the supply chain or finance function, with executive sponsorship by the CEO or CFO to make sure that the four pillars structure is reviewed periodically and not left to individual functions.

How often should purchased services performance be reviewed at the executive level?

A quarterly review cadence, aligned with the quarterly business review, gives leadership enough frequency to catch contract and compliance issues early without creating unnecessary reporting burden.

Valify Team

The Valify Editorial Team is dedicated to sharing insights, strategies, and innovations that help healthcare organizations gain control of purchased services spend. Backed by years of expertise in data analytics, procurement, and healthcare technology, the team curates practical resources and thought leadership to guide hospitals and health systems toward greater efficiency and savings. By combining industry knowledge with real-world case studies, the Valify Editorial Team delivers content that empowers decision-makers to drive smarter, data-driven sourcing strategies.