Tag: healthcare benchmarking

Benchmarking in Healthcare Procurement

Benchmarking in Healthcare Procurement: Why Peer Comparison Matters

By : | Published On : January 21, 2026

Key Takeaways

Many hospitals are under the impression that they are paying reasonable prices for the services they buy, however, only a small number can confirm this through real peer comparisons. Benchmarking enables purchasing departments to clearly understand the exact costs hospitals in the U.S., similar in size and type, incur, which in turn helps them avoid overpaying and provides them with stronger negotiating power. Valify simplifies the entire process, leading to faster and more accurate results, which also enable hospitals to uncover unseen opportunities and adjust their expenditures according to current market prices.

Are the costs you are paying for supplies reasonable or competitive? While many organizations think they do, only a small number can substantiate their claims with actual comparisons.

Every procurement team has a responsibility to make sure the organization is not overspending. Benchmarking requires commitment and careful review, yet the financial benefits that come from identifying fair market pricing can support growth and free up working capital for other priorities.

The entire process has been made much easier by modern digital tools. Data-driven benchmarking platforms and reliable peer comparison resources are advantageous to companies not only in identifying areas where they can cut costs, but also in creating more transparent and trusted partnerships with their suppliers.

The Challenges and Limitations of Benchmarking

Benchmarking may sound straightforward, but it can be challenging to apply within healthcare systems. The entire exercise depends on good data. If the information you are working with is incomplete or inconsistent, the comparison will not provide you with much insight.

Finding the right peers is another barrier. On paper, two hospitals may appear comparable, but their operational environments may differ greatly. Case mix, geography, payer mix, and local market pressures all influence performance in ways that are not always immediately apparent.

Payer contracts introduce another level of difficulty, because contract terms can vary widely. This makes it challenging to compare reimbursement or cost performance without taking the time to normalize the data correctly. There is also a human element to consider. People may feel uneasy about what benchmarking could expose or worry that it might lead to sudden shifts in direction. This reaction is common and understandable.

These issues can be managed with better tools, better data handling, and active communication. When teams understand the purpose and see how benchmarking protects margin and improves operations, it becomes much easier to gain support.

Why this matters

Hospitals operate in a crowded service marketplace with increasing non-labor spend. According to KFF, purchased services can account for up to 30 percent of a typical U.S. hospital’s total operating expenses. Even slight price fluctuations in these service categories can significantly impact the stability of margins. Benchmarking ensures that procurement is always aware of the actual market conditions and not influenced by assumptions made by suppliers. Comparison with peers directs the process from reactive cost reduction to informed decision-making that ensures the long-term financial well-being of the company.

What is Benchmarking in Healthcare Procurement?

Benchmarking in healthcare enables institutions to evaluate their actual performance, rather than relying on methods such as guesswork or the assumption that everything is “fine.” It means looking at your financial and operational results, then comparing them against your own goals, similar providers, and recognized industry standards. You can identify where money is being lost, where workflows are slowing down, or where your performance is lagging behind others when gaps appear.

This process is not only about cost. Patient-centered benchmarking can also support better experience, fewer delays, and stronger outcomes. When teams understand their current position, they can make changes that truly matter.

The core building blocks of benchmarking include:

  • Gathering accurate data
  • Choosing the right peers or comparison groups
  • Studying the results and identifying what needs to change
  • Repeating the cycle so improvement does not stall

By making benchmarking a consistent part of operational planning, healthcare organizations can adjust strategies in a more grounded way, protect margins, and stay better aligned with what the market is proving works.

Why Peer Comparison Matters

The marketplace situation for hospitals in the U.S. is complicated because they face the problem of non-labor costs that continue to rise, and among all the expenses, purchased services account for the largest share. Comparison with peers not only provides the teams with an understanding of the true market-clearing price, but also helps them through historical vendor rates and internal assumptions. The department that performed better in benchmarking has the potential to uncover savings that would be otherwise concealed if one relied solely on internal contract reviews.

Advantage in the competitive landscape

Benchmarking becomes a competitive advantage as it identifies measurable operational savings without introducing new clinical risk. In an environment where strategic growth depends on disciplined expense management, peer comparison positions hospitals to protect financial capacity while maintaining service quality.

The Emotional Side of Procurement Decisions

Every day, procurement teams deal with contracts, pricing data, and spreadsheets, but their work is often emotionally taxing. If the team believes they were acting responsibly during the negotiations but then discovers that a different hospital paid significantly less for the same service, they will likely feel misled. That sense of doubt affects more than one purchase. It impacts how the team views every future negotiation.

Fair pricing builds confidence. When staff know they are paying a rate that matches what similar hospitals secured, they can approach vendors with stronger conviction and less second-guessing. It boosts morale because people feel their work is protecting the organization, rather than unknowingly draining resources. This is one of the quiet, overlooked benefits of benchmarking. It restores trust in the decision-making process and keeps the team grounded in market reality, rather than relying on assumptions.

Benchmarking in Action

Benchmarking can be implemented in structured steps. Hospital procurement groups can treat this as a repeatable discipline.

Step-by-step framework

  • Step one: Identify the purchased service category to review. This might include environmental services, food service, clinical engineering, patient transport, or revenue cycle services.
  • Step two: Collect pricing, contract structure, and performance metrics. That includes rate schedules, annual escalators, incentive structures, fees, surcharges, turnaround time metrics, and vendor SLAs.
  • Step three: Compare against peer ranges within category type, region, size, and patient volume tiers. A tertiary care academic center should not benchmark against a critical access rural facility.
  • Step four: Use benchmarking findings to challenge assumptions during negotiation or renewal cycles. This may involve renegotiating rates, restructuring vendor performance guarantees, or engaging in competitive bidding with greater clarity.
  • Step five: Reassess each renewal period to make sure your pricing and contract structure remain aligned with current benchmarks.

Common Pitfalls

Benchmarking loses value when the comparison group is not aligned. A small regional hospital cannot compare with an integrated national academic system. Without context, data can mislead rather than clarify. Another common issue arises when procurement teams interpret raw numbers without considering the nuances. Pricing structures for purchased services differ based on scope, geographic complexity, and service level variation.

Misinterpreting benchmark variance can result in unrealistic target expectations. Procurement leaders should use benchmarking as a directional tool rather than a rigid, absolute requirement. The power of benchmarking lies in identifying meaningful deviations across peers while maintaining a contextual understanding of the data.

Making Benchmarking a Habit

Benchmarking should be routine. Contracts age quickly in a shifting healthcare economy. Rates that were reasonable three years ago may not align today. Hospitals should embed benchmarking into renewal cycles and strategic sourcing programs. Continuous benchmarking helps procurement stay grounded in credible market signals rather than relying on static legacy knowledge.

Routine benchmarking also improves organizational discipline. It teaches teams where to push, where to accept, and where to prioritize time. When benchmarking becomes part of the standard operating rhythm, hospitals reduce the risk of overspending quietly. The goal is not perfection. The goal is reliable alignment.

How Valify Enables Benchmarking for Purchased Services in Healthcare

Purchased services have stayed unexamined for years because many hospital teams believed there was no clean standard to compare against. This has now changed. U.S. health systems can now study real invoice activity and contract conditions across peer organizations. When teams understand where their pricing stands within the broader market, it becomes clear which categories are stable and which ones require adjustment.

Benchmarking helps protect operating margin in a way that does not rely on guesswork. It enables more confident negotiations and helps prevent hidden cost increases across key support areas such as clinical engineering, waste management, transcription, outsourced scheduling, dietary services, and call center operations. The difference between paying the market average and paying a premium compounds over time. Peer comparison helps teams stay centered in actual pricing truth rather than assuming a rate is fair because it feels familiar.

Start with five of the purchased service categories your team spends the most on. Pull your recent invoices and compare those prices against current U.S. peer benchmarks. If your rates land above the midpoint, bring that category forward for a deeper review. Valify’s intervention provides clarity and faster comparisons, enabling you to make informed decisions and begin reducing unnecessary expenditures immediately.

Frequently Asked Questions

Q1: How Often Should Hospitals Benchmark Their Procurement Contracts?

A1: Benchmarking must be assessed in every renewal cycle. Quarterly spot checks can be suitable for quick or high-volatility categories. When the process of benchmarking is considered as a constant mechanism instead of a sporadic project, it has maximum effectiveness.

Q2: Can Smaller Hospitals Benefit From Benchmarking?

A2: Indeed. Smaller hospitals generally receive the biggest advantages, and this is mainly because they are usually unable to negotiate as effectively as large systems. Benchmarking then provides them with a reference framework that not only validates their efforts but also diminishes the power of the vendor.

Q3: What Tools Are Available for Procurement Benchmarking?

A3: The hospitals have a range of options to compare their cost structures, including internal consortium data, third-party benchmarking platforms, regional peer collaboratives, and national purchased service databases. The various tools offer different levels of insight, yet all share the common purpose of establishing market grounding.

Q4: How Accurate Is Benchmarking Data?

A4: Accuracy depends on the quality and relevance of the comparison group. When peer alignment is chosen correctly, benchmarking reveals realistic and actionable ranges. It is not designed to produce a single perfect number but to identify whether a hospital is positioned within or outside a normal boundary.

Q5: Is Benchmarking Only About Cost, or Does It Also Improve Service Quality?

A5: Benchmarking strengthens both. While cost alignment is a primary benefit, peer performance comparison also reveals variations in quality. Hospitals can evaluate service level reliability, response time, risk, and operational stability alongside cost. Balancing both price and performance ensures contracts support clinical continuity and operational reliability.

Source:

KFF – Gaps in Hospital Finance Data and Transparency

Purchased Services Analytics

Why Purchased Services Audits Are Becoming Critical for Hospitals

By : | Published On : September 20, 2017

Key Takeaways

Purchased services aren’t new. What’s new is how much risk they carry when no one is really watching them. In most hospitals, service vendors pile up over time. Contracts get renewed automatically. Pricing drifts. Some services stop being used the way they once were, but the spend keeps going anyway. Because everything is spread across departments, no one sees the full picture unless they stop and look for it. That’s what audits do. They slow things down just enough to show what’s actually in place, which vendors are active, what’s being paid for, and whether it still makes sense. When hospitals use real AP data and add benchmarking, conversations with vendors change. Decisions get easier. Governance improves. Bottom line: if hospitals want control over service spend, they need visibility first. Audits are how that visibility starts.

Purchased services quietly support nearly every function inside a hospital. Environmental services, food and nutrition, facilities support, IT, transport, outsourced clinical support, these services keep operations running day after day without much attention.

For a long time, purchased services were treated as background spend. They were necessary, but rarely strategic. As long as services were delivered and invoices were paid, they stayed out of focus.

That reality has changed. Financial pressure, operational complexity, and tighter oversight expectations have pushed purchased services into the spotlight. Audits are no longer about squeezing savings wherever possible. They are about visibility, control, and understanding how service spend truly impacts the organization.

Purchased Services Represent One of the Largest Controllable Costs

Purchased services make up a meaningful portion of hospital operating budgets. In many health systems, they represent roughly a quarter of total operating spend. That places them on par with other major cost categories that receive far more attention.

Because these services span nearly every department, they influence both cost and performance. Decisions made years ago around service vendors can still shape budgets today, often without anyone realizing it.

Why This Spend Often Escapes Strategic Oversight

Purchased services are not clinical supplies. They are spread across departments and facilities, sourced at different times, and managed by different teams. Rarely are they viewed in aggregate.

Without a centralized view, leadership may know the total spend number but lack insight into vendor overlap, pricing consistency, or whether services still align with current needs. This makes strategic oversight difficult, even in well-managed organizations.

Why Purchased Services Are Structurally Hard to Manage

  • Decentralized Purchasing Creates Fragmentation

Most purchased services start with a practical need. A department needs something done, finds a vendor that can handle it, and moves ahead so work doesn’t stall. Procurement may review the contract, but usually after the decision has already been made.

When this happens repeatedly across departments and facilities, fragmentation sets in. The same type of service gets contracted multiple times. Different vendors do similar work. Pricing isn’t consistent, and no one is looking at it all together because no one was meant to.

  • Contracts Vary Widely in Structure and Terms

Purchased services contracts tend to reflect the moment they were signed. Some are detailed, others are bare-bones. Many are written on vendor templates, not hospital standards.

Pricing models, renewal language, escalation clauses, and service definitions change from one agreement to the next. As years pass, those differences pile up. At that point, comparing contracts isn’t straightforward, and managing them the same way across the organization becomes unrealistic.

  • Lack of Standard Pricing Makes Comparison Difficult

Services don’t price like products. There’s no unit cost to line up and compare. What a hospital pays often depends on local market conditions, how long the vendor relationship has existed, and how the original deal was structured.

Without benchmarks, pricing decisions rely on what feels reasonable rather than what the market is actually doing. That makes it hard to know whether a rate is fair, outdated, or simply accepted because it hasn’t been questioned.

What Hospitals Risk When Vendors Are Not Audited

  • Pricing and Contract Terms Drift Over Time

When contracts are not reviewed regularly, pricing and terms often drift away from what was originally negotiated. Billing may no longer align with contract language, and errors can persist unnoticed for years.

  • Paying for Services That No Longer Match Actual Use

Services that once made sense may no longer be used at the same level or at all. Workflow changes, staffing shifts, and new technology can reduce the need for certain services, while contracts continue unchanged.

  • Automatic Renewals Limit Flexibility

Many purchased services contracts renew automatically. Without proactive review, hospitals miss opportunities to renegotiate scope, pricing, or vendor mix. Over time, flexibility erodes and outdated agreements remain in place.

The Operational Impact of Unreviewed Purchased Services

  • Inconsistent Service Performance Across Facilities

When no one is checking in regularly, service quality starts to depend on the location, not the contract. One site stays on top of a vendor. Another doesn’t. Nothing is technically “wrong,” but the experience isn’t the same everywhere, and over time that gap becomes noticeable.

  • Increased Compliance and Governance Challenges

Unreviewed contracts tend to blur the rules. Spend slips off contract. Vendors stay active longer than they should. New ones get added because it’s easier than revisiting an old agreement. None of this usually happens at once, but it adds up and makes governance harder to hold together.

  • Internal Friction Between Departments

Finance sees the numbers. Operations sees the day-to-day issues. Procurement sees the contracts. When those views don’t line up, conversations slow down. Decisions get pushed back, not because people disagree, but because no one has the full picture.

Purchased Services Play a Direct Role in Patient Experience

Services That Patients Notice Immediately

Patients notice environmental services, food and nutrition, transport, and support services right away. These services shape comfort, safety, and overall perception of care.

When Cost Decisions Quietly Affect Quality

When services are managed purely as expenses, quality can suffer quietly. Without audits, there is limited accountability to ensure cost decisions do not undermine performance or patient experience.

What a Modern Purchased Services Audit Actually Involves

  • Starting With Accounts Payable Data

Accounts payable data shows what is actually happening, not just what contracts say should happen. Audits begin by examining real spend and comparing it to contract assumptions at the vendor level.

  • Understanding Vendor Overlap and Concentration

Audits reveal how many vendors are providing similar services within the same category. High overlap often indicates opportunities to simplify, consolidate, or renegotiate.

  • Reviewing Utilization and Ongoing Value

Audits help answer basic questions: Is the service still necessary? Does the cost reflect the benefit being delivered today?

Why Benchmarking Is Central to Effective Audits

Why Purchased Services Pricing Is Hard to Judge in Isolation

Local contracts and limited transparency make it difficult to judge pricing without context. What seems reasonable in isolation may be far from market norms.

How Peer Benchmarking Changes Decision-Making

Benchmarking provides market context. Comparing pricing, terms, and vendor market share against peer hospitals strengthens negotiating positions and supports more confident decisions.

Turning Audits Into Ongoing Governance

  • The Limits of One-Off Audit Exercises

One-time audits often produce short-term savings that fade over time. Without follow-through, old habits return.

  • Centralized Contract Visibility as a Control Point

Centralized visibility into contracts supports renewal awareness and consistent terms across facilities.

  • Aligning Departments Around a Shared Process

Clear ownership and shared processes reduce surprises and improve cooperation between departments.

How Valify Supports Purchased Services Audits at Scale

  • Creating Visibility Across Purchased Services Categories

Valify cleanses and categorizes accounts payable data across purchased services categories, providing clear, line-item insight.

  • Providing Market Context Through Benchmarking

Valify’s benchmarking shows vendor market share and competitive pricing context, supporting informed negotiations.

  • Supporting Sustainable Oversight and Compliance

Monitoring spend patterns and tracking initiatives helps hospitals maintain control and sustain improvements.

Why Regular Audits Matter for Hospitals Going Forward

  • Financial Control Without Undermining Care

Audits support savings that align with service performance, not at its expense.

  • Operational Simplicity and Reduced Risk

Fewer vendors and clearer governance reduce operational complexity.

  • Stronger Position for Long-Term Stability

Purchased services audits are not a short-term cost-cutting tactic. They are a management discipline.

Visibility is the Starting Point for Control

Hospitals can’t control service spend they don’t actually see. When purchased services sit in the background, decisions end up being made on habit, not information. Audits force a pause. They show what’s in place, what’s still useful, and what’s simply been left untouched. That kind of visibility is what allows hospitals to manage service spend with the same seriousness they already apply to labor and supplies.

If you want to see how clearer visibility and benchmarking can support better decisions around purchased services, schedule a demo with Valify.

Frequently Asked Questions:

What qualifies as purchased services in a hospital?
 Purchased services are outside services hospitals rely on to function every day. This includes things like environmental services, food and nutrition, facilities maintenance, IT and telecom, transport, clinical support, and administrative support.

How often should purchased services vendors be audited?
Most hospitals start by reviewing their larger service categories once a year. Ongoing checks in between help catch changes early, before contracts or spend drift too far.

What information is needed to conduct an audit?
 Accounts payable data usually tells the real story. Contracts, renewal terms, and a basic understanding of how services are actually being used fill in the gaps. Benchmarking helps add market context.

How does benchmarking improve audit outcomes?
 Benchmarking shows how pricing and terms compare to similar hospitals. That context makes it easier to have direct, informed conversations with vendors and make better sourcing decisions.

Can purchased services audits affect patient satisfaction?
 Yes. Many purchased services directly influence patient comfort, safety, and experience.