Tag: healthcare procurement

Hospitals scrutinize staffing, equipment, and pharmaceuticals with a critical eye. Yet one of the biggest spending categories, purchased services, often slips quietly into the background. It shouldn’t. These services routinely account for 25–30% of non-labor expenses, and when left unmanaged, they quietly erode margins, reduce efficiency, and prompt departments to operate in a reactive mode.

The irony? The majority of these issues are not caused by ill will. With Valify, hospitals can better manage dozens of departments, hundreds of contracts, and vendors who all claim to deliver the best service, enabling smoother collaboration and more effective oversight.

This manual examines the five most common errors hospitals make in procuring purchased services, along with grounded and feasible solutions for their rectification.

What Are Purchased Services in Healthcare?

Before diving into the mistakes, it helps to level-set what purchased services actually include. These are the non-labor services hospitals buy from outside vendors to support clinical care, operations, and patient experience.

They touch almost every part of a hospital’s day-to-day rhythm:

• IT services (helpdesk, cybersecurity, EHR support)
• Environmental services (EVS)
• Dietary services and food operations
• Imaging partnerships and staffing
• Lab testing arrangements
• Security services
• Waste disposal and sterilization
• Facility maintenance and utilities

They may not be visible to patients, but they shape everything—from safety and compliance to staff productivity and operational flow. 

With Valify, hospitals can track and manage these contracts more effectively. When contracts run efficiently, hospitals gain stability; when they don’t, costs rise, quality slips, and staff frustration grows. That’s why a well-managed procurement process, powered by Valify’s insights, matters more than most leaders realize.

The 5 Biggest Mistakes Hospitals Make—and How to Fix Them

Mistake #1: Lack of Spend Visibility

This is the most common issue, and in many hospitals, it’s the most deeply rooted.

What Actually Happens

Purchased services spend is scattered everywhere, across departments, GL codes, legacy systems, shared folders, and sometimes even personal inboxes. Each department may contract with its own vendors, resulting in little alignment. Add contract auto-renewals to the mix, and things become even more unclear.

You end up with:

• Fragmented or incomplete data
• No centralized contract library
• Multiple vendors providing similar services
• Old pricing structures are quietly rolling forward

No one intends for this to happen. It’s simply how hospitals operate when central oversight isn’t built in.

Why This Becomes a Problem

Without clear spend visibility, you can’t see:

• Duplicate vendors
• Unnecessary services
• Expired or outdated pricing
• Areas where renegotiation could unlock savings
• Contracts that slipped into automatic renewal at higher rates

You can’t optimize what you can’t see. Lack of visibility creates waste faster than almost any other issue.

The Practical Fix

Hospitals that get this right start with one centralized source of truth. That’s usually a spend analytics tool or a contract repository built with discipline. It doesn’t need to be fancy at first. It just needs to be unified.

Strong practices include:

• Consolidating all purchased services data into one dashboard
• Standardizing GL codes to avoid scatter
• Setting internal alerts well before contracts renew
• Reviewing vendor lists to consolidate where possible

You’d be amazed at how many savings opportunities show up the moment everything is visible in one place.

Mistake #2: Not Benchmarking Vendor Pricing and Performance

This mistake is quiet but costly. Many hospitals assume their pricing is “fair” because the vendor said so—or because it hasn’t been challenged for years.

What Usually Happens

Hospitals often allow:

• Contracts to auto-renew
• Vendors to maintain old pricing structures
• Performance issues to go unchallenged
• Market shifts to pass by unnoticed

Meanwhile, newer vendors or competitive benchmarks might show drastically different pricing for the same service level.

Why It Becomes a Problem

Without benchmarking:

• Hospitals pay above-market rates
• Vendors underperform without consequence
• Facilities miss out on volume-based or tiered discounts
• Negotiations start from a weak baseline

Benchmarking isn’t about pushing vendors into a corner. It’s about ensuring fairness, transparency, and alignment.

A Realistic Fix

Valify helps hospitals stay competitive regularly:

• Compare pricing to industry benchmarks
• Evaluate vendor performance against peer hospitals
• Review SLAs with fresh eyes every contract cycle
• Look beyond price to include quality and reliability

Benchmarking provides leverage. It also helps vendors understand expectations clearly and consistently.

Mistake #3: Overlooking Service Level Agreements (SLAs)

SLAs may seem like dry paperwork, but they set the tone for the entire relationship. Weak or vague SLAs create more problems than almost anything else.

What Happens in Practice

Some contracts barely mention SLAs. Others include them, but they’re too vague, too broad, or never monitored after signing.

Common scenarios:

• “Reasonable response times” with no actual number
• No penalties for service failures
• No defined quality metrics
• No documentation of uptime targets, turnaround times, or staffing levels

Essentially, the contract protects the vendor more than the hospital.

Why This Causes Trouble

Poor SLAs often lead to:

• Inconsistent service quality
• Delays that ripple through clinical operations
• Lack of accountability
• Disputes that become hard to resolve
• Staff frustration that could have been avoided

When expectations aren’t clearly defined, hospitals lose leverage and vendors lose clarity.

The Fix That Works

Strong SLAs include:

• Clear response and resolution times
• Measurable performance metrics
• Quality benchmarks tied to payment
• Escalation paths
• Reporting requirements
• Penalties for repeated failures

Good SLAs protect both sides. They create fairness by defining what constitutes a “good” service.

Mistake #4: Ignoring Total Cost of Ownership (TCO)

Many hospitals get drawn into contracts by attractive upfront pricing. But a low sticker price rarely tells the full story.

What Often Happens

Procurement teams look at:

• The base service rate
• The quoted monthly fee
• The cheapest option among the finalists

They don’t always factor in:

• Maintenance
• Equipment upgrades
• Training
• Integration fees
• Downtime risk
• Compliance costs
• Contract exit penalties

The “cheap” vendor sometimes becomes the costliest over time.

Why It’s a Problem

TCO affects:

• Department budgets
• Operational flow
• Staff workload
• Long-term financial health
• Patient experience

Upfront savings can lead to downstream headaches, especially when support or performance begins to slip.

The Better Way

Strong procurement teams evaluate the entire lifecycle of a service with Valify, not just the price on the first page.

This includes:

• Implementation and transition costs
• Ongoing support
• Performance-related risks
• Compliance requirements
• Likelihood of downtime or hidden fees
• The cost of vendor failure

A vendor with a higher upfront price but a solid track record often produces better long-term value.

Mistake #5: Failing to Engage Key Stakeholders

Procurement doesn’t work well when it happens in isolation. Every department interacts with purchased services differently, and their insight is invaluable.

What Commonly Happens

Decisions get made without looping in:

• Clinical leadership
• Nursing staff
• Finance
• IT
• Department heads
• End-users who rely on the service daily

This leads to contracts that appear impressive on paper but fail in real-world applications.

Why This Hurts Hospitals

When stakeholders aren’t involved:

• Services don’t fit operational needs
• Staff resist the vendor
• Compliance becomes inconsistent
• Expectations don’t align with reality
• Procurement becomes reactive instead of strategic

This can erode trust between departments, waste money, and create frustration.

A Practical, Real-World Fix

The most successful hospitals create cross-functional procurement teams that bring together:

• Finance
• Operations
• Clinical leadership
• Supply chain
• Department managers
• IT or compliance, depending on the service

This ensures that decisions are well-rounded and grounded in actual needs, rather than being based on assumptions.

The Strategic Advantage of Getting Purchased Services Right

When hospitals tighten their purchased services strategy, the impact is tangible and often fast.

Hospitals benefit from:

• Lower costs through reduced duplication and smarter negotiations
• More consistent service quality
• Better vendor accountability
• Reduced compliance risk
• Smoother operations
• A healthier relationship between staff, vendors, and leadership

Purchased services procurement isn’t just about saving money. It’s about strengthening the daily rhythm of the hospital and removing friction points that affect patient care.

Conclusion

Purchased services are woven into every corner of a hospital’s operations, yet they remain one of the most under-managed areas of spending. The five mistakes are:

1. Poor visibility
2. Lack of benchmarking
3. Weak SLAs
4. Ignoring Total Cost of Ownership
5. Failing to involve stakeholders

They are common but fixable. And Valify is here to help you. 

Hospitals that prioritize efficient procurement practices not only reduce their expenses but also enhance the quality of their patient care. They fortify reliability, cultivate better patient interactions, and establish partnerships that are both environmentally friendly and lasting.

By treating purchased services as a strategic priority, rather than an afterthought, hospitals can achieve significant savings and enjoy stability in their operations, ultimately benefiting the entire institution.

FAQs

What part of the hospital costs is typically made up of purchased services?

It is typically between 25% and 33% of a hospital’s total non-labor costs, depending on the size and type of services offered by the hospital.

How frequently should purchased service contracts be reviewed?

At least once a year, and additional detailed examinations before renewals or major service changes.

Can smaller hospitals use procurement analytics tools?

Definitely. Basic dashboards can expose overspending, duplicate vendor orders, and renewal risks at a very low cost.

What is the difference between TCO and contract price?

The contract price is the price set at the beginning. TCO includes all expenses associated with the asset throughout its life, such as repairs, downtime, upgrades, and legal compliance.

What strategy should hospitals adopt in order to switch suppliers without compromising patient care?

Conduct a gradual transition, coordinate the timelines with the department workflows, and keep both vendors involved until the situation is stable.

Source: Statista – Non-Financial Corporate Sector Unit Labor Costs

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.