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.
Benchmarking in Healthcare Procurement: Why Peer Comparison Matters
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
Shara Smith serves as the Marketing Director for both Valify and Valify Solutions Group, where she oversees all facets of marketing, including strategic planning, branding, digital marketing, and event management. She joined Valify in September 2021, bringing with her a wealth of experience in healthcare marketing and business development.
