Healthcare margin improvement strategies have historically focused on three primary areas: labor costs, clinical supply chain, and revenue cycle performance. While these areas remain essential, many health systems have already captured much of the easily accessible value.
Today, healthcare leaders are shifting their focus toward a different and often overlooked opportunity: purchased services.
Purchased services is no longer just a procurement concern. It has become a major financial performance issue. Boards are increasingly asking for greater visibility into non-labor spending, and organizations that fail to manage this category strategically risk leaving millions of dollars in savings unrealized.
Learn why purchased services is moving from an operational issue to a boardroom priority—and how leading healthcare organizations are using it to strengthen margins.
The Margin Reality Facing Healthcare Organizations
Healthcare systems continue to operate under significant financial strain driven by multiple factors:
- Persistent labor challenges
- Inflationary pressures
- Reimbursement constraints
- Rising operating expenses
- Increasing competition for limited resources
Many traditional cost-reduction levers are becoming more difficult to optimize. As a result, healthcare leaders are actively seeking new opportunities that can deliver sustainable savings without compromising patient care.
Enter Purchased Services: Healthcare’s Largest Untapped Opportunity
What Makes Purchased Services Different?
Purchased services represent one of the largest and most complex non-labor spend categories within healthcare organizations. Key characteristics include:
- Significant non-labor spend
- Thousands of vendor relationships
- Hundreds of service categories
- Complex contract structures
Typical purchased services categories include:
- Environmental services
- Staffing services
- Revenue cycle outsourcing
- IT managed services
- Telecommunications
- Waste management
- Facility maintenance
- Consulting services
Many organizations have more visibility into small supply purchases than they do into multimillion-dollar service contracts—highlighting a critical gap in financial oversight.
Why Purchased Services Has Become a System-Level Conversation
Reason #1: Financial Impact
Purchased services represents a significant portion of total healthcare spending and offers substantial margin improvement potential.
Key considerations:
- High annual spend
- Enterprise-wide influence
- Direct impact on financial performance
Board-level question:
“Do we know where all the purchased services dollars are going?”
Reason #2: Limited Visibility
Despite its size, purchased services is often difficult to manage due to lack of transparency.
Common challenges include:
- Fragmented ownership across departments
- Decentralized contracting
- Inconsistent reporting structures
System-level question:
“Can we confidently measure performance across our service contracts?”
Reason #3: Increasing Accountability
Healthcare organizations are facing heightened scrutiny around operating expenses and financial performance.
Key drivers include:
- Greater oversight from executive leadership and boards
- Demand for measurable, trackable savings
- Stronger governance expectations
System-level question:
“Are we actively managing this spend category?”
Reason #4: Growing Vendor Complexity
Vendor ecosystems are becoming increasingly complex, adding risk and inefficiency.
Key challenges include:
- Vendor proliferation
- Contract sprawl
- Compliance and performance concerns
System-level question:
“How many vendors are we managing, and are they delivering value?”
What Leading Health Systems Are Doing Differently
Forward-thinking organizations are taking a more strategic and structured approach to purchased services management.
- Elevating Purchased Services Governance
- Establishing executive oversight
- Creating cross-functional accountability
- Implementing formal review processes
- Centralizing Spend Visibility
- Building comprehensive vendor inventories
- Maintaining centralized contract repositories
- Leveraging spend dashboards for transparency
- Benchmarking Contracts Regularly
- Comparing pricing against market data
- Validating contract competitiveness
- Evaluating vendor performance
- Aligning Finance and Supply Chain
- Setting shared financial objectives
- Using data-driven decision-making
- Coordinating savings initiatives across departments
Take a Strategic Look at Your Purchased Services Spend
If your organization lacks full visibility into purchased services spending, contracts, and vendor performance, there may be significant opportunities hidden in plain sight.
The first step is understanding where your dollars are going—and whether those investments are delivering measurable value.
By treating purchased services as a strategic priority rather than an operational afterthought, healthcare leaders can unlock meaningful margin improvement and build more sustainable financial performance.
Schedule a Demo with Valify to gain visibility into your purchased services spend and identify actionable savings opportunities.
Frequently Asked Questions
- Why are healthcare leaders paying more attention to purchased services?
Because it represents a large, under-managed category with significant potential for cost savings and margin improvement.
- How does purchased services impact hospital margins?
It directly affects non-labor operating expenses, making it a major lever for improving overall financial performance.
- What makes purchased services difficult to manage?
Fragmented ownership, limited visibility, decentralized contracting, and complex vendor relationships.
- How can healthcare organizations improve purchased services governance?
By centralizing oversight, improving data visibility, establishing accountability, and benchmarking performance regularly.
- What role does benchmarking play in purchased services optimization?
Benchmarking helps validate pricing, identify savings opportunities, and ensure contracts remain competitive over time.
References:
- https://www.linkedin.com/posts/kylenbailey_black-book-warns-boards-healthcare-supply-activity-7450569287339098113-dU6N
- https://finthrive.com/blog/navigating-tight-healthcare-margins-strategies-for-growth
- https://advantushp.com/news/purchased-services-the-hidden-costs-driving-health-care-operating-expenses/
I’m a storyteller who blends marketing insight with strategic thinking to bring ideas to life. My work spans healthcare, product and program development, and publishing—translating complex challenges into clear narratives and actionable solutions. As an advisor and facilitator, I help leaders uncover opportunities, align vision with execution, and drive meaningful impact at the intersection of creativity and strategy.
