Hospital purchased services represent a major supply chain visibility gap that health systems have historically overlooked, but bringing these indirect expenses into routine sourcing cycles and strategic planning can help hospitals identify consolidation opportunities, control costs, and improve procurement efficiency across fragmented vendor relationships.
- Purchased services are a significant portion of hospital indirect spend but are often sourced by individual departments, invoiced inconsistently, and managed outside centralized procurement workflows.
- Managing multiple vendors ranks as a Top 3 supply chain challenge for 36% of health system supply chain leaders, making visibility into purchased services contracts critical.
- Medicare Payment Advisory Commission data shows hospitals' fee-for-service Medicare margin was negative 12.1% in fiscal 2024, increasing pressure to control indirect spend.
- Supply chain teams should focus on opportunities where contracts are due for renewal or organizational change is possible, rather than pursuing every potential savings opportunity.
- Successful purchased services management requires stakeholder alignment, implementation planning, and treating execution as part of the sourcing strategy from the beginning.
Hospital supply chain leaders have spent years improving visibility into products, inventory, and suppliers. Yet a large share of hospital purchasing still sits outside those familiar workflows. Purchased services, a major component of indirect spend, cover the outside expertise and operational support that health systems rely on every day. Because those services often span multiple hospital departments and involve several different vendor relationships, they can be harder to manage through the same procurement processes used for traditional supplies.
Unlike supplies that are often purchased through centralized contracts and standardized item masters, purchased services are frequently sourced by individual departments, invoiced inconsistently, and described differently across facilities. This fragmentation makes it difficult to compare pricing, evaluate performance, and identify consolidation opportunities.
Those expenses deserve more attention as hospitals look for new ways to control costs. The Medicare Payment Advisory Commission reported that hospitals’ fee-for-service Medicare margin remained negative 12.1% in fiscal 2024. Continued pressure between the cost of delivering care and reimbursement gives health systems another reason to look more closely at expenses that have historically received less centralized oversight, including purchased services and other indirect spend.
For hospital procurement and supply chain executives, indirect and purchased services can expose a persistent weakness in supply chain visibility, particularly because these categories often span a broad and fragmented vendor base. Managing multiple vendors is already a Top 3 supply chain challenge, cited by 36% of health system supply chain leaders. Hospitals may know what they paid yet still lack a clear picture of how contracts compare across facilities, whether pricing is competitive, or where supplier relationships could be improved.
Bring indirect spend into the sourcing cycle
Purchased services can be difficult to manage because many agreements originate outside the supply chain function. Departments often build vendor relationships around their own operational needs, and those decisions may be perfectly reasonable at the local level. The challenge comes later, when procurement tries to understand how those agreements fit into purchasing across the health system.
Accounts payable data can show what was spent, but by that point, the sourcing decision has already been made. It may offer little context for how the agreement was structured or whether similar services are being purchased elsewhere under different terms. That makes it harder for hospital supply chain teams to identify where a broader sourcing strategy could make a difference.
Greater visibility is most useful when it reaches procurement before the next contract decision. Rather than treating spend data as a record of what has already happened, supply chain teams can use it to identify where upcoming renewals or changing needs create opportunities to revisit an agreement. Market context can then help determine whether the current arrangement still makes sense.
Connection to timing is especially important. Not every contract needs immediate attention, even when the cost appears high. Focusing on agreements where procurement has a realistic opportunity to influence the outcome allows procurement and supply chain teams to direct limited resources toward decisions they can change.
Decide which opportunities deserve the work
Finding a potential savings opportunity is a feat in and of itself. However, the next step of deciding whether it deserves attention right now is another.
Supply chain teams rarely have the time to pursue every category that shows room for improvement. Some opportunities are more realistic than others, especially when a contract is already due for review or the organization is ready to consider a change. Others may look promising at first but require so much time and coordination that the expected savings become harder to justify.
That is where experience with the specific spend category matters. Someone who understands how the service is sourced, procured and used can often tell whether an opportunity is likely to hold up once the details are examined. That judgment helps keep procurement teams from spending months on a project that was never very practical to begin with.
The strongest opportunities are not always the ones with the biggest number attached to them. They are the ones that a health system has a realistic opportunity to move forward and sustain. For procurement and supply chain leaders with more priorities than resources, being selective about where to spend that effort can matter just as much as finding the savings in the first place.
Make execution part of the strategy
A strong savings case can still lose momentum if the department using the service is not part of the decision. Indirect and purchased services often touch day-to-day operations, so procurement and supply chain teams need input and buy-in from the department leaders who rely on those services.
That is where projects can get stuck. A department may agree that a contract should be revisited, but still be hesitant to make changes to a provider it depends on. In other cases, everyone may support the change, but no one has the time to manage it from negotiation through implementation.
Procurement and supply chain leaders need to account for that work early. Some projects can be handled internally, while others may require additional category or advisory expertise to keep them moving. The value of that support is not just in finding another supplier or negotiating a better rate. It can help address the practical work of getting stakeholders aligned and carrying the decision through.
Despite significant back-end work, savings are only real once the change is in place and working as intended. Treating implementation as part of the sourcing effort from the beginning makes it less likely that a good opportunity will stall after the analysis is finished.
Build a more consistent approach to purchased services
Purchased services are often only revisited when a contract is about to expire or when pressure to reduce costs becomes especially high. That can put procurement in a reactive position and leave little time to decide where its attention will have the most impact.
Bringing indirect spend as a regular consideration in routine planning gives procurement and supply chain teams the opportunity to work ahead. Instead of waiting for an urgent renewal, they can identify where upcoming agreements may warrant a closer look and prepare for the work before the deadline drives the decision.
That also makes it easier to plan around capacity. Some categories may fit comfortably within the team’s existing workload, while others may require deeper expertise or more hands-on support. Knowing that earlier gives leaders more flexibility in how they approach the project.
Different departments and facilities will have different service needs, so some variation is expected. A more consistent process gives procurement a clearer view of those differences and what is driving them, rather than only uncovering them when a contract is already up for renewal or costs have already started to creep.
For health systems facing continued financial pressure, indirect and purchased services cannot remain something procurement addresses only when a problem surfaces. Bringing them into the normal rhythm of sourcing and planning gives procurement and supply chain leaders a better chance to manage costs before individual agreements become larger issues.
