Fixing the Mess in Healthcare Purchased Services
TL;DR: Most hospitals overspend on purchased services without realizing it. With better visibility and contract control, supply chain teams can regain clarity, uncover savings, and reduce chaos.
Healthcare purchased services are the most under-managed, overpaid, and disorganized line item in a hospital’s supply chain. These are services hospitals outsource—like linen, dietary, waste management, and IT support—that silently chip away at margins while staying out of strategic conversations.
If your team feels buried in contracts, vendor inconsistencies, or billing surprises, you’re not alone. Many hospital purchasing departments have focused so heavily on product pricing that service categories were left on autopilot. And it’s costing more than most realize.
The Problem No One Talks About
Purchased services account for around 25 percent of hospital operating expenses, but unlike supplies or pharmaceuticals, they rarely go through a formal bid process. In many systems, departments choose their own vendors with little oversight or benchmarking.
Over time, this creates a tangle of legacy agreements, varied terms, and fragmented accountability. What results is a classic case of reactive procurement:
- Contract renewals with no performance reviews
- Inconsistent pricing for the same services across locations
- Hidden fees and non-standardized billing
- No clear point of ownership
These aren’t small problems. One missed detail in a linen or waste removal contract can translate to hundreds of thousands in waste over time. But without full visibility, most leaders won’t catch it until the damage is done.
Why Purchased Services Stay Broken
There’s a reason this category remains messy. Purchased services are decentralized by nature. And many contracts are written in favor of the provider, not the hospital.
Even when supply chain teams want to fix it, they’re up against real barriers:
- No unified data on service spend
- Dozens (sometimes hundreds) of active vendor agreements
- Internal resistance to changing long-standing providers
So the chaos continues—and the opportunity for savings stays buried.
Step One: Bring Structure to the Spend
Controlling purchased services doesn’t mean gutting departments or micromanaging relationships. It means bringing visibility and leverage into a part of the supply chain that has long operated in silos.
Hospitals that have done this successfully start with three foundational shifts:
- Audit all current contracts and vendors. Get a single view of what you’re spending, who you’re working with, and what the terms look like.
- Centralize oversight of purchased services. Centralized procurement creates accountability, allows for consistent benchmarking, and keeps service contracts aligned with organizational goals.
- Compare contracts across the system. If one location is paying more than another for an identical service, it’s a red flag—and a chance to renegotiate.
The goal isn’t to overhaul everything overnight. It’s to create structure where there wasn’t any and to build purchasing strategies that evolve with the organization.
Step Two: Leverage Group Purchasing to Your Advantage
One of the fastest ways to gain control in this category is by joining or expanding your use of a group purchasing strategy. GPOs aren’t just for commodity items—they offer negotiated service contracts too.
These shared agreements bring:
- Pre-negotiated pricing based on volume
- Performance guarantees and stronger vendor accountability
- Simplified onboarding and contract management
A GPO doesn’t take decision-making away from your team. It supports lean procurement models by letting you tap into vetted vendors, tested terms, and pricing you likely couldn’t negotiate alone.
For hospitals juggling rising costs and a limited procurement headcount, a GPO can offer much-needed structure—without adding headcount.
Step Three: Make Your Procurement Leaner and Smarter
Purchased services need to be treated like any other major spend category—with clear KPIs, cross-functional input, and routine performance reviews. A lean procurement approach does just that.
Instead of chasing price reductions reactively, smart systems build workflows that proactively:
- Pre-approve vendor selection
- Standardize service levels and billing practices
- Hold vendors accountable with data
These strategies not only reduce costs—they also improve vendor performance and reduce the fire drills your teams deal with every quarter.
How to Get Started
If the mess feels too big to untangle, you’re not alone. But it’s fixable. Many health systems start by focusing on just one or two service categories, such as dietary or environmental. Others start by implementing centralized procurement models for high-spend contracts.
No matter where you begin, the key is to treat purchased services as a strategic spend—not just a recurring expense.
Let’s Untangle the Chaos Together
Most systems don’t need more vendors—they need more control. At ShareSource, we help hospitals streamline their procurement and uncover hidden savings.
Ready to explore where your service spend is leaking value? Let’s start the conversation.
Related Questions
What are purchased services in healthcare?
Purchased services are outsourced tasks hospitals pay third-party vendors to perform, such as cleaning, IT, or food services.
What is considered a purchased service?
Any non-supply service a hospital pays for—including laundry, facilities management, and consulting—can fall under purchased services.
Who is the largest purchaser of healthcare services in the US?
The federal government, primarily through Medicare and Medicaid, is the largest purchaser of healthcare services.
What is healthcare purchasing?
Healthcare purchasing involves the sourcing and contracting of goods and services needed for medical and operational functions in care settings.