Bringing Order to the ‘Wild West’ of Purchased Services

“Complicated,” “untamed,” and “chaos”—all words used to describe the state of purchased services by supply chain leaders from 10 leading U.S. health systems in a recent focus group held at the 2025 IDN Summit and Reverse Expo. In contrast, executives used the words “opportunity,” “growth,” and “optimization.”

The variance is understandable given that purchased services are fraught with challenges, many specific to the size and structure of a health system. It’s a quandary for many supply chain leaders who recognize the potential for improving performance—given that purchased services make up an estimated 40-50% of a health system’s supply chain budget—but don’t have the resources or know-how to fast-track a better strategy.

Purchased services refer to the non-labor expenditures that healthcare organizations outsource to specialized vendors instead of managing in-house. These contracted services cover a wide range of critical operations, from technology management to facility maintenance.

Optimization of purchased services requires an approach that improves operational efficiency while optimizing purchasing power. It necessitates greater collaboration and communication across the procurement management process, which is best described as disjointed in many of today’s health systems.

Focus group participants spoke to their current challenges managing purchased services and tactics needed to overcome them. Three critical strategies bubbled up from the discussion that leaders believe must be deployed to bring order to chaos.

1. Centralize Purchased Services

Most supply chain leaders acknowledged that they are operating in a hybrid environment for purchased services, with procurement happening through both centralized supply chain teams as well as other departments. This is problematic for effective management of expenses given the sheer volume—often reaching into the hundreds—of purchased services contracts across a health system. Lack of visibility and oversight also leads to unnecessary variations and duplications of services.

To optimize management of purchased services contracts, health systems must achieve a standard of clinical and economic value that drives decision-making. Individual preferences must be put aside to realize the cost benefits of collective purchasing power with a single vendor. In tandem with cost advantages, narrowing the vendor playing field also streamlines management of purchased services and ensures a consistent patient experience.

The first step to minimizing variation and creating a centralized standard starts with a value chain analysis to determine the best choices in services. By evaluating the activities in an organization’s value chain, health systems can garner an understanding of where waste is occurring as well as which vendors are performing best in terms of financial performance, initiative success rates, patient outcomes/satisfaction, utilization management, and waste reduction.

2. Consistent communication across health system hierarchy and vendors

Focus group participants said they struggle communicating both upstream and downstream in their organization about purchased services, covering everyone from the C-suite to department directors and site managers. In addition, a general lack of education for system and purchased services staff continues to create inconsistencies and ineffective management of costs and contracts.

This current state of limited communication and working in silos will limit a health system’s ability to create centralized efficiencies that improve costs and quality. Supply chain leaders must prioritize internal alignment and bridge communication gaps between front-line staff, clinical teams, and executive leadership. Such consistency can be achieved by facilitating closer collaboration between supply chain, clinical staff, and finance teams, developing shared communication protocols and creating cross-functional education around organizational goals.

In addition to improved internal relationships, building strong, transparent relationships with suppliers that are willing to share goals and collaborate for the best outcomes is fast becoming best practice. This model runs in contrast to traditional GPO approaches that focus on a large supplier playing field by intensifying partnerships with organizations that provide the highest value to hospitals and their patients.

3. Access to Data

Most focus group participants graded their health systems at a “C” or below while assessing the integration, depth, and connectivity of their technology systems. Yet the imperative role of technology in delivering deeper insights from supply chain operations cannot be denied.

Health systems need robust solutions that can pull external data points from multiple sources, link them all together, and provide supply chain leaders insights in an actionable format. GPOs should play a key role in providing support and helping supply chain leaders maximize the value of data insights.

Turning Chaos into Opportunity

When it comes to creating supply chain efficiencies, purchased services offer true untapped potential for many health systems. Unfortunately, the complexities involved in getting a better handle on this cost center are a non-starter for many resource-strapped health systems. The good news is that this is an operational area where the ROI potential makes the business case for outsourcing an easy one to make. In addition, bringing a third-party to the table can often help health systems avoid internal conflicts that often occur with the introduction of standardized and centralized systems. Bottom line: As health system leaders look for ways to improve margin, purchased services optimization is a significant opportunity.