Benchmarking Purchased Services for Hospital Cost Reduction

Financial stresses are mounting in healthcare, more quickly than most hospitals can keep pace with. Margins are shrinking, reimbursements are shifting, and costs are rising, particularly beyond direct patient care. As much as labor and drugs command budget discussions, one quieter category tends to go unexamined: purchased services.

Purchased services may account for as much as non-labor hospital expenditure. They range from dietary and laundry to biomedical waste, IT support, elevator service, courier services, and outsourced clinical functions. These services are required. However, without effective visibility and benchmarking, they can be a patchwork of inefficiencies and bloated contracts, quietly bleeding millions of dollars.

And that's where benchmarking entersnot so much as a reporting vehicle but as a transformation lever.

What Is Benchmarking in the Context of Purchased Services?

Benchmarking is comparing your performance, pricing, or vendor contracts against standardized reference pointswhether internal across departments or facilities or external against peer hospitals, regional trends, or industry averages.

For purchased services, benchmarking answers questions like:

• Are we overpaying for linen services compared to hospitals of similar size?

• Are our waste management costs in line with the market?

• Do we see value in what we're spending on clinical engineering support?

• Is our vendor performance meeting peer standards?

These aren't philosophical questions. They're measurable. Without these measurements, even the best-run hospitals would be flying blind.

Why Purchased Services Are So Hard to Track

One reason purchased services are neglected is that they're hard to manage. Unlike supply chain items like surgical gloves or IV tubingwhich can be tracked by SKU and volumepurchased services often appear in vague invoice descriptions or general ledger codes like "Outside Services."

This lack of categorization makes it difficult to see:

• What you're buying

• Who is providing it

• How much you paying

• Whether the cost is justified

Worse, many service contracts auto-renew. So, unless someone flags them, underperforming or overpriced vendors can stay on the books for years.

Benchmarking helps break that cycle.

Internal Benchmarking: Uncovering Gaps Across Your Own System

You don't need to look outside your organization to find savings opportunities. One of the most effective benchmarking strategies is internal.

Multi-facility health systems often have dramatic pricing discrepancies for the same service. By lining up these internal comparisons, leadership can ask why and act. It becomes possible to:

• Standardize vendor selection across the enterprise

• Renegotiate based on consolidated volume

• Sunset redundant or high-cost contracts

Internal benchmarking is about finding patterns and correcting imbalances due to inertia or decentralized decision-making.

External Benchmarking: Understanding the Market

Internal comparisons are powerful, but they only go so far. External benchmarks are essential to know whether you're competitive in the broader market.

External benchmarking typically involves comparing your service rates and performance metrics against similar hospitals, often grouped by:

• Bed count

• Case mix index

• Region or metro area

• Teaching vs. non-teaching status

• Rural vs. urban classification

These benchmarks come from various sources, including spend analytics platforms, industry databases, group purchasing organizations (GPOs), and sometimes consultants specializing in healthcare contract evaluations.

For example, you may discover that:

• Your courier service costs are 30% higher than the median for hospitals in your state

• Your outsourced sterilization services are priced per tray instead of per case, costing significantly more

• The hourly rate for on-call radiologists is in the 85th percentile nationally, with no measurable performance difference

This data gives you leverage. It transforms vendor conversations from anecdotal to analytical. It provides evidence when pushing back on rate hikes, renegotiating terms, or exploring alternatives.

Beyond Price: Benchmarking Service Levels and Outcomes

Benchmarking isn't just about getting the cheapest rate. It's about value.

A vendor offering laundry services at a lower price may also have higher turnaround delays or more linen loss. An outsourced clinical documentation provider may have lower fees but deliver poor accuracy, impacting billing.

That's why hospitals should also benchmark:

• Turnaround times

• Error or complaint rates

• Readmission or infection rates related to services

• SLA compliance and uptime

• Staff satisfaction with vendors

The smartest organizations layer financial benchmarks with performance benchmarks to assess total value, not just sticker price. Over time, this helps weed out underperforming partners and reward those who deliver.

Turning Benchmarking Into Action

Data alone doesn't reduce costs. It's how you use it.

Once benchmarks are in hand, hospitals can:

• Launch targeted RFPs for services that exceed benchmark pricing

• Consolidate vendors across facilities to negotiate better rates

• Tie vendor renewals to documented performance outcomes

• Prioritize contract renegotiations based on the size of the opportunity

• Reallocate internal resources away from low-value vendor management

It also becomes easier to set policy. For example, a hospital might set a standard for all EVS vendors across the system to fall within the 50th percentile of regional pricing and deliver ATP cleanliness scores above 90%. With clear targets, procurement teams can act confidently.

Common Benchmarking Pitfalls to Avoid

While benchmarking is powerful, it can go wrong when misapplied. Some common missteps include:

• Chasing the lowest cost blindly: Choosing the lowest-priced vendor without evaluating quality can backfire.

• Using outdated benchmarks: Market rates change quickly, especially post-COVID. Old data leads to bad decisions.

• Benchmarking the wrong categories: Grouping non-comparable serviceslike basic dietary with room service modelscreates noise.

• Failing to engage departments: End-users must validate the data and support the change; otherwise, adoption fails.

The solution is to treat benchmarking as a collaborative, ongoing process, not a one-time audit.

Conclusion: Benchmarking as a Strategic Advantage

Hospitals can no longer afford to hide purchased services. When structured properly, benchmarking becomes a window into untapped savings, performance improvement, and smarter procurement.

It enables leadership to move beyond reactive cost-cutting and toward proactive, value-based sourcing. It aligns vendor management with hospital strategy and transforms purchased services from a liability into a managed asset.

Organizations that benchmark with precision and discipline don't just spend less. They spend better.

One company supporting this transformation is Valify, which offers healthcare-specific benchmarking tools and deep categorization technology built around purchased services. Their approach helps hospitals organize their spending, evaluate it against reliable external data, and act on opportunities clearly and confidently.

But regardless of platform, the mandate is clear: purchased services benchmarking is no longer optionalit's operationally essential.