By: Lee Creviston, Chief Operating Officer, Valify
States are taking a closer look at health care spending growth, using public benchmarks and, in some cases, stronger enforcement measures to promote affordability. The California Office of Health Care Affordability recently adopted an enforcement framework under which health care organizations that exceed spending growth targets could eventually face penalties of up to 125% of the amount over the limit.
California is not alone. Nine states have implemented health care spending growth benchmarks, but how effective these measures are, remains an open question. A 2026 JAMA Network Open study found little evidence that benchmarks alone reduced hospital prices or insurance premiums, suggesting that healthcare spending growth benchmarks may need stronger enforcement and complementary reforms. For hospitals evaluating how to respond, purchased services, also referred to as indirect spend, offer one area to look for savings without disrupting services or patient care.
Against this backdrop, hospitals are working to control costs while facing rising expenses for labor, pharmaceuticals, construction, and other needs, many of which can be difficult to manage directly. In 2025, workforce costs rose 5.6% from the previous year and accounted for around 60% of total hospital expenses.
Finding savings without affecting services or patient care means identifying other expenses hospitals can influence, and indirect spend may offer hospitals more room to find savings. Purchased services are the largest expense for health systems beyond labor, yet they are often the most overlooked. They span more than 1,400 categories, including facilities and IT, while spending data is often spread across departments, locations, and contracts. Because individual departments often manage these services independently, the spending may not receive the same centralized tracking and oversight as supplies, capital equipment, and labor. Without bringing that data together, teams may lack a complete view of spending, making it harder to see total costs, identify overlapping contracts, or assess whether terms remain competitive.
When Spending Happens in Silos
Purchased services cost increases can be difficult for health system and hospital leaders when managed across separate departments or categories. That can happen for a few reasons:
- Fragmented ownership: Disparate departments often manage purchased services independently rather than through a central source. For example, IT might handle technology contracts while finance oversees the hospital’s revenue cycle. Each department makes vendor, contract, and spending decisions that best suit its needs. However, this can lead to overlapping vendor agreements, contract sprawl, and inconsistent pricing. The result is missed opportunities to consolidate vendors and renegotiate contract terms.
- Billing discrepancies: When a vendor sends an invoice, it generally shows the amount charged, not the contracted rate. Without consistent contract verification, unexpected price changes, duplicate charges, or unapplied contractual discounts may go unnoticed.
Additionally, changes to service requirements can make it difficult to determine if a hospital is overpaying. Adding locations, extra hours, or altering the scope generally increases costs, but it can be hard to tell whether those increases are proportionate to the expanded service offerings.
- Contract renewals: Many contracts renew automatically, without proper review of built-in escalators. This means costs increase without determining whether the rate remains competitive with the broader market or exploring opportunities to renegotiate contracted prices. While incremental cost increases may seem small, they accumulate over time.
Each operational issue can make it harder to see where purchased services spend is going, obscuring unnecessary expenses and allowing avoidable costs to go unchecked. Identifying actionable savings opportunities starts by centralizing visibility across these areas. Addressing these costs gives hospitals a practical way to help control spending growth, even if purchased services savings alone will not determine whether they meet a state benchmark.
Connecting the Dots Across Hospital Spending
Centralizing purchased services data can help create sustainable cost savings. This requires consolidated spend visibility across categories, facilities, vendors, and departments, as well as insight into which expenditures fall within or outside existing contracts. Complemented by historical spending patterns, health system leaders can leverage these insights to determine which areas warrant further evaluation.
However, internal data alone doesn’t tell a health system whether it is paying a fair price for a vendor or service. That is where benchmarking becomes particularly useful. Benchmarking can determine whether pricing is competitive, contract terms are favorable, and service quality is consistent with industry standards, helping healthcare finance leaders compare themselves with their peers and the broader market.
The challenge then lies in translating these considerations into action. The volume of data on purchased services often makes it difficult to properly evaluate all vendors, contracts, and departments before costs escalate further. This is where leveraging technology becomes critical.
Modern tools can analyze data and offer recommendations quickly, allowing healthcare leaders to make meaningful adjustments before savings opportunities are lost. With a clear view of spending and market context for comparison, hospital supply chain teams can begin asking the right questions:
- Which purchased services categories have unusually high spending?
- Which vendor rates are above benchmark averages?
- Which contracts are about to expire?
- Which savings opportunities can organizations implement with minimal effort?
- Are there opportunities to consolidate overlapping vendor contracts?
These types of questions can help guide healthcare finance leaders toward potential cost reductions that align with their clinical and financial priorities.
Prioritizing Cost Control and Patient Care
While savings from indirect spend alone will not necessarily determine whether hospitals meet a state cost growth benchmark, they provide a starting point for healthcare organizations in managing areas of spend they can actually influence. In turn, this will help move hospitals toward the broader goal of healthcare affordability.
By combining spend analytics with market benchmarks, hospitals can identify, prioritize, and act on savings opportunities without compromising patient care.
