STRATEGIC SPEND
Why health systems can negotiate the right price and still miss the performance opportunity.
For many health systems, the next opportunity to improve financial performance in purchased services lies not in negotiating another contract, but in managing what happens after the contract is signed. When leaders can consistently connect utilization and service-level data to everyday decision-making, purchased services begin to shift from cost control to active performance management.
The focus shifts from documenting past activity to improving future performance. Utilization and service-level data become the basis for understanding operational variation, evaluating service quality, and identifying opportunities for continuous improvement. Organizations move beyond validating price to managing performance—identifying issues earlier, responding more quickly, and establishing clearer accountability among stakeholders.
Just as importantly, decisions begin to build on each other. Better utilization insight improves understanding of current performance. That understanding informs more effective sourcing decisions, stronger sourcing leads to better contracts, and better contracts that generate more meaningful performance data. Over time, each cycle reinforces the next.
That's the difference between monitoring spend and managing performance.
Even with better data, one reality remains: Insight does not automatically translate into action. Organizations still need the ability to interpret what they’re seeing, compare it to meaningful benchmarks, and apply category-specific expertise to determine what to do next. Data may create visibility, but it’s expertise, governance, and accountability that turn visibility into better decisions.
Purchased services will remain complex—spanning categories, departments, and operational models in ways that resist simple standardization. But complexity doesn’t have to mean opacity.
Leaders don’t need more data for its own sake. They need confidence that services are being used as intended, performing as expected, and delivering value commensurate with their cost.
That confidence depends on a simple but often missing connection: the ability to link spend to utilization, and utilization to performance. Leaders who connect spend, utilization, and performance won't simply manage purchased services better. They'll build operating models that continuously improve value rather than periodically validate cost.
If that future state seems aspirational, there's a reason. Many organizations are still working to overcome structural and operational barriers that prevent utilization insight from becoming routine performance management.
Purchased services has long been one of healthcare’s most persistent “next frontiers.” Leaders recognize the performance improvement potential: indirect spend categories collectively represent significant spend, wide variation, and decentralized oversight. Yet despite that acknowledgment, progress has been uneven. Many of the same challenges that existed a decade or more ago are still present today.
While many health systems have made meaningful progress managing the cost of purchased services, the next challenge is translating utilization insight into consistent performance management by connecting what organizations spend to how services are actually used and how they perform.
Most health systems can answer questions about how much they’re spending with some degree of confidence. Vendor-level data visibility has improved, but some organizations still can’t easily validate whether they’re paying contracted rates without a service-focused item master. Category spend visibility alone doesn’t reveal whether organizations are realizing value. It doesn’t answer:
At a structural level, the problem isn’t hard to describe. Top-level spend data is available, structured, and widely tracked. By contrast, line-item utilization data often is fragmented, vendor-dependent, and inconsistent. And without utilization data, performance remains largely inferred.
For many organizations, the work effectively ends once a contract is negotiated and pricing has been established. A successful sourcing event is often treated as the finish line rather than the starting point for ongoing performance management. Without consistent attention to utilization, even well-negotiated contracts can produce widely different operational and financial outcomes.
Organizations can’t manage what they don't measure continuously. In most health systems, purchased services are managed at key moments, most often when contracts come up for renewal or in response to issues as they arise. Attention is triggered by events—a pricing discrepancy, a service complaint, an unexpected invoice—rather than guided by ongoing insight. This creates a pattern: look back, assess, adjust, then repeat the cycle months or years later.
That pattern isn’t just operational. It reflects a broader absence of enterprise strategy. Without consistent visibility into utilization and performance, organizations struggle to monitor outcomes, identify issues early, or intervene before value is lost.
At the same time, the structure of purchased services makes this even more difficult. These categories are distributed across departments, owned inconsistently, and managed outside centralized visibility. Supply chain is not always embedded in decisions in areas like HR, IT, or facilities. Ownership is fragmented or unclear altogether.
Without a unified view of utilization and performance, it’s difficult for any function to influence decisions consistently. Even where expertise exists, organizations can’t apply it systematically. Organizations don't struggle because they lack data; they struggle because their operating model can't consistently turn data into performance improvement.
One of the more dangerous effects of this environment is the illusion of control. Many leaders believe their categories are well managed. Vendors are standardized. Spend is understood. Processes are in place.
Until the data tells a different story.
For example, one multi-entity health system successfully standardized its linen services through a competitive sourcing process. Suppliers were consolidated, pricing was negotiated, and key performance expectations were incorporated into the contract. On paper, the category appeared to be well managed.
But the contract was only the beginning. Although pricing had been standardized, operational practices and utilization varied significantly among facilities. Some teams routinely monitored linen loss, pounds per adjusted patient day, and delivery patterns while others did not. And some entities reviewed utilization data regularly and adjusted delivery frequencies accordingly, while others relied primarily on supplier-provided reports or invoices with little to no independent validation of how services were actually performing or being used.
It took another year—and deeper integration of utilization data with operational stakeholders—before the organization could consistently manage the category for performance rather than simply cost.
This scenario is not unique to linen. Similar dynamics play out in courier, dialysis, facilities, environmental services, and many other purchased services categories. A well-negotiated contract does not automatically produce strong performance. Utilization still has to be monitored, and performance still has to be managed.
That is the larger blind spot. It's not whether an organization negotiated a favorable contract. It's whether leaders can consistently see—and act on—how that contract is actually performing. Hidden operational variation, inconsistent utilization, and unmanaged compliance costs can quietly allow value to leak from even the best-negotiated agreement.
When organizations stop at spend visibility instead of managing against utilization insight, they lose the ability to confidently assess value, understand variation across sites, benchmark supplier performance, and prioritize improvement opportunities. Instead, teams spend their time validating yesterday’s decisions—reviewing invoices, auditing pricing, and reconciling discrepancies—rather than improving tomorrow's performance.
Those activities are necessary, but they’re inherently backward-looking. They explain what happened but do little to improve what happens next. Over time, that gap can compound into missed opportunities, unmanaged variation, and persistent inefficiencies that rarely appear in financial reports but ultimately erode organizational performance.
The challenge has never been collecting more information. It's creating the discipline to use utilization insight as a routine part of operational decision-making. Purchased services may be the example, but the lesson extends well beyond a single spend category. Organizations that connect spend, utilization, and performance can identify variation sooner, strengthen accountability, and continuously improve value over time rather than waiting for the next contract cycle. That's when visibility becomes strategy
Principal, Vizient
Liz Banick is a Principal at Vizient with 15 years of experience leading healthcare transformation. She is a strategic leader with a focus on bringing together data, expertise, and scalable solutions to turn fragmented information into measurable financial and operational results...
Senior Vice President, Kaufman Hall
Scott Eber is a Senior Vice President in Kaufman Hall’s Performance Improvement practice with more than 25 years of consulting and industry experience serving the healthcare, manufacturing, and publishing industries through a variety of process optimization, cost reduction, post-merger integration and client executive roles. He has been responsible for several successful, large scale, complex engagements at some of the most...
Assistant Vice President, Kaufman Hall
Reed Michalek is an Assistant Vice President Senior Associate with Kaufman Hall’s Operation Improvement practice. He specializes in designing and implementing strategies to reduce supply costs, optimize purchased services quality and cost, and improve supply chain processes. Michalek holds a Master's degree in Business Analytics from Southern Methodist University, and a BBA from Texas Christian University.
