Health system expense growth is beginning to stabilize—but financial pressure is not easing. Instead,
it’s shifting into more complex, less visible, and harder to control areas. For financial leaders,
the challenge is no longer just managing the rate of cost increase. It’s using integrated data to
identify where pressure is concentrated and determining how that pressure impacts margin resilience.
Financial planning: From cost management to cost strategy
As cost pressures shift, financial planning must evolve. Retrospective cost management is no longer
sufficient in an environment where the fastest-growing expenses, such as indirect spend and
purchased services at 3.85% projected inflation, are also the least predictable, Leading
organizations are moving toward proactive, cross-functional planning that anticipates where
financial risk is emerging.
Action for financial leaders:
Adopt a forward-looking planning model that integrates finance, clinical, and operational leaders to
identify and act on emerging cost drivers before they impact margin.
Cost pressures are moving faster than budget cycles
Expense growth is stabilizing across traditional categories. Labor costs are becoming more
predictable, and medical-surgical supply disruption has largely normalized. However, cost pressure
is migrating into areas with lower controllability such as advanced therapies, capital-intensive
technologies, and decentralized service categories.
These shifts reduce the effectiveness of traditional cost containment strategies. The key financial
risk is no longer broad inflation, but the concentration of spend in areas where organizations have
limited levers to manage it.
Action for financial leaders:
Prioritize oversight in categories where cost is rising fastest and control is lowest, with stronger
alignment across finance, clinical, and operational leaders.
Pharmacy moderation: Stability in pricing, volatility in complexity
Pharmacy remains a primary driver of spend, but its dynamics are changing. Pricing pressure is
moderating in some segments, yet total cost continues to rise due to increasing therapy complexity.
Specialty drugs, oncology treatments, and cell and gene therapies introduce variability in
utilization, reimbursement timing, and care delivery requirements.
This elevates pharmacy from a purchasing function to a strategic financial priority across the
enterprise. The total cost of therapy is no longer defined by drug price alone, but by how and where
care is delivered, including operational and reimbursement factors.
Action for financial leaders:
Integrate pharmacy into enterprise financial strategy. Align contracting, care models, and specialty
pharmacy capabilities to proactively manage high-cost, high-variability therapies.
Indirect spend: The emerging margin variable
Indirect and purchased services are becoming a significant and often under-managed source of margin
pressure. Information Technology, facilities, construction, and outsourced services continue to
grow, driven by digital transformation and operational demands. Yet these categories frequently lack
standardization, benchmarking, and centralized oversight, in many cases due to localization and
preference spending.
As a result, indirect spend is increasingly where cost escalation occurs without clear accountability
across departmental purchasing—creating an opportunity for governance and cross-departmental
collaboration to improve financial performance.
Action for financial leaders:
Apply supply chain disciplines that include procurement strategies, data and governance to indirect
spend. Increase transparency, standardize sourcing approaches, and implement consistent benchmarking
across non-clinical categories.
Service line technology and physician preference spend
Clinical innovation continues to drive service line growth, but also resets the cost structure. In
cardiology, orthopedics, and surgical services, investments in advanced technologies and physician
preference items are increasing cost per case through capital requirements and ongoing supply
expense.
These decisions are essential for competitive positioning but introduce margin risk when utilization,
standardization, and reimbursement are not aligned.
Action for financial leaders:
Establish joint governance with clinical leadership to align technology adoption, utilization
management, and vendor strategy with financial performance expectations.
What this means for leaders
Cost pressure hasn't disappeared—it has evolved into domains defined by complexity, variability, and
constrained controllability. Organizations that anchor their strategies in traditional cost
categories risk achieving operational excellence in stable areas while remaining vulnerable where
cost growth accelerates fastest and proves hardest to influence.
Check out the latest edition of The Spend Management Outlook (SMO) which equips financial leaders
with the foresight to anticipate these cost pressure shifts, the intelligence to prioritize
high-impact actions, and the agility to protect margins in an increasingly complex environment.
