Strategic Spend: As healthcare costs climb, focusing on non-clinical expenses is a strategic imperative

In the ongoing debate over healthcare costs, attention often centers on the price of drugs, hospital stays and payers. But behind the scenes, a quieter set of figures has been growing steadily: non-clinical expenses. These are the costs of running a hospital or health system that aren’t directly tied to patient care including facilities and construction, support services (food services, laundry and environmental services), information technology, insurance and benefits, patient care service contracts and supply chain services.

While less visible to patients, these costs are far from trivial. In the U.S., healthcare indirect expenses are estimated to account for nearly a quarter of total healthcare spending. As hospitals face mounting financial pressures and calls for greater transparency, it’s crucial that healthcare leaders take a closer look at how these operations affect the bottom line and gain a deeper understanding into how they can mitigate these rising costs.

The challenges around indirect spend

Unlike with clinical expenses, indirect spend tends to be fragmented, with contracts negotiated in silos or without full visibility into existing agreements. It’s not uncommon for departments to buy outside of the system’s purchasing process, use non-standardized vendors or sign contracts that overlap in scope. Adding to the complexity, many of these agreements operate on multi-year cycles, meaning a contract might come up for renewal once every three to five years. That timeline makes staffing category expertise a particular challenge as few organizations can justify dedicating full-time personnel to a process that happens so infrequently — yet, without expertise and oversight during the buying process, indirect costs add up.

Data should set the stage

Data plays a critical role in identifying cost-saving opportunities, and it’s an important first step in understanding a hospital or health system’s spend. By systematically analyzing spend data — sorting it by vendor, category, frequency and volume — health systems can uncover patterns that might otherwise go unnoticed. For example, simply reviewing average monthly spend in any indirect spend service can reveal where expenses are increasing over time:

Figure 1. Average Monthly Change in Spend by Category

This level of visibility can also reveal inconsistent buying patterns, “rogue” contracts or areas where purchasing could be consolidated. Without this kind of granular analysis, decisions are often based on assumptions rather than evidence, leaving potential savings on the table.

Strong governance is necessary

There’s a growing recognition that financial sustainability in healthcare isn’t just about negotiating better prices or reducing staff — it's also about structural reform. That includes asking hard questions about how hospitals operate day to day. Without clear support from executive leadership and a sense of urgency or a reason to act, even well-researched cost-saving measures can stall in implementation. Leaders must not only endorse operational changes but also visibly champion them across departments and units. Many of these buying decisions are based on departmental preference or relationships and cannot be addressed without empirical evidence and strong executive leadership. The more openly an organization and its leaders share data, goals and decision-making processes, the more likely they are to gain buy-in from their teams and improve alignment and cost-saving measures.

Specialized expertise is essential

Effective contract management depends on having experts who understand the complexities of their specific spend categories, whether it's facilities, food services, security or IT infrastructure. These experts bring critical insights into industry comparatives, vendor capabilities and the operational nuances that general administrators may overlook. Without their input, health systems risk entering agreements that perhaps look sound on paper but fail to deliver long-term value.

As the industry evolves and margins continue to decline, the success of a health system’s financial sustainability may depend on how they strategically and thoughtfully manage indirect expenses. Thoughtful stewardship requires more than occasional audits or reactive decisions — it demands a coordinated, data-informed approach that spans departments, aligns with organizational goals and adapts to changing market dynamics.

Spend time understanding the operations in your hospital system as it relates to specialized contract management.

Contact Blaine Douglas.