The Contracts That Supply Chain Never See May Be Costing Your Health System Millions
By Erika Oweida, MHA, Director of Client Delivery & Engagement, SpendMend
Some of the biggest opportunities to reduce purchased services costs aren’t waiting to be uncovered in your largest supplier contracts.
They’re hiding in the contracts that supply chain often never sees.
Throughout my career advising health systems, I’ve worked with organizations of every size to improve purchased services performance, benchmark supplier agreements, and to help reduce unnecessary spending. One lesson has become clear: many of the best opportunities exist outside the categories traditionally managed by supply chain.
That’s because many service contracts never pass through supply chain. Human resources (HR) negotiates agency staffing and locum agreements. Facilities manage security, landscaping, waste, and building services. Revenue cycle oversees many of its own technology and service contracts. Clinical departments frequently maintain specialized vendor relationships.
Operationally, these divisions of responsibility may make perfect sense. Commercially, however, it often creates blind spots.
Operational Expertise Isn’t Contract Expertise
The people responsible for these contracts are experts in their fields. Facilities leaders understand facilities operations. HR understands workforce planning. Revenue cycle leaders know reimbursement and collections.
But negotiating commercial contract terms, benchmarking supplier pricing, and anticipating business risk requires a different set of expertise. Without that perspective, contracts often remain unchanged while pricing, market conditions, and service expectations continue to evolve.
The result is rarely one major pricing error. Instead, organizations accumulate dozens of small inefficiencies that quietly increase costs over time.
Legal Plays an Important Role, But a Different One
Many organizations assume Legal reviews every aspect of a contract. Legal absolutely protects the organization from legal risk.
What legal typically isn’t responsible for is determining whether service level agreements reflect current market expectations, pricing remains competitive, or reimbursement policies align with organizational standards. These are business decisions. Someone still has to ask the commercial questions before a contract is signed.
The Details Matter More Than Most Organizations Realize
One example appears repeatedly in agency staffing contracts. Most health systems have established employee travel policies defining hotel rates, mileage reimbursement, meals, and other travel expenses.
Yet those same standards are often never incorporated into contracts governing temporary or agency staff. As a result, contracted clinicians may receive higher mileage reimbursement, stay in hotels above employee rate limits, or incur travel expenses that would never be approved internally.
No one intentionally created these inconsistencies. They simply weren’t addressed during contract negotiations. The same pattern appears in facilities services, revenue cycle agreements, and other purchased services categories where business terms haven’t kept pace with today’s market.
Supply Chain Doesn’t Need to Own Every Contract
One misconception often prevents organizations from addressing these opportunities. Departments sometimes worry that involving supply chain automatically means issuing an RFP or replacing a trusted supplier.
In practice, that’s rarely the preferred approach. Most supply chain leaders would rather strengthen an existing supplier relationship through better contract terms than disrupt operations with a lengthy sourcing process.
The goal isn’t taking ownership away from department leaders; it’s bringing additional commercial and contracting expertise into the conversation before unnecessary costs become embedded for another contract term.
Better Partnerships Produce Better Agreements
The strongest organizations view supply chain as an internal advisor rather than simply a purchasing function. Operational leaders contribute subject matter expertise. Supply chain contributes market intelligence, benchmarking, contract strategy, negotiation experience, and commercial oversight.
Together, those perspectives create stronger agreements than either group could develop independently.
Every Dollar Saved Has a Direct Impact
Health systems appropriately devote enormous attention to improving revenue and strengthening revenue cycle performance. But with operating margins remaining exceptionally thin, controlling unnecessary expenses deserves equal attention.
Every outdated rate corrected; every contract term strengthened; and every unnecessary charge avoided; flows directly to the bottom line.
Many of the greatest opportunities aren’t found by replacing suppliers. They’re found by improving contracts that have quietly drifted away from where they should be.
About the Author
Erika Oweida, MHA, is Director of Client Delivery & Engagement at SpendMend, where she helps health systems improve purchased services performance through contract optimization, supplier benchmarking, and strategic cost reduction initiatives. Prior to joining SpendMend, she advised hospitals and health systems in Advisory Services at Premier and completed an administrative fellowship with Kaiser Permanente.