By Andrew Brandenburg, MBA, RVP Sales, SpendMend
Hospitals and health systems are under unprecedented pressure to manage costs while maintaining quality of care. Leaders know they need to squeeze more value from every dollar spent, yet when they look at their spend reports, what they often see are vendor names and dollar totals… not a clear picture of what was purchased, how it was used, or whether it was managed well.
That gap between “spend data” and “spend visibility” is where categorization comes in. Categorization is the hidden language of spend. It takes the chaos of invoices, GL codes, and purchase orders and translates it into a consistent, executive-ready view of the cost cycle. Without it, health systems are left to make decisions in the dark. With it, they gain the ability to see across pharmacy, supplies, capital, IT, professional services, and purchased services — the entire non-labor spend portfolio.
With the right technology, categorization doesn’t just organize data, it interprets it. In many ways, it provides a “dictionary” for a hidden and misunderstood language, allowing leaders to understand what their spend truly means and take action with clarity and precision.
Why Spend Data Is So Hard to Understand
Healthcare leaders are not short on data. Every invoice, purchase order, contract, and P-card transaction generates it. But the way that data is stored makes it nearly impossible to use for decision-making.
- Invoices are unstructured. Descriptions vary by vendor and by department. “Lab test send-out” may appear as “reference panel,” “PCR,” or “misc. testing.” Without categorization, the dollars stay scattered.
- GL codes mislead. Most hospitals book services to generic “professional fees” or “other purchased services” accounts. These buckets hide real categories like clinical engineering, dialysis outsourcing, or food service.
- PO coverage is incomplete. Many services bypass the PO system entirely, leaving only invoice text as evidence.
- Taxonomies are inconsistent. Some systems try UNSPSC, some invent their own codes, but neither is widely adopted or consistently maintained.
The result is that leaders know the who (vendor) and how much (dollar total), but not the what (service, category, or opportunity). And without that, they have no actionable direction from their data to make strategic decisions. Many health systems have expressed that they already have the raw data… they just don’t know how to use it. The right categorization, paired with the right partner, turns that data into precise, actionable intelligence — a capability health systems today see as priceless.
Why Past Attempts Have Failed
Health systems have tried to solve this problem before, but most efforts stall for the following reasons:
- One-off projects. Consultants arrive, categorize 6–12 months of spend, and leave. Within a year, the categories drift out of date and the visibility disappears.
- Manual processes. AP or supply chain teams attempt categorization by hand, but it’s too labor-intensive to keep up with new vendors and new invoices every month.
- Generic taxonomies. UNSPSC or NAICS categories are too broad to capture healthcare-specific nuances like PPI implants, 340B drugs, or lab send-outs.
- Fragmented ownership. No single team “owns” categorization, so finance, pharmacy, and supply chain each keep their own inconsistent view.
Another lesson comes directly from health system feedback: while many vendors claim to offer “categorization,” most are simply organizing spend into high-level buckets. The best categorization isn’t about broad groupings — it’s about drilling down to minute line-item details. Equally important is having a partner who can interpret that detail with you, helping translate the data into specific, future-focused decisions.
The Cost of Staying in the Dark
The price of not categorizing spend is staggering:
- Missed savings. Purchased services alone represent 20–30% of a hospital’s operating expense. Without categorization, executives can’t see duplication, off-contract spend, or leverage points, leaving millions on the table.
- Lost rebates. In pharmacy, categorization is essential to link NDCs, contracts, and rebate opportunities. Missed mapping means missed dollars.
- Contract leakage. Without categorization, vendor compliance is invisible. Dollars leak to shadow vendors or unmanaged agreements.
- Poor negotiations. CFOs and supply chain leaders walk into vendor meetings with incomplete data, negotiating blindly.
- Wasted effort. Teams spend hours pulling reports that answer tactical questions but never surface the enterprise view.
Industry studies suggest billions are lost annually in U.S. hospitals simply because spend cannot be fully categorized, tracked, and acted on. In an era of razor-thin margins, that is a spend health systems can no longer afford.
The Power of Categorization Across the Cost Cycle
- Pharmacy – Organizes drug spend by therapeutic class, contract compliance, and rebate eligibility. Flags variance and growth trends that drive pharmacy budgets.
- Medical/Surgical and PPI – Links supplies and implants to device identifiers (UDI/GTIN) to reveal true utilization and preference variation, supporting physician engagement and contract optimization.
- Capital and Construction – Separates one-time equipment, contracted construction, and ongoing maintenance, bringing clarity to major investments.
- IT and Telecom – Exposes duplicate software, underused licenses, and fragmented consulting spend, making governance possible.
- Professional Services – Breaks down “miscellaneous professional fees” into clear categories like legal, HR, and interim leadership, helping track ROI.
- Purchased Services – Translates invoice detail into categories like linen, lab testing, or revenue cycle outsourcing, unlocking millions in contractable savings.
How SpendMend Helps
At SpendMend, we help health systems make categorization stick. Our InView technology parses invoice detail, non-PO spend, contracts, and item masters using a hybrid of rules, machine learning, and human expertise. It categorizes spend across pharmacy, med-surg, purchased services, capital, IT, and professional services… creating a consistent, trusted view of the entire cost cycle.
The result isn’t just cleaner data. It’s visibility that drives action — identifying duplicate vendors, surfacing rebate opportunities, proving compliance, and uncovering millions in savings that were previously invisible.
The Bottom Line
Categorization is the hidden language of healthcare spend because it takes raw, scattered data and makes it speak. Without it, leaders see vendors and totals. With it, they see patterns, risks, and opportunities.
Hospitals can’t afford to stay in the dark. Categorization is the first step toward sustainable, enterprise-wide cost savings — and with the right approach, it can finally move from a failed experiment to a foundation for transformation.