Addition by Subtraction: Controlling Healthcare Supply Costs to Maximize Margin

For years, healthcare supply spend has been one of the most reliable levers for cost management. That hasn’t changed. What has changed is the environment in which those decisions are being made:

• Shrinking reimbursements, inflation, tariff exposure and geopolitical volatility are fueling a margin-eroding storm.
• The healthcare supply chain is facing non-stop turbulence, from persistent drug shortages to broader market disruption.
• Procurement and spend are often spread and siloed across facilities, limiting visibility and making it more difficult to pinpoint opportunities for improvement and eliminate waste. 

In this environment, reducing costs is no longer enough. And for financially-minded leaders, the question is whether supply strategy can be reimagined as a source of competitive advantage.

With the right combination of operational discipline, empowered partnerships, targeted investments and engaged clinicians, organizations can turn supply strategy into a true competitive advantage. Premier’s strategic guide to margin management in healthcare outlines several proven levers to reduce supply chain cost — and several priorities stand out.

Reduce Hard Costs Through Supply Chain Optimization

In an era of margin compression, one of the clearest lessons emerging across high-performing health systems is this: The biggest gains no longer come from price alone. They come from how consistently and strategically organizations manage supply across the enterprise.

To truly optimize the supply chain, organizations must re-engineer their current model, transforming the supply chain into a value engine that connects financial stewardship with clinical excellence.

A significant portion of supply cost is driven upstream through clinical and operational decisions that vary across sites, service lines and providers. That variation increases cost, reduces purchasing leverage and limits consistency in care.

By systematically partnering with key stakeholders, evaluating new technologies, creating efficiencies and determining best practices for delivering care, organizations can evaluate products based on cost, quality and outcomes, not in isolation but as part of a coordinated system.

Kaleida Health’s experience illustrates the potential impact. Partnering with Premier to implement a physician-led value analysis process, the system achieved $17.7 million in savings in a single year while advancing supply standardization and evidence-based product selection. 

What this enables: improved alignment between clinical, financial and operational decision-making.

Maximize Purchasing Power and Capture Savings 

Premier’s value-driven contract portfolio creates a collective shield that helps organizations minimize risk, strengthen their supply chain and maximize purchasing power.

With more than 3,000 negotiated contracts, the national portfolio delivers flexibility and value across thousands of products. Many contracts are fixed for the lifetime of the agreement, helping protect against pricing shocks from tariffs and shortages.

Committing volume across vendors and categories creates powerful leverage and is one of the cleanest ways to capture guaranteed savings. By standardizing and rationalizing the vendor footprint, organizations reduce duplication, ensure consistency and deliver measurable savings without compromising care.

Consider Bayhealth, central and southern Delaware’s largest healthcare system: By actively engaging in Premier’s committed purchasing programs, first through Ascend, then AscendDrive and finally SURPASS, Bayhealth drove additional value from its purchasing portfolio. Collectively, these programs yielded more than $7.5 million in verified savings. In addition, Bayhealth realized over $2 million in aggregated group savings and secured more than $1.3 million in value through the national portfolio alone.

What this enables: repeatable savings that are sustained over time — not dependent on one-time negotiations.

Strengthening Resiliency and Managing Volatility 

Healthcare supply chains face frequent turbulence, from pandemic shortages beginning in 2020 to geopolitical instability. Each disruption has the potential to impact operations, inflate costs and disrupt care.

With real-time demand data and market intelligence, organizations can identify supplies at risk of shortage and plan for inventory fluctuations. Combined with coordinated response capabilities, this helps protect against market volatility, pricing shocks and stockouts.

Pharmacy is one of the most volatile and strategically consequential domains. Health systems must get ahead of changes in this segment or pay the price for being reactive. Leading organizations are leveraging commitment programs, technology and GPO contracts while centralizing procurement across care settings to reduce variability in cost. Premier’s pharmacy solutions have been shown to reduce pharmacy spend by 3 to 6 percent.

At the same time, non-direct labor expenses, including purchased services, often account for more than 30 percent of operating budgets and are frequently spread across facilities. As organizations are increasingly forced to do more with less, they must flip this narrative, treating purchased services as a potential savings source.

Take, for example, Kaleida Health: The health system achieved $1.1 million in savings by improving visibility and strengthening contract performance.

What this enables: protection from volatility and expanded control across high-impact spend categories.

Using Technology and Stewardship to Reduce Waste

Artificial intelligence (AI)-enabled demand forecasting and inventory optimization allow organizations to reduce safety stock, eliminate expired items and smooth purchasing cycles — often reducing product waste and write-offs by 20 to 30 percent without increasing risk.

At the same time, supply chain leakage occurs in the friction between purchasing, accounts payable, receiving and inventory management. Automating procure-to-pay processes, including contract activation, order entry, three-way match and invoice reconciliation, can eliminate thousands of hours of manual work.

Clinical decision-making also plays a direct role in cost.

Premier’s Stanson Health Stewardship solution provides clinicians with cost and quality insights directly within their workflow, enabling more informed decisions about medications, labs and imaging. This ensures care decisions are aligned with resource stewardship goals.

Health systems such as MultiCare, a 2,064-bed provider based in Tacoma, Washington, have demonstrated measurable savings and improved engagement through stewardship. The result? Stronger provider engagement, with a 26 percent acceptance rate (including 23 percent for medications and 36 percent for labs) driven by an unobstructive design that avoids alert fatigue and respects clinician workflows. 

MultiCare’s initial rollout was conservative yet delivered clear early returns. Starting with four medications and three lab tests, MultiCare saw average savings of $179 per accepted recommendation and approximately $81 per discharge.

What this enables: reduced waste and more effective resource use across both operations and care delivery.

Executing for Sustainable Performance Improvement

To achieve meaningful savings, organizations must overcome internal and external challenges. 

Advisory-led supply chain services help health systems reduce waste, improve service levels and enhance performance by embedding operational discipline and financial rigor across the enterprise.

This includes aligning stakeholders, strengthening value analysis processes, standardizing purchasing strategies and implementing automation.

For example, robotic process automation has been used to activate more than 800 contracts, significantly reducing manual effort. In one case, more than $200 million in savings were identified.

What this enables: sustained cost control and measurable, enterprise-wide performance improvement.

How Premier Helps

Executing these priorities requires coordination across clinical, operational and financial domains. Premier enables this by bringing together:

• Data-driven insight: Identify and address surface variation, utilization patterns and supply risk across the enterprise.
• Advisory expertise: Channel deep insights into measurable results by co-designing and implementing strategies tailored to organizational needs.
• Scalable supply chain capabilities: Strengthen purchasing power, reduce variability and improve consistency through an extensive contract portfolio.
• Integrated pharmacy solutions: Manage cost, access and disruption through coordinated contracting, analytics and supply programs.

The path to success isn’t defined by isolated actions. Sustained margin performance depends on pulling different but complementary levers for tangible results. Get your copy of Premier’s strategic guide to margin management in healthcare for more details.