“Managing the Not So Small Cost….”
Optimizing Non-Clinical, Non-Labor Costs in a Healthcare Setting
While discussions about hospital costs often focus on large-ticket items, the relatively smaller Non-Clinical, Non-Labor (NCNL) expenses are a frequently overlooked yet significant opportunity for savings and value creation. NCNL expenditures—including Administrative and General costs (e.g., finance, HR, compliance, utilities, IT) and Purchased Services (e.g., linen, food, waste management, security, IT outsourcing)—account for approximately 20–35% of hospital operating costs.1
A disciplined approach to addressing these areas can achieve meaningful savings, directly protecting margins and enabling reinvestment in patient care.
The Unique Challenge for Rural and Smaller Hospitals
For small-to-medium-sized hospitals, particularly those in rural settings, the need for NCNL optimization is urgent. These facilities often operate with tighter margins and face unique structural cost challenges:
Higher Administrative Burden: Rural hospitals, on average, allocate approximately 18% more of their administrative spending to salaries than their urban counterparts, often indicating less efficiency in administrative staffing.2
Scale Disadvantage: Due to lower patient volumes, these hospitals cannot achieve the same economies of scale as large systems. This results in higher fixed costs per patient for essential services such as IT, utilities, and maintenance.
Addressing these structural inefficiencies through targeted NCNL management can yield substantial results. For instance, a hospital with $150 million in net patient revenue could realize between $600,000 and $1,000,000 in annual savings by optimizing its purchased services alone.3
Minimal Disruption from Cost Management
Unlike initiatives targeting labor cost management or changes to physician-preferred clinical supplies—which often lead to unrest and disruption—initiatives targeting non-clinical expenditures typically do not provoke resistance. These cost-saving measures can therefore be implemented smoothly, without causing significant staff hesitation or concern.
Conclusion
By adopting a streamlined, multi-faceted approach to managing non-clinical, non-labor expenses, hospitals can realize substantial, cumulative savings from seemingly small, behind-the-scenes items. This method minimizes disruption while freeing up essential resources. These protected margins can then be redirected to support patient care and critical organizational initiatives, directly reinforcing the hospital’s mission and enhancing overall operational efficiency, thereby making the impact of these savings “not so small.”
Sources:
Vizient Inc. Strategic Spend: As healthcare costs climb, focusing on non-clinical expenses is a strategic imperative. (2025).
Analysis of Medicare cost report data, 2011–2022. (2025).
Industry Benchmark Data: Representative savings estimates based on proprietary analysis of successfully purchased services optimization programs.
