The U.S. healthcare industry is anticipating a meltdown with the recent inauguration of tariff policies by President Trump, which has already raised concerns among provider groups and health systems. The newly imposed tariffs are expected to disrupt global supply chains, impacting the availability and affordability of medical supplies and equipment, endangering patient care in the process.
A Sweeping Impact: Tariffs on Medical Supplies and Equipment
President Trump announced new tariffs on goods that fall under traditional trade categories. They apply to a wide assortment of medical supplies, which encompass a range of healthcare essentials such as PPE, medical tools, and X-ray machines. The extent of the impact is sending shockwaves across the healthcare sector.
Financial Strain: Increasing Expenses and Limited Budgets
The 2023 report from Fitch Ratings stated that the not-for-profit healthcare sector is likely to experience a financial strain due to the increase in costs for supplies. Kevin Holloran, the Fitch Ratings senior director and sector leader, provided additional context by explaining how tariffs would raise the cost of essential hospitals’ maintenance supplies. Such costs would then move into either fixed or variable expenses for the hospitals. Since a large number of hospitals are already locked into payer agreements for prolonged periods, they are unlikely to recover these costs by charging patients. Operating income would, therefore, decrease, creating a financial burden.
A Stark Contrast: Historical Exemptions Ignored
Morningstar’s analyst, Debbie Wang, draws attention to the sharp increase in tariffs that was applied to electronic medical devices, saying that the inclusion of electronic medical devices “stands in stark contrast to the historical pattern of strategic exemptions of lifesaving and life-sustaining devices.” This change not only defies prior policy but also serves as alarming evidence of the impending peril facing the healthcare supply chain.
Shifting Production: A Difficult Solution
Jefferies cited problems with relocating manufacturing plants for life science instruments and diagnostics. Finding safe havens for production is difficult due to the far-reaching nature of these tariffs. Companies with plants in Mexico or Canada, whose USMCA agreement exempts them from new tariffs, are better off.
The Healthcare Community Speaks Out: A Plea for Exemptions
Prior to the tariff’s announcement, the American Hospital Association (AHA), whose member constituency includes the largest provider lobbying group in the country, actively for months tried convincing the Trump White House to exempt medical supplies from the tariffs. They argued that portions of the hospital supply chain are not easily reshored and that it taxes the availability of “life-saving medications and supplies.”
After the announcement, the AHA joined AdvaMed, which is a leading trade association for the medical device industry, in calling for the exemption of medtech companies from the tariff suspension.
The Balancing Act: Domestic Production vs. Patient Care
During the stakeholder meeting, AHA’s vice chair for quality and patient safety policy, Demehin, commented on the administration’s attempt to fortify the domestic supply chain. He stated that there needs to be a balance between this goal and the imperative need not to disrupt patient care. Demehin discussed the scope of waivers, especially pertaining to medical products that are already in short supply and those where a significant proportion of the market is supplied by countries that would be subjected to newly increased tariffs.
A Fragile System: The Risk of Crippling Healthcare
Providence, one of America’s large health systems, projected the tariffs would have a financial impact in the range of $10-$25 million per year. Drawing from the pandemic shortage of PPE and the more recent Baxter facility destruction-induced IV fluid shortage, CEO Erik Wexler raised concerns over the fragile healthcare supply chain. Wexler warned that adding the tariffs to the mix, along with other anticipated Medicaid cuts, would “cripple” health systems and create a “national emergency” in access to care.
Health Care’s Uncertain Future
Trump’s tariffs have created a fundamental uncertainty in the healthcare sector. Increased costs, disruption in the supply chain, and deterioration of patient care have raised worries and demands for immediate interventions. The upcoming weeks and months will be important in understanding the totality of the tariffs’ consequences as well as the healthcare sector’s responsiveness.
