Rising Costs, Shrinking Margins: Healthcare Faces Tariff Fallout

Tom Redding, executive VP, Healthcare Practice Leader, St. Onge, when asked to give an overview on tariffs, noted that “Products and equipment manufactured outside the United States may face rising costs due to tariffs. A key consideration is who will bear these added expenses. Since most health systems already have existing contracts, manufacturers may be forced to absorb the increased costs, at least initially. Over time, this could lead manufacturers to reduce the availability of certain products and/or scale back investments in developing new equipment. Such dynamics are likely to strain relationships between manufacturers and health systems, especially given that health systems typically operate on razor-thin margins, while manufacturers may have more financial flexibility.”

Further, he added, “As previously noted, if manufacturers are responsible for covering increased costs, their ability and willingness to invest in the development of new products and technologies could be significantly curtailed.

“Some more sophisticated health systems may have anticipated the tariffs and stockpiled supplies in advance. While this strategy could provide short-term insulation, it may also contribute to broader product shortages in the market.

“Tariffs may prompt manufacturers to delay shipments while they wait to see if trade conditions improve. This uncertainty could lead health systems to increase local stockpiling or seek alternate suppliers rather than relying solely on traditional distribution channels.”

Redding also noted, “Turning to alternative local suppliers may introduce new challenges, including higher costs and potential quality concerns. In some cases, lower-quality products may enter the supply chain, potentially impacting patient care outcomes.

“Health systems may postpone purchasing new equipment due to budget constraints and pricing uncertainty. These delays can have downstream effects on care delivery and limit access to advanced technologies in the future.”

Michael Schiller, FAHRMM, CMRP, executive director, AHRMM, American Hospital Association, largely agreed. He said, “Each day in America’s hospitals and health systems, patients receive safe and effective care from provider teams using a wide array of pharmaceuticals and medical devices. Many of the pharmaceuticals used are sourced from overseas. Additionally, the U.S. sources many raw ingredients internationally for pharmaceuticals. These raw ingredients are commonly known as active pharmaceutical ingredients (APIs) and are the most important components of any pharmaceutical manufacturer’s supply chain. According to a 2023 Department of Health and Human Services estimate, over 90% of generic sterile injectable drugs, including many chemotherapy treatments and antibiotics, depend on APIs from either India or China.”

He continued, “Medical supply chains for other medical devices are highly complex and require hospitals to draw on domestic and international sources. An infusion pump manufactured in the U.S. can contain parts from 20 or more countries, and an MRI system can contain parts sourced from 15 different countries. For many patients, even a temporary disruption in their access to these needed medications could put them at significant risk of harm, including death. For example, carefully planned chemotherapy treatments and antibiotic schedules are essential to giving patients the best chance of overcoming their diseases.”

Steve Liou, founder & CEO, Clarium Health, said “Healthcare faces a perfect storm with these tariffs because we're simultaneously experiencing cost pressures, supply chain vulnerabilities, and an inability to quickly pass through costs. Unlike retail or manufacturing, healthcare can't easily adjust pricing in response to tariff increases due to fixed reimbursement rates and ethical obligations to patients.“

He commented, “Our analysis shows hospitals could face 4.5-8% immediate cost increases, potentially rising to 18-30% with the full tariff package implementation in July—that's unsustainable when operating margins are already thin. Critical life-saving supplies like injection needles and test kits face astronomical tariffs up to 279%, creating both financial strain and potential accessibility issues.”

Challenges

As for the biggest challenges facing supply chain leaders in healthcare right now, Redding said, “One of the primary challenges is the uncertainty surrounding when tariffs might change, who will ultimately bear the associated costs, and the general lack of transparency regarding where products are manufactured. Unless a health system has a strong relationship with its suppliers or participates in an industry-wide supply chain transparency initiative, this information is often unavailable.

“Health systems may delay investments in new technologies due to uncertainty about the true cost of those investments. This includes concerns about the future availability of spare parts, as some suppliers are postponing their own purchasing decisions while awaiting clarity on tariff policies.”

He added, “Tariff pressures may drive smaller or less-resilient suppliers out of the market, leading to increased consolidation. While this may improve supply chain efficiency for some, it can also reduce competition, limit options, and increase dependency on fewer suppliers, potentially raising costs further.

“To hedge against uncertainty, health systems might increase their inventory levels. While this approach can protect against short-term shortages, it also ties up cash and physical space, resources which are already constrained in most health systems.

“The situation underscores the importance of proactive and strategic supply chain management, including better supplier vetting, geographic diversification of suppliers, and enhanced analytics to forecast tariff-related impacts. Health systems may need to invest in more robust supply chain intelligence capabilities.”

Schiller added two cents. He said, “Protecting patients’ access to the safe, high-quality 24/7 care provided by hospitals and health systems is important. A recent survey found that 82% of healthcare experts expect tariff-related expenses to raise hospital costs by at least 15% over the next six months. These increased costs come at a time when hospital expenses are already outpacing inflation and significantly outpacing Medicare reimbursement, which continues to lag behind inflation. Though expense growth has started to slow this year, it remains elevated, particularly in areas driven by labor and supply chain pressures.”

Solutions

As for solutions, Schiller said, “AHA urges reintroduction of the Mapping America’s Pharmaceutical Supply (MAPS) Act and the Pharmaceutical Supply Chain Risk Assessment Act. Supply chain vulnerabilities often only become apparent when the chain has been broken, as has been the case for a number of recent shortages, including blood culture media bottles and IV fluid. Proactively mapping and assessing the pharmaceutical supply chain, as well as supply chains for other medical devices and equipment, is an important step to improving resiliency in U.S. supply chains and protecting patients’ access to care.”

And Redding noted, “Health systems should continue to identify strategies for building and buffering inventory across departments to mitigate the risks associated with price increases and potential product shortages.”

“It is essential for health systems to gain greater visibility into where their supplies and equipment are manufactured,” he added. “This knowledge is key to assessing potential cost impacts and identifying vulnerabilities in the supply chain. Additionally, health systems should evaluate the availability of spare parts from suppliers to better understand potential operational disruptions.”

Further, “Supply chain leaders must conduct a comprehensive assessment of inventory levels across all support departments—such as supply chain, facilities, and IT—to evaluate risks related to both cost increases and product availability. This proactive approach will help mitigate potential disruptions and support more informed decision-making.”

Schiller emphasized that “Understanding Country of Origin is critical to assessing the potential impact tariffs will have on current product pricing, as well as help to identify opportunities to shift sourcing to countries with lower tariffs. Calculate cost impact by reviewing contractual terms, leverage GPO relationships, resources, and negotiating power, and engage in strategic conversations with distributor and key trading partners.”

Schiller also said that “AHA has urged the administration to maintain tariff exceptions for pharmaceuticals and pharmaceutical products and to adopt them for medical devices and other critical supplies to minimize inadvertent disruptions to patient care. It is especially critical to have these exceptions for products already in shortage, and for which production in countries subject to increased tariffs supplies a significant part of the U.S. market for that product. Mitigating supply chain challenges requires diversifying where raw materials are sourced and where products are manufactured. Imposing tariffs that limit the U.S.’s ability to acquire constituent parts or finished medical and pharmaceutical products from abroad will hinder supply chain resiliency.”

And for St. Onge, Redding said, the organization is Actively collaborating with their suppliers to assess available inventory levels and gain visibility into product manufacturing locations. This information is critical for identifying and mitigating potential supply chain risks.”

Liou of Clarium said, “Clarium has built a proprietary database that links authorized manufacturing locations to products at the SKU level through our Location Registry, mapping FDA-registered facilities to specific items. Unlike general supply chain analytics, Clarium's system integrates FDA registration data, advanced web-scraping algorithms, AI-driven validation, and geo-tracking to confirm actual manufacturing locations—not just company headquarters.”

He added, “Clarium is offering hospitals and health systems a free tariff impact analysis to help quantify their specific exposure and identify immediate cost-saving opportunities. This isn't just a marketing tool—it's our contribution to maintaining healthcare resiliency and stability during this challenging transition. This isn't just about cost-cutting—it's about preserving healthcare accessibility and quality during economic uncertainty. 

“Clarium’s data suggests hospitals combining strategic sourcing with targeted standardization can offset approximately half of this pressure before it impacts patient care. This situation highlights why sophisticated data analytics are no longer optional in healthcare supply chain—they're essential for navigating complex global challenges. The organizations that will thrive are those viewing this challenge as an opportunity to build more resilient, transparent supply chains that can weather future disruptions, whatever form they take.”

What’s next

When asked what leaders should focus on next, Redding commented, “The primary areas of focus should include enhancing inventory visibility across support departments, reviewing contracts to identify potential exposure to price increases, and assessing supplier-related risks concerning product availability.”

Schiller added, “Given the dynamic situation, it is imperative for supply chain leaders to monitor global trade and policy developments closely. In addition to product costs, a slowdown in the global economy is impacting the logistics sector. Determine risk exposure and the necessary steps required to mitigate the level of risk. Assess indirect spend across the health system and consolidate where possible to generate savings.

Finally, Schiller concluded by saying that “Maintaining and improving pharmaceutical and medical device supply chains is essential to preserving patient access to care, reducing healthcare costs, and protecting America’s interests. While AHA recognizes the many challenges associated with the medical supply chain, we are committed to identifying workable solutions that protect America’s interests and shore up the supply chain while avoiding access disruption and increased costs.”