Tackling Tariffs: What Providers and Suppliers Can Do

More than 80 percent of hospital and healthcare system executives expect the Trump Administration’s tariffs to increase the costs they pay for medical products by at least 15 percent, with an even greater percentage planning to pass those costs on to payors and patients, that according to Black Book Research. At the same time, a variety of supply chain strategies are being pursued by both providers and suppliers to minimize the negative impacts on a health system that is still reeling from the pandemic and continued product shortages, while dealing with the uncertainty over future Medicare and Medicaid funding. 

Some of these strategies are ones you would expect, but others may surprise you. For example, one leverages the complexity of global supply chains, which is more often blamed for supply chain vulnerabilities. 

Let’s start with some of the more obvious strategies:

Lobbying for exemptions 

Both manufacturer and provider advocacy organizations, including Advamed and the American Hospital Association, are actively lobbying the administration for an exemption for medical products. 

Sourcing from lower tariff countries

According to AHRMM Executive Director Mike Schiller, many supply chain professionals are seeking alternative products that can be sourced from countries with lower tariffs or, when possible, from domestic manufacturers. This is especially true for products made in China, which face some of the highest and most volatile tariffs. 

Some manufacturers, meanwhile, are planning on or at least considering moving more manufacturing to the United States, but those efforts will likely take years. Other manufacturers say the demands of a global market and the uncertainty of what will happen in the next U.S. administration make it more feasible to move manufacturing from China to countries like Vietnam, Costa Rica, and the Philippines that have lower tariffs. Changes in where products and their components are manufactured can also trigger costly regulatory reviews, especially for higher risk products, which is why most of these changes have been for lower cost, lower risk products. 

Contract and policy changes

Provider supply chain organizations are actively reviewing contracts and renegotiating when possible to garner protections from tariff-inducted price increases. Others, according to Schiller, are simply sending letters to suppliers rejecting any tariff price increases or surcharges, the success of which is as yet unknown. 

Moving to reusable vs. single use

Some healthcare systems are tying their tariff strategies to sustainability initiatives. By moving to reusable products when possible, they can minimize the impact of tariffs on future purchases as well as the waste generated by disposable and single use devices. 

The multi-stage supply chain as a shock absorber

Many medical products are produced by multi-stage supply chains in which the final product goes through a series of interconnected steps, often involving different companies and countries, before being delivered to the end consumer. As an example, producing an IV pump might first require acquisition of electronic parts from Germany and plastic parts molded in Mexico, with the production of each of those components also going through a series of steps. Those parts, in turn, may be assembled in Costa Rica, with the final product packaged and distributed in the United States. A new paper by researchers from the Johns Hopkins School of Public Health explains how each of the parties in a multi-stage supply chain can absorb a small portion of the tariffs, thereby insulating the final purchaser — the hospital in this case  — from the total tariff sticker price.  

This final strategy may be the most effective for providers and suppliers alike. Rather than arguing over who pays the higher costs incurred as a result of tariffs, collaboration across the supply chain can soften the blow for all. It can also strengthen long term relationships among organizations that work together to address supply chain challenges.