Tariff threat sends health players scrambling for carve-outs
Medical device makers, hospitals and other key health industries are pressing to gain exemptions under the Trump administration's new tariff regime with the next and most aggressive actions to date due to be unveiled on April 2.
Why it matters: About $303 billion of imported drug, biotech and device industry goods entered the United States in the last year — $294 billion of which entered duty-free, according to PwC.
Health care's heavy reliance on foreign countries for raw materials and manufacturing means new levies could result in higher prices for providers and consumers and supply chain disruptions, PwC said in a report.
State of play: On April 2, Trump is expected to impose reciprocal tariffs, potentially on dozens of countries, at levels still unclear. He refers to that as "the big one," though he's lately hedged on just how big it might be.
He's also expected to lift a pause on 25% tariffs against Canada and Mexico, which have been imposed and delayed repeatedly.
The administration previously increased tariffs on imports from China to 20% (and threatened recently to go higher), targeting a key country for drug ingredients, testing and R&D.
This week, Trump also said he would be announcing tariffs specifically targeting pharmaceuticals, in addition to autos. On Wednesday, he announced 25% duties on imported cars, effective on April 2, saying they were imposed to nudge the manufacturers to build plants and produce vehicles domestically.
"There is one person who knows what the plan is and he's making the decisions," a person familiar with the discussions between the health industry and the White House told Axios, referring to the president. "A lot of people are trying to help him understand the consequences."
Between the lines: There's growing concern that the tariffs, as envisioned, could sharply drive up hospital costs and cause upheaval for pharmaceutical and med tech manufacturers.
Health industry professionals in a recent Black Book Research survey predicted that costs for hospitals and health systems will surge by at least 15% in the next six months due to increased import expenses.
Almost 7 in 10 estimate pharmaceutical costs will rise by at least 10% as a result of the China tariff on active pharmaceutical ingredients (APIs).
And 90% of hospital finance executives surveyed said they'd need to shift higher costs onto insurers and patients through increased service charges.
AdvaMed, the medical device trade association, has been among the groups lobbying for exemptions — in its case, one that would resemble a carve-out provided for most medical devices during President Trump's first term for tariffs on China.
"We understand and support the president's overall goal to correct trade imbalances," Scott Whitaker, CEO of AdvaMed, told Axios. "Our concern is simply about the unintended consequences of how any tariffs are implemented. There is a real risk that if not done correctly it would have a negative impact on the U.S. health care system, and much of the technology in a hospital could be affected."
Major med tech companies like Abbott Laboratories and Baxter International have operations in Mexico, often importing raw materials there and assembling and shipping devices to the U.S., Raymond James analysts wrote in an investor report late last year.
Among the industry's concerns is that the added cost of the tariffs can't be passed along to customers in a highly regulated industry like health care and could lead to loss of research and development and health care jobs.
There are also unanswered questions about whether tariffs would apply to all medical products, and how the assessed value of an imported product would be calculated, i.e. whether it would include the value of the raw materials.
Other health groups that have lobbied for exemptions include the American Hospital Association and the Healthcare Distribution Alliance.
"It is especially critical to have these exceptions for products already in shortage and for which production in the countries subject to increased tariffs supply a significant part of the U.S. market," AHA President Richard Pollack wrote in a letter to Trump outlining the industry's concerns.
Zoom in: 27% of respondents to the Black Book survey said they're seeking U.S. or alternative international suppliers to offset higher costs from Mexico, Canada and China.
"What a lot of the supplier community has done a great job of is getting as much product on U.S. soil as they possibly can over the course of the past several months, recognizing that this was coming," said Soumi Saha, senior vice president of government affairs at the group purchasing organization Premier.
Premier estimates it would take at least six to 12 months for the industry to feel the pain. "We have a runway here," Saha said.
But 92% of pharmaceutical manufacturers said that switching suppliers could result in regulatory delays and supply inconsistencies, particularly for critical medications.
The ripple effect extends to health IT, cloud computing and medical services due to higher prices for imported technology.
While countries like China supply more medical goods, Mexico is still a consequential partner. Premier has been pushing for legislation that would create "trusted trade partnerships" with countries like Mexico as well as incentives for companies to onshore production.
In 2023, Mexico was estimated to have about $17.3 billion in local medical device production and $7.3 billion in total exports to the U.S., including assembly of products like wheelchairs, prosthetics, valves, catheters and syringes, Saha said.
Having facilities accessible to ground transportation is not a small thing, Saha said. "It means you don't have to worry about transport via air or water," Saha said.
The other side: The administration says tariffs are a powerful source of leverage for protecting national interests, arguing past administrations failed to fully use America's economic position to secure borders against illegal migration and to combat fentanyl.
What we're watching: With a little more than a week to go, whether Trump will further delay imposing tariffs if talks with Mexico and Canada yield more concessions on border policy.