Trump tariffs will escalate costs and disrupt the medical supply chain, industry execs warn
Double-digit tariffs, if they take effect as proposed, threaten to escalate healthcare costs, disrupt supply chains and create affordability challenges for patients, healthcare executives say.
President Donald Trump on Saturday signed executive orders intending to impose sweeping tariffs on the country’s three largest trading partners.
The Trump administration imposed 25% tariffs on imports from Canada and Mexico plus a 10% tariff on Chinese imports.
Monday, the U.S. reached a deal with Mexico allowing a temporary reprieve from the tariffs for one month. Trump and Prime Minister Justin Trudeau of Canada announced later Monday afternoon that the proposed tariffs on imports from Canada also would be paused for 30 days after Canada agreed to new measures to combat the trafficking of fentanyl and illegal migration, The New York Times reported.
But levies on products from China were still set to take effect at midnight, the NYT reports.
The actions were intended to "hold Mexico, Canada, and China accountable to their promises of halting illegal immigration and stopping poisonous fentanyl and other drugs from flowing into our country," according to a White House fact sheet.
Industry executives warn that tariffs on imports from China, along with Canada and Mexico if the temporary reprieves expire after a month, threaten to escalate healthcare costs, disrupt supply chains and create affordability challenges for patients, according to a Black Book Market Research poll.
Among the healthcare supply chain professionals, pharmaceutical executives, distributors and medical equipment manufacturers who were surveyed over the past week, there is widespread apprehension about escalating costs for hospitals, physicians, payers and patients.
Out of 200 survey respondents, 164 predict that costs for hospitals and health systems will surge by at least 15% in the next six months due to increased import expenses. Further, 69% estimate pharmaceutical costs will rise by at least 10% as a result of the China tariff on active pharmaceutical ingredients, the Black Book survey found.
The U.S. relies heavily on China for supplies of active pharmaceutical ingredients, Fierce Pharma reported.
The Healthcare Distribution Alliance (HDA), which represents nearly 40 pharmaceutical distributors, said tariffs on pharmaceuticals would strain the pharmaceutical supply chain and could adversely affect American patients, "whether through increased medical product costs or manufacturers leaving the market," the organization said in a statement.
"We ask the administration to consider establishing exemptions for pharmaceutical products and long implementation timelines to maintain the safe and efficient delivery of approximately 10 million medicines and healthcare products every day," the HDA said.
Distributors and generic manufacturers cannot absorb the rising costs of broad tariffs, according to the organization, which says it links 1,200 healthcare manufacturers to approximately 330,000 providers.
"It is worth noting that distributors operate on low profit margins—0.3 percent. As a result, the U.S. will likely see new and worsened shortages of important medications and the costs will be passed down to payers and patients, including those in the Medicare and Medicaid programs," the HDA said.
Most of the healthcare supply chain professionals (90%) who responded to the Black Book survey foresee major disruptions in procurement processes and contract negotiations with suppliers due to increased costs and pricing volatility. Also, 81% of medical equipment manufacturers predict longer lead times and supply shortages stemming from increased production costs and import restrictions.
Of the 21 hospital finance executives surveyed, 90% said they will need to shift increased costs onto insurers and patients in the form of higher service charges. Healthcare administrators also anticipate reducing procurement volumes or delaying equipment upgrades to mitigate financial strain.
Executives at medical products manufacturer and distributor Cardinal Health warned last week about the financial impacts of widespread tariffs.
"We'll continue to do what we can to minimize the impact as it relates to tariffs. But make no mistake. If there are widespread tariffs, anywhere from the 10% to 25% range, I anticipate there will be corresponding price increases," Cardinal Health CEO Jason Hollar told investors and analysts during the company's second-quarter earnings call Jan. 30.
The company will try to minimize the price increases, Hollar said, but with 1% to 2% margins, it will not be able to absorb the full impact.
"With our diverse supply chain throughout the globe and what we believe is balanced, we think we're well positioned competitively to be able to pass on those price increases. So it's something we'll work to minimize, but it's going to be a reality if tariffs are widespread across multitude of countries," Hollar said.
About one-third of Cardinal Health's global medical product and distribution segment is Cardinal-branded product, while two-thirds of that segment are national brands that Cardinal sells, he noted. Within the Cardinal-branded products, about half is sourced out of North America, which is split between the U.S. and Mexico, Hollar said.
Cardinal Health has brought more production onshore and near-shorted more of its product to Latin America. About 90% of the company's syringe products are produced at Cardinal-owned facilities in the U.S. "We no longer manufacture out of China," Hollar said. "We'll continue to do what we can to minimize the impact as it relates to tariffs."
Impacts to payers, health tech and medtech
Nearly half (48%) of payer executives believe that insurance premiums will rise within the next 12 months as a direct consequence of increased supply chain expenses.
Some executives are exploring alternative sourcing strategies to mitigate tariff impacts. The survey found that 27% of respondents are actively seeking domestic or alternative international suppliers to offset higher costs from Mexico, Canada and China.
However, pharmaceutical manufacturers caution that switching suppliers could result in regulatory delays and supply inconsistencies, particularly for critical medications.
Healthcare IT vendors, software and managed services also could feel the impact of tariffs. The survey found that 39% of healthcare IT executives foresee increased costs for software licensing, cloud computing and managed services due to higher prices for imported technology components and IT infrastructure.
Most provider IT leaders (91%) anticipate delays in planned digital transformation projects as budgets shift to cover increased operational costs.
Only 16% of healthcare IT vendors predict that tariffs will increase the cost of essential hardware, including servers, networking equipment and medical IT devices, impacting service delivery timelines and pricing for clients.
"Healthcare providers, payers and patients will all experience the financial ramifications of these tariffs," said Doug Brown, founder of Black Book, in a statement. "As medical supply costs escalate, hospitals and insurers will be forced to make difficult financial decisions, inevitably passing increased expenses down to patients through higher out-of-pocket costs.
Analysts have estimated that about 75% of medical devices marketed within the U.S. are made outside of the country, with China and Mexico being top producers. Canada, meanwhile, serves as a major importer of U.S. medical devices, Fierce Medtech reports.
The medtech industry is lobbying for an exemption to the tariffs. Trade association AdvaMed warned that the trade barrier trigger weaker investments in R&D as well as higher prices for patients and payers in addition to industry layoffs and supply shortages, Fierce Medtech's Conor Hale reported.
AdvaMed noted that exemptions were provided for most medical devices in the tariffs imposed on China during Trump’s first term, and the association said it is advocating for a similar approach this time around.