Navigating New Tariffs: Preparations and Challenges for Health Systems – Becker’s Hospital Review

Health systems are proactively addressing potential disruptions to patient care caused by escalating tariffs on medical supplies and pharmaceuticals. Learn how hospitals are building resilience into their supply chains.">

Health Systems Brace for Impact as tariffs Threaten medical Supply Costs

Washington D.C. – As the United States continues to implement broadened tariffs intended to bolster domestic manufacturing, healthcare organizations nationwide are intensifying their efforts to shield patients from the cascading effects on medical supplies and drug pricing. The escalating trade tensions are prompting a critical reassessment of supply chain vulnerabilities across the industry.

Supply Chain Risk Management Takes Center Stage

Providence, a multi-state health system based in Renton, Washington, has launched a comprehensive supply chain risk management program to anticipate and mitigate potential challenges. According to internal assessments, the health system has exhaustively mapped its inventory, tracing items back to suppliers, manufacturers, and even raw material origins. This detailed mapping is intended to provide precise reporting on tariff-related impacts for each product.

“We have developed a tariff projection model that allows us to analyze different tariff scenarios and assess potential impact. Since tariffs are dynamic and changing on a regular basis, we regularly update our model and assess potential financial impact by category, item and supplier,” a spokesperson stated.

Critical Inventory Under Scrutiny

In recent months, Providence has considerably increased its monitoring of essential inventory, especially in categories deemed most susceptible to tariff increases. These include cardiac ablation catheters, pulse oximeters, and devices used in gastrointestinal and urology procedures. Pharmaceuticals remain a major area of concern, especially given the reliance on India, which supplies approximately 35% of generic drugs to the U.S. market. A recent tariff increase on imports from India is expected to amplify price pressures.

Earlier this August, President Trump enacted a 15% tariff on exports from major U.S. trading partners like the European union, Japan, and South Korea.Importers from Brazil and India now face a 50% tariff rate. The management has also considered imposing a ample 250% tariff on pharmaceutical imports following a national security review initiated in April.

Building Resilience Through Collaboration and Strategic Stocking

To minimize disruptions, health systems are prioritizing stronger collaboration with their suppliers and implementing refined stocking strategies. Providence is actively maintaining contract pricing where possible, fostering open communication with key suppliers, and identifying opportunities for upstream efficiencies. A balanced approach to safety stock levels is maintained through weekly, and sometiems daily, disruption assessments.

Baptist health’s Proactive Approach

Louisville, kentucky-based Baptist Health is also reinforcing its supply chain infrastructure. “While trade-related factors like tariffs can affect supply dynamics, our approach is to build resilience into the supply chain for all types of conditions,” said Nilesh Desai, Chief Pharmacy Officer at baptist Health. “That means maintaining strong communication between supply chain teams and caregivers, creating clarity through shared benchmarks and metrics, and prioritizing reliable, cost-effective sourcing.By focusing on operational excellence and minimizing inefficiencies, we work to use resources effectively to support clinical excellence and a seamless patient experience.”

country	Tariff Rate (August 2024)	Impacted Sectors
European Union	15%	Medical Devices, pharmaceuticals
Japan	15%	Medical Equipment, Generic Drugs
South Korea	15%	Diagnostic Tools, Specialty Pharmaceuticals
Brazil	50%	Raw Materials, Medical Supplies
India	50%	Generic Pharmaceuticals, Active Pharmaceutical Ingredients

Did You Know? The U.S. imported approximately $40 billion worth of medical equipment and pharmaceuticals in the first quarter of 2024, making the healthcare sector particularly sensitive to tariff fluctuations.

Pro Tip: Healthcare organizations should conduct a thorough review of their supplier contracts to identify clauses related to tariff adjustments and force majeure events.

What steps is your institution taking to mitigate the risks associated with tariffs? How do you see these trade policies impacting patient care in the long term?

Long-Term implications and Strategies

The ongoing tariff situation underscores the critical need for healthcare organizations to diversify their supply chains, explore domestic sourcing options, and invest in robust risk management capabilities. Building stronger relationships with suppliers, implementing advanced analytics to predict potential disruptions, and adopting agile inventory management practices will be essential for navigating future trade uncertainties. Experts suggest exploring group purchasing organizations (GPOs) to leverage collective bargaining power and secure more favorable pricing. Furthermore,fostering innovation in manufacturing processes and exploring alternative materials can reduce reliance on imported goods.

Frequently Asked Questions About Tariffs and Healthcare

1. What are tariffs and how do they affect healthcare? Tariffs are taxes imposed on imported goods. They can increase the cost of medical supplies and pharmaceuticals, potentially leading to higher healthcare costs for patients.
2. Which medical supplies are most vulnerable to tariffs? Cardiac devices, diagnostic equipment, and generic pharmaceuticals sourced from countries subject to tariffs are particularly vulnerable.
3. How are hospitals preparing for tariff increases? Hospitals are diversifying suppliers, increasing inventory of critical items, and negotiating contracts to mitigate the impact of tariffs.
4. Is domestic manufacturing a solution to tariff-related issues? Increasing domestic manufacturing capacity could reduce reliance on imports, but it requires meaningful investment and time.
5. What is the role of Group Purchasing Organizations (GPOs) in managing tariff risks? GPOs can leverage collective bargaining power to negotiate better prices and secure supply contracts, helping to offset tariff increases.
6. What impact do tariffs have on the availability of essential medicines? Tariffs can disrupt the supply chain and lead to shortages of essential medicines, potentially impacting patient care.
7. How can healthcare providers stay informed about tariff changes? Regularly monitoring trade policy updates from government sources and industry associations is crucial for staying informed.

share this article with your network and join the conversation in the comments below!

How might Section 301 tariffs specifically impact the cost of essential medical devices for a large hospital system?

Navigating New Tariffs: Preparations and Challenges for Health Systems

Understanding the Shifting Tariff Landscape

Healthcare tariffs, especially those impacting medical devices, pharmaceuticals, and even certain services, are in constant flux.Thes changes, often driven by geopolitical factors and trade agreements, present important operational and financial challenges for health systems. staying ahead of these shifts requires proactive planning and a deep understanding of potential impacts. Key terms too watch include import tariffs, Section 301 tariffs, and duty drawbacks. Understanding these will be crucial for effective mitigation strategies.

Impact on Supply Chain Costs

The most immediate effect of new tariffs is an increase in the cost of imported goods. For hospitals and integrated delivery networks, this translates to higher expenses for:

Medical Devices: From diagnostic equipment like MRI machines to disposable supplies like syringes, tariffs can substantially inflate procurement costs.

Pharmaceuticals: Active pharmaceutical ingredients (APIs) and finished drug products sourced from affected countries become more expensive. This impacts both hospital pharmacies and patient access to medications.

Hospital Supplies: Everything from linens and cleaning supplies to specialized surgical instruments can be subject to increased costs.

this cost escalation necessitates a thorough review of supply chain management practices. Health systems must identify vulnerable areas and explore option sourcing options.

Proactive Preparation Strategies

Effective tariff management isn’t about reacting after changes are implemented; it’s about anticipating and preparing. Here’s a breakdown of key steps:

1. Supply Chain Mapping: Detailed mapping of your entire supply chain is the first step. Identify the origin of all critical supplies and the associated tariff classifications (Harmonized Tariff Schedule or HTS codes).
2. Tariff Monitoring: Implement a system for continuous monitoring of tariff changes. Resources like the U.S. International Trade Commission (USITC) and trade publications (like the Journal of Commerce) are invaluable.
3. Diversification of suppliers: Reduce reliance on single suppliers, particularly those located in countries subject to tariffs. explore alternative sourcing options, even if it means qualifying new vendors. Consider nearshoring or reshoring options.
4. Contract Negotiation: Renegotiate contracts with existing suppliers to share the burden of tariff increases. Explore volume discounts or long-term agreements to stabilize pricing.
5. Duty Drawback Programs: Investigate eligibility for duty drawback programs, which allow for the recovery of duties paid on imported materials used in exported products.
6. Value Engineering: Collaborate with clinicians and supply chain teams to identify opportunities for value engineering – finding equivalent products at lower costs without compromising quality or patient safety.

Challenges Faced by Health Systems

Despite proactive efforts, health systems encounter several challenges when navigating new tariffs:

Complexity of Tariff Codes: Accurately classifying products under the correct HTS code can be complex and requires specialized expertise. Misclassification can lead to penalties.

Supply Chain Disruptions: Shifting suppliers or sourcing from new regions can disrupt established supply chains, leading to delays and potential shortages.

Limited Negotiation Power: Smaller health systems may have limited leverage when negotiating with suppliers.

Administrative Burden: Tracking tariff changes, managing duty drawback claims, and updating procurement systems require significant administrative resources.

Patient Impact: Ultimately, increased costs may be passed on to patients through higher healthcare prices, impacting access to care.

Leveraging Technology for Tariff Management

Technology plays a crucial role in streamlining tariff management. Consider these solutions:

Trade compliance Software: Automates tariff classification, duty calculation, and compliance reporting.

Supply Chain Visibility Platforms: Provide real-time visibility into the location and status of goods, helping to identify potential disruptions.

Data Analytics: Analyze spending patterns and identify areas where tariff increases have the greatest impact.

AI-Powered Sourcing Tools: Identify alternative suppliers and negotiate better pricing.

Case Study: UCI Health & Tariff Mitigation (2023)

In late 2023, UCI Health (https://www.ucihealth.org/) faced significant tariff increases on imported surgical instruments. Their supply chain team,leveraging a new trade compliance software,quickly identified the affected products and initiated a dual-sourcing strategy.They qualified a new supplier in Mexico, mitigating the impact of the tariffs by 30% within six months. This proactive approach prevented substantial cost increases and ensured uninterrupted surgical services.this demonstrates the importance of risk management in healthcare supply chains.

Financial Implications & Budgeting

Health systems must incorporate potential tariff increases into their annual budgets. This requires:

Scenario Planning: Develop multiple budget scenarios based on different tariff levels.

Contingency Funds: Allocate contingency funds to cover unexpected tariff increases.

Cost transparency: Improve cost transparency throughout the supply chain to identify areas for savings.

Revenue Cycle management: Evaluate the potential impact of higher costs on reimbursement rates and adjust revenue cycle management strategies accordingly.

long-Term Strategies for Resilience

Building long-term resilience to tariff fluctuations requires a strategic shift in supply chain philosophy. This includes:

Strategic Sourcing: Focus on building long-term relationships with reliable suppliers.

Regionalization of Supply Chains: Reduce reliance on global supply chains by sourcing more products from regional suppliers.

* Investment in Innovation: Support the development of innovative products and technologies that can reduce reliance on imported materials.