How the tariffs could impact healthcare

Much of the healthcare industry relies on goods imported from Canada, China, and Mexico, including pharmaceutical ingredients and medical devices. Hospitals also rely on imports for many everyday supplies, including gowns, gloves, and syringes, as well as bigger items like CT scanners and X-ray equipment.

In a poll from Black Book Market Research, healthcare executives warned that the tariffs could lead to higher healthcare costs, disrupt supply chains, and make care less affordable for patients.

In the poll, which included 200 respondents, 164 said they expected costs for hospitals and health systems to increase by at least 15% over the next six months due to higher import costs. In addition, 69% of respondents said pharmaceutical costs will increase by at least 10%.

Of the healthcare supply chain professionals surveyed, 90% said there will likely be major disruptions to procurement processes and contract negotiations due to higher costs and pricing volatility. Similarly, 81% of medical equipment manufacturers said there will likely be longer lead times and supply shortages due to higher production costs and import restrictions.

Ninety percent of the hospital finance executives surveyed by Black Book also said they will need to shift increased costs to insurers and patients, leading to higher service charges.

"These tariffs are hitting hospitals at a tough time, adding both higher costs and new supply chain headaches," said Derek Kazahaya, a senior director at Optum Advisory*. "Hospitals need to act now by securing backup suppliers, stocking up where applicable, and working with group purchasing organizations to keep costs in check."

In response to the tariffs, several healthcare organizations, including the American Hospital Association (AHA), the Healthcare Distribution Alliance, and AdvaMed, have asked the Trump administration to provide exemptions for medication and healthcare-related supplies. 

1. Diversify your suppliers

Healthcare organizations can seek out domestic or alternative international suppliers to reduce their reliance on the countries targeted by the tariffs.

However, Optum Advisory's Kazahaya noted that "while buying from U.S suppliers might seem like an easy fix, they don't always have the capacity to meet demand, and their prices can be just as high." In addition, some critical supplies could be harder to get without international suppliers, leading to delays and shortages.

2. Proactively negotiate with your suppliers

According to Todd, proactively negotiating with suppliers can help organizations ensure certain prices and terms that can help reduce the impact of any future cost fluctuations. Although this may not be possible for all organizations, strengthening relationships with suppliers can help lead to more favorable contract terms or priority in supply allocations.

3. Invest in technology

Advanced supply chain management software can give organizations better visibility and control over their supply chain. These tools can help predict any potential disruptions, manage inventory levels more efficiently, and optimize transportation routes to reduce fuel needs.

However, Todd notes that these tools need to be maintained to be beneficial, particularly in the long term.

4. Maintain a strategic reserve of essential supplies

"Maintaining a strategic reserve of essential supplies can buffer against short-term disruptions caused by tariff changes or fuel price spikes," Todd writes. "However, this must be balanced against the costs associated with holding inventory."

Todd recommends leaders consider whether the cost to keep supplies inventory is worthwhile compared to any savings.

5. Engage in advocacy and collaboration

If possible, healthcare organizations can engage with industry groups and policymakers to advocate for more stable trade policies that can help reduce the impact of tariffs. Collaborating with other healthcare organizations can also help leaders find shared solutions and increase their bargaining power with suppliers.

6. Have an integrated contract management system

Having a centralized contract management system can help leaders better understand all their contractual obligations and reduce the risk of unintentional breaches of confidentiality clauses in Group Purchasing Organization (GPOs) contracts.

Regular training sessions and clear communication channels can also help ensure all staff members of any contractual obligations and restrictions from GPOs.

7. Implement scenario planning

Scenario planning can help organizations anticipate any potential disruptions and develop contingency to respond to them. To implement scenario planning, leaders should:

• Clearly define their objectives/goals
• Gather relevant data
• Identify any key drivers that could impact their goals
• Develop plausible scenarios based on the identified drivers
• Analyze the impact of each scenario on operations, finances, patient care, etc.
• Develop response plans for each specific scenario
• Monitor external conditions and update your scenarios/plans as necessary

While scenario planning "requires an initial investment of time and resources, the ability to proactively manage potential disruptions can lead to significant long-term benefits, including cost savings, improved supply chain resilience, and uninterrupted patient care," Todd writes. "Organizations that adopt scenario planning are better equipped to navigate economic volatility effectively."

"At the end of the day, this isn't just about money," Kazahaya said. "It's about making sure patients still get the care they need."

*Advisory Board is a subsidiary of Optum. All Advisory Board research, expert perspectives, and recommendations remain independent.