Hospitals worry that Trump's tariffs will add to cost pressures

Hospitals and health systems have been bracing for the prospect of tariffs under the Trump administration, and the potential for higher costs.

Supplies come into the port of Miami. Hospitals and health systems are worried about the possibility of higher costs for drugs and supplies if President Trump's planned tariffs take effect.

For weeks, President Trump has threatened to impose tariffs on China, Canada, and Mexico, saying it’s a necessary step to counter the flow of illegal drugs.

Tariffs were slated to take effect Tuesday, but Trump and the Mexican government reached a deal to delay them from taking effect for a month, the Associated Press reports. Canadian Prime Minister Justin Trudeau said Trump agreed to postpone the tariffs for 30 days, NBC News reports.

Even with at least a temporary reprieve, hospitals have been worried about the possibility of tariffs and eventually paying higher prices for medical devices, drugs and other key supplies, says Kyle MacKinnon, senior director of operational excellence for Premier Inc.

“Healthcare providers have concerns for continued inflationary pressures throughout the healthcare industry,” MacKinnon tells Chief Healthcare Executive®. “That’s carried over, by and large, from the cost pressures that we saw coming out of the pandemic, with the supply chain disruption challenges and all the different market dynamics between workforce and labor costs and raw material costs.”

Providers of all sizes are worried about the potential impact of tariffs, including large hospital systems and rural health systems with smaller margins, MacKinnon says.

For hospitals, the potential headaches of higher costs come as they continue to face supply shortages in a host of areas, says Mark Hendrickson, director of supply chain policy for Premier Inc.

“There are a number of product shortages in the market, and have been for a long time, both drugs and devices,” Hendrickson says. “And a lot of these products are coming from overseas, or have an overseas component.”

Hospitals and health systems have been working to obtain more of their goods from domestic producers, or at least “near-shore” suppliers, based in countries that are closer to the United States.

Still, hospitals depend heavily on supplies from China, Asia, and around the world, Chip Kahn, president and CEO of the Federation of American Hospitals, tells Chief Healthcare Executive®.

“I think there's a lot of nervousness with the new administration, with the discussion of tariffs,” Kahn says.

“There are just certain products and supplies that are critical to hospital care that are not going to get produced in the United States,” he says, adding, “We have to have a supply chain that goes to Asia.”

Hospitals also have recognized that they need to prepare for contingencies, Kahn says.

The healthcare supply chain remains very interconnected, with hospitals and other providers relying on countries to either make key devices and pharmaceuticals, or to provide the ingredients necessary for their production.

The companies the Trump administration has been targeting - China, Mexico and Canada - are important suppliers for hospitals and health systems.

“We do know quite a few of these products are coming from the three countries, specifically China, but also quite a few are either manufactured or put together in some form or fashion down in Mexico before they come over the border as well,” Hendrickson says.

He says it’s difficult to pinpoint specific products or companies that could be squeezed, but he says the materials needed for many key healthcare products are shipped abroad.

“It’s the raw materials that are the biggest pinch point, and a lot of them are coming from India and China, especially API and those natural ingredients and raw materials for pharmaceuticals. But the same goes true for devices. There's a lot of that coming from Asia and China specifically,” he adds.

Mexico has received more raw materials from suppliers for healthcare and other industries, and some products are often put together in the country, Hendrickson says.

Some drugs are manufactured in Canada. Apotex, a large producer of generic drugs, is based in Toronto.

Some manufacturers are looking to a “China plus one” strategy for some supplies, MacKinnon says. Health systems are recognizing the need for more resiliency in their manufacturing networks, he adds.

Trump has planned to impose a 25% tariff on most goods imported from Canada and Mexico and a 10% tariff on goods from China.

Hospitals could see higher supply costs due to tariffs, according to a January report issued by Moody’s Ratings.

“Increased tariffs on imported medical supplies, pharmaceuticals and equipment could lead to higher procurement costs. Hospitals, which operate on tight budgets, may struggle to absorb these additional expenses,” the report stated.

Moody’s has warned that medical device manufacturers could face problems if the tariffs go into effect. Of the three nations Trump has targeted, Moody’s projects companies would be most at risk from Mexican tariffs, because some medical devices suppliers have manufacturing plants in the country. Abbott, Becton Dickinson, GE HealthCare Technologies, and Medtronic all have plants in Mexico.

Premier is working with hospitals and health systems on solutions and is working to avoid any unnecessary panic about supply costs and availability.

Still, hospitals undeniably have some concerns.

“I would say it definitely causes anxiety,” Hendrickson says.

“There's always concerns from our members …. around the cost of people, the cost of operations, the cost of products, but at the end of the day, it's all about the patient, and so there's always a little anxiety where there's some uncertainty about what some of those costs are going to be, and what that's going to be look like in a week or a month or a year,” he says.

Kevin Holloran, senior director of Fitch Ratings and head of the U.S. healthcare sector, told Chief Healthcare Executive® last month that the imposition of more tariffs will add to financial pressures to hospitals.

“This will, at least over the near term, most likely result in higher prices for equipment and supplies for healthcare providers,” Holloran said.