From reactive to resilient: Health care eyes tariffs
This week, mounting tariffs are triggering concerns across health care organizations grappling with already thin margins.
Our intelligence analysis, derived from earnings reports, 10-K filings, research papers and other publicly available documents, highlights the pervasive impact of tariff mentions within the health care industry. Even marginal increases in supply chain costs, particularly for critical items like anesthesia and other pharmaceuticals, could erode the financial sustainability of health care providers.
Pharmaceutical giants are poised for immediate and significant exposure if subjected to a 25% tariff, potentially driving drug costs up by nearly $51 billion, according to Reuters.
Companies that have not shifted away from Chinese manufacturing in recent years now confront potential cost increases, with supply chains spanning Europe and Asia, and are unable to adapt swiftly. Industry disclosures already reveal tariff-related expenses reaching hundreds of millions of dollars. Conversely, some organizations are signaling a strategic pivot, committing billions of dollars to reshore drug manufacturing in the U.S. to mitigate long-term tariff-related risks.
In addition, medical devices, unlike pharmaceuticals, are currently facing tariffs up to 145%, if sourced from China. According to a survey by the Association for Supply Chain Management, 65% of organizations plan to pass on these increased costs to their customers. This strategy could result in higher prices for essential medical equipment, potentially affecting patient care and accessibility.
Hospitals and health systems may find temporary respite due to existing long-term contracts with group purchasing organizations. However, this insulation is finite, as medical supplies account for approximately 10.5% of a hospital’s budget. Predictions indicate a cost increase for pharmaceuticals in the next six months as contracts expire and renegotiations factor in rising input costs, ultimately squeezing margins of health care providers.
The dental sector is also caught in the tariff trade war crosshairs. The United States predominately imports dental anesthesia from Canada, currently shielded under the U.S.-Mexico-Canada Agreement. Nevertheless, recent signals suggest this exemption may not endure, introducing further uncertainty into the cost structure of dental services.
The path forward: Staying resilient
Moving beyond a reactive stance is now paramount for many health care organizations. De-risking critical supply chain vulnerabilities demands immediate attention. Two key strategic considerations for organizations navigating this evolving landscape include:
- Comprehensive supply chain risk assessment: Implementing rigorous assessments to pinpoint geographical and organizational concentrations of risk, this in-depth analysis will illuminate critical dependencies and potential disruption points within the procurement network.
- Strategic deployment of intelligent supply chain tools: Leveraging advanced technologies to continuously monitor inventory levels and procurement processes, the application of data-driven insights will enhance supply chain transparency and enable adjustment aimed at minimizing operational disruptions.
Learn more about what’s happening in health care in our industry outlook.
