Healthcare executives are keeping a close eye on possible tariffs on foreign goods, as many supplies and drugs are wholly or partially manufactured in other countries. With supply expenses already ballooning and revenue growth stagnating, CFOs are preparing for a hit.
President Donald Trump has announced a variety of tariffs, with much of the focus on China and the U.K. While tariffs on China reached 145% in April, they lowered to 35% May 14 for a 90-day period as negotiations continue, according to The Wall Street Journal. The U.S. also struck a deal with the U.K. that included a 10% global tariff earlier this month.
While the tariff percentage is a moving target, health system CFOs are taking steps to prepare for the long term impact.
“We need to have diligence around what does a tariff mean? It’s not the entire piece of equipment; it’s the component that is tariffable,” said James Wilson, CFO of Mayo Clinic Health System, during a panel at the Becker’s 15th Annual Meeting in April. “It might be the cap on the syringe that’s tariffable, not the whole syringe. So what does that mean? How do you have vigilance around what the tariffs are so that we’re not price gouged or taken advantage of. I’m not saying anyone would do that, but sometimes there are bad players in the market and we want to make sure we’re protected because we’ve already got a stretched margin.”
Mr. Wilson’s team is working on understanding the cost breakdown for all supply components and developing an infrastructure to identify price gouging and create a safety net for the system. Kevin Smith, CFO of St. Louis-based SSM Health, is taking a similar approach at SSM Health.
“The one thing that we needed to do was take an inventory of all contracts. That was the first thing to understand,” he said. “Do we have language in there that would prevent increases that are outside of scope? The other thing we’re doing is using artificial intelligence and large data sets to help us pivot quickly.”
Without real-time, actionable datasets, health systems may not realize there is an issue until months after it occurs. But with AI, SSM Health can identify vendor issues and send out requests for proposals quickly for a competitive bidding process.
“If we can do that, then we can make sure we keep the vendors and suppliers on their toes,” said Mr. Smith. “If we’re thinking about implementing a new service, a lot of times you’ll have a team come in and spend time with us, but if you don’t stay very specific around what that implementation looks like, that can start to go out of control. It’s really having a fine-tuned look at everything we’re doing and understanding what the time and cost relative to that would be”
Stephen Parodi, MD, executive vice president of external affairs, communications and brand of The Permanente Federation and The Permanente Medical Group, also keeps a close eye on supplier contracts and digs deep to understand the sources of those contracts. He questions where each component of a device is made to inventory all materials. Then his team examines vulnerabilities.
“Are you dual sourced? Are you unisoured? And do you need to diversify? All those kinds of questions are coming up, and then regardless of that, it’s the early days of the tariffs and I don’t think anyone’s really necessarily felt any immediate effect,” said Dr. Parodi. “That’s going to come depending on what the underlying long term or medium term policy ends up being. What I worry about, and I’m going to speak more using my clinician hat, is regardless of what happens from a pricing perspective, are we going to have shortages?”
The tariffs could hit the supply chain and health systems may need a contingency plan, just as they did during the pandemic, to procure vital drugs and materials. Some of those conversations are already happening, said Dr. Parodi.
“The manufacturers are going to take a wait-and-see approach,” he said. “It’s not just in healthcare, so we’re going to have to think along those lines and actually have those offline conversations with some of the manufacturers.”
