Global, national economic shifts may take toll on sourcing options.
By R. Dana Barlow
Ever since the global COVID-19 pandemic detonated the long-running healthcare supply chain strategy of larger, rigid, standardized, single- and dual-vendor contracting with just-in-time and/our stockless distribution, providers have scrambled to embrace demand forecasting and more flexible contract sourcing that enabled options from alternative vendors.
This year’s tariff-induced trade war threatens to pummel those prospects, too, leaving so many questions unanswered by providers and suppliers alike, with group purchasing organizations (GPOs) caught in the middle as if they’re holding the net between the fiscal volleys.
“It is too early to say with certainty how tariffs will impact sourcing, but HSCA expects that the supply chain will need time to adapt to the shifting economic landscape in the short-term future,” acknowledged Angie Boliver, president and CEO, Healthcare Supply Chain Association (HSCA), the national trade organization representing the GPO industry segment in healthcare. “Given the natural lag between these policy actions and the targeted outcomes, there will likely be gaps in supply as manufacturers work to ramp up domestic capacity. Meanwhile, our reliance on foreign sources to meet the needs of the healthcare ecosystem will remain in effect. GPOs will play a critical role in helping members navigate the supply chain during this transition period.”
Dan Kistner, senior vice president and general manager of category management and strategic programs, concurs about the lingering and looming uncertainty.
“Given the dynamic nature we presently are experiencing, it is difficult to estimate the totality of the impact,” Kistner observed. “While the discussion and focus on tariffs is warranted, they are not the only potential disruptors of the healthcare supply chain. In order to more effectively manage disruptions, we need greater transparency, including where items are sourced, manufactured and their quality throughout all of those processes.”
Tracking, tracing and transparency about country of origin for all products – from raw materials to finished goods – remains paramount.
“Historically, our efforts to improve the quality and reliability of the supply chain have been hampered by limited insight into the origination and/or manufacturing point,” Kistner insisted. “Industry stakeholders should have visibility to where all products are made and where all critical components are sourced. That is the only way to understand the impact of disruptions, whether they be tariffs or hurricanes, and to help ensure a more reliable supply chain.”
Provider organizations should work with their GPOs to map their potential vulnerability points and factor in various duration scenarios, according to Andy Brailo, Chief Customer Officer, Premier. Brailo grants the industry a modicum of credit having emerged from the pandemic.
“We think that those suppliers that learned lessons during the pandemic about having backstock and multiple manufacturers with some near-shore and on-shore will have implemented some different options and may show a little more flexibility they go forward,” he said. “They’re going to have to pivot.
“But the challenge is that we don’t know how long something will last,” Brailo continued. “We’re pretty sure China is going to be challenged with tariffs for a while, but what about the other countries? Those companies that didn’t make this production shift had a dry run for this during the pandemic. We know about what happened, even with the challenges we faced with friendly trading partners. Healthcare has such a broad machine production capacity. We have to encourage that we’ve got the right time frame for the hospitals and the suppliers to be able to make those pivots if they haven’t done so. But those that have will clearly be in a more advantageous position.”
Brailo fully agrees that while the pandemic may be in the rear-view mirror, the industry cannot return to any type of pre-pandemic status quo nor rest on whatever emerged post-pandemic as a new status quo.
“Smart organizations have figured that out,” he insisted. This involves identifying supplier locations, geographic concentrations and countries of origin as well as product utilization. Working with domestic manufacturers and sharing information as transparently as possible between trading partners remain two key tactics worth implementing. Through investment and collaboration, they are addressing global challenges domestically and directly, he adds.
Providers and suppliers just need to keep a clear head and eyes open, according to John Strong, a veteran healthcare supply chain consultant with extensive experience leading two different GPOs and who currently serves as co-founder, Access Strategy Partners Inc.
“While the volleys back and forth can be frightening, it is important to remember that many of them are negotiating tactics – and no one may be affected at all by a threatened tariff,” he said. “Sourcing needs to continue, and contractors need to better understand where products are coming from, and if they will be impacted by a tariff. Other than steel and aluminum, there have not been any other tariffs imposed on products at this point. [Editor’s Note: At press time, the Trump administration’s broadly sweeping tariff declaration in early April had not yet occurred.] Beware of suppliers positioning for price increases before you know the extent of a tariff, and what countries are going to be impacted. It is important to remember that you are not paying a tariff until you actually purchase the goods. Alternative products may not be subject to a tariff and you can avoid the tariff by making strategic product changes.
“You want proof that a tariff is going to impact a product, along with what country(ies) will be impacted by a tariff and the extent to which any products are impacted,” Strong continued. “Remember that everyone across the healthcare supply chain should be working in the customer’s interest to mitigate the impact of tariffs. This includes manufacturers, distributors and GPOs. If they are not or cannot assist you now, perhaps it is time to start shopping. Trade associations have already started lobbying the federal government for exemptions to tariffs for healthcare products.”
Tariffs, trade war intentions send mixed signals to healthcare in quest for stability
One of the apparent motivations behind Washington’s use of tariffs around the world is to convince, encourage or force American companies to return their manufacturing operations to domestic facilities and to lure foreign companies to invest in domestic production of their products here.
Historically, it’s no secret that many American companies moved their manufacturing to other countries for access to cheaper labor and production facilities as well as closer proximity to raw materials and other resources. Distribution and transportation costs may be higher in this scenario, but apparently not enough to negatively affect their return on investment – revenue and net profit. Returning production to domestic channels may reduce distribution and transportation costs, but they likely would be offset by higher labor, production and quality regulation costs.
This debate represents an economic and political conundrum.
Short of reaching some semblance of balance, healthcare providers and suppliers with group purchasing organizations (GPOs) in the middle are being stretched between the pros and cons of consolidating domestically vs. diversifying globally still.
“HSCA supports efforts to strengthen domestic capacity in the supply chain and our member GPOs often work with manufacturers to promote domestic and near-shore manufacturing, which is vital to ensuring access to essential products. However, shortages due to manufacturing issues or natural disasters drive home the importance of having a multifaceted approach to sourcing. In 2024, for example, rainfall due to Hurricane Helene shut down IV fluid production at Baxter International’s North Cove facility in North Carolina, leading to shortages of several critical parenteral products. The emergency prompted Baxter and the FDA to designate a number of temporary foreign importation sources to meet hospital demand. In emergency events like Hurricane Helene, geographical diversification and redundancy can help avoid shortages and save hospitals money in the long run.”
Angie Boliver, president and CEO, Healthcare Supply Chain Association (HSCA), Washington
“As we have seen over several decades, supply disruptions come in all shapes and sizes. Taking actions to limit tariff exposure does not protect against the other events that could disrupt supply and/or increase product prices. Therefore, implementing multiple strategies, which may include diversification of suppliers, is likely needed to increase the overall resiliency and reliability of the healthcare supply chain.”
Dan Kistner, senior vice president and general manager of category management and strategic programs, Vizient Inc., Irving, TX
“No one really knows yet how wide and vast the tariffs could be, but the president has been clear that he wants to eliminate ‘product gateways’ whereby China ships goods to Mexico for example, and then they become ‘Mexican imports’ into the U. S. It appears that some of the tariffs are designed to stop this. The U. S. should be looking at re-onshoring the manufacture of goods for many reasons, including our health and security. While ‘bringing back manufacturing’ to our shores may bring about short-term pain, this is a solid strategy for many supply chains, including healthcare. Healthcare procurement needs to look at long-term value and cost strategies and stop pandering to the lowest price for goods at a single point in time. Stability of the supply chain is key in times like this, and as an industry we are probably not well prepared.”
John Strong, consultant, co-founder, Access Strategy Partners Inc. and former GPO executive, Fontana, WI
“I live in Atlanta, but I grew up in the Northeast where manufacturing lifted up the blue-collar workforce. When I was living in that area, I saw factories move and I saw the blue-collar workforce get diminished there. Now that personal passion is shared by our CEO Mike Alkire and by our company. We’ve been a strong advocate for diversity in manufacturing and what I mean by that is hedging to some degree and not having it all concentrated in one part of the globe. Domestic production is critical. We firmly believe that true supply chain resiliency necessitates a strategy to have domestic production.
“I think that tariffs on any healthcare items should be reinvested into this domestic supply chain to provide tax incentives to boost domestic manufacturing. Authorized trusted trade partnerships can use [tariffs] to explore some of the things that have hindered domestic manufacturing. For example, there are certain things that are really difficult to manufacture here because of our environmental rules, which isn’t a bad thing, but how can that impact new innovations? How do we reinvest into the science of manufacturing? We’ve got to expedite the FDA approval process for domestic supplies. There should be differentiated reimbursement for manufacturing supplies domestically. The government should be purchasing domestic healthcare supplies for the VA.
“We also really do need real-time inventory data management systems so that we can all have transparency on country of origin and raw material sourcing.
“Finally, true resiliency is not accidental. It’s stakeholders along the way making concerted actionable efforts to focus on not just the short-term, but what impact does the short-term have on the intermediate and the long-term? We’ve got to be thinking that way. We’ve got to be thinking about what’s going to happen two years from now, five years from now, and how do we get there? We have to make incremental steps. We need to focus on those incremental steps that are going to solve the long-term challenges. That’s the key to this.”
Andy Brailo, Chief Customer Officer, Premier Inc., Charlotte, NC