Healthcare organizations try to forecast impact of new trade rules.
By Daniel Beaird
Healthcare organizations from medical device manufacturers to hospitals and health systems have a keen eye on the Trump administration’s tariffs on foreign products and are asking for a balanced approach. In a March letter to the office of the U.S. Trade Representative (USTR), Premier aimed to highlight ways to adopt that approach to implementing tariffs that could impact the U.S. healthcare supply chain.
Premier’s comments centered around clearly defining which healthcare products are subject to tariffs and urged gradual implementation to allow manufacturers and providers time to adjust. It also suggested considering U.S. Food and Drug Administration (FDA) approval timelines when shifting supply sources and increasing supply chain transparency with public reporting on the country of origin for federally purchased healthcare products.
“As a provider, you are looking for what could be the potential forecast and financial impact of the volume of spend to have on site,” said Kyle MacKinnon, senior director of operational excellence for Premier. “Understanding where tariffs might make an impact is an extremely complex issue. There isn’t one number out there that captures the full effect because each supplier is unique.”
Mexico, Canada and China are the three largest trading partners for the U.S. with established medical device and pharmaceutical supply chains. They play a pivotal role in APIs, key starting materials, subcomponents, sub-assemblies and other inputs that are a part of tiers two and three for manufacturers. But they could be subject to tariffs depending on where they are imported from and that’s been difficult to identify and estimate.
Encouraging domestic manufacturing
Premier called for a multi-pronged approach with tax incentives to encourage domestic manufacturing investments, trusted trade partnerships to diversify sourcing for critical medical products and expedited FDA approvals that prioritize domestically manufactured medical supplies.
“The FDA is the gold standard from a regulatory approval perspective, but it’s getting to that approval that can be really difficult,” said Mark Hendrickson, director of supply chain policy for Premier. “So, if we’re talking about bringing some manufacturing onshore, that involves changing current manufacturing volume and capacity and changing manufacturing lines. All of those require regulatory scrutiny, and regulatory changes can take a long time.”
Accelerating FDA approval processes will help prioritize inspections and regulatory approvals for critical medical supplies and drugs that are manufactured domestically, according to Premier. It will also improve responsiveness to public health needs, especially in times of crisis.
FDA review and approval timelines can be anywhere from six to 18 months. Premier asked the USTR to consider FDA approval timelines within the timeline for tariffs while providing a sufficient glidepath for manufacturers and healthcare providers to ensure both have time to respond and adapt to new tariffs.
Premier also suggested differential reimbursement to incentivize hospitals to purchase U.S.-made medical supplies and government purchasing mandates to strengthen “Buy American” requirements for critical healthcare products.
“It goes back to ensuring there’s price parity across the category or the product mix,” MacKinnon said. “There are all of these other cost pressures on healthcare organizations to stay above the line in terms of their operating margins. We want to be resilient, but we also have to keep the doors open.”
MacKinnon says a targeted list could be created for critical devices and pharmaceuticals that are in short supply. The industry could set up competitive organizations or domestic factories for the right product mix.
Working with Congress
Premier supported legislation reintroduced in the 119th Congress, the Medical Supply Chain Resiliency Act, which would permit the establishment of trusted trade partners to diversify sourcing for medical devices and pharmaceuticals and enable timely access to the vital supplies providers need to care for patients during a public health crisis or national security threat. It would authorize the President to enter into trade agreements for the reciprocal elimination of duties and import restrictions on medical goods.
According to its letter to USTR, Premier believes trusted trade partnerships in healthcare would create new trade and investment opportunities abroad as well as generate growth and investment in domestic manufacturing and services, insulating some of the most critical supply chains from disruption.
“The stated purpose of tariffs is to boost domestic manufacturing and bring some of that manufacturing back and make it more resilient,” Hendrickson added. “That’s what we want to do as well, but also understanding that not all manufacturing will come back onshore.”
He asked, “How do we incentivize organizations that are already domestic? We don’t want to penalize them for something they’ve already done and want to encourage in the future.”
Hendrickson says one idea is to provide a tax credit on income generated from the sale of domestically manufactured goods. Premier suggested other policy options such as redefining requirements for government purchasers like the Department of Defense (DoD) and the Department of Veterans Affairs (VA) to purchase domestically manufactured critical medical supplies and pharmaceuticals.
The Buy American Act requires federal agencies to purchase domestically manufactured products unless an exception applies. As of 2024, at least 65% of the product components purchased must be sourced from the U.S. That is set to increase to 75% in 2029.
Premier suggested accelerating these timelines, exempting critical medical devices and drugs from purchase cost requirements and incorporating applicability to medical devices for the VA, DoD’s Defense Health Agency, Federal Emergency Management Agency (FEMA), Government Services Administration (GSA) and Department of Health and Human Services (HHS).
“Where American products are available, those should be first up, but specifically critical medical supplies,” Hendrickson said.
Assessing tariffs in each organization
Healthcare organizations, from providers and GPOs to manufacturers, distributors and suppliers, are looking at tariffs and how they will affect their supply chains. They’re asking where they will be taxed and if there are other options to avoid tariffs. For providers, it’s a focus on cost.
“Just like pressure testing and budgeting for inflation and labor costs, this is another factor,” Hendrickson said. “But it’s been hard to plan for with the on-again, off-again nature of the tariffs.”
He says each organization has to look at the factors important to them and those change depending on an organization’s size and where it’s located. Everyone has a unique challenge in this space.
He asked, “In a lot of ways, tariffs are the stick, so where’s the carrot? What’s going to help get those products to the patient? We want to make sure everyone has a level playing field, we incentivize the right behaviors, and we bring manufacturing back where we can and where it makes sense.”
According to Premier, other steps that need to be taken include real-time inventory management to improve supply chain tracking for emergency preparedness and the reauthorization of the Pandemic and All-Hazards Preparedness Act to ensure readiness for future public health crises.
“API is only good for so long,” Hendrickson noted. “I think plastic and aluminum for devices and other products can be kept on hand for a while if an organization has space for it. But on the provider level, there’s much less ability to stockpile because there’s less capital and thinner margins.”
Averting disruptions or supply shortages
Premier’s comments to USTR reflect its efforts to shield healthcare providers and patients from price increases and shortages as a result of any tariff actions. It says a well-designed and implemented tariff policy represents one leg of a stool to help strengthen the U.S. healthcare supply chain, but additional investments and actions are necessary to create a comprehensive approach.
“Our focus is on the holistic market and supply chain continuity and resiliency,” MacKinnon said. That includes trusted trade partnerships, tax incentives and appropriate reimbursement as additional legs to make the stool whole and create a comprehensive multi-pronged approach.
As the Trump administration announced its tariff plan in April, Premier’s Soumi Saha, senior vice president of government affairs, added that a strong, sustainable supply chain is the foundation of high-quality, affordable and accessible healthcare for all Americans. She says targeted and thoughtful tariffs on healthcare products can offer a chance to bolster supply resilience and ensure access to critical medical supplies, but they can’t live in a vacuum.
They must be put to work, funding innovation that ensures long-term stability and a stronger, more resilient U.S. supply chain.