Hospitals brace for impact of tariffs (updated article)

Note: The article was updated where noted after President Donald Trump’s April 8 remark about upcoming pharmaceutical tariffs. The headline was also updated after originally stating: “Tariff impact on hospitals may be relatively restrained in the short term”

Sweeping tariffs announced over the last week by the Trump administration appear to have spared the healthcare industry from immediate consequences in one respect.

In his April 2 announcement about the tariffs, President Donald Trump said pharmaceutical ingredients would be exempt, at least for the time being.

The exemption removes a worrisome development for the industry, which had been projecting higher costs for generic drugs as a result of the tariffs. China, which is subject to one of the largest tariff rates under policies rolled out in stages over the last two months, exports many of the active pharmaceutical ingredients used in generics.

In February comments, Trump had indicated pharmaceutical imports could be subject to an initial 25% tariff that potentially would be raised “very substantially” in the ensuing year.

With the recent tariff announcement, Trump established the exemption, but he commented that the exemption is subject to change if drug companies do not invest in U.S.-based manufacturing.

“The pharmaceutical companies are going to come roaring back,” he said. “They’re all coming back to our country, because if they don’t, they’ve got a big tax to pay.”

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April 8 update

Trump announced today that tariffs on pharmaceuticals would, in fact, be coming in the near future.

“We’re going to be announcing very shortly a major tariff on pharmaceuticals,” the president said during an event hosted by the National Republican Congressional Committee.

It remains to be seen whether tariffs on pharmaceutical ingredients begin at 25% with the potential to go higher, as Trump suggested in February.

The administration also announced that tariffs totaling at least 104% on China would be in effect starting April 9 as scheduled. Although that tariff does not cover pharmaceutical ingredients, which would be subject to an industry-specific levy to be determined, it will affect the prices of other products and devices in the supply chain (as described below).

Trump said that when drug companies hear about the tariffs, “They will leave China, they will leave other places.”

April 9 update

Trump on Wednesday announced a 90-day pause on most reciprocal tariffs that were scheduled to begin imminently. However, the U.S. maintained the tariff on China and increased the levy to 125%, while also keeping in place a 10% baseline tariff on other countries.

“I’m expecting supply costs to go up,” said Steve Wasson, chief data and intelligence officer with Strata Decision Technology. “I don’t know exactly the percentage or how much, but it has to. You can’t switch your suppliers that quickly. So, [if] you get a hundred-plus-percent tariff on a supply, what are you going to do?”

Previously announced 25% tariffs on Canada and Mexico also remain, except for goods that meet the criteria specified in a 2020 trilateral trade deal, and there was no indication that the pending pharmaceutical tariffs announced Tuesday are off the table.

A recent study in JAMA found that a 25% tariff on pharmaceuticals would add $750 million in costs just on imports from Canada.

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Advantages and drawbacks

Any U.S. domestic investment by drug companies would be expected to enhance supply chain resilience and boost local economies, but a possible downside would be higher manufacturing costs that are passed down to hospitals and then patients.

“With many Americans already facing rising consumer prices and unemployment, the potential for further price hikes raises significant concerns about healthcare accessibility,” according to a report by the analytics firm GlobalData.

Some analysts do not foresee a marked change in domestic drug manufacturing as a result of the tariffs.

“While some branded production might gradually be shifted to the U.S., a big increase in generic production is unlikely,” states an April 1 analysis by ING Bank, an Amsterdam-based multinational banking and financial services corporation.

“Fortunately for the U.S. administration, higher-value generic drugs could be reshored to the U.S. much more easily than generic drugs that have thinner margins and are produced in greater quantities,” the report also states.

The inflationary pressures affecting drug costs already had been seen in financial reporting for the hospital sector. For example, Strata’s latest monthly report showed a 5.4% year-over-year rise in drug costs at hospitals. That was on top of a 6.2% jump from early 2023 to early 2024.

Still, future price increases stemming from the tariffs might not be drastic. Fitch Ratings issued a report (login required) focused on for-profit healthcare stakeholders, stating that the tariffs would have a “moderately negative” impact on the sector’s credit profile while “posing a lower risk to providers given their domestic focus.”

No exemption for other supplies

Increased costs also are expected to hit medical devices, for which no exemption was announced despite industry lobbying. Nearly 70% of U.S.-marketed devices are entirely manufactured in another country, according to the GlobalData report.

Key everyday supplies ranging from blood pressure cuffs to sterile drapes originate in China, according to a 2025 report by the American Hospital Association. Mexico in recent years has accelerated its exportation of medical devices.

George Godfrey, chief supply chain officer and corporate vice president for financial shared services with Baptist Health South Florida, pinpointed surgical kits as an item that could be disrupted by the tariffs. Providers may have more than 100 customized kits, each with eight to 20 components that need to be sourced and then sterilized before use.

“The lead time for sourcing all these components is the largest lead time that providers have to deal with,” Godfrey said. “The question is if one country has a higher tariff burden than another country, what’s the infrastructure cost of moving that sterilization process, that kitting process, from where it currently sits to a different country? Is it even doable?”

Run-of-the-mill items that appear in the hospital setting also are likely to suddenly become more expensive.

“I was telling my CFO, I bet 80% of the furniture that we put in our hospitals is made overseas, or 90%,” Godfrey said. “If you’re opening an outpatient center, what’s your incremental cost that’s going to be associated with items that you wouldn’t even think about?”

As with pharmaceuticals, increased costs stemming from the tariff policies would simply add to ongoing trends. Strata reported a year-over-year increase of 6.7% in hospital expenditures on supplies this past February, following a 6.8% year-over-year spike in January 2024.

Concerns and mitigation strategies

Jeff Wurzburg, a partner at Norton Rose Fulbright who specializes in healthcare policy and regulatory issues, sees the potential for a big impact on healthcare purchasers as manufacturers look to pass on higher costs.

 “While that may be hospitals or third-party payers at the outset, eventually the increased costs will find their way to patients through increased health insurance premiums and higher costs of care,” Wurzburg said.

Hospitals also need to watch for potential bad actors among supply companies, Godfrey noted.

“My concern is every supplier’s going to take advantage of [higher prices], so how to keep them honest? I’m installing different ways of capturing suppliers attempting to pass along price increases, and then [we] have different escalation processes to slow that down,” he said.

Supply issues stemming from the COVID-19 pandemic and the 2024 storms that halted manufacturing capacity of vital bedside products showed the adaptability of providers, Wurzburg said, and also highlighted the need to stay flexible.

Key steps for hospitals in the current environment, he added, include examining their own supply chains to identify vulnerabilities, assessing whether they have an immediate reserve of necessary supplies, identifying potential alternatives and gauging opportunities to renegotiate contracts.

“When possible, work with suppliers to determine whether there are steps that may be taken together to negate the pressures and challenges of new tariffs,” Wurzburg said. “Providers may have longstanding relationships with suppliers, and both parties likely prefer to continue to work together in the future — and there may be other options that will benefit both parties.”