The fragility of U.S. health care supply chains is starkly underscored by their heavy reliance on overseas production, leaving the sector acutely vulnerable to potential tariff hikes. As global trade tensions remain uncertain, health care providers face the growing risk of being caught in the crosshairs of supply chain disruptions, a vulnerability highlighted by data from Bloomberg indicating that merely half of supplies for publicly traded U.S. health systems originate domestically.
Source: RSM US LLP, Bloomberg LP
The reliance on foreign sources amplifies the potential impact of recent statements from the Trump administration regarding possible pharmaceutical tariffs. Hints of impending duties on U.S. drug imports, coinciding with an executive order aimed at lowering pharmaceutical prices, have injected a fresh wave of uncertainty into the health care landscape.
While the administration’s stated objectives seem somewhat contradictory – potentially increasing costs through tariffs while simultaneously demanding price reductions – the collective message signals a heightened focus on pharmaceuticals, a critical artery of the health care supply chain. Any substantive policy action in this domain will inevitably ripple through how health care providers manage their supply chains.
The financial implications of potential tariff-induced cost increases are significant. Pharmaceuticals, which are part of the total medical supplies purchased by hospitals, account for approximately 10.5% of a hospital’s operating budget. Any upward shift in these costs could severely impact health care organizations’ bottom lines, particularly given their limited ability to pass on such expenses to consumers. The complex web of contracts with third-party payers and the often-constrained nature of reimbursement rate increases creates a challenging environment for absorbing significant cost hikes stemming from tariffs.
Addressing supply chain challenges
Thinking forward, RSM’s recent supply chain special report revealed insights into how businesses are grappling with the evolving challenges. Business leaders have emphasized their focus on driving supply chain sustainability through operations, which encompasses strategies such as diversifying supplier bases, exploring domestic sourcing alternatives and implementing robust inventory management systems. This underscores the critical need for enhanced supply chain visibility. Understanding the precise origin of medical supplies and pharmaceuticals, and identifying potential risks associated with their sourcing, is paramount for ensuring patient safety and mitigating the threat of shortages in a volatile global trade environment.
To manage and optimize an organization’s supply chain resiliency, leaders are upping the ante in areas such as artificial intelligence, machine learning and advanced data analytics. Health care providers recognize the vital role these technologies play in bolstering efficiency and resilience of their pharmaceutical and medical supply chains, particularly in navigating the complexities introduced by potential tariffs and evolving trade policies.
Given the U.S. imported $213 billion of pharmaceutical products in 2024, there is a heightened need to invest in technology to focus on controlling supply costs. Without the use of intelligent data systems, damaging effects could impact the bottom line.
Furthermore, these investments can significantly enhance compliance efforts within a heavily regulated health care industry. Certain drugs and supplies are subject to various regulations governing the production and distribution which necessitates robust data collection and reporting systems. Leveraging data analytics can enable health care organizations to accurately track supplies and mitigate the risk of noncompliance and the associated financial penalties and reputational damage that could arise from supply chain disruptions or regulatory oversights.
The takeaway
The evolving global landscape underscores the critical need for health care providers to prioritize supply chain resilience and visibility to foster consistent access to essential medical resources. Embracing technological advancements will be fundamental in optimizing operational efficiency, managing inventory and ensuring adherence to regulatory factors. A deep understanding and proactive mitigation of the impacts stemming from global trade and tariff policies will be crucial for maintaining cost-effectiveness and supply chain stability.
Danny Schmidt
Danny Schmidt is a senior manager in the assurance practice and a health care senior analyst for RSM US LLP. As a member of the Industry Eminence program, Danny works alongside the firm’s chief economist and his fellow senior analysts to understand, forecast and communicate economic, business and technology trends affecting middle market businesses.
