Healthcare’s Tariff Conundrum: Mitigating Supply Chain Risks with Data and Relationships

There are a lot of questions about the impact of tariffs on health system supply chains. And most supply chain leaders don’t have informed solutions to pending challenges. 

In response, resource-strapped healthcare organizations are in scramble mode, trying to work with their suppliers to identify and mitigate potential impacts with varying degrees of success. While lobbying efforts are underway on the national stage by hospitals and other trade groups to exempt medical supplies and drugs, the industry is bracing for supply chain disruptions and potential price increases. 

The reality is that the situation will likely become more complicated before it gets better, and every healthcare CFO is looking to supply chain leaders to understand and articulate the risk their organizations face. Access to the right supply chain data is key to clarity, yet health systems by and large are lacking in this area and do not have the resources to pull needed information from a variety of sources. 

With limited access to data, health systems will have to rely on their group purchasing organization (GPO) and other third-party partners to fill in the information gaps to ensure resilience. It’s another wake-up call following the fallout from the Covid-19 pandemic. This time, improving the outlook starts with a better supply chain model — one that shifts from a transactional to strategic focus and is built on collaborative supplier models and more domestic sourcing. 

The power of deeper supplier partnerships

There are different schools of thought when it comes to how GPOs should approach supplier relationships in healthcare. In contrast to decades-old approaches that prioritize quantity over value, the move toward building long-term, stable relationships with fewer suppliers allows greater collaboration and exploration of quality levers far beyond price points. 

Pros and cons certainly exist, but when fewer supplier partnerships are in play, health systems can become more strategic in contracts and negotiations. This is an important consideration when navigating the uncertainty of tariffs.

For example, to understand risk, supply chain leaders need data from a variety of sources — country of origin for finished goods, country of origin for components and the impact of those respective components. 

The problem is that no single source of data exists, and most suppliers are reluctant to share this information with their GPO or health system partners because they fear losing business. Deep relationships with fewer suppliers allow supply chain leaders to negotiate contracts that are built on trust and transparency, which can lead to better disclosure of information.

When transparency exists, health systems can make better decisions around sourcing alternatives in advance of potential fallout. They can also identify opportunities for bulk purchasing and stockpile supplies ahead of tariffs going into effect.

In addition, deep relationships can help health systems overcome the challenge of data visibility. Mutual exchange of best-practice processes, technologies, capabilities, systems and information can all form an ecosystem that supports proactive response to pending issues.

For example, a home-grown visualization tool is giving one large health system visibility into country-of-origin data to identify potential goods that are at risk for tariff increases. This allows supply chain leaders to forecast what the potential financial impact could be based on future run rate, mitigating against financial impacts or shortages.

Build stronger domestic alliances

Increasing domestic investment is a critical strategy to overcome risks related to tariff uncertainty, now and in the future. Health systems should look for ways to balance the locations of the supplies they purchase between offshore and domestic suppliers.

Strategic deals like the one that produced Medline’s 2023 opening of a new distribution center in West Jefferson, Ohio, are creating new supply routes that are closer to home and more reliable — and eliminating the risk of tariff impact. Hopefully, the industry will see more collaborative investment deals in the future.

While there is certainly not enough current capacity in the United States to meet 100% of demand, supply chain leaders should work with their GPO partners to ask key questions about sourcing alternatives: What countries are producing a particular product? Is the impact less in its country of origin? Is there a stateside product that we can buy? 

Thanks to lessons learned during Covid-19, there’s already more domestic capacity in many healthcare supply categories today than there was before the pandemic. Forward-thinking health systems will start to look to those alternatives.

Overcoming fragile supply chains

The pandemic revealed the delicate state of the U.S. health system’s dependence on the global supply chain. Now, pending tariff agreements pose a new threat to system instabilities. The best strategies for preparedness are to mitigate and eliminate risk where possible. Health systems that embrace deeper supply chain supplier relationships along with a smarter domestic strategy will be better poised to achieve resilient, stronger supply chains that can weather pending storms.

Photo: StockSeller_ukr, Getty Images

This post appears through the MedCity Influencers program. Anyone can publish their perspective on business and innovation in healthcare on MedCity News through MedCity Influencers. Click here to find out how.