Impact of Tariffs on Medical Supply Chains
Recent policy shifts have introduced substantial tariffs on imports from key trading partners, including Mexico, Canada, and China. Go into the supply cabinet and look at where everything in the cabinet came from. These tariffs will result in increased costs for medical supplies and equipment, directly affecting healthcare providers. A survey by Black Book Research indicates that 48% of payer executives anticipate insurance premiums will rise within the next 12 months due to escalating costs that arose from supply chain expenses.
The imposition of tariffs disrupts the stability of medical supply chains, leading to inefficiencies and increased costs. Healthcare supply chain costs are expected to rise by approximately 2.3% from July 2025 to June 2026, driven by higher prices for raw materials and increased freight and shipping costs. Unfortunately, payer contracts won’t rise and match during that time frame.
Volatility in Fuel Prices
Fluctuating fuel prices further complicate supply chain logistics. Transportation costs are directly affected by fuel price volatility, making it challenging for healthcare organizations to manage budgets effectively. This unpredictability often forces suppliers and transporters to adjust their pricing strategies, leading to higher costs that may not decrease even if fuel prices stabilize, as promised the current Administration.
Challenges with Group Purchasing Organizations (GPOs)
One oft overlooked issue that I deal with regularly is the conflict between terms of payer agreements and GPO contracts. I know this as an experienced ASC administrator, but when I teach a class on contracting, I see pens and highlighters come out and brows furrow as I address this subject.
Many healthcare providers rely on Group Purchasing Organizations (GPOs) to negotiate favorable terms for medical supplies. However, managed care agreements often require the submission of invoices for separately reimbursed items, which can conflict with GPO contracts that mandate confidentiality. This situation is further complicated by the fact that individuals negotiating GPO contracts are typically not the same as those handling managed care agreements, leading to inadvertent breaches of confidentiality by staff unaware of these restrictions. Even if those two know that there’s a conflict, the RCM staffer who’s attempting to overturn a denial or move past a pending claim amount for separately reimbursable supplies requests the invoice from purchasing to satisfy the payer’s demand and violates the GPO contract, inadvertantly in order to get the claim paid.
Strategies to Mitigate Challenges
1. Diversification of Suppliers: To reduce reliance on countries affected by tariffs, healthcare organizations are seeking domestic or alternative international suppliers.
2. Enhanced Contract Negotiations: Engaging in proactive contract negotiations with suppliers can help lock in prices and terms that mitigate the impact of cost fluctuations. A small ASC won’t have the leverage to do this. But building strong relationships with suppliers may also lead to more favorable terms and priority in supply allocations. The trick is how to do that when your ASC is viewed as a “small fish”. How does the supplier draw the line? And how do you become a big fish if you diversify suppliers and break up your order. This situation is untenable and highly improbable to succeed if you are 8 ORs or fewer.
3. Investment in Technology: Implementing advanced supply chain management software can provide better visibility and control over the supply chain. These tools can help predict disruptions, manage inventory levels efficiently, and optimize transportation routes to reduce fuel consumption. But is the juice worth the squeeze? Advanced supply chain management software also requires someone to maintain it. As a former ASC administrator, I can tell you that investing in advanced supply chain management technology does not solve the problem on its own. It must be maintained to be beneficial. Who will be assigned to maintain this and will they remain employed long enough to create value offered by the technology?
4. Strategic Inventory Management: Maintaining a strategic reserve of essential supplies can buffer against short-term disruptions caused by tariff changes or fuel price spikes. However, this must be balanced against the costs associated with holding inventory.
This was my “Chicken Little” moment just prior to the COVID pause we all experienced in 2020. I was then the director of Business Development, but with the experience of having been an OR nurse and ASC administrator elsewhere, I pleaded with the administrator to stock up on fluids, tubing, and other supplies. He didn’t listen. We were then forced to limit surgery cases based on how much fluid was needed for a case and
cut tubing into shorter lengths to get through it all. What will the “think 5 steps ahead” strategy be this time around? Will the cost to warehouse make financial sense compared to any savings?
5. Advocacy and Collaboration: Engaging with industry groups and policymakers to advocate for more stable trade policies can help mitigate the impact of tariffs, IF you have time. Collaboration with other healthcare organizations can also lead to shared solutions and increased bargaining power with suppliers. In reality, when you are up to your glutes in alligators, meeting to drain any swamp is a low priority for any administrator.
6. Integrated Contract Management Systems: Implementing a centralized contract management system can provide comprehensive visibility into all contractual obligations, reducing the risk of unintentional breaches of GPO confidentiality clauses. The reality is few people have all their contracts digitally stored and few know how to really analyze the contract language. When I am asked to help a colleague, rarely do they have all the contracts in one place, often pages are missing, and they haven’t been revisited since they were executed years ago. In a perfect fairy tale world, this advocacy for a CMS to manage all contractual obligations is noble. In real life, the RCM staffer trying to get a claim paid probably won’t be given access to the contract management system. And they won’t be trained to care.
7. Cross-Departmental Training and Communication: Regular training sessions and clear communication channels between departments can bridge knowledge gaps, ensuring that all staff are aware of contractual obligations and restrictions. As one who does lots of peer mentoring and professional association-sponsored training on contract analysis and negotiation and revenue cycle for hospitals, health systems, ASCs and group practices, I can suggest this to colleagues, but the board typically votes down allocating adequate budgets for training in-house or at professional development events. No budget; no training.
In the face of unpredictable tariffs and fluctuating fuel prices, one strategy would be to implement scenario planning. This approach enables ortho and spine practices and ASCs to anticipate potential disruptions and develop contingency plans, ensuring the continuous delivery of essential medical supplies. My personal motto has always been “think five steps ahead” and it came from learning to scrub and hand off instruments before being asked. I knew the cases like the back of my hand. This time, it’s the case that is changing on the fly. You can have a general idea of what’s needed, but will you have the time in your current role to do what is needed to succeed without giving up something else you need to do? What can be delegated?
How to Implement Scenario Planning:
1. Define Objectives: Clearly identify the goals of your scenario planning efforts: Maintaining supply chain stability? Controlling procurement costs? Or do nothing? 2. Gather Data: Find a way to collect relevant data. This includes, but is not limited to: following current tariff regulations and fuel price trends (Becker’s if you’re listening, we would appreciate help with this!) Then start redesigning internal procurement processes. 3. Identify Key Drivers: Determine the critical factors that could impact your supply chain and the suppliers’ supply chain, such as changes in trade policies, fuel cost volatility, or supplier preparedness. Examine at a specialty and surgical procedure level. Ask your reps the tough questions. Beckers: interview the ortho and spine suppliers for us and ask
them how prepared they are and how transparent they will be if asked? Is it a secret? Are they as unprepared as we are? How can they help us? How WILL they help us? 4. Develop Scenarios: Create plausible scenarios based on the identified drivers, encompassing best-case, worst-case, and most-likely situations. This is difficult for even the most experienced ASC administrators. A novice will be a “deer in the headlights.” Let’s have training sessions for new administrators instead of rushed panel discussions at the next event.
5. Analyze Impacts: Assess how each scenario would affect your operations, finances, and patient care, identifying potential risks and opportunities. Again, a new administrator may not have the knowledge or experience to do this. If you have no money for training, learn how to write prompts for your favorite LLM (e.g. ChatGPT, etc.) to create some checklists. One other thing: let your Business Development person know if you intend to reduce or eliminate procedures that they are out there promoting to employers, insurers, PPOs, and TPAs. Nothing hurts brand reputation as much as inability to deliver what you sold.
6. Formulate Response Plans: Develop specific strategies to address each scenario, such as alternative sourcing options, purchase and inventory holding adjustments, or cost-control measures. Consider trading with local neighbor ASCs. When I think of this, I have this vision of the “Radar” O’Reilly character on the comic series “MASH” as he traded supplies with neighbor MASH units. But now, I show my age.
7. Monitor and Update: Continuously monitor external conditions and update your scenarios and response plans as necessary to remain prepared for emerging challenges. Assume nothing without data.
Likelihood of Success:
Implementing scenario planning enhances an organization’s agility and preparedness, allowing for informed decision-making amid uncertainty. While it requires an initial investment of time and resources, the ability to proactively manage potential disruptions can lead to significant long-term benefits, including cost savings, improved supply chain resilience, and uninterrupted patient care. Organizations that adopt scenario planning are better equipped to navigate economic volatility effectively.
Note: Dr. Todd is speaking at Becker’s 22nd Annual Spine, Orthopedic and Pain Management-Driven ASC + The Future of Spine Conference, set for June 18 to 21, 2025, at the Swissotel Chicago.
