Tariffs May Strain the Fragile Healthcare Supply Chain

For this month’s Editor’s Message, I will take the opportunity to touch on a subject that is more tied to current events than typical. In fact, I will not attempt to mention any specifics whatsoever because they are likely to be outdated by the time this essay reaches our publisher’s desk. I will also not attempt to bridge any partisan divides on what the correct path might be. The final word on the broader outcome will be settled by political leaders, economic experts, and time. However, as I noted in my December 2024 Editor’s Message, “From PPE to Saline: How Do We Fix the Healthcare Supply Chain?” we are in an era of high stress in our healthcare supply chain. The list of challenges includes the COVID-19 pandemic affecting the manufacturing and distribution of a wide array of medical supplies, as well as damage from Hurricane Helene disrupting the supply of critical IV fluids. All can hope that deals are struck to avoid the worst-case scenario, but it remains probable that tariffs and the uncertainty surrounding them will add to the financial stresses of our suppliers, individual physician practices, and healthcare delivery system as a whole.

As orthopaedic surgeons, it is important to note that tariffs have historically exempted pharmaceuticals but not precursors, equipment, or medical devices such as implants. There is, however, no guarantee that future tariffs will continue to spare currently exempt products. Many of the FDA-approved orthopaedic implants we use are manufactured overseas and would require new approval to be produced onshore at a U.S. facility. Many of the commodity products used in the OR, such as gloves, gowns, and syringes, are produced in Canada, Mexico, and India. Even some of the IV fluids used to boost supplies following Hurricane Helene came from Canada and Europe. Because many of these goods are produced and distributed with thin margins, it is likely that any increased costs will lead to higher prices, decreased availability, or both.

The complexity of the healthcare system makes it difficult to predict who will ultimately bear the greatest burden for any cost increases. Healthcare systems may be sheltered in the short term if suppliers are contractually bound to honor original pricing. However, certain manufacturers are likely to include risk premiums in new contracts that will negatively affect medical facilities even if tariffs do not end up being as severe or widespread as some have predicted.

In the longer term, improving stability in the medical supply chain will likely involve both regionalization and diversification of suppliers. The effect of tariffs may add urgency to the move to local production but also may decrease the number of suppliers a medical practice can choose from—making already scarce products even more difficult to secure at a reasonable price. Uncertainties can make it impossible for either suppliers or healthcare systems to plan far enough into the future to invest in the necessary diversification.

Although suppliers of healthcare products may attempt to pass along tariff-related cost increases, hospitals and physicians may find it difficult to do the same. Contracts with health insurers are often long-term deals that lock in total payments for episodes of care. Healthcare systems can benefit financially from assuming risk of costs they can manage. However, they may have little recourse when faced with sudden increases in expenses beyond their control.

Recent reports also suggest that insurers are adopting stiffer negotiation stances for new contracts, with news reports highlighting significant patient populations losing access to their preferred physicians due to nonrenewed insurance contracts. National data reinforce this impression by suggesting that the average orthopaedic surgeon income dipped slightly in the past year. The small decrease in surgeon pay is more impressive when juxtaposed against the high inflation environment, which has included substantial increases in costs for human resources, such as nursing and technician salaries. Continuation or exacerbation of high inflation is unlikely to lead to favorable outcomes for surgeons. Past inflationary pressure on taxpayer-funded programs such as Medicare and Medicaid have led to freezes and cuts to physician payments. If tariffs have a similar effect on fee schedules, it could be devastating for many physician practices.

The potential for further cost increases is also a major concern for hospitals. The Washington-based Providence Health System estimates that the proposed tariffs could increase expenses by $10 million to $25 million per year. The American Hospital Association also warns against tariffs for foreign-produced products that are already in critically short supply.

The solution for this latest challenge to the supply chain is as complex and multipronged as those in the recent past. Diversification of manufacturing and distribution continues to be an important, although elusive, goal as discussed in relationship to the IV fluid shortage. Diversifying sourcing risk to protect availability must also now consider further pricing risks. These risks may alter the terms and lengths of contracts that physician practices and hospital systems choose to sign.

Critical healthcare supplies, implants, and equipment should be exempt from tariffs at least until alternative sources can be developed. In keeping with the theme for this issue of AAOS Now, we also must do everything possible to ensure that access to care is maintained to the maximum extent possible. Maintaining access often involves providing care with thin or negative margins. Underserved populations are thus likely to be the first to be affected by sudden increases in healthcare operating costs. We will need all forms of creative solutions, strong promotion of our mission, and uplifting motivation—worthy of Ted Lasso—if dire predictions prove to be accurate.

Robert M. Orfaly, MD, MBA, FAAOS, is a professor in the Department of Orthopaedics and Rehabilitation at Oregon Health and Science University. He is also the editor-in-chief of AAOS Now and chair of the AAOS Now Editorial Board.

References

1. Munz K: Trump’s New Tariffs Could Drive Up Health Care Costs, Experts Warn. Available at: https://www.ajmc.com/view/trump-s-new-tariffs-could-drive-up-health-care-costs-experts-warn. Accessed May 7, 2025.
2. Shih WC, Chua V: The Tariff Wars Just Upended Your Supply Chain. Here’s How to Adapt. Available at: https://hbr.org/2025/04/the-tariff-wars-just-upended-your-supply-chain-heres-how-to-adapt. Accessed May 7, 2025.
3. Vogel S, Kelly S: Tariffs send healthcare industry into ‘unchartered waters’. Available at: https://www.healthcaredive.com/news/tariffs-aha-med-tech-brace-for-impact/744496/. Accessed May 7, 2025.