Navigating Supply Chain Challenges: Tariffs, Best Practices, and Lessons for Healthcare Leaders

The recent SHP webinar, led by Jason Crosby with contributions from Mike Scribner and Phil Church, tackled the pressing issue of tariffs and their impact on healthcare supply chains. The discussion provided actionable insights for hospitals, physician practices, and supply chain leaders facing a rapidly evolving global trade environment. Here’s a comprehensive summary of the key themes, strategies, and lessons shared during the session.

Why Tariffs Matter Now

Tariffs are at their highest levels in years, affecting a wide range of products, including those labeled “Made in the USA” due to their reliance on imported raw materials. Phil emphasized that healthcare leaders must understand not just where their products are assembled, but also the origin of their components. This complexity means that even domestically branded items may be subject to cost increases, making vigilance essential for all provider settings. 1

Current Tariff Landscape and Its Implications

The team highlighted fluctuating tariff rates, with China, Mexico, and Canada all seeing significant changes. For example, China’s rate was recently extended at 30%, and India’s increased to 50% due to geopolitical factors. These rates are fluid, and the impact on healthcare organizations depends on their specific product mix and sourcing strategies. Phil noted that while some vendors attempt to absorb costs, most increases will eventually be passed on to providers, especially as contracts expire or are renegotiated. 2

Contract Protection and Pricing Uncertainty

A major theme was the importance of understanding contract terms. Many healthcare organizations rely on Group Purchasing Organizations (GPOs) for price protection, but these protections are only as strong as the contract’s duration and terms. As contracts come up for renewal—often at the start of the year—vendors are likely to pass on tariff-related increases. Phil cited examples of manufacturers projecting significant losses, such as GE’s anticipated half-billion-dollar hit, which will likely be shared with customers. 3

Hidden Cost Pass-Throughs

Mike and Phil discussed how vendors might pass on costs in less obvious ways, such as increased shipping fees or surcharges that don’t appear on purchase orders. This makes it critical for supply chain and finance teams to scrutinize invoices and maintain open communication with vendors to anticipate and manage these changes.

Product Categories at Risk

The impact of tariffs varies by facility and product category. High-volume items, pharmaceuticals, surgical instruments, and capital equipment are all vulnerable. Phil recommended that organizations analyze their usage patterns, identify critical items, and understand their sourcing to anticipate which products are most at risk for price hikes or shortages.

Stockpiling and Allocation Management

While it’s wise to stock up on high-use items, Phil cautioned against over-ordering, as vendors may restrict orders to prevent shortages. Allocation protocols—common in pharmacy and IV supply chains—may become more widespread, and organizations must understand how these work to avoid disruptions. Staying in regular contact with distributors and monitoring allocation status is essential.

Lessons from COVID-19

The pandemic taught healthcare leaders the importance of flexibility, alternative sourcing, and close collaboration between supply chain and clinical teams. Phil stressed that the current tariff situation could be even more far-reaching than COVID-related PPE shortages, as it affects a broader range of products without the prospect of government relief funding. Open communication with clinical teams about shortages and conservation strategies remains vital.

Onboarding New Supply Chain Staff

For organizations with new supply chain personnel, Phil suggested using available roadmaps and resources to quickly get up to speed. Understanding allocation rules, vetting new vendors, and leveraging GPO expertise are key steps. He warned that switching vendors during shortages is rarely feasible, as most prioritize existing customers.

Capital Equipment Planning

Capital purchases require special attention. Some organizations only replace equipment when it fails, which weakens their negotiating position. Phil recommended proactive capital planning and engaging with vendors early to understand sourcing risks and potential delays. Even U.S.-manufactured equipment often relies on imported components, so tariff impacts are unavoidable.

Financial Strategies and Contingency Planning

Phil advised setting aside contingency budgets to absorb anticipated price increases, which could exceed 15% for some products. Reviewing all contracts—especially local agreements not covered by GPOs—is crucial, as these may be more vulnerable to price hikes. Rural hospitals with limited cash reserves face particular challenges and may need to rely even more on strong vendor relationships and advocacy.

Actionable Takeaways

• Review and understand all supply contracts, focusing on price protection clauses and expiration dates.
• Map out the origin of key supplies and equipment to identify tariff exposure.
• Maintain regular communication with top vendors and GPOs to anticipate changes.
• Monitor invoices for hidden cost increases and surcharges.
• Stock up on high-use items within allocation limits, but avoid over-ordering.
• Educate clinical teams about supply risks and conservation strategies.
• Develop contingency budgets and review local agreements for vulnerabilities.
• Prioritize supply chain staff time for strategic planning and vendor engagement.

The SHP webinar underscored that while the tariff environment is fluid and challenging, proactive planning, strong vendor relationships, and cross-functional communication can help healthcare organizations navigate uncertainty. Supply chain leaders must stay informed, diligent, and ready to adapt as the situation evolves. 1

Navigating Healthcare Supply Chain Challenges: Tariffs, Best Practices, and Real-World Lessons

A recent SHP webinar explored the evolving impact of tariffs on healthcare supply chains, offering practical examples, lessons learned, and actionable strategies for hospitals and physician practices. Here’s a recap of the key insights and real-world scenarios discussed with Phil Church, Mike Scribner, and Jason Crosby.

Why Tariffs Are Disrupting Healthcare Supply Chains

Tariffs now affect nearly every product, even those labeled “Made in the USA,” because many rely on imported raw materials. For example, surgical packs distributed from a U.S. center may actually be manufactured in Mexico, exposing them to tariff risks. This complexity means supply chain leaders must dig deeper into their product sourcing to understand true exposure.

Tariff Rate Fluctuations and Global Examples

Tariff rates are changing rapidly. For instance, China’s rate was recently extended at 30%, and India’s increased to 50% due to its purchase of Russian oil. These changes are unpredictable, and published rates can vary by source—even on the same day. Ultimately, facilities will bear these costs, as vendors cannot absorb them indefinitely.

Contract Protection: Real-World Scenarios

Most GPO contracts offer price protection, but only until the contract term ends. For example, a five-year contract expiring this year may see price increases in January. Some manufacturers are projecting significant losses, such as a half-billion-dollar hit in the first year of new tariffs, and these losses will be passed on to customers. GPOs cannot absorb these costs for an entire contract year, so providers should expect price hikes.

Hidden Cost Pass-Throughs: Practical Examples

Vendors may pass on tariff costs through increased shipping fees or surcharges, which might not be visible on purchase orders. In healthcare, these costs are often buried in invoices, making it essential for finance teams to scrutinize billing details.

Product Categories and Inventory Management

Supply chain leaders should analyze their product mix. Practices may be more affected by pharmaceutical tariffs, while hospitals might see impacts in surgical instruments and radiology equipment. Stocking up on high-use items is recommended, but “binge ordering” should be avoided, as vendors may impose allocation limits to prevent shortages. Past allocations in pharmacy and IV supplies, such as solution shortages, have affected all distributors.

Allocation Management: COVID-19 Lessons

During COVID-19, supply chain teams faced back orders and had to source off-brand products at higher costs just to keep gloves on shelves. During that time, hospitals received offset funding to cover these costs, but no such relief is expected for tariff-related increases. Vendors prioritize existing customers during shortages, making it difficult to switch suppliers.

Clinical Team Engagement: Operational Examples

Open communication with clinical teams about shortages and conservation is essential. During COVID, some staff would take more supplies than needed, so ongoing education helped reduce waste. Ensuring everyone understands the need to conserve critical items when allocations or shortages arise is key.

Onboarding New Supply Chain Staff: Practical Steps

Facilities with new supply chain personnel should use available roadmaps and resources to quickly learn allocation rules and vendor vetting processes. During shortages, vendors typically won’t take on new customers, so maintaining strong relationships with current suppliers is crucial.

Capital Equipment Planning: Real-World Example

Some organizations only replace equipment when it fails, which weakens their negotiating position. Proactive capital planning and early engagement with vendors helps identify sourcing risks. Even U.S.-manufactured equipment, like radiology systems, often relies on imported components, so tariff impacts are unavoidable.

Financial Strategies for Rural Hospitals

Rural hospitals with limited cash reserves may find stockpiling or paying premium prices impossible. In these cases, strong vendor relationships and advocacy are especially important, though there’s no easy solution for facilities with very tight budgets.

Actionable Takeaways

• Review all supply contracts for price protection and expiration dates.
• Map out the origin of key supplies and equipment to identify tariff exposure.
• Maintain regular communication with top vendors and GPOs to anticipate changes.
• Scrutinize invoices for hidden cost increases and surcharges.
• Stock up on high-use items within allocation limits, but avoid over-ordering.
• Educate clinical teams about supply risks and conservation strategies.
• Develop contingency budgets and review local agreements for vulnerabilities.
• Prioritize supply chain staff time for strategic planning and vendor engagement.

Conclusion

While the tariff environment is unpredictable, healthcare organizations can mitigate risks through proactive planning, strong vendor relationships, and cross-functional communication. Real-world examples highlight the importance of understanding product sourcing, contract terms, and operational strategies to navigate ongoing supply chain challenges.