For hospitals, tariffs could mean higher prices ‘almost immediately’

Hospitals won’t have much time before they see higher prices on medical devices and supplies.

After moving ahead with aggressive tariffs on most of America's trading partners, roiling global markets, President Trump announced Wednesday that he is pausing higher tariffs on most countries for 90 days. But tariffs remain in place for China, which produces medical supplies hospitals use each day. In fact, Trump has raised tariffs on goods imported from China to 125%.

The tariffs include medical supplies and devices, but do not apply to pharmaceuticals, at least for now. Trump warned on Tuesday that tariffs on pharmaceuticals will be coming “very shortly."

Hospitals should expect an imminent uptick in prices, says Kevin Holloran, senior director and leader of the nonprofit healthcare sector at Fitch Ratings.

“The pricing will be passed along almost immediately to, unfortunately, the expense line item for supplies,” Holloran tells Chief Healthcare Executive®.

He likens the situation to higher gasoline prices when oil prices rise, even though the oil was pumped months ago.

Hospitals will simply have to factor in those higher costs, similar to the higher expenses for labor in recent years, Holloran says.

“Hospitals, healthcare providers can't pass that along to anybody,” Holloran says. “So they have to absorb it. They have to eat it. So for hospitals, it's a very quick absorption and detriment to their bottom line.”

“Unfortunately, the providers will have to come up with more, better, creative ways to cut other expenses,” he says.

Even with a pause on tariffs for many countries, the remaining tariffs on China figure to affect hospitals and healthcare providers in many ways.

China produces medical devices hospitals use every day, including blood pressure cuffs, sterile drapes, anesthesia instruments, needles and syringes, and pulse oximeters, among others, according to the American Hospital Association.

Most of the protective gear used by healthcare workers is made in China, including most of the N95 respirators used by providers and 94% of all plastic gloves. Two-thirds of non-disposable face masks come from China, the hospital association says.

Hospitals and medical groups have been bracing for the impact of tariffs and have asked the administration for exceptions for medical devices. Providers were relieved that there were exceptions for pharmaceuticals, but Trump has indicated that may soon change. Providers have warned that they have limited ability to pass those costs onto patients.

Mark Pascaris, senior director and analytic lead for nonprofit healthcare at Fitch Ratings, said the tariffs could hurt the modest recovery many nonprofit hospitals have made over the past couple of years.

“This is another challenge for not-for-profit hospitals, at a time when they're already dealing with enough coming out of the pandemic and the labor dynamic and inflation,” Pascaris tells Chief Healthcare Executive®.

In a good year, many strong, smartly operated nonprofit hospitals generate operating margins of 3% to 4%, he says.

“Every half a point, every point really matters,” he says.

For most hospitals, medical supplies account for 20% or more of their expenses, and tariffs could affect everything from surgical gowns, masks, devices and information technology equipment.

Even if some suppliers bring manufacturing processes back to the United States, hospitals would likely see “permanently elevated costs and potentially lower choices,” Pascaris says.

Many nonprofit hospitals have been faring better financially over the last year or two, according to Fitch Ratings, which generally evaluates larger hospitals and health systems. Fitch revised its outlook for nonprofit hospitals in December from “deteriorating,” a designation in place for more than two years, to “neutral.”

Still, hospitals continued to face headwinds even before the Trump administration moved forward with tariffs. Even with some improvement in operating margins, hospitals have yet to return to pre-pandemic levels, and now the higher supply costs could make that harder. Some hospitals continue to struggle with costs and revenues.

“If you were lagging to get back to pre-pandemic, or even close to a pre-pandemic level of operating margin last year, now, the tariffs just make it that much more difficult for you, if ever, to get back to even remotely close to that level of cash flow generation,” Pascaris says.

The recovery of the nonprofit hospital sector could be stalled if Congress and the Trump administration cuts funding to Medicaid, Fitch has said. Plus, academic medical centers have dealt with cuts in funding from the National Institutes of Health, the prime source of federal funds for medical research.

Now, hospitals must add tariffs to the mix of challenges, at least from China for now and possibly other nations in a few months.

“You start taking these things, impact, little impact, little impact, little impact … it adds up to a lot,” Holloran says. “The incrementals add up to a lot.”