Hospital supply chain directors brace for impact from Trump tariff threats

As the trade war on Chinese imports heats up, supply chain directors are anxiously waiting to see how the tariffs will financially impact their hospitals.

"They are appropriately paranoid but cautiously optimistic," said Peter Allen, executive vice president of sourcing operations at Vizient, which is a member of the Healthcare Supply Chain Association.

Allen and others from the management consulting company have met with the top 20 hospital supply chain managers in the country.

Because supply contracts through a Group Purchasing Organization are often three years long and many got renewed last year, hospitals are currently much more concerned over whether the government is going to cut 340B or Medicare reimbursement to unsustainable levels, Allen said.

But Allen said, "We work everyday on pricing. It's still a work in progress. The next question is, what's the supplier going to do? They might just move the production to Vietnam." 

President Trump on Wednesday threatened to add new import taxes on an additional $257 billion of Chinese goods to the $200 billion established on Monday, according to The Wall Street Journal. This was in response to China on Tuesday announcing plans to impose new tariffs on $60 billion in U.S. exports.

The trade war began in July, when the U.S. implemented tariffs of 25 percent on $34 billion worth of Chinese imports and Beijing retaliated with its own tariffs on $16 billion worth of U.S. goods, according to CNBC.

If fully implemented, the new tariffs would cover virtually all imports of Chinese goods, according to the WSJ report.

Two hospital supply chain directors interviewed said they won't fully know the impact of the tariffs until they start doing their new, yearly budgets.

Jerry Dea, executive director of Supply Chain Management at Cedars-Sinai in Los Angeles, will begin the budget process in February for a July 1 start to the fiscal year. The hospital has its group purchasing organization through Vizient.

The consumable supply contract will keep prices stable for now, he said. 

"Our contract is recent and the price is locked," Dea said.

But when current contracts with suppliers expire, whether in a year or three years, the tariffs could increase prices on everything from medical devices to parts for printers and copiers, computers, furniture, machinery for paper products - which in turn could affect the cost of paper towels or toilet paper - batteries, microscopes and scientific equipment.

Consumables include such high-use devices as pacemakers. Cedars Sinai purchases from 600 to 700 a year, according to Dea.

Dea said he would be asking for budgetary quotes from vendors about any tariffs on the products when he starts his budget.

"At that time we will go through categories of supplies to see where we're expecting an increase," Dea said. "Where I'm more concerned is some of the capital equipment." 

For instance, MRI machines are bought on as as-needed basis.

"That's where I'm more concerned about the tariffs," Dea said. "I still think this is one of those situations where you don't know what you're going to be hit with, until it comes up."

There's also the unknown of which goods will be added to the federal exemptions list. For instance, Apple products have been given an exemption.

Dea said he originally thought orthopedic implants would be a concern, and then the ortho implants were given an exemption.

Cedars-Sinai uses products from Cisco, Dell and HP, companies which have all requested exemptions to the tariffs.

"We buy from all those companies," Dea said. "Our primary provider for PCs is Dell, we use a lot of Cisco Systems. Even from a technology standpoint we could be hit by these tariffs."

Reddy Gottipolu, chief supply chain officer for the Memorial Hermann Health System, said the tariffs could affect a lot of imaging items and the commodity items. 

Another piece that's difficult to estimate is the impact due to the assembly that goes into a final product. Components could be made in China, but assembled in the U.S., or the other way around. 

They'll know when the suppliers come back asking for price increases, he said. Gottipolu admits the tariffs have the potential to adversely impact all hospitals' profitability and cash flow.

"We just started discussing it, we haven't seen the impact yet," Gottipolu said. "I'm a little concerned but at the same time not too alarmed."

Allen believes that competition will help to keep prices low on supplies from China, even with the tariffs. For instance, one wheelchair manufacturer they use makes wheelchairs in China. But if their competitors do not, they can't increase prices and stay competitive, he said.

"I still think it's a wait and see of what's impacted and how it's going to impact each individual system," Dea said.

Twitter: @SusanJMorse
Email the writer: susan.morse@himssmedia.com