In a recently released white paper, members of the Applied Policy medical devices and diagnostics verticals examine how federal tax incentives could be used to strengthen domestic production of pharmaceuticals, medical devices, and other essential healthcare products.<\/p>\n
The analysis considers the complexity of the healthcare supply chain and the United States\u2019 reliance on foreign sources for both key inputs and finished products.<\/p>\n
Linda Rouse O\u2019Neill, Vice President of Health Policy and one of the paper\u2019s lead authors, said that only about one-quarter of active pharmaceutical ingredient (API) facilities supplying the U.S. market are based in the United States. She noted that API production is concentrated in a limited number of countries, including India and China.<\/p>\n
\u201cThis reliance on global production has left the U.S. healthcare sector vulnerable to disruption and has complicated efforts to ensure consistent access to critical products,\u201d O’Neill explained.<\/p>\n
The administration is also very interested in this issue. As John Knox, Principal Deputy Assistant Secretary for Preparedness and Response at the U.S. Department of Health and Human Services, stated in 2025, \u201cmanufacturing medicines from start to finish in the United States ensures a secure supply of essential medications.\u201d<\/p>\n
A Sector with Distinct Constraints<\/strong><\/p>\n Sabrina Luther, Health Policy Associate and one of the paper\u2019s lead authors, observed that healthcare manufacturing differs in important ways from other advanced manufacturing sectors. \u201cLong development timelines, FDA regulatory requirements, high capital intensity, and uncertainty around coverage and reimbursement all shape decisions about where production is located,\u201d she explained, noting that tax incentives alone may be insufficient to offset these factors, particularly for products with narrow margins or uncertain demand.<\/p>\n Luther added that incentives effective in other industries may fall short in healthcare if they do not account for regulatory approval and clinical validation requirements.<\/p>\n The paper highlights considerations related to incentive structures focused on capital investment, noting that workforce availability and other operational variables are often critical to the viability of domestic manufacturing.<\/p>\n Building Upon Lessons Learned<\/strong><\/p>\n Drawing on experiences from both pharmaceutical and medical device manufacturers, the authors identify several recurring themes. In some instances, tax incentives contributed to the expansion or modernization of domestic facilities, but often, when paired with mechanisms that helped offset higher costs and provide consistent demand, such as long-term purchasing arrangements or guaranteed purchasing programs. In other cases, manufacturers continued to maintain or expand overseas production despite available incentives, citing persistent cost differentials and operational challenges associated with domestic manufacturing.<\/p>\n Luther said, \u201cOur research suggests that tying incentives to clearly identified public health or supply chain needs can improve their effectiveness.\u201d<\/p>\n The paper\u2019s analysis aligns with broader federal efforts to reduce U.S. reliance on foreign production of critical goods, particularly in sectors with implications for national security and public health. The authors examine how tax incentives might be structured to better support domestic production by addressing cost differentials, regulatory timelines, and market uncertainty specific to healthcare products. Rather than advancing tax policy as a stand-alone solution, the paper considers incentives within a broader set of economic and policy considerations that influence manufacturing location decisions.<\/p>\n