As President Trump’s tariff policies unfold, the healthcare sector faces new pressures across global supply chains, pricing, and patient access—all within reimbursement structures that are largely fixed and not designed to accommodate sudden cost increases. With manufacturers, suppliers, and providers constrained in their ability to adjust business models, policymakers must pay close attention to the cost pressures and system-level effects that follow.

Medicare Inpatient and Outpatient Reimbursement: Locking in Costs Amid New Tariffs

An immediate example of how pre-set payment will limit healthcare’s ability to respond to rising input costs is found in hospitals operating under Medicare’s Prospective Payment Systems.

Under both the Inpatient (IPPS) and Outpatient (OPPS) Prospective Payment Systems, Medicare pays hospital inpatient and outpatient facilities a fixed, predetermined amount based on Diagnosis-Related Groups (DRGs) or Ambulatory Payment Classifications (APCs). These rates are calculated from historical cost and clinical data. Although the Centers for Medicare & Medicaid Services (CMS) updates them annually, the underlying data may be several years old, and there is no mechanism to adjust reimbursement in response to sudden external shocks, such as tariff-driven increases in input costs.

Tariffs are expected to raise the price of surgical tools, diagnostic equipment, and facility materials. Hospitals will have little choice but to absorb these rising expenses within payment structures that remain static until the next rate-setting cycle. Providers delivering outpatient services face the same challenge: managing escalating procurement costs without any corresponding adjustment in reimbursement.

Medical Devices and the Limits of Pricing Flexibility

Medicare reimbursement for medical equipment is largely fixed, set either through a national fee schedule or the Durable Medical Equipment, Prosthetics, Orthotics, and Supplies (DMEPOS) Competitive Bidding Program. Under competitive bidding, suppliers submit bids to provide products at specific prices, and Medicare uses those bids to establish regional payment rates. Once contracts are awarded, reimbursement is locked in, leaving no room to adjust pricing in response to sudden increases in manufacturing costs—such as those driven by tariffs on imported materials.

State Medicaid programs often follow Medicare’s lead, either adopting the federal fee schedule directly or using it as a benchmark. This alignment extends pricing rigidity across much of the public insurance landscape, compounding pressure on suppliers.

Additionally, tariffs may impose a double bind by affecting both imported finished devices and the raw materials used in domestic manufacturing. According to GlobalData, an estimated 75% of medical devices sold in the U.S. are produced overseas. Under the Trump administration’s proposed tariffs, these products would become more expensive. Meanwhile, tariffs on key inputs such as steel and aluminum are expected to raise production costs for devices manufactured domestically.

With no mechanism for near-term price adjustments under CMS’s current reimbursement framework, manufacturers will be forced to absorb these additional costs. This will mean tighter margins, particularly for smaller manufacturers, and potential reductions in product availability for Medicare beneficiaries.

Global Supply Chains Span Raw Materials Through Finished Product

Healthcare’s reliance on global materials makes it especially vulnerable to tariffs. Yet the sector’s complex interdependencies, which link raw materials, manufacturing, and delivery, are not always visible to policymakers or the public.

Tariffs on metals such as steel and aluminum, for example, are often discussed in the context of automotive or heavy manufacturing—but these same materials are essential to healthcare. They are used to produce surgical instruments, diagnostic equipment, hospital beds, ventilators, and even facility infrastructure.

Medical-grade stainless steel is critical for surgical tools like retractors, suction devices, scalpels, and clamps due to its durability and ability to withstand repeated sterilization. Aluminum is widely used in sterilization containers, hospital furnishings, and lightweight equipment components.

Proposed tariffs could double the price of some steel and aluminum products, depending on their country of origin. Even when equipment is manufactured domestically, U.S. producers often rely on imported raw materials. Under the Trump administration’s trade measures, the effective tariff rate on aluminum has increased from 3.91% to 25%. Meanwhile, China has restricted exports of key minerals such as molybdenum, which is used to strengthen medical-grade stainless steel, further straining global supply and driving up costs.

Rising input costs will leave manufacturers and providers with limited options: absorb the losses, delay procurement, or reduce product offerings. With reimbursement rates fixed well in advance, there is little capacity to respond quickly. This increases the risk of supply disruption and potential gaps in patient care.

Diverging Industry Perspectives

In Johnson & Johnson’s Q1 2025 earnings call, Chief Financial Officer Joseph Wolk projected that tariffs could cost the company’s MedTech division $400 million. He emphasized Johnson & Johnson’s “very limited” price leverage and suggested the company may need to absorb rising input costs rather than pass them on to customers.

Scott Whitaker, President and CEO of the Advanced Medical Technology Association (AdvaMed), has echoed these concerns. Representing device manufacturers of all sizes, AdvaMed warns that tariffs on medical technologies could reduce sector-wide investment in research and development.

Others in the industry see potential upsides. The American Medical Manufacturers Association, which represents many smaller firms focused on reshoring, has endorsed the administration’s approach. The group states that the new tariffs will enhance “America’s healthcare security and supply chain resilience” and has called for tax incentives and Medicare payment reforms to support domestic production.

Pharmaceuticals Under Scrutiny

When President Trump announced his “Liberation Day” tariffs on April 2, 2025, pharmaceutical manufacturers appeared to be spared. However, the day before, the Commerce Department had quietly launched a Section 232 investigation to determine whether U.S. reliance on foreign pharmaceutical imports poses a national security risk.

Discussing the inquiry on ABC News’s This Week on April 13, Commerce Secretary Howard Lutnick framed the issue in security terms: “We need to make medicine in America. If you don’t think that’s national security, you’re not thinking it through.” He added, “We can’t have a war and be asking China to send over penicillin.”

Balancing Security, Access, and Innovation

Efforts to bolster domestic manufacturing are not without trade-offs. John Murphy III, President and CEO of the Association for Accessible Medicines, has cautioned that tariffs on products from key trading partners could exacerbate existing drug shortages. “Tariffs on products from Canada, Mexico, and China could increase already problematic drug shortages,” he said, highlighting the delicate balance between securing the supply chain and maintaining access to affordable medications.

That tension is playing out within organizations across the globe. David Ricks, Chair and CEO of Eli Lilly, noted that firms remain bound by existing pricing agreements and contracts. Echoing concerns raised by MedTech industry leaders, Ricks told the BBC, “So we have to eat the cost of the tariffs and make trade-offs within our own companies.” He added, “Typically, that will be in reduction of staff or research and development (R&D), and I predict R&D will come first. That’s a disappointing outcome.”

Sometimes, it is not the drug

Tariffs affect more than just the cost of drugs. Essential components such as glass vials, ampoules, and packaging materials are also vulnerable—they are often imported, highly specialized, and difficult to replace with domestic alternatives. Even before the COVID-19 pandemic, the American Society of Health-System Pharmacists (ASHP) identified packaging shortages as contributing to drug supply disruptions.

Geopolitical events have intensified these challenges. In 2023, Robert Tubis of AstraZeneca observed that a major Ukrainian supplier of pharmaceutical-grade glass vials had shut down due to the war with Russia, forcing manufacturers to seek alternatives. Similar vials are produced in Germany, Italy, and China and are critical for various products, including infusions, reagents, and oral medications. The U.S. often lacks the domestic capacity to produce these components at scale.

One recent market report noted that pharmaceutical glass packaging is “integral to the drug delivery system.” Yet the packaging supply chain remains globally distributed and deeply interdependent, leaving it especially vulnerable to conflict and trade barriers.

Adapting Within Constraints

Several manufacturers have announced plans to increase U.S.-based production.

On April 10, Novartis, the Swiss-based manufacturer of Entresto, Kesimpta, and Kisqali, announced plans to adjust to what it described as “shifts in the external environment.” The company outlined a $23 billion investment over five years to build new facilities in the United States to produce 100% of its key medicines end-to-end domestically. Less than two weeks later, Roche said it intends to invest $50 billion in U.S. manufacturing, creating more than 12,000 new American jobs. Eli Lilly plans to “more than double” its U.S. manufacturing.

While such efforts reflect strategic adaptation, investments will take years to come to fruition. Although they may boost U.S. manufacturing in the future, they do not address the immediate pricing constraints faced by providers operating under fixed CMS reimbursement rates. Nor do they account for near-term potential disruptions in product availability for patients.

Conclusion

Given that the healthcare sector depends on global sourcing and fixed reimbursement, new tariffs will introduce cost pressures that few stakeholders are positioned to absorb. As these cost increases move through production, procurement, and care delivery, policymakers will need to pay close attention to their effects on system stability and patient access.