By Lars Thording

Amid broader political and economic turmoil, medtech companies are bracing for tariffs. Recently, the general threat to impose tariffs on Canadian, Chinese, Mexican, and other goods has been replaced by a more direct threat to focus these tariffs on defense, medical supplies, and energy sectors. It’s estimated that 75 percent of medical supplies are manufactured overseas, almost 14 percent of these in China.

Substantial (25 percent) tariffs are expected to increase the hospital’s price of buying PPE equipment, medical devices, and capital assets like MRI machines. However, the capacity of the healthcare system to absorb more price increases is limited, with most hospitals and health systems generating operating profit margins of 2 percent or less. As a result, the medtech sector just might have to face the reality that it has to cut spending.
With increased costs and tighter margins, the lifeblood of the medtech industry – innovation investments – are at risk. To the U.S. health system, tariffs causing cost pressure on already-embattled healthcare providers is only the surface of the problem. Setbacks in technology advancement and patient care improvements could leave scars on the system for decades to come.

COVID made us think about the supply chain in a new way. It made us better understand the value of re-using devices, it changed the focus from costs to supply chain resilience, and it showed us the vulnerabilities of a health system that imports 75 percent of its supplies from abroad. In a system now newly threatened by tariffs, reprocessing’s value can extend further.

Reprocessing doesn’t just reduce device costs and environmental impact for hospitals; its circular use model also makes the hospital less dependent on supplies from overseas because devices can be used more than once. This is highly relevant at a time when the industry could face tariffs or import restrictions focused on healthcare products coming from China and Mexico.

When a product is reprocessed, the “raw material” is sourced in the United States. Because devices are always reprocessed in the United States, they are not subject to tariffs.

Hospitals looking to tariff-proof their medtech investments should select devices that can be reprocessed and let their suppliers know that their reprocessing programs cannot be interfered with. This way, the cost of a device that is reprocessed just once – and made available at half the cost of a new device – will offset a 25 percent tariff and more. A $2,500 ultrasound catheter with 25 percent tax costs the hospital $3,125. A reprocessed ultrasound catheter costs ~$1,250. A hospital that starts using a reprocessed catheter every second time a catheter is used will pay about $300 less per use than before the tax.

As long as suppliers don’t interfere with reprocessing programs, the lower cost of a reprocessed device can offset any tariffs. These programs are important in any economic environment. In one where a trade war could erupt at any moment, they might very well be the lifeline hospitals need.

About the author: Lars Thording is VP of marketing & public affairs at Innovative Health LLC.

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