CFO In The Know: Budgeting for Tariffs

82% of finance executives predict that costs for health systems will jump by at least 15% over the next six month due to new tariffs.

The Trump administration is rapidly introducing a slew of new policies, and CFOs are about to come face-to-face with the effects of trade tariffs. The challenge of budgeting amidst shifting tariffs will call for keen analysis and proactive planning from every finance leader.

The President has signed executive orders imposing stiff tariffs on the country’s three largest trading partners, consisting of a 25% tariff on imports from Canada and Mexico and a 10% tariff on Chinese imports. Although Mexico and Canada were able to put a pause on tariffs for 30 days, the tariff on Chinese imports is in effect.

The Industry Impact

With its heavy reliance on imported goods, from pharmaceuticals and medical devices to essential equipment, healthcare stands to face significant financial implications.

Industry professionals, from supply chain leaders to pharmaceutical executives, to distributors and medical equipment manufacturers, have all expressed deep apprehension over the potentially surging costs.

A large area of concern is the pharmaceutical industry, where the U.S. relies heavily on China for imports. Tariffs on imported drugs or raw materials used in drug production could result in higher prices for both generic and brand-name medications. CFOs will likely see an increase in medication costs, potentially affecting both provider profits and the financial burden on patients.

According to a Black Book Research survey, the majority of healthcare leaders predict that costs will jump by at least 15% in the next six months from increased import expenses. For pharmaceuticals, it’s estimated that costs will rise by at least 10% as a direct effect of Trump’s tariffs on China.

Roughly 90% of finance executives in this survey said they will need to shift increased costs onto insurers and patients in the form of higher service charges.

The Economic Impact

Tariffs can disrupt the flow of global trade, leading to inflationary pressures and reduced consumer confidence. If the costs of healthcare services rise because of these tariffs, there could be broader consequences for patients, particularly those without comprehensive insurance. Rising healthcare costs may lead to a higher uninsured rate or an increased burden on government-funded programs like Medicare and Medicaid.

Economic instability and inflation, stemming from the ripple effects of trade tariffs, could also impact consumer behavior. With higher costs of living and wages potentially stagnating, patients may delay or simply forego medical care.

This could lead to revenue instability for healthcare systems, making it difficult for CFOs to predict revenue streams accurately. Plus, financial markets' volatility could affect the pricing of some healthcare investments, as well as the cost of borrowing for hospital expansions or infrastructure upgrades.

The CFO Gameplan

Task #1: With tariffs potentially fluctuating, CFOs should develop flexible budgeting models that can accommodate sudden price increases or disruptions in the supply chain. This will help providers maintain liquidity and adjust to unexpected costs without sacrificing quality or access to care for patients.

Task #2: CFOs should consider broadening their supplier base to mitigate risks due to tariffs on specific countries or industries. By sourcing materials and goods from various global markets, CFOs can help reduce dependency on a single region or vendor that could be vulnerable to tariff hikes.

“They might have to use a domestic supplier or U.S .-based supplier, as well as an international one, and kind of use both,” says HFMA Senior Vice President for Content and Professional Practice Guidance Rick Gundling. “I think it'll always be hard.”

Task #3: CFOs are surely sick of hearing this by now, but they need to work with clinical leaders and procurement teams to implement strategies for reducing waste, improving efficiency, and optimizing purchasing practices. Negotiating better pricing with suppliers will also be crucial, especially when purchasing in bulk or committing to long-term contracts.