The CFO Regulatory Guide: Tariffs, Medicaid Cuts, and PBMs

As the economy stiffens, CFOs will need to be more flexible with their strategies.

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How are CFOs faring in today’s hectic economic landscape?

It’s business as usual for the moment, but soon the healthcare industry could be in for a wild ride. Tariffs, proposed cuts in Medicaid programs, and skyrocketing drug prices could all have a massive impact on healthcare operations and costs.

CFOs will need to be creative in some areas and examine where they can shift, pivot and get a hold on costs.

Tariffed Terrain

CFOs should examine how tariffs will affect their organization. Examining these three key areas can help determine where the most impactful adjustments can be made:

• Supply chain
• Cash flow
• Currency risks

Supply Chain

CFOs need to determine how tariffs could affect their supply chains. Tons of goods produced within the U.S, are still a part of an interconnected global supply chain. They should look at not only their immediate suppliers, but their suppliers’ suppliers, to determine how costs will change for hospital supplies, ranging from medical devices to gowns, gloves and syringes.

CFO to do: Conduct rotating supply chain optimization reviews and try to renegotiate vendor contracts where applicable.

Cash Flow

In an uncertain economy, cash flow becomes even more crucial. CFOs should examine all opportunities and resources for obtaining cash. This may include keeping a dashboard of the health system’s most liquid and lowest-cost options for getting cash, as well as its most difficult and highest-cost cash flow options. This strategy can involve input from other members of the C-suite to get a thorough look at cash flow opportunities and adjustments.

CFO to do: Look for cash flow opportunities outside immediate recurring business.

Currency Risks

The U.S. dollar has been a stable currency for a long time, but the new onslaught of tariffs will likely change that, making it key for CFOs to understand their exposure to foreign currency exchange rates. Health systems may interact with foreign currency more than they think, as many healthcare supplies come from foreign supply chains. For example, in 2023 the U.S. imported more than $12 billion dollars worth of medical supplies from Mexico. CFOs will need to, again, look closely at their supply chains to uncover any exposure they might have to foreign currencies.

Ensure there is a system in place to track all the major currencies to which the organization is exposed, such as dollar-to-euro or dollar-to-peso. Once the risk is understood, CFOs can take applicable actions to safeguard their health systems.

CFO to do: Consider renegotiating vendor contracts to stabilize the impacts of currency exchange rates, and establishing forward contracts with banks to lock in particular rates for set periods of time.

Medicaid Cuts

With Medicaid cuts looming, many states know their healthcare expenditures are at risk. Medicaid represents $1 out of every $5 spent on healthcare in the U.S., and cutting these programs would affect both health systems and their patients. While the industry will have to keep an eye on this issue for now, CFOs can start to think about how they can mitigate the damage from potential cuts.

CFO to do: Examine Medicaid utilization rates in your state(s) and consider implementing low-cost programs to help patients find coverage.

CFOs can ensure they are advocating for their health systems by lobbying their state representatives and participating in advocacy programs. .

PBMs and Pharmaceuticals

Health systems that use pharmacy benefit managers (PBMs) need to keep an eye on the (currently paused) FTC lawsuit against PBMs for anti-competitive practices that have increased drug costs. Caremark, Express Scripts and Optum Rx are all under scrutiny.

A report by the Department of Health and Human Services’ Assistant Secretary for Planning and Evaluation found that between 2022 and 2023, prices for nearly 2,000 drugs increased faster than the rate of general inflation, with an average price hike of 15.2%.This is where many health systems are bleeding cash, so much so that some have even turned to insourcing their PBMs.

 A 2023 survey by Pharmaceutical Strategies Group revealed that organizations are increasingly frustrated with a lack of flexibility, limited transparency and misaligned incentives with PBMs.

Many health systems and organizations such as large employers and health plans want a PBM solution with more flexibility, transparency and control. They are turning to insourcing their pharmacy benefits as a strategic alternative.

While this can seem daunting, partnering is another option. Partnering with technology providers, consulting firms, or specialized PBM service providers to start your own PBM can offer control and cost transparency while still pursuing significant savings. Look to create operational efficiency in a model that works well for your health system’s specific needs, while driving down costs.

CFO to do: Stay strict on pharmaceutical rebate negotiation, transparency and PBM contracts in general, and consider insourcing or creating a strategic partnership for PBM services as an alternative.