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Tariff Troubles

By Beth W. Orenstein

The medical imaging community wonders what tariffs could mean for providers and patients.

No one can predict the impact that tariffs will have on medical imaging, but several manufacturers of imaging equipment based overseas have said that, for now, they will absorb the costs that tariffs could add to their machines and supplies. “But they’re not going to be able to do that forever,” says Linda Wilgus, CPA, FRBMA, coexecutive of the Radiology Business Management Association (RBMA).

Physicians are concerned that the tariffs could not only raise their costs but also cause shortages of supplies, which, in turn, could delay necessary imaging. Tariffs “could lead to reduced availability of necessary equipment for diagnosis and treatment and even lead to cancellation of procedures,” says Stamatia Destounis, MD, FACR, FSBI, FAIUM, chair of the ACR Commission on Breast Imaging and a member of Radiology Today’s editorial advisory board.

In addition, if tariffs raise provider costs, it could lead to further consolidation in the industry. The imaging community operates on slim margins, and any increases in costs, however small, could cause practices, especially independent physician groups, to close their doors, Wilgus says.

During his first term, President Trump imposed large tariffs on many types of goods. He campaigned on adding and extending them during a second term. On his first day back in the White House in January, he issued an executive order instructing his cabinet picks to prepare for more tariffs. For the next three months, Trump ordered tariffs on some of America’s largest trading partners, including Mexico, Canada, and China, later delaying them and saying that he was open to negotiations. To date, the United States has reached a signed trade agreement with the United Kingdom, as well as verbal agreements with the European Union and several Asian countries. Talks with China are ongoing.

The uncertainty of on-again, off-again tariffs makes it difficult for manufacturers and providers to plan, says Christopher “Kit” Crancer, senior vice president of Policy and Physician Partnerships and executive director of the RAYUS Quality Institute Business Management Association. “There are seismic shifts from what I’ve seen coming out of Washington day-to-day,” Crancer says, “and it’s difficult to know what’s going on.” He says he was encouraged that in their earnings calls earlier this year, major manufacturers of imaging equipment, including GE Healthcare, Philips, and Siemens Healthineers said they were not looking to pass on any costs from possible tariffs to their customers at this time. However, Crancer says, it is difficult to see how long they could absorb the tariff costs, especially if they were to revert to the originally proposed 145% rate.

Practice Concerns
Tariffs, however, are not the only threat to pricing, Crancer says. Costs of imaging equipment and supplies are continuing to rise, regardless of what happens with tariffs, he notes. “For example, the cost of contrast today is now double what it was pre-COVID. So, there’s already a significant amount of cost pressures on providers in the US.” Contrast, much of which is manufactured overseas, has also been subject to shortages, as plants shut down for maintenance and other reasons. Crancer says tariffs could be just another issue that causes the price pressures in the industry to snowball.

Crancer and Wilgus say that health care is different from other retail sectors in that it is highly regulated and governed by long-term contracts. Providers couldn’t arbitrarily raise prices, even if they wanted to. They are limited by the long-term contracts that they have with their equipment manufacturers and other suppliers.

The CMS sets reimbursements for health care services, including imaging, and the commercial insurance carriers often follow their lead, Wilgus says. Providers have already seen their costs of running a practice—rent on their facilities and staff salaries—increase in the last few years. On top of that, practices have already seen year-over-year reductions in reimbursements. “Our physician practices are already operating on razor thin margins,” Wilgus says, and tariffs could be the final straw in their demise.

Smaller, independent radiology practices would be the most vulnerable and could have to join with larger health systems or close. “I worry that this is going to lead to more consolidation in our industry,” Wilgus says. “If you are a small practice and you can’t cover your costs to provide an MRI to a patient, you’re not going to make up your increased costs in volume. Independent private practice physicians are just not going to be able to keep their doors open and their lights on.”

Destounis, managing partner at Elizabeth Wende Breast Care in Rochester, New York, adds that if tariffs raise prices, “it creates an added strain on business and professional relationships between manufacturers and health care providers as the expenses of tariffs will be absorbed by both parties.”

Destounis fears another possible and troubling scenario: “Providers will need to identify less expensive solutions for services provided, if possible,” she says. “They may also need to reduce costs by renegotiating contracts and professional business agreements, and consider reduction of services, especially the most expensive ones for their practice, and expenses overall. In the end, they may need to ration services.”

Lobbying for Exemptions
Concerned about these potential impacts on imaging, the Radiology Patient Action Network (RPAN), an organization of radiology specialists and advocates, and RBMA, which has about 2,000 members, have asked Congress to exempt medical technology products from any tariffs that might be imposed. RPAN and RBMA are asking the Trump administration to establish a clear, time-limited product waiver for critical devices and delay implementation of any tariffs on medical technology for a minimum of three years. Three years are needed to allow time for regulatory and supply chain adjustments, Wilgus says. She notes that during Trump’s first administration, medical equipment was exempt from tariffs. “So, there is precedent,” she says.

RBMA is also asking its members to sign a letter  and send it to their representatives in Congress, urging them “to support an exemption for medical technology (medtech) products from the Trump-era and proposed Section 301 tariffs.” The letter is available on the website, notariffsonhealth.com. Section 301 tariffs refer to section 301 of the US Trade Act of 1974, which authorizes the US Trade Representative to act against foreign trade practices that are deemed unfair.

Other organizations are making similar requests of the Trump administration. The presidents of the American Society of Nuclear Cardiology and the American College of Cardiology have sent a joint letter to the US Department of Commerce urging a deferral of tariffs on radiopharmaceuticals and isotope-processing equipment. In their letters, the presidents argued that deferral is needed so that patient access to nuclear imaging tests is not impacted. Destounis says contrast agents are of particular concern because most are imported to the United States.

Proactive Steps
During their earnings calls, some of the major manufacturers of imaging equipment said they were taking steps to help mitigate the potential impact of tariffs. GE Healthcare, which is headquartered in Chicago but operates in more than 160 countries, said its strategy is “to be focused on sourcing and producing products closer to our customers and where our products are used.” It noted this has been its strategy since COVID. GE also said it was looking to manage costs and drive supply chain efficiencies so that it could minimize impact on customers and patients. “Our top priority is to make sure patient and customer deliveries for products and services are not interrupted while maintaining the best quality and cost,” Peter Arduini, president and CEO of GE Healthcare, said during the call.
During its earnings call, Siemens Healthineers said it expected increased tariffs on a wide range of countries “to have a negative impact” on its business development later this year. However, Siemens, which is based in Erlangen, Germany, said it was not ready to raise prices because of the tariffs.

Philips Healthcare, which is based in Amsterdam, said it too was looking at actions to offset the impact of any tariffs that might be imposed, rather than raise prices. The goal of the Trump administration’s use of tariffs is to get manufacturers to move production to the United States. Philips has 46 production locations in the United States, including for ultrasound, patient monitoring, and other imaging equipment. It said it already has plans to bring more production into the United States. In April, Philips announced it was investing $31 million to expand its facility in Plymouth, Minnesota, where it produces medical scanning equipment for minimally invasive heart procedures.
 
United Imaging, a global company founded in China, says, in a statement to Radiology Today, that it has been anticipating and managing external cost fluctuations such as tariffs since the first Trump presidency. “Since 2018, we have been making steady progress toward increased manufacturing footprint in the US,” the statement says. “This is fueled by our strategic plan to have a diversified global supply chain and manufacture close to all markets, especially our rapidly growing US business.”

Last year, United Imaging tripled its US headquarters and production space in Houston. According to the statement, “This enables us to support our US customers effectively and will help us manage regulatory changes and cost fluctuations. Because we built our company from the beginning to have strong vertical integration in manufacturing, we’ve been able to limit supply chain disruptions, control costs, ensure quality, and maintain time to market. Keeping costs lower overall allows us to provide more value to customers and be more agile as a company. These are all preparations we made deliberately over time to build a strong business.”

United Imaging says that because it maintains a large inventory of parts in the United States, it doesn’t anticipate that the tariffs will impact availability of parts or cause delays in servicing or repairs for its customers. “It’s a purposeful goal of ours to support US customers’ needs directly from our US factory and service parts inventory,” the statement says. Regardless of the international business environment, United Imaging says it will continue to closely monitor developments.

Ongoing Uncertainty
Crancer believes the imaging community saw many of these same issues (supply shortages, delays, rising costs) during COVID. Although the imaging community has recovered, he is not sure that it could weather another setback from tariffs on its heels.

“I think it’s an extremely significant threat to the entire industry—the entire provider community and their patients,” Crancer says. “I don’t think anyone is going to be insulated, and I don’t think it’s a case of crying wolf. I mean, it’s already happening. We are grateful that the manufacturers have stepped up, but our request for exemptions from tariffs is not a wish list scenario; it’s a must-have because we need this.”

Wilgus says the evidence of tariffs increasing costs for members has so far been largely anecdotal. RBMA is surveying its members so “we can have data to support our advocacy efforts for an exemption,” she says. Members are being asked if the possible tariffs are delaying their decisions to replace imaging equipment, among other things. The results of the poll are not yet available.

— Beth W. Orenstein of Northampton, Pennsylvania, is a freelance medical writer and regular contributor to Radiology Today.