The U.S. Healthcare Supply Chain in 2025: Leaders Prepare for Tariffs While Old Structures Erode

Four years ago, the COVID-19 pandemic shook U.S. healthcare and challenged the very way in which hospitals purchased and used equipment. Decades of focusing on cost reductions were replaced with considerations about device reuse, personal protective equipment (PPE) shortages, and securing supply chain resilience. Single-source contracts went by the wayside while supply chain leaders sought novel (and creative) ways of securing the PPE they needed through multi-channel arrangements. Price meant less than supply assurance. 

When healthcare slowly returned to “normal,” hospitals quickly resorted to the old ways. The pendulum swung all the way back to focusing primarily on cost reductions. However, healthcare supply chain leaders took a lesson with them: While cost is king, the healthcare system needs to fundamentally update its supply chain system to reduce vulnerability and to bring hospital purchasing and consumption up to date with the newest technologies, data use techniques, and forecasting tools. In addition, the industry needs to align its purchasing strategies with social and environmental forces that drive change across all industries in the country. 

Now, in December 2024, healthcare supply leaders once again find that their roles have become possibly the most important roles in U.S. healthcare. It’s not because the demand for diversity spend is causing immense pressure. Rather, it’s because the incoming administration’s saber-rattling about tariffs is causing pandemic-like concerns about the availability of needed products. Hospital systems are buying as much as they can within disposable product categories that are either expensive or critical – or both.

Supply chain leaders also know that they are fighting with their back against the wall. They are tired of being caught unprepared, and they are fed up with organizational structures and cultures that insist on healthcare being the last industry to catch up.

These days, healthcare supply chain leaders fear Walmart more than they fear pandemics. To healthcare systems, Walmart represents the little boy who shouted, “The emperor has no clothes!” The sophistication of the company’s systems exposes the areas where healthcare could be doing so much more, yet no one wants to acknowledge its awkward shortcomings. Healthcare does not have an advanced, updated system of selecting, purchasing, and using products to maximize economic value, patient safety, and healthcare outcomes. (Forget about considerations regarding the environment, social equities, and resilience.) American retail has all this.

The foremost healthcare supply chain leaders, however, do have a clear vision – if not a plan. Here’s where they’ll be focusing in 2025:

Pursuing True Group Purchasing Power

Health systems are at a serious disadvantage within the current healthcare supply marketplace. Individually, even the largest health systems have no negotiation power, with the largest system in the U.S. representing less than 5 percent of the market. Nearly every healthcare supplier is 10 times bigger than the biggest hospital buyer, and they usually operate in oligopolistic markets. Likewise, suppliers of medical products are much more sophisticated in their sales processes than hospitals are in their buying processes. 

To catch up with technology, manage new product adoption, reduce risk, and optimize bargaining power, health systems cannot continue to act like islands. They need to congregate around the same platforms, and they need a system of mediation and aggregation of demand to successfully navigate market conditions.

Group purchasing organizations (GPOs) became the primary conduit for healthcare purchasing to address exactly these needs. However, in the eyes of supply leaders, GPOs today do not perform this role – if they ever did. Healthcare needs a better purchasing structure that transcends the individual health system: a reborn GPO, a new GPO – or something entirely different. Health systems leaders are ready.

Seeking Advanced, Actionable Supply Analytics

From an operational standpoint, the strongest focus for U.S. health systems today (beyond cost containment) is on innovation and technology. Health system leaders want an actionable, forward-looking understanding of the “life of supply” – that is, real-time visibility into supply and demand as opposed to historical numbers in the rearview mirror. Getting to advanced, actionable analytics is the key, and this means leveraging generative AI and other advanced tools.

In terms of technology, healthcare has a lot of catch-up to do compared with other industries. However, there are several examples of companies and solutions that enable health systems to benefit from piecemeal technology modernization and, with limited integration, adopt newer technologies to make the supply chain more efficient and effective. Inventory management is an obvious place to start, but the most compelling progress will be made with predictive analytics, demand planning, and better forecasting models. In the short term, the most likely applications of AI will be seen in biomedicine, sterile processing departments (SPDs), and contracting and contract reviews.

Adapting to (and Learning from) Ambulatory Surgery Centers

The growing prevalence of ambulatory surgery centers (ASCs) and other specialized care services (e.g., imaging, infusion, etc.) can be seen as a threat to hospitals. Hospital administrators fear that high-margin procedures could disappear, leaving their facilities with only low-margin procedures and a downward sprint to financial loss.  

The reality is that more procedures are migrating out of the hospital and into other provider units. This is happening on some key healthcare service lines, including orthopedics, spine, and cardiology. Most hospitals are still running with a 2 percent operating margin, and they can’t afford this migration. On the other hand, this development also represents an opportunity for healthcare facilities to specialize and get the care closer to the patient. 

Fragmentation and decentralization of care represent an opportunity for hospitals, and supply chain leaders know it should be embraced rather than feared. From a capacity, standpoint specialization helps with throughput. However, hospitals must be deliberate and strategic in this area in order to retain revenue and not break the universe of healthcare. Hospital leaders should start by learning how successful surgery center systems manage centralized purchasing and apply those lesson within their own organizations.

Understanding the Value of New Technology

Supply chain leaders in healthcare are still battling the increasing cost of new technology pursued by doctors who insist on being on the forefront of their clinical fields. Value analysis committees (VACs) were introduced in healthcare to ensure that new (and usually more expensive) technologies were more than just new shiny objects that a physician liked. If they are to be adopted, new technologies should make a difference in terms of patient care quality. 

In reality, VACs are not very effective at holding new technologies to this standard. They often act as rubber-stamping committees for physician whims. In some cases, they even create additional inefficiencies due to outsized concerns for infection control.

Currently, there is no tool to scientifically evaluate the value of new technology. Supply chain leaders want this to change. A Medical Device Technology Cost Efficiency Index – a standardized index that calculates cost-per-procedure improvement to elucidate the value of (new) technology – would be extremely useful in the healthcare supply chain as an objective, data-based tool for deciding whether to adopt new technology. This type of index could be used as an industry guide, but it could also exist as a tailored tool that would allow the hospital to calculate value based on its own pricing and other parameters.

2025 will kick off with a concentrated focus on the new administration and its position on tariffs and healthcare system governance. However, supply chain leaders will also be immersed in trying to solve many of the above structural challenges that have become untenable in recent years. The need for health systems to come together to strengthen their purchasing power and business models is evident – and today’s healthcare supply chain leaders are ready for change.