Reconciliation Bill Passes/Mitigating the Margin Impact of Tariffs
In Episode 4 of the “Achieving Health” podcast, Andy Page, partner and national healthcare reimbursement leader at Forvis Mazars, fills in for regular host Chad Mulvany to share the latest healthcare policy and legislative updates for the week of July 13, 2025. First and foremost, this includes passage of the reconciliation bill known as the One Big Beautiful Bill Act.
Then, Chad is joined by guest Peter Stille, managing director in the Healthcare Consulting practice at Forvis Mazars. Together, they discuss the impact of evolving tariffs and trade policies and explore strategies to help healthcare organizations manage rising costs.
Transcript
CHAD MULVANY
On today's episode of Achieving Health, we have the latest policy and legislative updates from Washington, D.C., for the week of July 13th, 2025. And then I'll be joined by my colleague Pete Stille, managing director in the Healthcare Consulting practice at Forvis Mazars. We'll discuss the impact of evolving tariffs and trade policies, and explore strategies to help healthcare organizations mitigate the impact of rising costs. Stay tuned.
ANNOUNCER
This is Achieving Health. A podcast from Forvis Mazars, where we delve into the topics that matter most to healthcare organizations across the continuum of care. Our goal is to help you navigate the dynamic healthcare landscape and achieve health at your organization. Here's your host, Chad Mulvany.
CHAD MULVANY
Welcome to Achieving Health. I'm Chad Mulvany, director in the Healthcare Practice at Forvis Mazars. Thank you for joining me. Let's begin with Washington Watch, where we share updates on the most recent actions and discussion topics among federal policymakers and their anticipated impact on healthcare providers and payers. Filling in for me on today's segment is Andy Page, National Healthcare Reimbursement leader at Forvis Mazars.
Andy, greatly appreciate the assist.
ANDY PAGE
Thanks, Chad. Happy to help. Today's Washington Watch reflects information as of July 11th, 2025. So just keep in mind that this is all subject to change. First, we want to talk about the One Big Beautiful Bill Act. So, the House passed the Senate version of the One Big Beautiful Bill Act without amendment on July 3rd, and the president signed that into law on July 4th. So, we'll spend a bit of time talking about what's in it.
The 340B rebate model litigation is also kind of a hot topic right now. A second federal court has ruled that while the statute allows HRSA to implement rebate models in a 340B program, manufacturers may not unilaterally implement one. So, we'll discuss that in a little bit more detail.
And then, finally, we'll look at the 2026 proposed Home Health Payment update. CMS has proposed a pretty significant cut in payments for home health agencies due to a budget neutrality adjustment associated with the implementation of the PDGM home health payment system. Also wanted to note that as of this recording, we're still on watch for the 2026 outpatient PPS rule, as well as the physician fee schedule proposed rule.
So, they will likely be out by the time you're listening to this. So Chad will unpack both of those rules on our next episode. And there's even a potential that we may have our hands on the final inpatient rule, as well as the final skilled nursing facility rule by the next episode. So stay tuned on that. So, with that, let's get into our topics for this episode, starting with the One Big Beautiful Bill Act, or we’ll refer to this as the reconciliation bill throughout the rest of our time today.
But that becomes law. Despite the sound and the fury from a lot of Republican representatives across the spectrum, the House passed the unamended Senate version of the reconciliation bill with a vote of 218 to 214. So if you remember back into the days leading up to the July 4th holiday, Speaker Johnson, House Republican leadership, and President Trump were able to overcome a lot of concerns about the bill through a combination of, we'll call it arm twisting or arm wrestling, as well as commitments from the White House on a variety of topics, especially on how the bill is actually implemented.
President Trump signed that into law on July 4th. So, it became reality over the July 4th holiday. The holdouts on the Republican side discussed future legislative opportunities, including a second reconciliation package and the possibility of executive branch moves to address some of the things that just didn't sit well with folks. So, things like Medicaid cuts and all of the hot topic items that had a lot of resistance from the Democratic side and even some holdouts on the Republican side.
At the end of the day, I think we all remain a little bit skeptical that Speaker Johnson and Majority Leader John Thune will be able to muscle through a second deficit reduction reconciliation bill, given it would likely focus on entitlements such as Social Security, Medicare, and Medicaid. So, all of the hot topic items that were in this reconciliation bill and any further reconciliation bill wouldn't have as many items to sweeten the pot as we have seen with this recent bill, which includes a lot of tax reduction.
So the idea that a second reconciliation bill can come with mostly just cuts without much upside, that seems ambitious. But that being said, that trifecta of Speaker Johnson, Thune, and President Trump have been able to work magic around every turn to get the reconciliation bill passed. The promise to use administrative actions and executive orders to address parts of the bill that members don't like could be good or bad. Good, meaning we're taking interpretations of the statute that soften Medicaid cuts, or bad, taking more aggressive interpretations that kind of compound the negative impact.
Given the leanings of the leadership team at CMS, our guess is the former‚that it will probably be more good than bad because Medicaid cuts were the most polarizing topic within the reconciliation bill. And to use executive orders to soften that may go a long way with some of the folks that have been on the other side of the conversation.
Total impact of the reconciliation bill. So, Congressional Budget Office projects the final version will reduce Medicaid spending over ten years by more than $1 trillion. CBO also reported that the uninsured rate could increase by 17 million individuals by 2034 due to Medicaid, the health exchange, and other provisions of the bill. Despite the Medicaid cuts, the legislation increases the deficit by 3.4 trillion compared to the 2025 budget baseline.
So that was basically the topic of most concern with everyone that we've passed to reconcile a bill that actually increases the deficit by $3.4 trillion, to be determined what any of these aforementioned tactics could do to that, to make that deficit kind of go down, but to be determined. At the state level, the Kaiser Family Foundation has projected 30 states will see cuts in federal Medicaid funding of more than 13%.
Louisiana and Virginia are probably the most heavily affected, with spending cuts estimated at 21% over the period of impact. How this impacts a specific provider in a specific state will depend heavily on that state's policy, so the choices in how they respond to these cuts in federal funding and how to reconcile that with state funding. So, clearly this will impact the state budgeting process for those states that are looking at a high impact from the reconciliation bill.
In our previous episode, we covered pretty in-depth the Medicare/Medicaid provisions in a Senate version of the bill, which is ultimately what passed. So here we'll provide a brief overview of the provisions in the enacted legislation, including some noteworthy changes from the earliest version of the Senate bill.
So, provider taxes is our first topic. As of the date of enactment, the legislation as passed freezes provider taxes and sets the hold harmless threshold for any new taxes at 0%. So, basically, you're freezing the provider taxes where they are, and you're eliminating any net new taxes. For non-Medicaid expansion states, existing provider taxes remain frozen at the rate as of the enactment of the bill. For expansion states, existing provider taxes will be phased down by half a percentage point per year starting in FY 28 until they reach 3.5% in 2032.
So that is down from the 6% max that we currently have in place for provider taxes. This is probably the most impactful Medicaid component from a strictly payer source. So the provider tax that funds a lot of the Medicaid programs in respective states, if you're an expansion state, will be phased down over the years. So the question becomes, is there a benefit of being in a non-expansion state because of the freeze versus being in an expansion state based on the phase-down over a four-year period?
Probably the good news on the provider tax topic is nursing homes and intermediate care facilities in expansion states will not be subject to phase-down. So basically nursing homes and intermediate care facilities are held harmless to the extent that they're frozen at the amount that they have provider taxes now. And that was a very polarizing subject with the associations that represent nursing homes and intermediate care facilities just based on the volume of Medicaid and the impact that provider tax reductions would have on that sub-industry. The enacted bill also revises the circumstances under which the requirements for provider taxes be broad-based and uniform. So currently there's a waiver on broad-based, meaning applicable to everyone, and uniform, meaning the same rate or the same level of rate.
So there are some changes in circumstances where those waivers are actually approved. So this provision is similar to what CMS proposed back in May, which had a very similar impact on provider taxes and the mechanics of how you build those provider tax methodologies. That ultimately means that some current tax programs in several states are no longer permissible.
So those states are struggling now to figure out what next and how do you repurpose the provider tax into a compliant model? CBO projects the provider tax provisions will save $226 billion over 10 years, and that's actually up from $124 billion in the House version, primarily because the House version of the reconciliation bill did not have the phase-down. That was part of the Senate bill that ultimately went into the approved legislation.
So next up, let's talk about state-directed payments. The enacted bill caps state-directed payments at 110% of Medicare in non-expansion states and 100% of Medicare in expansion states. State-directed payments with previous approval or with good-faith efforts to obtain approval will be grandfathered through December 31st, 2027, after which they'll be reduced by 10% annually until they reach these new caps.
Non-expansion states that later expand Medicaid will have their cap reduced to 100% of Medicare. The state-directed payment provision in the enacted legislation saves $149 billion over 10 years, and that's actually up from $72 billion estimate in the House version. While hospital associations and other provider organizations will lobby to delay the provider tax in the state-directed payment phase-down, we just feel like organizations should really prepare as though these cuts will take effect.
So, a lot of planning to be done. Another part of the reconciliation bill was, or is, emergency Medicaid, FMAP. Effective October 1st, 2026, the bill reduces the FMAP to a state‚ natural match for individuals who would otherwise be eligible for expansion coverage if not for their immigration status. So again, this is just a phase-down on the current FMAP levels that can really have an impact.
CBO projects this will save $29 billion over 10 years. And again, the FMAP draw-down for Medicaid just continues to be a theme throughout this bill, and that's another example along with work requirements. So, work requirements for Medicaid beneficiaries have been in the news a lot over the last week since the bill was signed. The enacted bill begins work requirements for Medicaid beneficiaries age 19 through 64, and that would go into effect December 31st of 2026.
The legislation does allow the Secretary to exempt states from compliance with the new requirements until December 31st, 2028 if the state is demonstrating a good-faith effort to comply. So, you do get a window to exert a good-faith effort and still be exempt from the new requirements while you continue to get better. Those that are subject to the work requirements must work or engage in other qualifying activities, so this includes community service, education, and training programs for at least 80 hours per month.
The net effect of all of this, per the CBO, projects that this will save $325 billion over 10 years. Although work requirements are the largest single source of Medicaid savings in the bill, they may not result in a significant immediate increase in uncompensated care for hospitals and health systems, given that pregnant women and individuals with disabilities, among other groups, are exempt from those work requirements.
So, there's some anxiety with hospitals and health systems under the uncompensated care costs, but there's probably some delay, as well as just less of an impact based on the excluded parties. The biggest initial impact of this provision will likely be on Medicaid managed care organizations based on their enrollment. Providers will likely see some decreases in utilization for ambulatory services for Medicaid beneficiaries who have lost coverage.
So, it'll be even more important moving forward to verify coverage prior to care delivery, especially for any non-emergency services. Medicaid eligibility redetermination is also a part of the bill. So, effective for Medicaid coverage renewals on or after December 31st, 2026, the bill requires eligibility redetermination at least once every six months for the expansion population, so in other words, the verification of eligibility will be on a faster cadence to make sure that folks are still covered for Medicaid.
So, the CBO projects this will save about $62 billion over 10 years for those folks that have stayed on Medicaid longer than their eligibility would prove. The nursing facility minimum staffing requirement was also referenced in the reconciliation bill. And specifically, the bill says upon enactment, the bill prohibits implementation of the minimum staffing requirements through September 31st, 2034. The minimum staffing requirement was put into law back in April 2024 with a future date of implementation.
This basically, it's a death knell on the staffing ratio or minimum staffing requirement. It basically delays it for ten years, which effectively makes it go away. Now the CBO does project that this will save $23 billion over those 10 years. However, that $23 billion was really never earmarked to fund the staffing ratio. I think it was more of a thought of CMS will have to fund something to implement a minimum staffing requirement But nonetheless, that's been a sticky subject with the nursing facility industry and probably some good news moving forward that those minimum staffing requirements are not implemented.
The physician fee schedule is also referenced in the bill. The bill provides a 2.5% increase in the physician fee schedule conversion factor for services after January 1st, 2026 through December 31st, 2026. So, this is a change from the previous House version, which provided an update of basically 75% of the Medicare Economic Index and then 10% of the Medicare Economic Index thereafter.
So, the CBO does project that this increase will cost about $2 billion. So, let's talk about the Rural Health Transformation Fund. The enacted bill provides a $50 billion fund over five years to support rural health transformation. This is actually an increase from the $25 billion fund previously under consideration, and a change that occurred before the bill passed the Senate. States will need to apply for the funds, which will be allocated in part based on each state's rural population, as well as the proportion of rural health facilities located in that state.
It will be up to the states to determine how the funds are used and who receives them. Funds may be used for a variety of health-related activities, including chronic disease prevention and management, adopting technology to improve care and improving payment for services. There is a bit of change in the final reconciliation bill, or One Big Beautiful Bill, that is different from previous versions.
So, let's talk a little bit about those. Medicaid DSH delay was not included while the House version of the bill delayed the Affordable Care Act's Medicaid DSH cuts until FY 2029; this delay was removed from the Senate version and actually enacted in final legislation. So unless Congress intervenes on this, Medicaid DSH payments will be reduced by $8 billion in FY 26.
The FMAP reduction for states that cover undocumented individuals was also not included in the final bill. While the House-passed version included language that would lower the FMAP from 90 to 80 for expansion states if Medicaid or other state-run programs provide health coverage for immigrants who aren't otherwise eligible for certain public benefits. The Senate parliamentarian ruled that this language was extraneous and it was not included in the final bill.
And finally, while not a specific provision of the bill, the enacted legislation actually increases the deficit by $3.4 trillion and therefore may trigger the pay-as-you-go mandatory sequester. And if so, current law requires a sequester of certain mandatory spending programs unless Congress steps in to prevent it. So, in the event of a sequester, reductions to Medicare spending would be limited to 4% annually.
The CBO is the ultimate arbiter of whether the pay-as-you-go kicks in. Even though the Senate passed the bill under current policy baseline, meaning for their purposes, the bill reduces the deficit by $400 billion over 10 years. It's unlikely the CBO will use current policy baseline. So that's our summary of the One Big Beautiful Bill Act and the implications on all of our healthcare providers.
If you'd like to learn more about how the bill impacts your organization or how you can respond to changes, we have a link to a related FORsights article in the show notes. So, let's turn to an update on 340B rebate model litigation. On June 27th, Federal District Court Judge Rudolph Contreras ruled that pharmaceutical manufacturers cannot unilaterally implement a 340B rebate model.
This ruling marks the second time in six weeks that a federal judge upheld HRSA’s authority to pre-approve 340B rebate models. While both rulings sided with the government, neither ruled out the possibility that HRSA could authorize rebates in the future. Not surprisingly, hours after that decision, the plaintiff, Johnson and Johnson, filed an appeal with the U.S. Court of Appeals for the D.C. circuit.
Similarly, Eli Lilly, Bristol-Myers, and Novartis have also appealed that May 15th decision. Per the 340B report, Johnson & Johnson met with the OMB staffers and HHS Deputy Director Herzog to discuss the proposed rebate model under review at OMB. Johnson & Johnson noted in the presentation that the model only applies to two drugs, and they will pay within 7 to 10 days upon receipt of verified claims data.
However, this overlooks the unnecessary administrative burden this creates for already cash-strapped providers, especially given the cuts in the reconciliation bill. Finally, as we've discussed before, given the manufacturers will be the arbiter of the data necessary to provide the rebate, we have some concerns about providers getting short-changed. Finally, let's discuss some key provisions in the 2026 home health proposed rule.
On June 30th, CMS issued the proposed rule for Home Health Perspective Payment System for calendar year 2026. The overall economic impact related to the changes in payments is estimated to be a decrease of $1.135 billion, or -6.4%. The decrease actually reflects the net effect of the following components. First is a proposed market basket update of a net 2.4%. So, that's a $425 million increase. There's a proposed permanent adjustment of roughly -4% to account for behavior changes relative to the implementation of PDGM. So that's effectively a parity adjustment on what CMS believe would happen with PDGM versus what did happen back in 2020. So, material changes like changing from a 60-day episode payment to a 30-day episodic payment.
There's also a proposed 5% adjustment for what CMS is defining as overpayments. So, this is a temporary adjustment specific to calendar year 2026. The process CMS uses to calculate the market basket update in various payment systems, not just home health, has some well-understood flaws. The problem is compounded by the PDGM budget neutrality adjustment. And that's putting a further strain on home health providers.
All of the associations that represent home care, both nationally and at the state level, believe that the methodology used to calculate budget neutrality is also flawed. It doesn't accurately account for shifts in care delivery and utilization under the new payment system and doesn't accurately compare hypothetical payments under the old payment system to those under PDGM, and as a result, it continues to overestimate the difference in overall spending between the old and the new payment systems.
If we can even call them old and new, given that PDGM has been around for five years. Prior comment letters from associations representing home health providers have used data from referral management platforms to demonstrate an increase in patients referred to home health that were unable to be placed, and they attribute this to CMS’ budget neutrality reductions for home health payments, coupled with increased labor cost. And there's a managed care implication on home health as well. So, assuming all of this analysis is correct, further cuts will limit access to home care and possibly create throughput issues for hospitals.
So, this concludes today's Washington Watch. Up next, Chad will be back with a conversation with Peter Stille about the tariff landscape and its impact on healthcare organizations.
CHAD MULVANY
I'd like to welcome our guest for today's episode, Peter Stille, managing director in the Healthcare Consulting Practice at Forvis Mazars. Pete leads the practice’s non-labor cost management services and brings more than 30 years of experience helping healthcare organizations reduce cost and improve performance. Pete, thanks for joining us today.
PETER STILLE
Thanks for having me, Chad.
CHAD MULVANY
I'd like to start by asking you to share a bit about the work you do with healthcare organizations and, generally, what led you to the field?
PETER STILLE
Yeah, well. Thank you. I have spent my career doing non-labor consulting and I lead that practice here. We help our clients lift margins in supplies, purchase services, and benefits. All areas that are not labor or salaries. And I was always drawn to consulting, I think, because I did want to make a difference and help clients. And with non-labor, you know, I think it gave me a challenge to always learn every day. There's a lot of different aspects of non-labor, from paper towels to spinal implants to employee benefits, and different challenges to help us find solutions to help our clients. And, you know, I had the opportunity, when I started my career with Anderson in the 90s, to work in Fortune 500 organizations.
But I stayed in healthcare because I really like to see what the impact that these solutions can have for the good of their margins and their communities. I just think that meaning was what was very satisfying for me.
CHAD MULVANY
And, you know, Peter, before we get into our conversation, one of the things that I've appreciated about your approach to this is, you know, it's one thing to sort of benchmark and figure out where there are opportunities, but it's a whole different set of issues to actually go realize those opportunities. And what I really enjoy watching about what you do is the fact that you really do approach it as a change management challenge and think about it through that lens.
So, it's sort of, step one, find the opportunity, step two, figure out how to get the organization to capture those savings or what the organization can capture, and then go after what's realistic.
PETER STILLE
Yeah, I couldn’t have said better myself. I never want to be that consultant that put a fancy book on the shelves that no one ever read or did anything about. It was all about the solutions and measuring what impact that you had and that the client could, you know, benefit from.
So, from my perspective, the identification of the solution and, you know, the brain power to get you there is really the start of, what is then the trickier part, to actually get it done.
CHAD MULVANY
On the topic of input costs, one of the concerns on everyone's mind right now is the impact of tariffs. Obviously, you know, we have the tariffs on China, Mexico, and Canada as it relates to immigration and fentanyl. We have the across-the-board 10% tariffs. We have the reciprocal tariffs at various rates on various trading partners.
And then we have individual tariffs in certain industries: aluminum, cars, etc. We recently in May had a court decision that found that the reciprocal tariffs, the tariffs on China, Mexico, and Canada, were invalid, that they were and that they were an overextension of the president's authority. And so the ability the president to implement those tariffs has been questioned by a court.
We've had an appeals court that has stayed the injunction. Really, a long-winded way of saying that it's a pretty uncertain environment in terms of tariffs. We know they're out there. They're sort of looming over everybody. But you know, whether they'll go into effect and to what extent given to the president, even if they survive legal challenge, is “negotiating” with the various countries. What questions have you heard from the providers you work with about these tariffs?
PETER STILLE
Well, Chad, first let me say I love how you teed that up. When you said the word uncertain, that was probably as much work as I heard that word do in a long time, and it very appropriate, because that is really what's happening here is, and the questions that we're getting is, what are we supposed to do with all this uncertainty?
How am I supposed to forecast what my supply costs are going to be? What my exposure to supply interruption is going to be? What can we do about these tariffs to be able to handle them and still keep about, pursuing the mission of the organization? And, on top of all of the things that you mentioned, I did want to add that, you know, the administration is also giving signals about the short-term nature of these tariffs that there are negotiations to be had to make it all go away, or a lot of it go away.
So, there's complexities on complexities when you're looking at that and, what I'm hearing from clients, they're typically falling into one of those buckets.
CHAD MULVANY
So, a lot of questions right now, let's break it down a bit. How can CFOs and other finance leaders at these organizations gain insight into the full scope of input items impacted by the tariffs?
PETER STILLE
Luckily, this is a big enough deal where there is a lot of information out there. And good information. We have been watching this closely. I like some of the analysis that the budget lab at Yale is doing. They are analyzing each tariff announcement. They’re gaming out what the short-term and long-term effects are with actuaries. But they can only take us so far. And, you know, what are the things they can't, you know, predict is, what's going to happen tomorrow? They're really just gaming out what it is today.
But when our clients are thinking about how to forecast, how to budget, how to justify the financials that they want the blessing of the board and the C-suite on, we see them turning to, outside resources and see them turning to their existing supply chain partners. GPOs are publishing what they think are inflationary things to account for by category. Distributors are doing the same, from looking at alternative products and sounding the alarm about suppliers to them that aren’t playing nicely, and where they think that there's some exposure about being able to get supplies at the cost that they were paying yesterday. And the good news is, we've had some of this practice with the pandemic a few years ago.
It's just, I think, a little bit broader reach and a little bit of more uncertainty around it. And when you do look at these categories, it's interesting because it does break down to looking at those categories that are really at the most risk of impacting your budgets and, potentially, your supplies and availability for a healthcare provider to be able to take care of their patients. Feeding tubes, internal tubes, are always exclusively made in China and those are under significant tariffs right now.
Being able to replace those is a solution no one's figured out yet. Personal protective equipment. This has got, still 50% of the world's production made in China. And, you know, they, right now, actually, before the May 12th rescinding, most of the tariffs. So, 245%, tariff. Now it's just 30, but still, you know, 30% more than it was a few months ago.
Pharmaceuticals, most of it is made in China. Even the generics made in Canada, if they take a 10% hit, that's going to add $51 billion to the U.S. market cost for, pharmaceuticals. Plastics, textiles, imported steel, even IT has crept up on some of the radars in terms of, you know, those areas that could be impacted.
One of the things that I've seen is that it's, I wouldn't say random, but there is definitely a strategy here where, and some companies are better positioned for the short term. If you are manufacturing medical devices in Mexico, and a lot are, those factories are going 24/7 right now. You can import those devices under, with 0% tariffs because NAFTA creates an exemption for them if they're NAFTA compliant.
And actually if you need to import steel to do it domestically, there's actually an advantage to doing it in Mexico and not having to pay for that with the ingredient cost. So, beyond forecasting, then there gets into the mitigation strategies about working with suppliers have got, this, this mapped out so they could avoid as much of the burden of this as is being presented currently in the environment today.
CHAD MULVANY
And, you know, any changes in the supply chain will have an impact on clinical staff. What steps can healthcare organizations take to manage the impact and help staff navigate these changes?
PETER STILLE
I think involving them, both in terms of the decisions that are being made and getting their input. I think about it as part of the team that is interdisciplinary, looking at this data, helping get that clinical perspective. You know, for those products and categories that have exposure that affect patients’ and nurses’ lives. What things should they keep in mind as they're researching alternatives and timing? As they look at this, what is their comfort level to stock up and buy safety stock to avoid purchasing something at twice the cost in 90 days. And they might see, you know, an increased demand, or the fact that making a conversion of gloves is going to take several months.
So even though that may not be as big of an exposure, you might want to buy more inventory of that because that that transition is going to be a little bit more time consuming. And then also involve them in how those products and those solutions are investigated. Do they need to be a pilot?
Typically, organizations will, you know, carve it up into commodities. Clinical preference in high clinical physician preference to determine what things can go automatically, what things need a trial, what things need to be sample reviewed, and make sure that that is including the voice of the customer and the voice of the clinician so as these changes are thrust upon them.
CHAD MULVANY
You know, back to the earlier part of the conversation when we were talking about change management, that's the piece that organizations really need to make sure that they pay attention to. You know, beyond just making sure that they can secure things that that are less impacted by the tariffs but then also making sure that the clinicians are involved in those decisions, the people that are actually going to be using the supplies are brought along for the ride, and they understand why the changes are being made. They feel like they're being heard as part of that conversation and ultimately have an opportunity for some of the more high-use or high-preference items to kind of try-before-you-buy, if you will.
PETER STILLE
That's a really good point you make. So in that spirit Chad, I think it's worth emphasizing that, you know, the communication here, beyond those nurses involved, not only about the strategies and the involvement of nurses, but just the anxiety and the facts, they're being presented to them. Managing that fear and that uncertainty well is going to help reduce the stress of the entire organization and build trust at a time when tensions are high and, you know, people are working long hours.
CHAD MULVANY
I appreciate what you just said. And I think it's probably worth just reminding the audience that, you know, there is still a bit of a hangover from COVID and the trauma that everyone went through. So, this needs to be handled carefully, so as not to exacerbate that experience.
PETER STILLE
Yeah. And then last summer they had the hurricane come through, and you had IV supplies that were, you know, people were very concerned about how to take care of patients and, you know, keep them healthy and be able to deliver the care that their patients needed. So, these stresses keep coming and I do think that change management and attention to that, I think the leading organizations get right and I think their nurses stick with them longer because of that.
00;38;42;17 - 00;38;53;00
CHAD MULVANY
So, Pete, how can providers reconfigure their supply chains and identify alternative sources of medical devices and other supplies to mitigate the impact of tariffs?
PETER STILLE
It's a good question. The good news, and it's challenging. The good news is that, in healthcare we've had some practice. But because of the pandemic and because of some of the shortages in critical supplies like IV solutions recently in the southeast. So essentially the game plan there and the game plan today is work with your supply chain partners, work with and procure the resources needed to identify where you're exposed.
Evaluate those potential disruptions well in advance and then put together a plan that will make sure that you've got the inventory to take you through the rough times, and you've got the time to evaluate the alternative sources well in advance before it becomes an emergency. So, you know what your options are and have really expanded the supplier base and decreased your risk.
CHAD MULVANY
And, you know, Peter, we talk about the uncertainty as being a challenge, but really to your point about exploring options, I mean, it really is an opportunity to do that. So, it's almost like you've been bought some breathing room in order to make those investigations, make them in a systematic manner. And then, as you know, we've talked about the change management piece of it to do the work that you need there as well.
PETER STILLE
Yeah. And that's where I think, you know, the proactive acting now really helps you get a leg up because there are some that are watching and waiting to get more clarity on what there is to do. But, you know, really, this is just, you know, good supply chain practice in general. And when you're handed uncertainty, in your operations and your supply chains, a plan needs to come together to help mitigate that risk.
And you can build up safety stock and try to do it from a financial perspective. But unless you're actively engaging in expanding your supply chains, helping buy time and giving you more options, now, when you know that there's going to have to be some moves that you need to make you're going to be better off when those times come.
CHAD MULVANY
You know, for the moment, pharmaceuticals have been exempted from tariffs. However, the president has certainly signaled that that is in the cards in a future round. And in fact, mid-May, the president, or the administration wrapped up its section 232 investigation into the national security implications of pharmaceutical imports, or at least the public comment period for that wrapped up. So, I think it's safe to say that we'll be seeing those in the next couple of months. How should hospitals and other providers prepare for pending pharmaceutical tariffs?
PETER STILLE
You know, there's a lot of concern and rightfully so, on the tariffs so far, there's kind of been a breath of relief that it hasn't included pharmaceuticals. I think there's been some wishful thinking that pharmaceuticals may escape. There's definitely a lot of lobbying to try to help make sure that the, like, that likelihood is as high as possible, because of the essential-ness to the healthcare delivery system.
But it's really a sleeping giant in terms of impact here. And, to put in perspective, in the supply chain, if you put into different categories, pharmaceuticals is the single largest category. And tariffs, the impact of tariffs here has a chance to double the impact in healthcare because it is so large. To address this, you should put plans together, based on the expectations that you have for any tariff impacts.
And we see organizations that are putting together conservative, moderate, and aggressive expectations of where this is going in the short-term and a whole other set where this is going the long-term. And they're really assigning probabilities to that to, you know, figure out what the financial impacts are and then where their exposure is the biggest from an operational perspective.
So, the same thing should be applied here. It is just that much more important to this one singular policy for this category in the healthcare supply chain is going to be so important. You've got a lot of drugs or ingredients that are coming from China. You have a lot that are coming from the European Union.
And I think the right strategy here is to plan for it now, the same that you would with others, and pay particular attention to this one because it's so large. And then, when you're thinking about tariffs in general, from a long-term perspective, the reciprocal tariffs are probably not sustainable. But everything that we're seeing is that the prices are going down.
When you look at the reshoring policies that the organization has to bring operations to the United States, when you're looking at the direction that we're headed and that's going to have a major impact. These are the second largest expense for healthcare organizations in their entire expense structure and it means, you know, back to your point about kind of getting hit on both ends.
You'll be you'll be losing tens of millions of dollars in government funding for Medicaid reimbursement and I’ve got a client that's modeling this right now on the tariff side, where there might be very conservatively right now, $2.5 billion, with the drugs, it could be it could be double that. And for the short term, with the reciprocal tariffs, it could be several times that. So, it's just interesting times. And, unfortunately, it's going to require some additional investment of resources to get your arms around this. Make sure your organizations are protected.
CHAD MULVANY
Well, and, you know, when you think about the scale of the impact that we're talking about on both revenue and then on the expense side, what that suggests to me is that the gap that you may need to fill, or to find savings for, is big enough that you can't just look at the impacted items, be it pharmaceuticals, at some point in the future, be it supplies.
So, what are the other areas within the the non-labor bucket that might present savings opportunities as organizations are trying to offset these increasing supply costs and the diminished revenue as a result of anticipated Medicaid changes?
PETER STILLE
The guidance that we're giving and some of the research that we're seeing is consistent. That's one, organizations are looking for efficiencies outside of supplies to offset, those increases. Your suppliers are doing that. They're telling in the earnings reports to investors that they're doing that. And to some extent, they're able to offset most of that, all of that, with some of the analyst reports that we've seen to date.
And so that's the good news. And where does that come from? Purchased services, where you're really outsourcing labor and it’s not as supply intensive, is one example of places that you can go, we're still seeing good results and a low change from solutions and, you know, new approaches in managing employee benefits.
And then looking at the other side of supply chain management which is utilization, reducing clinical variance, reducing variance in general and reducing waste and looking at getting more control over those to make sure that you can operate as efficiently as possible with as little resources as possible. And you mentioned the gap in revenue.
And I did want to talk about the fact that the gap, to the extent that you can't make it up, your suppliers in healthcare pass it, or are planning to pass it, along to you. And in other industries, the vast majority of CEOs are looking at passing those along to their customers. In healthcare, the leaders are putting out letters, trying to get clarification and communicating and collaborating because there is still, and I was surprised to see, but happy to see that organizations are, very commonly, reaching out to suppliers and proactively negotiating, with them to make sure that they have a relationship and a structure that can be successful during some trying times. Asking their suppliers to provide documentation if there is that need to, you know, revisit where the costs are. And that gap that you mentioned, Chad, and that documentation that we should be asking of our suppliers is the same documentation, the same facts that we can bring to managed care payors to, you know, show them what the facts are, from the hospital’s perspective in this whole headache that's being, you know, thrown at us as far as tariffs.
CHAD MULVANY
Yeah. No, that's absolutely right. And I think as you and I have talked about this before, I think one thing to flag for our listeners as well is, you know, in 2025, I'm still occasionally surprised at the percentage of percent-of-charge contracts that many providers still have. And so, obviously, make sure that as these price increases roll through, that your chargemaster is up to date, so that way where you've got those percent-of-charge contracts, you can you can benefit from that as well. And certainly then, on your fixed contracts, your DRG-based contracts, that also helps you with your outliers. So just a lot of pieces to think through and make sure that you're tracking.
PETER STILLE
And, Chad, one of the things that is one of the first steps we advise our clients on the cost side is to review their contracts for price protections and the, you know, are you protected? To some extent, but not as much as you'd like to be. And so that review can really, you know, give you a sense for where you're at, where you're exposed, and really the conversations you need to have with your suppliers, and the controls that need to be put in place and efficiencies that you need to start to target.
CHAD MULVANY
And I think that's great advice. As we look to wrap up, you know, we've had a great discussion. You shared a lot of fantastic insights. What's one piece of advice you would give to a CFO or a supply chain executive as they navigate the tariffs and the uncertainty surrounding them?
PETER STILLE
I don't know if this is one piece, Chad, but I would advise: don't wait. Act now. And I think CFOs will love this: spend more. I think that these are the things that many organizations are doing anyway. And these tariffs, these losses of government funding that are on the horizon. And, you know, in recent times, the pandemic and other challenges have shown us just how much more we need to do to invest in making sure that we have cost structures that can support not only where we are today, but the future challenges as well.
CHAD MULVANY
Pete, thank you again for joining me today and sharing your insights. Always great to talk to you. And also thank you again to Andy Page for covering today's Washington Watch. And I want to thank our listeners for their time and tuning in. If you'd like to learn more about navigating the impact of tariffs, we have links to some of our related articles in the show notes.
I hope you'll join me on August 6th for the next episode of Achieving Health. Till then, hope everybody stays well.
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