Trade Tariffs and Medication Costs: What Pharmacies and Infusion Centers Should Know

by Raffa Zucco | Apr 28, 2025 | Blog, News

The Trump administration’s recent trade measures – including a staggering 145% tariff on most Chinese imports – are poised to reverberate through the healthcare industry, especially in the cost of medications. Such tariffs aim to bolster U.S. manufacturing, but they carry significant implications for drug prices and supply chains. This article examines how these steep import taxes could drive up medication costs, given that many drugs (and their ingredients) are made overseas, and why infusion care centers and specialty pharmacies may feel a particularly painful pinch due to fixed pricing contracts.

A Global Supply Chain for Medications

Modern medicine is a globally sourced endeavor. A huge share of drugs used in the U.S. are manufactured or sourced abroad. In fact, about 40% of finished medications and 80% of active pharmaceutical ingredients (APIs) for U.S. drugs are produced overseas. The United States imported approximately $168 billion worth of pharmaceutical products in 2022,more than any other country. This heavy reliance spans multiple regions: China and India supply the bulk of generic medicines and raw ingredients, while many brand-name drugs rely on components made in Europe (for example, Ireland is a major hub for producing active ingredients of blockbuster drugs).

In short, America’s medication supply chain is truly international. China is the world’s largest producer of APIs, and India is a dominant manufacturer of generic finished drugs . Even critical antibiotics and basic generic medications are often manufactured in China or India . Europe plays a key role for high-value pharmaceuticals: numerous innovative or brand-name therapies for the U.S. market are formulated partly in European facilities . This global interdependence means any disruption to trade – like tariffs – can have an outsized impact on availability and cost.

Tariffs Spike Costs from Ingredients to Finished Drugs

With such an overseas-dependent supply chain, aggressive tariffs on imports act like a sudden tax on the entire medication production process. It’s important to note that the new U.S. tariffs technically exempt finished pharmaceutical products themselves, but not the ingredients and materials used to make them. That distinction offers little comfort to manufacturers and providers: if the chemical ingredients, precursors, or packaging for a drug are hit with a 125% surcharge (on top of existing duties) when coming from China, the effective cost of the final medicine will jump accordingly.

Healthcare and economic experts warn that these import taxes will increase costs and may worsen drug shortages. The logic is simple: manufacturers facing steep new costs must either raise prices or, if margins were slim, stop producing certain products. Generic drug makers are especially vulnerable. They often operate on razor-thin profit margins and “simply can’t absorb new costs,” according to the Association for Accessible Medicines.

According to Wolfgang Koester, Chairman of the Board of Directors at Thrivory and a global markets expert with over 30 years of experience advising Fortune 1000 companies and governments, “Trade tariffs also introduce significant volatility into the cost structures of healthcare providers. Infusion centers and specialty pharmacies, often bound by fixed reimbursement contracts, face financial strain as they are unlikely to adjust swiftly to these cost fluctuations. This scenario underscores the necessity for reviewing and likely add flexibility in order to maintain the financial and operational stability while ensuring uninterrupted patient care.”

Many low-cost generics are already sold at near break-even prices; an added tariff expense could turn them unprofitable. Industry data show the total value of generic drug sales in the U.S. actually fell by $6.4 billion over five years (despite growing volume), illustrating how constrained generic pricing is – and “tariffs would make this much worse,” the industry group CEO warned . In practical terms, some generic manufacturers might exit the market rather than operate at a loss, which would exacerbate existing drug shortages and drive prices higher for essential medications .

Even for higher-priced brand-name and specialty drugs, tariffs add pressure. Manufacturers of these drugs may have more cushion, but over time the added costs will trickle down. Pharmaceutical distributors, for example, work on extremely slim margins (around 0.3% net margin on average) . They cannot easily absorb a double- or triple-digit increase in import costs, so they will pass those costs along to pharmacies, hospitals, and clinics. In turn, payers (insurers, government programs) will face higher expenditure, and eventually patients could see higher co-pays or limited access. Multiple analyses have suggested that sweeping tariffs on healthcare imports could sharply inflate U.S. healthcare prices and even impede innovation and access to therapies .

Supply Chain Reality: Rising Costs and Fixed Contracts

For infusion care centers and specialty pharmacies, the situation is especially precarious. These providers often operate under fixed-price contracts or set reimbursement rates that cannot be adjusted quickly even as their underlying costs spike. In other words, an infusion clinic might be locked into a contract with an insurer or healthcare network to provide a certain therapy at a fixed rate, or a specialty pharmacy might have agreed-upon pricing with a pharmacy benefit manager. If drug prices surge suddenly due to a tariff, these contracts offer little immediate flexibility to raise billing rates.

Industry experience during recent crises underscores this vulnerability. The National Home Infusion Association (NHIA) notes that many infusion therapy providers receive a bundled per-diem payment covering drugs, supplies, and services for each patient-day . During the COVID-19 pandemic, for example, prices for certain IV nutrition components and disposable supplies jumped dramatically (some nutrients rose ~50% in cost over five years) due to global shortages . Yet the reimbursement to providers remained a fixed daily amount, “with almost no flexibility to offset the rapid increases in acquisition costs” . In effect, infusion centers had to eat the extra cost, eroding their margins and threatening the sustainability of care. As NHIA concluded, even a well-designed flat-rate payment model “leaves providers vulnerable to economic shocks” when input costs surge unexpectedly .

Tariff-driven cost increases would create a similar shock. Infusion centers buying IV drugs or supplies from overseas could suddenly pay significantly more (up to 145% more for Chinese-sourced items) but still be reimbursed the old price under insurance contracts. For instance, an oncology infusion clinic that contracts at a fixed rate per chemotherapy infusion can’t simply add a surcharge mid-year because the drug’s import cost went up – the contract likely prohibits such ad hoc price changes. This mismatch means providers either absorb the loss or delay/cancel treatments, neither of which is tenable for long.

Specialty pharmacies face analogous challenges. These pharmacies dispense high-cost, often life-sustaining medications (for conditions like autoimmune diseases, rare disorders, etc.) and usually have agreements with health plans or pharmacy benefit managers (PBMs) that set the reimbursement formula. Pharmacy pricing for insured patients is determined by contracts with each PBM or government payer . If a specialty pharmacy’s cost to acquire a drug suddenly exceeds the contracted reimbursement (due to a tariff hiking the import price), the pharmacy must operate at a loss to fill that prescription or consider not dispensing that medication at all . Pharmacies cannot unilaterally raise the price on an insurer-covered drug outside the contract; doing so would breach the agreement and likely drive patients elsewhere. In practice, when faced with such losses, some pharmacies might attempt to shift costs in other ways (e.g., increase cash prices for uninsured patients) or opt to leave the network for that drug . For a specialty pharmacy, a sudden cost jolt erodes the viability of providing certain therapies, especially if multiple drugs are affected simultaneously by broad tariffs.

Looking Ahead: Navigating the Tariff Impact

As these tariffs roll out, healthcare providers and policymakers are bracing for impact. Industry groups are already urging the administration to grant exemptions for critical medications and components, warning that patient care is at stake . There is also renewed interest in bolstering domestic manufacturing of pharmaceuticals to reduce reliance on foreign supply, a goal the Trump administration touts. However, shifting drug production to the U.S. is neither cheap nor fast – building new manufacturing facilities can take 5 to 10 years and billions of dollars . In the meantime, hospitals, infusion centers, and pharmacies will need contingency plans: diversifying suppliers where possible, renegotiating contract terms to account for extraordinary cost increases, and advocating for policy relief if shortages loom.

For operators of infusion care centers and specialty pharmacies, the key is awareness and agility. Understanding that a policy change far upstream – like a tariff on Chinese chemical imports – can directly hit your bottom line is crucial. Fixed-price contracts should be revisited with payers to include clauses for sudden cost inflation (similar to how force majeure works) so that providers aren’t left holding the bag on massive surcharges. Where feasible, providers might stockpile essential medications or supplies before tariff deadlines (indeed, some drugmakers have flown in extra inventory ahead of tariff implementation) . Collaborating with group purchasing organizations (GPOs) and wholesalers to find non-tariffed sources (e.g., sourcing from India or Europe if Chinese APIs become too costly) is another short-term mitigation strategy.

In summary, the 145% tariff on Chinese imports represents a seismic shake-up for medication supply chains. Because so many pharmaceuticals and their ingredients are made overseas, these tariffs function as a sudden price hike on lifesaving products . Medication costs are expected to rise, and providers with rigid pricing contracts face a squeeze in absorbing those increases . Infusion centers and specialty pharmacies, in particular, must prepare for the possibility of higher acquisition costs that they can’t immediately pass on. Ultimately, while the tariffs aim to strengthen domestic production in the long run, in the near term they threaten to increase healthcare costs for payers and patients alike and put added financial strain on the very facilities that deliver critical therapies . Healthcare leaders and policymakers will need to work together so that trade policy doesn’t unintentionally compromise patient care or the viability of specialty treatment providers.

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