Hospitals Are Weathering the Tariff Storm but the Forecast Is Unstable

Hospital margins may be nudging upward, but the forces behind those gains are fragile, fickle, and policy-contingent. Kaufman Hall’s latest Flash Report reveals a modest increase in median hospital margins to 3 percent in April, an improvement over March,but the broader context makes this less a sign of stability and more a reminder of how unpredictable external shocks can reverberate through healthcare operations.

The irony is hard to miss. Nonprofit hospitals are seeing margin improvement amid unprecedented volatility in trade policy and raw material pricing. That improvement may speak more to disciplined cost containment and labor optimization than to any favorable macro conditions. In fact, the surrounding ecosystem is in turmoil—marked by abrupt shifts in tariff enforcement, ongoing U.S.-China trade skirmishes, and a growing threat to supply chain integrity.

Margin Improvement Isn’t Immunity

The 3.3 percent average margin from January to April 2025, up over the same period last year, is encouraging on paper. But it masks key pressures mounting under the surface. Hospital CFOs know that margin growth without supply stability is a tenuous win. The volatility of reciprocal tariff implementation, exacerbated by on-again, off-again policy changes from the Trump administration, has created uncertainty around materials sourcing, logistics, and capital forecasting.

These aren’t hypothetical threats. According to an American Hospital Association (AHA) letter to the Office of the U.S. Trade Representative, over 30 percent of all active pharmaceutical ingredients (APIs) used in U.S. manufacturing come from China. That includes components used in widely prescribed medications, injectable generics, and chemotherapy agents. Similarly, many single-use medical devices like syringes and stethoscope covers, critical for infection control, are imported from tariff-affected nations. Disruptions here go beyond cost increases; they could directly affect care continuity and patient safety.

This isn’t a distant scenario. The COVID-19 pandemic taught the sector that “just-in-time” inventory models are brittle when exposed to global supply chain shocks. The U.S. Food and Drug Administration (FDA) currently lists over 100 medications in shortage status which is a figure that could swell if new import tariffs go into effect on raw ingredients or packaging components.

A Margin Mirage for Some, a Warning Sign for Others

While some hospitals have found operational efficiencies or seen short-term gains in payer mix and case volume, those tailwinds will not offset a long-term cost drag from import restrictions. Tariffs function like a stealth tax on hospital supply chains. They do not manifest as line items on a balance sheet, but rather through backdoor increases in vendor costs, shipping surcharges, and acquisition delays. Even amid a 6 percent year-to-date improvement in operating margin compared to 2024, the risk is clear: higher margins can’t absorb indefinite external inflation.

More importantly, not all hospitals will ride this wave equally. Rural and safety-net institutions, which already operate at lower baseline margins and face elevated per-unit supply costs, may find that tariff-related disruptions tip their finances into unsustainable territory. As a recent Health Affairs study noted, low-margin hospitals disproportionately rely on group purchasing and imported generics to stay solvent, both of which are directly impacted by trade restrictions.

What Hospital Leaders Should Demand

Hospitals need more than a policy pause. They need trade policy that is healthcare-literate. The AHA, in its 2025 board leadership statement, has rightly called for targeted exemptions for essential imports. Without carve-outs for APIs, diagnostic reagents, and sterile consumables, providers are at the mercy of macroeconomic leverage games that have nothing to do with clinical outcomes.

There is precedent. In previous trade negotiations, the Office of the U.S. Trade Representative issued exclusions for medical supplies following industry pushback. But that carve-out logic must now become default policy, not an exception process. Health system leaders should push not only for tariff relief but for permanent healthcare-specific trade frameworks which is something akin to what the European Commission has called “strategic autonomy” in pharma supply chains, ensuring health-critical imports are de-risked from political instability.

Margins Without Materials Don’t Matter

The current margin uptick is an invitation to scrutinize the policy environment more aggressively. CFOs must scenario-model tariff escalation impacts on their vendor contracts, escalate their reliance on domestic suppliers where possible, and prepare contingency budgets that reflect a potentially inflationary second half of 2025.

Ultimately, this is a textbook case of “leading indicators lagging reality.” Yes, hospitals are hiring. Yes, margins are climbing. But without a parallel fix to trade volatility, those gains are built on policy quicksand.

Hospitals need supply chain sovereignty. And that will require strategic coordination between federal trade policy, domestic manufacturing incentives, and sector-wide advocacy that moves beyond the margin report.