At the beginning of the new administration, there have been threats of tariffs on a wide variety of imported goods and against multiple nations. One such suggested tariff is that on imported pharmaceuticals. In February, the new administration suggested a 25% tariff could be imposed on imported pharmaceuticals. The impact on the healthcare industry will be far-reaching if the tariffs go into effect, as 61% of adults and 20% of children in the United States fill at least one prescription each year. Tariffs are expected to affect both drug pricing and availability, creating higher prices, increasing drug shortages, and affecting health outcomes.
Tariffs on pharmaceuticals are expected to increase drug pricing for consumers. Insurance companies are not designed to handle a twenty-five percent increase in the cost of medications, due to restrictions on pricing from programs like Medicaid, and that will result in a downstream effect on their patients. This could result in reductions in coverage or the removal of certain drugs from insurance coverage. The resulting changes in coverage and costs will fall to patients.
In part, drug pricing would also go up because it could take years and be more costly to create domestic productions for medicines that are currently being produced abroad. Drug pricing is a complex system because drug production involves multiple layers of manufacturing and steps. Some pharmaceutical companies may be better equipped to handle a pharmaceutical tariff because of existing manufacturing facilities responsible for producing active ingredients while others will struggle more because of a high proportion of active ingredients produced internationally. Those that do not have domestic facilities encounter the additional barrier of FDA regulatory requirements in creating new domestic manufacturing plants.
Drug availability is also in question under the proposed tariffs. In response to the tariff threats, some companies have already expedited shipment to the United States for certain drugs. Coupled with chronic shortages of some generic drugs in recent years, tariffs would put pressure on an already fragile industry. Tariffs could result in supply chain disruption. It is also predicted that fragile generic injectables will go into shortage.
The efficacy of tariffs is as yet unclear, but research is being compiled on possible implications. The Brookings Institution compiled research on pharmaceuticals and found tariffs will provide an incentive to increase domestic manufacturing for brand-name drugs only. This would not affect off-patent generic drugs which make up 90% of the volume of drugs and only a fraction of the costs. The study anticipates that a cut into the already small profit margins will lead to products being discontinued and a loss of some quality standards.
It is unclear precisely what tariffs will do to the pharmaceutical and patient care industries, but it is widely expected that changes will come. At a White House event on April 2, reciprocal tariffs were announced, which would have an impact on the pharmaceutical industry. The White House stated there would be “no exemptions.” On April 9, a 90-day pause on the tariffs was instituted against most foreign countries except China. This pause is a lower reciprocal tariff, at 10%, except in industries with 25% tariffs, like aluminum and steel. Tariffs are expected to impact the pharmaceutical supply on a global level, which may result in “an extreme burden on the patient.”