The last few months have been scary times. It is the first time in my life when I feel that the pillars of the economic progress that we’ve made over the last 250 years are under serious threat. In an upcoming article in Fast Company, I discuss the economic world order that was created at the Bretton Wood conference in 1944 and how that world order resulted in a current world GDP of $110 trillion, up from a mere $5 trillion at the end of World War II. The current upheaval can mean a disruption to this system of international trade and commerce and that can do serious damage to the prosperity that has resulted from this world order. Trade barriers, uncertain public policy, disrupted supply chains, choking off of research dollars to elite institutions, and undermining of the rule of law will have serious consequences for every aspect of the economy and our lives, including our health.
Let’s start with the tariffs. While there is new hope that the US and China are now pausing the huge tariffs they imposed on each other following “Liberation Day”, it is far from certain as to where we will eventually end up with this. While healthcare delivery organizations in the US are still reeling from the economic impact of the pandemic and operate on thinner margins, the tariffs promise to deliver a massive blow to their operations. The average US hospital operating margins is in the range of just 0.9% to 1%! More than 90% of the disposables used in the hospitals, including items like gloves, face masks, syringes, tubing, and some surgical equipment. are manufactured in China and would be subjected to the high tariffs. At a 145% tariff rate, the impact on health system margins would be catastrophic. This would mean cut back on medical services, staff, and new technologies.
In the Medtech sector, which includes pacemakers, defibrillators, spinal implants, etc, more than $60 billion worth of medical devices and components are manufactured overseas and imported to the US annually. In a recent Pitchbook report, it is speculated that the larger firms may be able to shift production across countries and implement operational efficiencies to offset the higher input costs. However, smaller firms with less resources may have a hard time dealing with such a sticker shock to their inputs. They estimate that the aggregate financial effect on these companies is projected to exceed $2 billion, based on the current 10% general tariff rate and higher China-specific tariffs. It’s notable that during Trump’s first term, a tariff carve-out for medical devices was established for Chinese imports subject to tariffs. However, medical devices and supplies have not been excluded from new tariffs, and the lack of clarity and predictability can have major implications for investments into this space and the prospects of the companies operating in this sector.
On the digital health front, many wearables and remote monitoring devices are sourced from China, Taiwan, and Malaysia. These are areas that are likely to be affected by tariffs on electronic components. While larger firms may be able to absorb these costs, early-stage startups are likely to find themselves in a less competitive position given that their agility and lower prices are part of their go to market strategy. As such, tariffs may prove to be rather anti-innovation and favor incumbents. Innovative young companies that are creating new business models around these devices have been one of the drivers of the growth of digital health and this trend may bode poorly for this sector.
The other side of the recent policy changes is the massive cuts to the workforce of public health institutions and budget cuts to research and public health surveillance programs. The massive push by the Department of Government Efficiency (DOGE) to cut the federal agencies has had enormous consequences for the health sector. First up, DOGE dismantled US Agency for International AID (USAID) that administered many health programs around the world, including a significant number in emerging nations in Africa that included treatment of infectious diseases such as HIV and malaria. While these programs are administered overseas, the benefits of containing contagious diseases before they become pandemics and affect our lives is significant. Not to mention that these programs have improved the lives of millions around the world and been a symbol of our soft power.
Next up in cuts to health programs, significant reductions in the staff in agencies like the HHS, CDC, FDA, and other public health institutions. At the HHS, over 20,000 (out of 82,000) staff have been cut so far and there have been similar deep cuts at the CDC. These cuts have impacted critical areas responsible for lead poisoning, developmental disorders, birth defects, infertility, and more. In many cases some of the staff that were initially cut had to be contacted to return to their jobs due to the critical nature of their roles and that they were fired in error in the first place. This underlines the lack of careful assessment before arbitrarily cutting large number of staff to meet the desired quota for cost savings. Consequently, when all said and done, we can expect that we will all notice significant deterioration of public health and the disappearance of critical safety programs.
Another significant part of the cuts to the health programs has been the reduction in contracts and grants out of the public health institutions. DOGE has ordered the Department of Health and Human Services to reduce all of its contract spending by 35% and is involved in deciding what gets cut. These include ongoing research projects at the NIH. As reported by NOTUS, one directive had ordered reducing contract costs by a designated dollar value to achieve a reduction of total departmental contract spend by approximately $13.6 billion per fiscal year by April 18, 2025.
While cutting wasteful spending and inefficiencies is a worthwhile objective and important for the long-term fiscal health of the country, it appears that the recent reductions are being done with the aim of speed and hitting target dollar amounts rather than carefully identifying waste or inefficiencies before cutting. As such, we can expect devastating consequences for the overall health of our population at a time when our life expectancy is falling while it’s still rising in most OECD countries like France and Japan. It is not too late to push back against these policies and many are being challenged in court and will need to be passed into law through congress before they can become permanent. As such, working through the judicial and legislative branches to challenge the legal basis for cutting programs that have been authorized by congress and signed into law by the executive branch, as well as protecting these programs in future budgets would be critical.
