Medical-Supplies Companies Object to Proposed New Tariffs

Date : 06/26/2019 @ 2:38PM
Source : Dow Jones News

Medical-Supplies Companies Object to Proposed New Tariffs

By Katy Stech Ferek 

WASHINGTON -- Add one more group to the long list of industries working to block new tariffs on Chinese imports: medical-supply companies.

Trade officials have left the pharmaceutical industry and other pockets within the health-care sector out of the trade conflict, but dozens of medical supplies -- tongue depressors, exam gloves, surgical gowns and the like -- used in everyday patient encounters are among the $300 billion in Chinese imports facing 25% tariffs under the Trump administration's latest proposal.

Tariffs on these goods would raise costs substantially to health-care providers, putting further pressure on struggling hospitals and nursing homes, said Matthew Rowan, president of the Health Industry Distributors Association, which speaks for wholesalers that deliver to 210,000 physician offices, 6,500 hospitals and 44,000 nursing homes.

"Health-care products are essential to the nation's pandemic- and emergency-readiness capabilities," Mr. Rowan said. "The risks to health care and public health from tariffs outweigh any benefit to trade or economics."

Mr. Rowan was among more than 300 people who testified on the proposed new tariffs during seven days of public hearings conducted by the U.S. Trade Representative's Office, which ended Tuesday.

Companies and individuals have until July 2 to submit written comments, and the plan could be derailed if President Trump agrees to hold off on new tariffs during his scheduled meeting with Chinese President Xi Jinping on the sidelines of the Group of 20 meeting in Osaka, Japan, this weekend.

The Trump administration asserts that the tariffs are needed to convince Beijing to end practices that harm U.S. companies. At the hearings, North Carolina-based Parkdale Mills, a 103-year-old textile company that operates 28 yarn-spinning and manufacturing facilities in eight states, applauded the Trump administration for "finally addressing China's massive illegal trade activity in the textile sector."

Imposing tariffs "could help direct new investment, production and employment through the U.S.-Western Hemisphere textile and apparel production chain," said Daniel Nation, the company's director of government relations, during the hearings. The company employs about 5,200 people.

Most industries, however, have asked for exemptions from tariffs.

The medical-supply industry relies on surgical gloves, drapes and underpads from China. While these goods are "relatively inexpensive compared with other health-care costs, they are used in large volumes and will result in a significant cost increase," said the American Health Care Association, which represents more than 13,500 nursing homes and other skilled-care facilities.

The proposed tariffs would increase costs by millions of dollars a year for Astria Health, a Sunnyside, Wash., operator of three hospitals and dozens of outpatient clinics that filed for bankruptcy in May after bill-collection trouble.

As eastern Washington's largest nonprofit health-care system with annual revenue of about $240 million, Astria Health treats more than 340,000 people every year.

"The increase in costs resulting from these tariffs will result in higher insurance premiums for patients, higher out-of-pocket costs, and ultimately higher taxes to cover increases in Medicare and Medicaid costs," Chief Executive John Gallagher said.

The proposed tariffs could increase the cost of medical supplies at a time when some health-care providers face financial trouble, including from lower reimbursement payments from government insurers Medicare and Medicaid that no longer cover what patient care actually costs.

The level of health-care distress has increased faster than the overall rate of distress recorded across U.S. industries, according to the Polsinelli-TrBK Distress Indices report that began tracking chapter 11 case filings in the fourth quarter of 2010.

"The health-care industry, from where I sit, faces a lot of pressure," said California bankruptcy attorney Samuel Maizel at Dentons US LLP law firm.

Medline Industries Inc., which records more than $12 billion in revenue with its sales of more than 200,000 types of medical-supply products, imports more than four billion exam gloves and more than 130 million isolation gowns a year. The proposed tariffs on gowns, surgical drapes and exam gloves alone would increase costs by nearly $60 million a year, it said.

The Northfield, Ill., company employs more than 15,000 people and makes some products at 22 U.S. sites. But Group President Jim Pigott told The Wall Street Journal that labor costs, the lack of outfitted domestic facilities and U.S. Food and Drug Administration oversight of new facilities make the idea of starting to produce supplies here unrealistic.

The cost increases will be tough for his clients, Mr. Pigott said.

"Hospitals operate on very thin margins," he said. "For nursing homes, the margins are even more thin."

All of the disposable gloves that California's Shen Wei USA sells to first responders, labs and the pharmaceutical industry are made in China. Company officials have looked into moving production to Malaysia and Thailand, but factories there couldn't replicate their technology, said Chief Commercial Officer Robert Gaither.

Advanced Medical Technology Association, which represents more than 400 manufacturers of orthopedic implants, diagnostic equipment and other medical devices, said that health-care products have historically been left out of trade developments under the rationale that "patients should have access to basic human necessities."

Proposed tariffs on components used to make medical technology, which would apply to motor parts, circuit boards and other parts, "should be exempted ... for humanitarian reasons alone," the group said in a submitted statement.

"These tariffs are not helping our industry compete in China and are likely to be imposing costs on U.S. health care," the group said.

--Josh Zumbrun contributed to this article.

Write to Katy Stech Ferek at katherine.stech@wsj.com

 

(END) Dow Jones Newswires

June 26, 2019 09:23 ET (13:23 GMT)

Copyright (c) 2019 Dow Jones & Company, Inc.


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