Mexico, not China, is biggest tariff concern among radiology vendors
There will likely be cost increases for healthcare imaging systems and components from President Trump's 10% tariffs on China, but vendors are bracing for what might be a much harder hit if 25% tariffs go into effect against Mexico in the next month.
Lower wages and manufacturing costs in Mexico have made it a prime location for many medical devices manufacturers that produce imaging systems or radiotherapy systems sold in the U.S. The mainstream news media has highlighted the auto industry and its back-and-forth nature of the supply chain across the Canadian-U.S. border. A similar relationship exists between the Mexican-U.S. border for healthcare companies.
A good example of this GE HealthCare, which has an assembly factory in Monterrey, Mexico. The company would not say what specifically its factory there produces, but previous articles and information on world trade websites say it manufactures MRI systems, X-ray tubes, and control panels, screens and imaging system patient tables.
According to Abrams World Trade, a comprehensive world trade database, GE ships a large amount of components from the GE's headquarters in Waukesha, Wisconsin, to the Mexican factory. In turn, finished products from Monterrey are shipped back across the border to the U.S., totaling 215 tons in shipments). The factory also shows the complex nature of supply chain required to build complex imaging systems, with total shipments of parts from nine countries, including China. About 97% of the products made at the Monterrey plant are shipped to the U.S.
"As it relates to tariffs, this is a dynamic environment. Meanwhile, our teams have been, and will continue to, proactively work on potential mitigation plans in our supply chain operations. Beyond that, at this time, it's too early to comment on the specifics," GE HealthCare said in a statement to Radiology Business.
Siemens Healthineers' Varian radiation therapy division manufactures high-end components and equipment in Tijuana, Mexico. Siemens also operates other facilities in Mexico City, Querétaro, Nuevo León, and Chihuahua.
"We expect only minor impacts from the U.S. tariffs on imports from Mexico, if they are imposed. Tariffs on Canada and Chinese imports are even less of an impact for us. So all in all, we expect these headwinds to be rather limited and manageable," Jochen Schmitz, Siemens Healthineers CFO, explained in a Feb. 6 earnings call for investors.
He said Siemens expects the U.S. dollar to become stronger in the coming year, so any losses from tariffs will be a wash, and they expect to see continued revenue growth in 2025.
Philips Healthcare also manufactures numerous medical devices in Mexico. Its headquarters in Mexico City employs 718 workers. Philips' digital PET-CT systems are produced in Mexico. The company did not respond to our request for information regarding the possible impact of tariffs.
GE, Philips and Siemens all did not respond to questions about what imaging systems they produce in Mexico.
RBMA expresses concerns over tariffs
"Tariffs on imaging equipment and medical supplies will undoubtedly be passed on to the provider, whether it be a hospital or physician group. Given that our reimbursements from Medicare, Medicaid, and commercial insurance are relatively fixed, providers will not be able to transfer these additional costs to consumers or patients. Consequently, hospitals and physician groups will need to absorb these costs, further exacerbating the financial strain on healthcare providers," Radiology Business Management Association Co-executive Director Linda Wilgus, MBA, said in a statement to Radiology Business.
She said this financial pressure may lead hospitals and physician groups to delay or postpone updating their equipment. However, extending the life of older equipment results in increased maintenance and repair costs.
"Delaying the upgrade or repair of equipment can disrupt operations and increase patient wait times for imaging services," Wilgus said.
Mexico is a powerhouse in healthcare manufacturing
Mexico ranks seventh among the main medical exporting countries in the world and is the leading manufacturer of medical goods in Latin America, according to Prodensa, a global market intelligence firm that helps foreign companies enter the Mexican market. This includes $13.7 billion in healthcare related exports and being the top exporter of these goods to the United States.
Diagnostic imaging systems are among the top three healthcare manufacturing market segments in Mexico, along with 12% for cardiovascular devices and 13% for in-vitro diagnostics. The production of ultrasound machines and angiography systems also are noted as having increased since the pandemic.
In addition to the imaging companies above, other large healthcare companies with a strong presence in Mexico include Medline, Medtronic, Becton Dickinson (BD), Abbott Laboratories, Johnson & Johnson, Boston Scientific, Cardinal Health, Stryker, Smiths Medical, and Welch Allyn.
Mexico is a leader in FDA, CE and ISO 13485 certified manufacturing facilities, Prodensa said. Of these, 70% operate in controlled environments.
Prodensa's overview of the medical device industry in Mexico also states the production costs there are competitive with Asian countries, with labor and manufacturing costs actually being lower than China.
The increasing amount of healthcare production has led Mexican universities to create career paths in biomedical engineering, prosthetics manufacturing, chemical pharmaceutical biology, and other related fields. The firm said in the 2022-2023 academic year, over 150,000 students graduated from careers related to medical device manufacturing.
Dave Fornell has covered healthcare for more than 17 years, with a focus in cardiology and radiology. Fornell is a 5-time winner of a Jesse H. Neal Award, the most prestigious editorial honors in the field of specialized journalism. The wins included best technical content, best use of social media and best COVID-19 coverage. Fornell was also a three-time Neal finalist for best range of work by a single author. He produces more than 100 editorial videos each year, most of them interviews with key opinion leaders in medicine. He also writes technical articles, covers key trends, conducts video hospital site visits, and is very involved with social media. E-mail: dfornell@innovatehealthcare.com