Why Supply Chain Deserves Executive Attention
The scope of supply chain extends far beyond medical-surgical and pharmaceutical supplies, which typically represent 11% to 22% of a health system’s total cost. When purchased services, food, contract labor, and information technology are included, supply-related expenditures can account for approximately 48% of operating costs. Add capital and medical equipment, and that figure can approach 50%.(1)
What makes supply chain particularly attractive as a margin lever is the near-direct translation of savings to the bottom line. When contracts are executed and costs are reduced, those savings are not diluted by overhead allocation. They land on the income statement. In an era when most health systems are being asked to do more with less, that characteristic alone justifies significant executive investment.
The Environment in 2026: What Is Driving the Pressure
Several interrelated forces are shaping the supply chain landscape this year, requiring proactive rather than reactive leadership:
Regulatory and Coverage Shifts: The One Big Beautiful Bill Act (Public Law 119-21), signed into law on July 4, 2025, introduced sweeping changes to Medicaid and ACA marketplace coverage, including new work requirements for Medicaid expansion enrollees, more frequent eligibility redeterminations, and the expiration of enhanced premium tax credits at the end of 2025. The Congressional Budget Office projects that these provisions will result in approximately 10 million additional uninsured Americans by 2034, with near-term coverage losses beginning in 2026.(2) These losses are already beginning to reshape patient acuity and care settings. Health systems should expect to absorb a growing volume of patients with complex, chronic conditions as coverage gaps widen.
The same legislation established the Rural Health Transformation Program, a five-year, $50 billion federal initiative, with awards distributed to all 50 states beginning in December 2025.(3) How those resources flow into rural care delivery remains uncertain, but the program signals a structural shift in how care will be organized and financed across a significant share of the country’s geography.Geopolitical Risk and Tariff Volatility: Supply chain professionals have long understood that the materials entering a hospital come from a global manufacturing base, but the degree of exposure to international disruption has become more acute. An estimated 62% of medical devices used in the United States are imported, and nearly 70% of US-marketed devices are manufactured solely outside the country, making sweeping tariff regimens particularly burdensome for healthcare providers.(4) Add to this the recent instability with shipping in and around the Strait of Hormuz, disrupting the resin market and glove production in Malaysia (45% of the world’s market), and you see the vulnerabilities. Tariff instability compounds this risk.
During the current period of trade uncertainty, some suppliers have been unable to establish pricing due to the layered complexity of variable tariff schedules, material assembly timing, and shifting country-of-origin rules. Health systems that have not built tariff pass-through protections and hard escalation ceilings into their contracts are particularly exposed.
The continued inconsistency in policies only confuses the issues further, leaving buyers and sellers in a quandary. The best protection is to legally protect your organization as best as possible through contract terms.Cybersecurity as a Supply Chain Risk: The healthcare sector’s cybersecurity vulnerabilities have been well documented, but supply chain leaders must now account for cybersecurity risks that originate not within their own systems but within their supplier and supply chain partner networks. On March 11, 2026, a cyberattack on major medical device manufacturer Stryker disrupted order processing, manufacturing, and shipping operations globally, causing some health systems to delay surgical procedures.(5) A supply chain strategy that does not include supplier cyber-risk assessment is incomplete.
Care Migration and Expanding Footprint: The continued shift of care to non-acute settings (e.g., ambulatory surgery centers, hospital-at-home programs, outpatient facilities) means that supply chain management must extend beyond the four walls of the acute care hospital. Sg2’s 2025 Impact of Change Forecast projects 18% growth in adult outpatient volumes over the next decade, compared to only 5% growth in adult inpatient discharges.(6)
Contracts and distribution systems designed for the inpatient environment do not automatically translate to non-acute settings, and the products needed in those settings may not align with existing contract structures. Health systems that have not yet extended supply chain governance to their full care continuum face both cost and compliance risk.Projected Cost Increases: Despite widespread pressure to reduce expenditures, supply costs are predicted to continue rising across all major categories in 2026. Drug costs are projected to increase by more than 3% overall, with non-contract pharmaceutical products rising nearly 4%. Medical-surgical products are expected to increase approximately 2% on average, with surgical supplies increasing at a higher rate. Purchased services and information technology (which are increasingly the fastest-growing cost categories) are experiencing persistent inflation that, in some categories, may exceed these projections.(7) These increases do not account for the potential impact of additional fuel surcharges or trade actions, which could introduce further volatility at any point during the year.
A Framework for Managing What Is Controllable
Leaders who have absorbed the scope of these pressures sometimes find themselves paralyzed by the scale of the challenge. A more productive posture begins with a clear distinction between what is controllable and what is not, and a commitment to executing aggressively on the former:
Build a Standing Supply Disruption Team: Supply disruptions are no longer episodic events to be managed reactively. They are a permanent feature of the operating environment, and health systems that treat them as such will be better positioned than those that improvise responses each time a shortage occurs. A formal supply disruption team — drawing from supply chain, finance, legal, clinical leadership, and risk management — should maintain continuously updated inventories of high-exposure critical supply categories, pre-approved contract language for common disruption scenarios, pre-approved clinical alternatives, and allocation management protocols. This team is not a one-time task force; it is an ongoing operational capability.
Move Beyond Unit Price: One of the most consequential changes supply chain leaders can make is to redefine what they are actually negotiating for. Unit price is one data point. Total delivered cost — inclusive of freight, fuel surcharges, waste, substitution costs, and inventory carrying costs — is what matters. Contracts should include hard ceilings on escalation indices where possible. And if not, they should be tied to upside and downside market shifts, monitored on a regular basis; tariff pass-through documentation with time limits and audit rights; service-level credits for fill-rate failures; and benchmarking clauses that allow renegotiation when the market moves. Price transparency is not a courtesy to request from suppliers; it is a contractual obligation to demand.
Modernize Value Analysis: The traditional value analysis committee, characterized by long meeting cycles, broad membership, and sequential product review, is poorly suited to the pace of disruption supply chain teams now face. A three-tiered approach offers a more nimble alternative.
At the base are commodity items with low negative patient outcome impact (e.g., exam papers, can liners, disposable supplies) that should be managed by nurse advisors with supply chain empowered to make decisions within days, not months. The middle tier encompasses clinical preference items requiring business cases, outcome research, and operational review through a standing clinical work group that functions more like a product formulary than a committee. At the apex are high-impact clinical items such as physician preference items, robotics, implants, and capital equipment, where physician leadership, infection control, reimbursement specialists, and supply chain collaborate on clinical protocols and decision matrices before supply chain determines contracting strategy.
In this model, supply chain executes on clinical guidance rather than substituting its judgment for clinical expertise.Centralize Purchased Services Governance: Purchased services are a broad category of outsourced and contracted clinical and non-clinical professional and non-professional functions encompassing everything from biomedical services and nutritional services to information technology and laboratory equipment. It represents one of the largest untapped margin opportunities in most health systems. Most organizations manage these categories in silos, with multiple leaders authorized to execute contracts for the same supplier, no central repository of active agreements, and no systematic approach to benchmarking or supplier accountability.
The path to better management does not require immediate full centralization, but it does require a defined governance model, a contract management system with calendar visibility, standardized metrics, contractual terms that favor the health system and not the supplier, and a regular portfolio review cycle. Health systems that have not conducted a comprehensive purchased-services audit within the past two years are almost certainly leaving money on the table.Develop a GPO Strategy, Not Just a GPO Relationship: Group purchasing organizations (GPOs) remain important to any contracting strategy, but the market has changed substantially. The national GPO landscape has consolidated to very few primary players, while regional purchasing alliances have grown in both number and specialization. GPOs are diversifying their offerings by adding consulting, technology, staffing, and resiliency services, meaning the value of a GPO relationship can no longer be assessed solely on pricing.
Health systems should approach their GPO strategy as they would any significant vendor relationship: with defined objectives, competitive evaluation on a regular cycle, and a clear view of what they are paying for relative to what they are receiving. Committed programs deserve particular scrutiny, as the terms that generate savings in some categories can result in losses in others when viewed in portfolio terms.
Building for Resiliency
Supply chain resiliency is sometimes conflated with inventory accumulation. It is not. Carrying excess inventory creates its own costs in capital deployment, storage, and expiry risk, and it does not address the root causes of supply vulnerability. Resiliency, properly understood, is the health system’s capacity to ensure uninterrupted, safe, and affordable patient care by anticipating, withstanding, and recovering rapidly from disruptions without compromising clinical outcomes or financial performance.
Achieving that capacity requires dual sourcing for critical categories, pre-approved substitution protocols, actionable dashboards that provide visibility at the executive level, and contract structures that include supply assurance language. It also requires an honest assessment of which functions can be better executed through strategic outsourcing arrangements. For categories like biomedical services and imaging, where the total cost of ownership extends well beyond the negotiated service contract to include equipment downtime, deferred replacement costs, and the opportunity cost of capital tied up in aging assets, a rigorous build-versus-buy analysis frequently reveals more value than intuition suggests.
Artificial Intelligence: Governance First, Adoption Second
AI applications are already embedded in the supply chain workflows of the major enterprise resource planning (ERP) platforms, including Workday, Oracle, Infor, and GHX. Touchless purchase order processing, automated contract and price validation, and intelligent invoice matching are available today and are generating measurable efficiency gains for health systems that have deployed them. According to GHX, AI tools are now capable of analyzing complex supply chain patterns, flagging potential risks, and suggesting alternatives to maintain continuity — functions that were largely manual just a few years ago.(8)
What is coming next is more significant: enterprise data ecosystems that enable cross-organizational forecasting, AI agents built specifically for supply chain functions and customized to individual organizations, and predictive tools that can identify disruption risk earlier in the supply chain than human monitoring currently allows.
The appropriate response to this landscape is not to defer adoption until the technology matures further. It is to build the governance infrastructure of ethics policies, training protocols, and data management frameworks that will enable the organization to adopt AI responsibly and at pace. Organizations that have not yet established AI governance are likely to find themselves behind their suppliers, who are deploying these tools aggressively. A health system that cannot evaluate, adopt, and govern AI applications will increasingly be negotiating from a position of information disadvantage.
What Health System Leaders Should Do Now
The supply chain environment of 2026 rewards organizations that invest in governance, data, and cross-functional integration, and penalizes those that treat supply chain as a procurement function rather than a strategic capability. Several priorities merit immediate attention.
Leaders should ensure that supply chain has direct representation in executive and board-level discussions of financial performance, margin improvement, and capital strategy. They should invest in the analytical infrastructure (e.g., spend analytics, contract management systems, service line analytics, and benchmarking tools) that supply chain teams need to identify opportunities and track performance. They should conduct a comprehensive portfolio audit, covering GPO contracts, direct contracts, and purchased services, to understand where value is being captured and where it is being lost. And they should begin building people and process capabilities by leveraging nurse advisors, physician champions, skilled negotiators, and financial analysts to translate good contracting into sustained margin improvement.
Supply chain is not a support function. In the current environment, it is one of the most consequential leverage points available to health system leadership.
References
HospitalView: Comprehensive data on U.S. hospitals and health systems. Definitive Healthcare. https://www.definitivehc.com/data-products/hospital-view . Accessed on August 14, 2025
Changes to Medicaid, the ACA and other key provisions of the One Big Beautiful Bill Act. American Medical Association. https://www.ama-assn.org/health-care-advocacy/federal-advocacy/changes-medicaid-aca-and-other-key-provisions-one-big . Accessed April 27, 2026.
CMS announces $50 billion in awards to strengthen rural health in all 50 states. Centers for Medicare & Medicaid Services. December 29, 2025. https://www.cms.gov/newsroom/press-releases/cms-announces-50-billion-awards-strengthen-rural-health-all-50-states . Accessed April 27, 2026.
MARGMA urges relief measures amid NBR shortage due to Hormuz blockade. The Star (Malaysia). March 26, 2026. https://www.thestar.com.my/business/business-news/2026/03/26/margma-urges-relief-measures-amid-nbr-shortage-due-to-hormuz-blockade . Accessed April 30, 2026.
Zipp R, Jones D. Stryker’s manufacturing, shipping disrupted after cyberattack. MedTech Dive. March 13, 2026. https://www.medtechdive.com/news/strykers-manufacturing-shipping-disrupted-after-cyberattack/814667 . Accessed April 27, 2026.
2025 impact of change forecast. Sg2, a Vizient Company. June 23, 2025. https://www.vizientinc.com/newsroom/news-releases/2025/sg2-forecasts-18-percent-growth-in-outpatient-care-5-percent-inpatient-care . Accessed April 27, 2026.
By the numbers: healthcare supply price projections over the next year; Provista. September 30, 2025. https://www.provista.com/blog/blog-listing/by-the-numbers-healthcare-supply-price-projections-over-the-next-year .
How cloud and AI are transforming healthcare procurement. GHX. https://www.ghx.com/the-healthcare-hub/how-cloud-and-ai-are-transforming-healthcare-procurement . Accessed April 27, 2026.