The Trump administration's cuts to federal agencies could negatively impact some healthcare companies' financial stability and spark more deal activity as businesses look for additional support.
The future of Medicaid is top-of-mind, as proposed cuts loom large. Decreased reimbursements could have a materially negative impact on providers' credit ratings, especially organizations that have relied on supplemental payment programs, and create revenue challenges for payers as well, according to a Fitch Ratings report published last week.
Related: Republicans outline trillions in healthcare cuts
House Republicans recently passed a budget resolution that aims to slash spending by at least $1.5 trillion, with most of the cuts coming from the House Energy and Commerce Committee, which oversees Medicare and Medicaid.
Meanwhile, staffing cuts and proposed budget reductions at government agencies are already having an impact. At the Food and Drug Administration, these cuts are slowing drug and device approvals, which could force drug manufacturers, medical device companies and others to seek merger partners, according to the Fitch report.
"Fitch had anticipated that [a Health and Human Services Department] led by Robert F. Kennedy Jr. would direct resources toward vaccine assessments and thus potentially away from drug and device approvals but did not foresee the reduction in overall agency resources to be as rapid and significant as it has been," the report said.
New tariffs could also hurt credit profiles for pharmaceutical, medical device and diagnostics companies, according to the report. On Tuesday, the Trump administration implemented 25% tariffs on goods from Canada and Mexico, while tariffs on Chinese goods were increased from 10% to 20%. Healthcare providers are more insulated from the risks posed by tariffs, although they could still feel a squeeze on supplies and equipment.
Trade groups such as the American Hospital Association and the Advanced Medical Technology Association have requested exemptions for medical devices and pharmaceuticals.
In its report, Fitch said most companies could withstand the negative impacts of tariffs against China, Canada and Mexico, but any potential conflicts involving European trade agreements would add more hurdles. Retaliatory measures from countries targeted with tariffs also heighten the risks to financial performance.
