Latest / Off the Chart: A Business of Medicine Podcast / S1 Ep139: Tariffs and the medical device industry, with Casey Hite, CEO of Aeroflow Health
Transcript
- 0:00 Our life's work is helping you protect yours. Copics, Medical Liability Insurance delivers more than just a standard policy. Our physician led leadership team supports and protects physicians. A PPS and medical facilities with expertise developed from decades of experience, CME accredited education and 24/7 hotline support from a physician, C, o, p, i, c, com, we're Copic here for the humans of health care here for you, 0:25 really, it comes down to the initial size of the tariffs. Was it was mind blowing. 0:31 The initial size of the tariffs that were quoted would have made, made some business lines that were involved in unsustainable we would have had to exit them completely. 0:42 You. Chart, a business of medicine podcast featuring lively and informative conversations with healthcare experts, opinion leaders and practicing physicians about the challenges facing doctors and medical practices. My name is Austin Luttrell. I'm the associate editor of medical economics, and I'd like to thank you for joining us today. In today's episode medical economics, managing editor Todd Shryock, sat down with Casey height, CEO of Aeroflow health. They discuss how tariffs on medical devices and components have reshaped the economics of manufacturing and supply chains, and what that means for physician practices already operating on tight margins. Casey height, thank you again for joining us, and now let's get into the episode. 1:31 I'm Todd schryock with medical economics, and I'm here with Casey height, CEO of medical equipment provider, Aeroflow health, to talk about tariffs in the medical device industry. Casey, thanks for joining me. Thank you. Thanks for having me so. Casey, when tariffs on medical devices were first announced, what were the biggest concerns within the industry? The primary concern, certainly in Aeroflow, is access to care, right? And so whether or not we would be able to sustain the impact to our margins enough, you know, to continue providing the products and services we provide, as you know, you know, our we don't have the, but I don't want to say the luxury, but we don't have the ability to pass those additional cost off to our consumers, because, you know, 90 plus percent of our revenue is paid through third party payers, health insurers, primarily, and those, those those rates are set in the contracts that are negotiated well in advance and are in place for, for, for several, several years. 2:34 Were there certain segments of the medical device market that were expected to be hit hardest by the tariffs? And why? Why that segment? 2:44 Yes, primarily. The primary segments hit hardest by tariffs are the ones where the products are manufactured, obviously overseas, but primarily soft goods, things like, at least in our business, breastfeeding supplies, a lot of that is manufactured overseas. And you know, at a minimum, even with the electronic medical equipment, the components that go into those devices, they might be assembled here in the US, but those components and raw materials are overseas. 3:13 So early on there was, there was a lot of fear, because there were so many unknowns. Looking back now, how closely did those initial fears match what actually happened in the market? Sure. Well, one thing I think we've all learned is that the initial announcement of tariffs and the size of the tariffs is rarely, if ever, what actually goes into effect. So, I mean, you know, so that's one really. It comes down to the initial size of the tariffs was, it was mind blowing. 3:44 The initial size of the tariffs that were quoted would have made, made some business lines that were involved in unsustainable we would have had to exit them completely. Luckily, the amount or the size of those tariffs decrease the time. 3:58 So what have been the most measurable real world effects of tariffs on medical devices. 4:05 So for physicians, hospitals, etc, the most you know it is, they're already dealing with constrained profit margins, just just like companies like aeroflood are as well. So it is, it's preventing, it is preventing access in some instances, certainly to get to get, you know, soft goods, say, if you're a physician's office, things like syringes, personal protective equipment, those things are more expensive. So it's, it's, it's really causing those types of organizations to look for savings in other areas. So I would say, you know, an unintended consequence of tariffs and something that Aeroflow has certainly embraced is the urgency in the innovation that we've always focused on. So we've doubled down, and, I'd say, tripled down, and really created a, you know, a crisis within the organization, but took it as an opportunity to rally our staff around this crisis and innovate faster and re. 5:00 Really empower all levels of the organization to find ways to be more efficient so that we can continue to provide access to these products and services that people really need. 5:09 When you talk to others in the industry, are you hearing the same types of adaptations that they're having to do that you guys did? No, a lot of folks in the industry are focusing primarily on the tariffs themselves, and trying to address tariffs by, you know, by lobbying the government, really working with the manufacturers to try to lower costs. 5:33 Some are are handling and similar to Aeroflow, where we said, okay, you know, yes, on one hand, we're going to address this with our manufacturers and look for opportunities to lower cost. But we're going to look opposite, the opposite direction. Say, how can we take this and how can we leverage technology thing in AI to drive more efficiency, to make up those lost margins, indirectly. 5:58 So let's talk about AI for a minute, like, specifically, how have you used AI? What have you heard others doing, as far as device companies using it to respond to some of these tariff pressures? 6:11 First off, when we when, when we think about AI at Aeroflow, we look at technology, and we look at AI as a force multiplier. We see it as a way, obviously, to produce increased productivity reduce costs. But I think this is one of those rare situations where you can have your cake and eat it too, because the more you embrace technology, 6:36 not only do you reduce cost, but we find opportunities to improve our service levels, increase the speed with which we respond to income and inquiries. So it is, again, one of those rare opportunities where you it's not it's not just about lowering costs. Really, every time we find more ways to boost productivity, we increase the level of service and certainly speed up the response times that we have with our customers, and so put along your question some of those specific areas. 7:07 One, very simple, well, first of all, I think a lot of a lot of companies, or a lot of folks miss a very simple point as it relates to AI, just the simple productivity that is gained by using a large language model to perform a search on the net or the internet to find answers to your questions, is boost productivity. It's hard to hard to measure, but just that very simple approach of putting these tools in your employees hands is going to help boost productivity. But some more of the innovative things that Aeroflow is doing is ultimately, we're trying to reduce our reliance on fax machines. A lot of folks that are in the healthcare industry don't realize that 7:48 doctors communicate with each other with facts medical offices, fax is the primary means of communication. So what we've done is we partnered with companies like particle health and redox so that we can set up data pipelines between us and the physicians EMR system. So again, that we're communicating directly. One of the real advantages of that is we are able to extract the medical records we need to prove medical necessity to folks insurance companies directly from the physicians EMR systems. So that's not only, you know, increase in Aeroflot sufficiency and productivity, but it's also decreasing the amount of labor that physicians and healthcare offices need to expend to respond to those requests. Some other examples, automating our medical record interpretations and extracting data from them. So typically, when you're a company like Aeroflow, when you when you need to prove medical necessity for a patient or to review their medical documents in order to determine whether or not they qualify based off their insurance requirements, 8:56 when you make you send a request to the physician's office, the easiest thing for them to do is to send you the entire patient's chart, right? And that can be hundreds and hundreds 1000s of pages. So in those cases, we're using AI now to extract specific elements out of that data and putting that in front of our people so that they don't have to parse through hundreds of pages of notes. 9:20 That's where we're at today. But we're really we're not far off from being able to actually use these, these AI 9:29 agents, to interpret that extracted information and essentially say, okay, yeah, this person meets insurance requirements, or this person doesn't. Obviously, we're not going to be able to do that in 100% of the cases, but we see we're targeting about 15% of our interpretation of these, of these documents, to be done in a fully automated way by the end of this year. I mean, so one of the obvious ones is just is implementing AI agents to respond to incoming inquiries that come in via email? 10:00 Chat or even on the phone, a lot of those simple inquiries related to, say, tracking information or a ship date or or straightforward questions can be answered directly by an AI agent. We're using those agents to respond to chats and emails, 10:17 and we're very close to having them answer the phone, I think something that's very important to point out when you're talking about this subject, though, is it's really important that these agents are able to measure customer sentiment in real time, so that you don't ruin your service levels or the experience that your customers are having. You need to be able to measure the person's sentiment in real time, via chat or via phone, to say, hey, we're hitting a dead end here. Let's we need to, we need to get this to a live agent quickly. I mean that and that that that is crucial to make sure that that is real time and you get it to them quickly. Because everybody's experienced being stuck in an infinite loop and not being and getting, you know, getting boilerplate answers to questions that aren't can't be answered with the boilerplate, right? And so measuring is 11:07 you have to be very strategic about how you implement these tools. If you don't do it right, you're going to destroy your service level. Just in arguably, you destroy your organization. You really got to be strategic in how you implement it, and always don't, don't put cost savings above the service that you provide your people. Another straightforward, and this is when you hear about on the news a lot, is is putting the AI tools in our computer engine our application developers hands things like Cloud AI has been a great tool for our folks. You know, a lot of a lot of the tasks that a computer engineer historically had to do manually can now, especially the simple task can be done by this by by AI tools. I'm not, I wouldn't say, formally trained in as a computer developer, but I've taught myself through the years and in the early days of Aeroflow as an organization, I wrote a lot of our applications myself, and 12:06 I've started using these tools from time to time, not, you know, not in my CEO capacity, right? But, but really, just really, it's fun for me, right? And so, and I'm and I'm shocked and amazed at the how far you can take one of these tools to really knock out, I'd say, you know, 20, 30% of that initial workload that you have as a computer developer. 12:35 Hey, there. Keith Reynolds here and welcome to the p2 management minute in just 60 seconds, we deliver proven, real world tactics you can plug into your practice today, whether that means speeding up check in, lifting staff morale or nudging patient satisfaction north, no theory, no fluff, just the kind of guidance that fits between appointments and moves the needle before lunch. But the best ideas don't all come from our newsroom. They come from you got a clever workflow, hack, an employee engagement win, or a lesson learned the hard way. I want to feature it. Shoot me an email at K Reynolds at mjh life sciences.com, with your topic, quick outline or even a smartphone clip. We'll handle the rest and get your insights in front of your peers nationwide. Let's make every minute count together. Thanks for watching, and I'll see you in the next p2 management minute. 13:27 It's pretty amazing how AI has moved from, while this is really neat to it is ingrained in everybody's workflow. It's been a very rapid adaptation. It seems like, yeah, you know, it has, but you know, there's, I'm sure you've read the articles. There's a lot of talk about, 13:49 companies are talking about the CEOs are talking about this across the nation, but they're not actually seeing the efficiencies gained through AI or implementation is flawed. It's taken them forever rolled out. 14:02 You have to be cautious with it. You know, we found, you know, if you have large meetings discussing these types of things, and you're trying to develop these tools, and with large groups of people, things just move slower. And there's also, you know, there's a lot of competing incentives, but one of the hurdles we had to get our people over is, Listen, this is, this is going to enhance you at this organization. It's not something to compete with. But I'll be honest, even, you know, at first, when I first started using these tools in the computer, you know, looking at computer applications or to develop computer applications, I thought to myself, I said, God, what am I? What am I needed for? You know, you know you have to, you have to talk to that ego, because at first, 14:45 I'm not too special anymore, right? But, you know, I think if you let the dust settle and you think about that a little bit, and you say, oh, you know, ultimately, you know, we decisions, certainly there will flow that in the best interest of the organization, not the individual, but I'll be the first. 15:00 To say that when I initially saw these things, it hit my ego a little bit. So have tariffs had any unexpected or counterintuitive effects on innovation in medical devices? 15:14 I mean, I think the counterintuitive, and some might argue, intuitive effect of tariffs is it's made, it's increased the urgency that companies innovate, because we have to find other ways to boost productivity. So terrace have certainly had that effect. And I think we're seeing the effect of 15:33 AI and technology in the labor markets today. It's not, you know, you can't directly attribute it to, you 15:40 know, the number of job openings that are out there, or the number of, you know, new positions that are being hired for, but it's there, and I think it's going to be a slippery slope, and we're going to see, you know, we're going to see more and more where, you know, you know, companies are not going to hire as much. And I'd say that is definitely 15:59 an effect of tariffs, right? The uncertainty produced by tariffs, number one, is going to make folks hesitate to bring on new positions. But even just the fact, you know, no matter what, tariffs are not going away. I think you know we have to accept that this is the reality. It's not going away. You're going to be paying more for you know, your cost of goods are going to go up. So, you know, you've got to find ways to innovate. So, you know, I think that's that's to, you know, one tariffs have helped accelerate the folks embracing AI and technology, but at the same time, you know, they will, with time, you know, you know, really, you know, depress the labor market. We're really, you know, folks are going to companies are going to have to invest in their people and retrain them and teach them new skills. 16:50 Early on, there was a lot of talk about how, basically, every level of supply chain was kind of eating a certain percentage of the tariff to prevent the big, massive price increase has, from your perspective, has that gone away? You know, are you seeing prices increase as companies are less willing to eat the tariffs and pass it on to the customer? We haven't seen that, but you're right. So a large, you know, a decent, I wouldn't say, and you know, a huge percentage, but a decent percentage of the increased cost of tariffs are being are being shouldered by the manufacturers. 17:30 You know. You know, a good comparison is not directly to manufacturers, but just tariffs in generals, in the impact on our organization, 2020 24 compared to 2025 our cost of goods have increased 15% and that's and that's across the board. So you know, have we been able to find 15% in savings outside of our cost of goods? No, right? So you know, it's not just the manufacturers that are shouldering that additional cost. It's also companies like Aeroflow. 18:02 So from your perspective, what lessons has the medical device industry learned from navigating tariffs? I think one is, you've got to diversify your your product line. You've got to diversify your product line, and you have to diversify the sources that your supply chain relies on, right? It can't just be concentrated in one country. You need to be across multiple countries to mitigate a spike in tariffs in one specific country. So we really put an emphasis on finding manufacturers or sources of the materials we need in countries, say, other than China, right in getting, you know, getting outside the box and really diversifying the sources that we access via our supply line. 18:46 So looking ahead, how should physicians and healthcare leaders think about tariffs, technology and AI as ongoing factors in device availability and cost? I don't know what the psychology behind this is, but for whatever reason, within the healthcare industry, there's always sort of a doom and gloom culture, right? And and it's often less about the opportunities that are present and more about protecting what's already there. It's one of the reasons why the, you know, fee for service payment model in US healthcare is still in place. Everybody agrees it's not the right path forward, but nobody's willing to let it go right people, you know, people in healthcare, they typically physicians, hospitals across the board, you know, they like the 19:36 they want to protect what they have and really see the opportunities that exist, my recommendation would be to look at this from a different lens, 19:46 and look for opportunities to rally your staff around this crisis and motivate them to find ways to boost productivity and embrace technology. Look at change. Look at we. Look at every change in every. 20:00 Flow is an opportunity. So I would, I would, you know, I would suggest that other folks in the healthcare industry, except where we're at it's not going away, and find opportunities to make up those lost margins and to continue to provide patients with the access to care. 20:17 Is there anything else about tariffs that you would like to talk about that we haven't mentioned, this isn't a political issue for Aeroflot all, but, you know, but I would say that I think in cases of national security, tariffs can be an effective tool to boost leverage against somebody that doesn't have arrow. The US is best interest at heart. I think you know that we need it is that I think we can all agree on that. So that's not to say that we love tariffs here, quite the contrary, right? 20:49 But we have found the opportunities to rally our staff and really embrace change and boost productivity and implement a lot like covid. I mean, there are a lot of parallels here with covid, right? The technology to have a meeting like we're having today existed way before covid. Nobody really embraced that technology, until covid forced us to do it. I see that the parallels there are very similar to tariffs. Tariffs have shook things up and have really accelerated companies and people embracing technology that had already existed. So it's really just it's acted to speed things up. 21:27 Very good. Casey, thanks for joining me today. No thank you. I appreciate it. 21:42 You. Aeroflow health speaking with medical economics Managing Editor Todd schryock on behalf of the whole medical economics and physicians practice teams. I'd like to thank you for listening to the show and ask that you please subscribe so you don't miss the next episode. As always, be sure to check back on Monday and Thursday mornings for the latest conversations with experts, sharing strategies, stories and solutions. And solutions for your practice. You can find us by searching off the chart, wherever you get your podcasts, and if you'd like the best stories that medical economics and physicians practice published delivered straight to your email six days of the week, subscribe to our newsletters at medical economics.com and physicianspractice.com off the chart, a business of medicine podcast is executive produced by Chris mazzolini and Keith Reynolds and produced by Austin Latrell. Medical economics and physicians practice are both members of the mjh Life Sciences family. Thank you. You.