The CMS Drive To Onshore PPE Production

During the pandemic, there were purchasing frenzies for personal protective equipment (PPE), ventilators, and other medical necessities which were no longer produced in the United States.  Foreign countries - notably China - embargoed PPE until their own needs were met, leaving American medical staffs unprotected.

The Centers for Medicare and Medicaid Services (CMS) is about to reward hospitals for buying domestically produced PPE, despite being more expensive.  CMS is trying to secure the PPE supply chain during future demand surges by shifting domestic users from marginal consumer status to full fledged participants in a domestic PPE supply chain.

In economic theory, a marginal consumer is the consumer who is least willing to pay the market price in a typical supply and demand equilibrium. This consumer is at the point in the market where purchasing decisions and supply are most sensitive to price changes.  The marginal consumer enjoys low prices in a normal market, but faces severe shortfalls in an oversubscribed market.  When prices increase or availability diminishes, the marginal consumer is the first to stop purchasing the product, and/or the first to get frozen out of the market.

This deeply flawed post by Justin Leventhal at the American Consumer Institute deliberately ignores marginal consumer economic theory, but reflects efforts by hospitals to reestablish the PPE status quo ante the pandemic.  Good for hospitals' immediate bottom lines, but likely to cause PPE shortages during the next pandemic:

https://www.realclearhealth.com/articles/2026/05/22/cms_wants_hospitals_to_pay_more_for_ppe_1184380.html

https://www.federalregister.gov/documents/2026/01/29/2026-01730/medicare-program-ensuring-safety-through-domestic-security-with-made-in-america-personal-protective

CMS Wants Hospitals to Pay More for PPE and Patients Will Pay the Price
By Justin Leventhal - May 22, 2026

In an attempt secure healthcare supply chains and bring more manufacturing to the United States, the Centers for Medicare and Medicaid Services (CMS) is proposing to reward hospitals for buying more expensive, domestically produced products. At the same time, the Administration has imposed tariffs on personal protective equipment (PPE) and is considering expanding those tariffs to additional PPE and pharmaceuticals. More expensive medical bills do not make supply chains more secure. Unfortunately, CMS’ subsidies will only increase already high hospital costs, without meaningfully increasing domestic manufacturing.

CMS is proposing to create a list of hospitals that purchase a sufficient share of their PPE from U.S. companies and reward them with larger Medicare reimbursements. While CMS has yet to define what that share would be, it has proposed basing it on all PPE as well as on each individual product, which would drive hospital administration costs higher trying to track.

Supply Chain security doesn’t require producing everything domestically at any cost. A diversified supplier base ensure availability while maintaining price competition. Lower costs also make it easier for the federal government to build and maintain strategic reserves of essential PPE. Masks, gloves, and gowns are durable goods that can be stockpiled until needed.

Concerns about American over reliance on China are often overstated. For many categories of PPE—particularly rubber, paper, and textile PPE—it is actually Malaysia that provides the largest portion. If the risk is that a geopolitical adversary could restrict supply, the solution is diversification, not reshoring at any price. Expanding sourcing to countries like Malasia, Mexico, Thailand, and others reduces dependence on any single supplier and limits the ability of any one country to disrupt supply.

CMS’ approach ignores the core issue: production cost. Hospitals don’t avoid American-made products out of preference; they do it because of the expense. America is one of the leaders in high-tech manufacturing and production that requires high-skilled labor. That means massive capital investments and high-paid labor. Bulk medical equipment is produced with the opposite. It is low-tech, low-skilled production that is inherently more expensive to produce domestically.

The proposal would also shift onto non-Medicare patients. While CMS would increase reimbursements for Medicare patients, those with private insurance would receive no offsetting support. Hospitals must either absorb losses or pass the higher costs on to insurers, which would then pass them on to patients through higher premiums and out-of-pocket costs.

CMS effectively conceded the problem. The agency’s proposal acknowledges the policy would raise PPE costs and that domestic suppliers currently lack the capacity to meet demand. However, paying more for the same product does not build capacity; it simply inflates costs.

If policymakers want more domestic PPE production, they should focus on reducing the costs of producing in the United States by addressing poor regulations. The FDA classifies much of PPE as medical devices—including surgical masks, gowns, and gloves—subjecting manufacturers to Quality System Regulation requirements. These rules increase compliance costs and create barriers to entry for smaller firms.

During COVID-19, the FDA waived many of these requirements to expand supply—an implicit acknowledgement that they were constraining production. Regulators should reassess which products truly require full medical device regulation. Non-sterile PPE including masks, gloves, and gowns can be produced safely and quickly at lower cost without the same regulatory burden.

Healthcare resilience does not mean abandoning cost-saving trade. It means building supply chains that are both reliable and competitive. Policies that raise prices in the name of security undermine both goals. Patients are best served by a system that delivers affordable care and can withstand disruption—not one that guarantees higher costs with little added resilience.

Justin Leventhal is a senior policy analyst for the American Consumer Institute, a nonprofit education and research organization that advocates for consumers through evidence-based analysis and data. Visit www.TheAmericanConsumer.Org or follow us on X @ConsumerPal.