Braulio Jatar/Sipa USA via AP Images
A rare sighting of an N-95 mask in New York City. The medical supply chain has been ravaged by COVID-19.
First Response
The medical supply chain has become like something out of an improbable science fiction film, with renegade brokers and dead-of-night thievery. The United States has been likened to pirates, confiscating shipments of masks and gowns on tarmacs around the world. And profiteering middlemen are hiking prices up to 15-fold for basic equipment. This story of the assistant comptroller in Illinois rushing to a drop point at a McDonald’s off I-55 with a $3.4 million check, or Massachusetts using the New England Patriots’ private plane to retrieve a shipment from China, epitomizes the chaos.
In theory, these stories shouldn’t coincide. If the U.S. is stealing supplies around the world, why would middlemen be able to prosper? How is the federal stockpile of equipment so depleted if these acts of theft continue to occur? Why is the federal government competing with states for supplies that they’ll just distribute to states anyway? I managed to exchange messages with someone close to the Federal Emergency Management Agency effort to manage the supply chain, and he explained the agency’s operations, which appear to be making things worse rather than better.
At the core of the problem is the poor design of the U.S. health care supply chain in normal times. Hospitals typically receive supplies through one of four group purchasing organizations (GPOs), who sign sole-source contracts with suppliers. I explained this back in February, but suffice to say that it’s nearly impossible for hospitals to get out of the contracts, and it’s nearly impossible for suppliers to get a contract without buying off the GPO. This creates a race to the bottom for labor, typically long supply chains (mostly in China), low inventories, and a fragile system susceptible to shocks.
We have a shock now. And FEMA is only intervening to fix up one piece of the supply chain. They are going out and making flights to bring in supplies, but just to break the logjam in transportation (which has been made worse by stringent Chinese testing procedures on air cargo crews). The source described how FEMA sees its role: “to help the private sector facilitate movement and then help ‘guide’ where things go (not ‘direct’). They literally just act as UPS from source to distributor.”
Many of the same distributors are on the receiving end of this assistance. But states and cities do not have the same locked-in procurement contracts as hospitals, and the distributors on the hospital contracts don’t have the supply to meet demand. That has created the Wild West show, with middlemen and drop points and plane rescues.
My source has inquired why the federal government hasn’t imposed some coherence on this by centralizing the supply chain, giving single-purchaser leverage on the buying side, better coordinating where help is needed, and cutting out the middlemen. Externally, FEMA has been saying they don’t want to disrupt the free market, and that it’s not their job to supply states; internally, the reply has been that the supply chain is just too complicated. Nobody seems to understand it at the highest levels of the agencies involved.
There is an agency that does contract with suppliers for “medical countermeasures” (things like masks and gowns); that’s the Strategic National Stockpile. As we now know the SNS wasted two months before trying to secure any equipment, and is nearly depleted now. When you hear that the federal government is “outbidding” states for equipment, they’re doing it to restock the SNS, separate from the supply chain managers at FEMA. This makes no sense, because the SNS then resupplies the states it’s competing with. (The situation with Florida getting its full request of supplies while other states got next to none is a bit overblown; Florida asked for way less than it actually needed. “It’s mostly because DeSantis is an idiot,” my source said.)
One problem with the SNS is the equipment goes to states rather than hospitals, and states are responsible for “last mile” distribution. But interestingly enough, there was a yearlong initative at the Department of Health and Human Services, literally called “The Last Mile,” a pilot project from the office of the assistant secretary for preparedness and response (ASPR). It was oriented around a bioterror attack, but the idea was the same: how to dispense medications and other critical supplies quickly and efficiently. The pilot project featured seven large cities (including New York) and included using local big-box stores and hotels as distribution points.
What happened to this initiative? “Went nowhere,” the source said. HHS’ budget request for ASPR in 2021 was $116 million less than the previous year. And ASPR did eventually put some money into assisting U.S. health providers, but not until March 24, and it was a piddling $100 million.
Yikes.
Look to the Swiss
Small businesses continue to struggle with the Paycheck Protection Program (PPP) that unfurled on Friday. Few have been able to even apply, and there’s a bottleneck between the banks and the online portal for the Small Business Administration to onboard the applications. Banks don’t want to deal with customers with whom they don’t have an existing relationship. Certain type of businesses where the main costs involve rent won’t get much help even if they get the loans. This story from a Dairy Queen owner in California is symptomatic.
Congress appears aware of the problems; here’s a thread from Sen. Marco Rubio (R-FL), chair of the Senate Small Business Committee, outlining them. But they also seem far more invested in whether Silicon Valley startups and private equity-owned restaurants will qualify for grants than the real structural problems and inadequacies. The VC’s and PE firms simply have the ear of the policymakers.
Meanwhile, in Switzerland: “It took Matthias Knauer only a minute or two to complete and scan the single-page form for a liquidity lifeline from the Swiss government. About 30 minutes after sending it, the money was in his company’s account.” The Swiss program involves loans, not the grants that the U.S. loans become as long as you maintain payroll. The loans are interest-free at first and then 0.5 percent, run through the country’s robust banking system, with robot algorithms scanning and processing the applications.
Maybe we should talk to Switzerland.
The View from Your Window
Over the weekend I received a note from reader BB, in South Carolina:
My job is non-essential and I was laid off work on March 20, 2020.
I filed an Unemployment Claim on March 23, 2020, but the claim portal still shows " SC Layoff- Pending" and it's been impossible to get any correspondence back in anyway from a representative within the SCdew [Department of Employment and the Workforce] in hopes to get an answer to my question concerning my weekly benefit, my only source of income, my lifeline now as I know it in a pandemic that has had a positive test result on two individuals whom are close to me and DAMN IT I'M SCARED for I have nothing but uncertainty and fake news from the government about this act that supposed to show hard working, tax paying Americans the government "CARES"!!
I’ve heard many stories about unemployed workers filing weeks ago, yet still uncertain about whether their claim has been accepted; these systems are just not prepared for this level of claims. BB goes on to ask about when the $600 boost to unemployment checks will show up; the Department of Labor has been very unclear about that point. I put a call in to the South Carolina Department of Employment and the Workforce asking about this; the voice mailbox was full. I’ll keep trying.
BB ends with this:
I live in a state that is one of the only remaining states that has not been governed to Shelter In Place for the sake of our lives and the lives of the ones that we here in South Carolina hold dearest in our lives. We are southern rooted, family oriented folks who take care of their own without question because our ancestors have been the golden thread in which fabricated our lives here in the South, but our governor is failing us by withholding an order within our state that is sure to rip our families apart due to loss of loved ones infected by this rampant disease among us all within the world… If Henry McMaster doesn't CARE now about sheltering us for the sake of our lives from the COVID-19 epidemic then I have no hope that our governor will push to the front of the line in order to secure South Carolina’s part of the “CARES” Act…
If you have a story to tell, email me at ddayen-at-prospect-dot-org.
Today I Learned
- The coronavirus death toll is just not that reliable. (New York Times)
- Boris Johnson in the hospital as a “precautionary measure,” but all hospital visits are precautionary, that’s not comforting. (BBC)
- Veneto, Italy has proven successful in its crisis response by keeping people out of the hospital, a vector for the spread. (Financial Times)
- Wisconsin mayors demanding that state health officials close down in-person voting. (Politico)
- Democrats are trying to hold off equity stakes for the airlines and make them more of a no-strings bailout. (New York Times)
- Fox News sued for disseminating false information about COVID-19. (Seattle Times)
