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 initiative 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.
–30–
This article was written by David Dayen as part of the American Prospect’s daily COVID-19 newsletter Unsanitized, and cross-posted with permission. You can subscribe to the magazine here, and you can donate to the American Prospect here.