(Bloomberg Opinion) — Last week — which is to say, six months into a pandemic that has killed more than 185,000 Americans — the American Nurses Association released the results of a survey of its membership. The survey asked whether nurses were still experiencing shortages of personal protective equipment, or PPE.
The answer was a resounding yes. “A third reported that they were out of or short of N95 respirators designed to offer maximum protection in a hospital setting,” according to Bloomberg News. (They are called N95s because they filter out 95% of airborne particulates, including viruses.)
Early in the pandemic, N95 masks were in such short supply that hospital personnel were reusing them for days at a time instead of following the proper protocol of discarding them after a single use. Today, that is still the case; almost 60% of the nurses surveyed said they’re “re-using single-use protective equipment for five or more days, and 68% said their facilities mandate re-using the supplies,” Bloomberg reported.
When I emailed a top hospital administrator to ask whether mask shortages had eased up, she sent me a one-line reply: “Supply chain is still royally screwed up, and can’t get N95s.”
How can this be? The initial shortage of N95s in March and April was more or less understandable. According to 3M Co., the biggest mask maker in the U.S., demand for N95s didn’t just double or triple in the wake of the pandemic; it rose 40-fold. Hospitals needed them, but so did dental offices, long-term care facilities, Covid-19 testing sites and many other facilities.
The effort to acquire N95s became a mad scramble. The supply chain collapsed. “Brokers”(1) popped up everywhere, claiming to have access to millions of masks, supposedly stored in warehouses in Los Angeles or Guangzhou or Seoul. Usually, these claims were bogus, but even when they weren’t, obtaining those masks was extraordinarily difficult, with dozens of brokers all promising to deliver the same masks. The market was filled with fakes. Oil traders and hedge funds jumped in, trading masks as if they were oil futures. The price for many masks shot up from around $1 to as much as $5 or $6. Meanwhile, 3M — which has not raised its prices during the pandemic — ramped up production from 22 million N95s a month before the pandemic to 50 million by June. It wasn’t nearly enough.
Today, 3M’s U.S. run rate is 1 billion N95s a year. Worldwide, it expects to be churning them out at a rate of 2 billion a year by the end of 2020. The company has also imported tens of millions of N95s from its facilities in China under an agreement with President Donald Trump, who invoked the Defense Production Act. Honeywell International Inc. is also manufacturing N95s for the U.S. market, as are a handful of other companies.
Still, hospitals and other entities, including state governments, are having nearly as much difficulty obtaining N95s as they did early in the pandemic. The scarcity has not eased. The N95 black market is still going strong. States are still bidding against one another for mask supplies. Counterfeits and substandard masks are still being sold as the real thing (although 3M has worked hard to rid the market of bogus 3M masks). The only reason this isn’t a bigger issue is that the influx of Covid-19 hospital patients has eased. But if the pandemic has a second wave in the fall, as many fear, it’s going to get ugly again.
Consider the situation in Minnesota. The state has orders for more than 5 million N95s, which it hopes to allocate to hospitals that need them. According to the Star Tribune in Minneapolis, it has received only 337,000 masks so far through traditional 3M distributors.
Minnesota contracted with Supply Link Inc., a small Ohio company, for an additional 2 million N95s, for which it agreed to pay $4.75 each — or $9.5 million in total. Matthew Kaspar, Supply Link’s president, told me that the company had lined up the purchase, signed a sales agreement and found financiers to front the down payment, which the state was prevented from doing by law. “I actually had Minnesota on the phone with the so-called distributor,” said Melissa Hill, the Supply Link executive in charge of the deal. The distributor assured state officials that it was all on the up-and-up.
It wasn’t. When four trucks were sent to the warehouse that supposedly held the masks, Supply Link discovered it was barren. “This is a very dark market,” Hill said. The company’s experience is typical of the scams that are taking place in the N95 black market. Wayne Waslaski, an official with the Minnesota Department of Public Safety, told me that he now thinks it is unlikely the state will ever see those 2 million masks. But Hill and Kaspar insist that they won’t stop trying to unearth them.
Minnesota does know where an additional 500,000 N95 masks reside: in a warehouse in China, where they have been tied up for more than three months. The hangup? The U.S. government, which has refused to allow them to be imported. Which gets to the ultimate cause of the problem: the Trump administration.
When you get right down to it, it will be years before the enormous gap between the supply of N95s and demand will narrow in the U.S. Before the pandemic, hospitals didn’t use them much, not even for most surgical procedures; a typical hospital might go through a few thousand a month, rather than the hundreds of thousands it now needs monthly. Globalization pushed most mask manufacturing overseas —and once the virus arrived, few countries were willing to allow N95s to be exported. And with such a severe supply shortage, it was inevitable that black marketers and scam artists would try to take advantage of people who needed to buy masks. None of this is surprising; markets don’t function properly when supply and demand are so out of whack.
What needed to happen in March — and still needs to happen — is the federal government should be using the Defense Production Act to take control of the N95 market. It alone has the power to negotiate mask deals with countries like China and Vietnam. It could have sent an important message by punishing price gougers and counterfeiters. It could have enlisted other civic-minded companies besides 3M to begin manufacturing N95s. And it could have allocated N95s (and other PPE for that matter) to states and hospitals and nursing homes as they were needed — shifting mask shipments away from states where coronavirus cases were on the wane and toward emerging hot spots. A competent federal effort wouldn’t have ended the supply-demand imbalance, but it could have drastically reduced its effect on the country.
The Federal Emergency Management Agency insists that it has done just that, but the effort has been paltry. Minnesota, for instance, has received a pathetic 3,000 masks from the federal government. What’s more, as the Associated Press pointed out in July, “low population, mostly rural states” — i.e. red states — did better by FEMA than more populous states that were hit harder by the virus. “For example, Montana has received 1,125 items of protective gear per [confirmed Covid-19] case, compared with 32 items per case in Massachusetts, an early hot spot,” the AP wrote. A FEMA spokesperson said that PPE was “distributed evenly” to the states.
But the federal government has also hijacked for its own stockpile imported masks that hospitals had already paid for. It has stood aside as the market for N95s devolved into the Wild West. And the FDA, in particular, has made it extremely difficult to import even bona fide N95 masks that were made abroad.
Donaldson Company Inc., a filtration company based in the Minneapolis suburbs, is the company trying to bring in those 500,000 masks from China. It has state-of-the-art air-filtration labs scattered around the world, including in China. Though the company had no experience with N95s, it raised its hand to help Minnesota source them. Scam artists in China swarmed all over the company, and early on, it used its labs mainly to detect fraudulent N95s. “We likely saved the state millions of dollars by screening out the procurement of bad masks,” its CEO, Tod Carpenter, told me.
Eventually, Donaldson found a legitimate manufacturer in China and set up a supply chain. The company then purchased 500,000 high-quality masks that they believed met the emergency authorization requirements the FDA had established to deal with the pandemic. Those were the masks Donaldson intended to sell to the state — at cost, Carpenter said.
After testing them — and confirming that the Chinese company had the necessary registration from its government — Donaldson applied to the FDA to have them brought into the U.S. The agency said no; the application had to come from the manufacturer. The Chinese company then submitted an application directly. Again the FDA said no because its registration was temporary. When the Chinese company got its permanent registration, it tried one more time. Guess what? The FDA still said no.
“We’re scratching our heads here,” Carpenter told me. “We’re a filter company. We have labs. We know how to do this. Just tell us what we need to do.” But the FDA won’t talk to Carpenter because under its rules, it can only discuss such matters with the manufacturer, not the distributor. Although Donaldson is still trying to find ways to make its case to the FDA, it’s a stalemate.
During the Republican convention, Trump boasted about shipping “hundreds of millions of masks, gloves and gowns to our frontline health care workers.” Having now spent time digging into the world of PPE, I find the following account more credible. It took place in Rhode Island a few months ago, after Governor Gina Raimondo pleaded with FEMA for hospital gear from the federal stockpile.
“I’d just constantly get the runaround,” she recounted to Politico. She continued: “One time they promised me, ‘OK, it will be there today, a truck full of PPE.’ I said: ‘Tell me the time, I’ll check on it myself.’ They said 7 p.m. Great. At 7 p.m., no truck. I call and ask where is it, they say 9 p.m. Fine. Around 9 p.m., I get a text from FEMA: Governor, the truck arrived. Hallelujah! I called my director of health. ‘Great news, the truck is finally here!’”
Then they opened the truck. It was empty.
(1) One such broker was Brian Kolfage, the decorated veteran who lost both legs and an arm in Iraq in 2004. Last month, he was among those indicted, along with Steve Bannon and two others, by the Department of Justice, which accused them of diverting money that had been raised to build a wall at the Mexican border for personal uses.
This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.
Joe Nocera is a Bloomberg Opinion columnist covering business. He has written business columns for Esquire, GQ and the New York Times, and is the former editorial director of Fortune. His latest project is the Bloomberg-Wondery podcast “The Shrink Next Door.”
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