Miscalculation at Every Level Left U.S. Unequipped to Fight Coronavirus

A shortfall in masks lays bare the blunders by hospitals, manufacturers and the federal government

By Alexandra Berzon,
Melanie Evans,
Stephanie Armour and
Austen Hufford
April 29, 2020 10:35 am ET

A new virus had rapidly spread across the globe and Tuomey Healthcare System in South Carolina couldn’t get more protective masks for its hospital workers. A global run on them had created a shortage.

That was the 2009 “swine flu.” Tuomey later stockpiled protective gear, but over the years didn’t replenish some expired items. This year, it found that elastic bands on some of its masks were brittle. One snapped when an official tried it on.

The swine flu, an outbreak of H1N1 flu, turned out to be a dry run for a major pandemic. But neither hospitals nor manufacturers nor the government made sweeping changes to be ready for one.

Instead, each part of the medical-industrial equation acted in its own interest, and didn’t set aside resources that might have better prepared America for the coronavirus crisis. Each ignored warnings of shortages of protective equipment in case of a pandemic—shortages that handicapped the struggle against the virus early on and continue today.

A Wall Street Journal examination found:

—The hospital industry, in a bid to increase profit, slashed inventory of all supplies. Rather than bulk up after the swine flu, hospitals turned to inventory-tracking software to winnow stocks of protective gear and other supplies, hoping to be able to replenish it as needed.

—Manufacturers got bitten during the swine flu, ramping up production only to be left with few buyers when that crisis abated. Many mask and other device makers rebuffed later calls to build back emergency capacity, ceding a chunk of the market to overseas makers.

—The U.S. government focused more on preparing for terrorism than for a pandemic. Despite the severe 2009 flu, the government lacked a permanent budget to buy protective medical gear for its Strategic National Stockpile of supplies for health emergencies.

—The Trump administration further weakened the safety net as it rejiggered the Health and Human Services Department’s main emergency-preparedness agency, prioritized other threats over pandemics, cut out groups such as one that focused on protective gear and removed a small planned budget to buy respirator masks for the national stockpile, according to former officials.

“The problem is a medical supply chain and a health-care system that we have built to be economically efficient…in exchange for resiliency,” said Tara O’Toole, a Department of Homeland Security undersecretary of science and technology in the Obama years. “We have allowed ourselves to completely lose control over supply.”

A White House spokesman blamed the prior administration for any lack of preparedness. “President Trump took bold action to protect Americans and prepared a whole-of-government response, in close coordination with state and local leaders, to Covid-19 when we had no true idea the level of transmission or asymptomatic spread,” said spokesman Judd Deere.

Manufacturers, hospitals and the government all lost critical time because of the disarray in the protective-equipment supply chain. Hospitals and public-health officials wound up rationing equipment and are still scrounging for more, competing with the federal government to buy emergency supplies. The federal stockpile has distributed nearly all its protective gear.

U.S. manufacturers currently make every month around 50 million N95 respirators, among the most crucial items as they provide additional protection from catching the virus. By June they expect monthly production of 80 million N95 respirators, commonly referred to as N95 masks. That remains far short of the nearly 300 million that HHS in March estimated U.S. health-care workers would need each month during the pandemic.

The N95 story reveals failures of readiness at every level.

HOSPITALS: A PROFIT

After the severe 2009 flu, health officials traveled the nation telling industry and government leaders hospitals would be seriously short on protective gear in the event of a major pandemic. In presentations titled “The Massive Gap,” the officials urged the government, health-care systems, manufacturers and distributors to find a way to forestall shortages.

The officials were part of a working group drawn from HHS and the Centers for Disease Control and Prevention that began studying the issue in 2012. They found that during the 2009 flu, the government had trouble tracking supply and demand of protective equipment, said an article later published by members of the group. Hospitals placed orders with multiple vendors, and vendors were unsure how long demand would last.

For hospitals, supplies are typically their second-largest expense, after labor. Keeping a tight grip on spending for medical devices, drugs and other supplies has grown in importance as more medical care shifts away from hospitals.

“Every dollar you save in the supply chain drops to the bottom line," said Eugene Schneller, a professor at Arizona State University’s W.P. Carey School of Business whose research focuses on hospital supplies.

Wall Street and credit analysts monitor the health-care industry’s cost controls. In the years after the swine flu, the sector continued to shift to inventory-tracking software and distributor contracts to pare their storeroom shelves. The move raised efficiency but also heightened the risk of shortages if events disrupted markets.

“The system was doing what it was designed to do,” Mr. Schneller said. “But it wasn’t designed to do anything about public health.”

In 2012, a health-policy nonprofit called the Association of State and Territorial Health Officials surveyed hospitals with CDC funding about how many masks they had on hand and in emergency stockpiles. Less than half of respondents said they had a stockpile.

At Tuomey, Mickey Sparrow, who was involved in the survey and then oversaw supplies for the Sumter, S.C., hospital, said he wasn’t surprised by this result. He said he used to keep at least a week of hospital inventory on hand plus a stash of about $50,000 worth of masks and other emergency supplies.

“This is money sitting up there on a shelf gathering dust,” he said.

Prisma Health, which took over Tuomey in 2017, said it reduced the hospital’s inventory but took its own precautions. It said it stockpiled 30 days’ worth of protective equipment, which allowed its hospitals to avoid using substandard gear. The coronavirus pandemic, however, exceeded the emergency planning projections of Tuomey and Prisma.

Prisma also has begun to sterilize already-used masks for reuse, it said. Christopher Powell, who oversees the supply chain for Tuomey and some other Prisma hospitals, said the disease has created demand no model would have projected.

As for the stockpiled masks with brittle bands, Prisma said it has begun replacing the elastic.

MANUFACTURERS: ONCE BITTEN, TWICE SHY

Before spot shortages of respirator masks developed during the 2009 flu, makers were warned it could happen.

HHS representatives gave detailed presentations in 2007 to U.S. producers of N95 masks. “All sectors must contribute to efforts to prepare in order to meet the needs” for the masks “or find safe ways to work around limited supplies during a pandemic,” said a slide presentation.

At the time, around 30% of N95 respirator masks were made overseas, as well as 90% of surgical masks, which are more basic. 3M Co. produces the majority of U.S.-made N95 masks and has overseas production as well. Other major suppliers produce them only abroad.

During the 2009 flu, manufacturers rushed to make more. 3M saw a surge in orders and a $250 million jump in its respiratory-product sales. It spent $55 million to expand flexible production lines, including in the U.S. and Singapore.

“The challenge here,” then-Chief Executive George Buckley told industry analysts in 2009, “is having capacity flexible enough to ramp up fast, but not so large that it burdens the business during the lulls in demand.”

The revved-up industry production turned into a glut as the swine flu crisis abated in 2010, sooner than expected.

Texas-based Prestige Ameritech Ltd. nearly went out of business as a result of boosting production before demand faded, said owner Mike Bowen. The company laid off 150 of its 250 employees.

In 2014, CDC officials met with about 10 manufacturers to discuss worrisome data the officials were getting about capacity. Even in the most conservative scenario for a pandemic, the U.S. would need 1.7 billion to 3.5 billion respirator masks, and would need 7.3 billion in the highest-demand scenario, according to models the CDC reported the next year. That was far above stocks and U.S. manufacturing capacity.

The CDC officials explored possible solutions, such as having the manufacturers maintain stockpiles, according to people familiar with the discussions.

Manufacturing executives say companies were leery because of their experience in 2009. Some faulted a lack of a commitment by government and hospitals to buy domestically made masks.

“Everybody calls me when they can’t get masks,” said Mr. Bowen of Prestige Ameritech. “When everything goes back to normal, everyone goes back to the foreign masks.”

Canada-based Medicom Group said it installed extra capacity at its plant in Augusta, Ga., for the swine flu but disassembled it after demand dried up. “If we do not have a long-term agreement, how can we invest more and more dollars into equipment that is going to sit and rot?” said CEO Ronald Reuben.

3M said it invested in surge capacity at all its plants following the 2002-03 outbreak in China of SARS, or severe acute respiratory syndrome. It used this extra capacity to boost production during the 2009 flu and the current pandemic.

“Even with 3M’s accelerated production, the stark reality is that global demand for respirators far outpaces the ability of the entire industry to deliver,” 3M CEO Mike Roman said Tuesday.

In 2014, officials at HHS’s Biomedical Advanced Research and Development Authority, or BARDA, briefed Senate staffers on the gap between capability and pandemic demand. The agency said the U.S. could boost domestic production by encouraging hospitals to buy U.S.-made masks, by creating “Buy in America” requirements for the government and by setting up federal emergency production lines, according to a presentation reviewed by the Journal. BARDA said another possibility would be to increase the number of masks stockpiled.

None of it happened.

THE GOVERNMENT: EYEING THE WRONG THREAT

The Strategic National Stockpile, created as a pharmaceutical storehouse in 1999 for potential chemical and biological terrorism, was expanded over the years to address other hazards, including natural disasters and pandemics.

Congress never allocated specific ongoing funding for pandemics, despite priorities set by a governing board of the directors of several government health organizations. Congressional Republicans blocked additional stockpile funding proposed by the Obama administration. The stockpile uses its annual budget of around $600 million to maintain and replace its emergency assets, not to expand them.

Its only significant funding for personal protective equipment came in 2006, as part of $5.6 billion set aside for pandemic preparedness. This enabled the CDC to buy 104 million N95 s and 52 million basic masks that year for the national stockpile. Most of the N95s were distributed during the 2009 flu and not replaced.

Greg Burel, who ran the stockpile through last year, said it focused on drugs that otherwise might not be produced, such as for combating a chemical or biological attack. He said it didn’t make sense to stockpile basic medical supplies in large amounts.

“You would hope if you needed a surge, you could draw it from the market,” he said.

The CDC and HHS working group studying respirator supply concluded that in a pandemic, expanding capacity to produce the needed masks would take anywhere from six weeks to four months.

The group decided it wasn’t practical to have all the needs met by a centralized federal stockpile. Rather, it recommended ongoing stockpiling at the regional, state and federal levels.

Modest implementation of its plans began, such as setting up a permanent team at HHS to focus on respirator masks. That team pushed for the group that decides budget priorities for the national stockpile—called the Public Health Emergency Medical Countermeasures Enterprise, or Phemce—to put some money from the stockpile budget toward masks needed in a pandemic.

A Phemce budget plan released in 2017 had a line item indicating a plan to allocate $15 million annually to buy respirator masks and ventilators in future years.

A group within HHS also planned a system to monitor hospital use of personal protective equipment, starting in 2018. And HHS provided grants to companies claiming to be developing new technology such as high-speed production lines.

Robert Kadlec, a career Air Force officer named in late 2017 to lead emergency planning for HHS, made biodefense issues a greater priority than pandemics, according to former officials.

Dr. Kadlec moved the national stockpile’s operations from the CDC to his own group at HHS, the office of the Assistant Secretary for Preparedness and Response. He also restructured the Phemce budget-planning group, consolidating power in its top leaders.

The respirator-mask team stopped meeting as a result of the reorganization, according to a spokeswoman for Dr. Kadlec and HHS.

Monitoring of hospitals’ use of personal protective equipment didn’t happen because there wasn’t money for it and hospitals were reluctant to share data, she said.

And the HHS group that gave out the technology grants didn’t have the funding to advance the technology of the high-speed line beyond the feasibility and design stage, the spokeswoman said.

As for the line item to allocate $15 million a year to buy respirator masks and ventilators, it was removed in the budget document that came out in 2018. A spokeswoman said money accounted for elsewhere in the budget was spent on ventilators but not masks.

The spokeswoman said Dr. Kadlec’s reorganization was done “to enhance and evolve the federal capability for emergency response.” He and other HHS officials “have frequently discussed the need for pandemic preparedness with stakeholders,” she said, and HHS “has been transparent that more supplies are needed.”

On Dec. 4, 2019, Dr. Kadlec told Congress that a recent 12-state simulation showed the U.S. lacked sufficient manufacturing capacity for protective gear in a pandemic. He called supply-chain issues, particularly the reliance on foreign manufacturing, “among the most significant challenges” and “a matter of national security.”

Coronavirus relief legislation passed by Congress this year included $16 billion for the stockpile to purchase respirator masks, drugs and other medical products. Hospitals also won money from Congress to purchase personal protective equipment in case of a coronavirus surge in this fall, because of concerns about adequate stockpile supplies. HHS in March struck contracts to buy 600 million N95 masks over 18 months.

COVID-19: SLOW OFF THE MARK

The first reports of a pneumonia cluster in Wuhan, China, came in late December. As the novel coronavirus spread in China in January, the Trump administration played down the risk.

U.S. hospitals’ concern grew. In late January, some moved to buy more protective gear.

By then, suppliers had started limiting orders to the amount of a typical purchase or slightly more, to prevent hoarding and make sure each got at least part of its order.

Without federal coordination, manufacturers began to take action themselves. Executives of 3M met on Jan. 20 with Michael Osterholm, who runs the University of Minnesota’s infectious-disease center. Dr. Osterholm, an epidemiologist, said he told them the disease outbreak that might have seemed confined to Wuhan clearly was going to expand into a pandemic.

3M began ramping up 24-hour mask production at its South Dakota plant the next day and has doubled its overall mask output, the company said.

By early February, Chinese officials had requisitioned mask production in China for domestic use. Producers, including 3M, were told they had to sell all the masks they made in China to the government.

On Feb. 10, a Trump administration budget for next fiscal year proposed cutting money for the Federal Emergency Management Agency’s disaster-relief fund by nearly 70%. A White House budget spokeswoman said the administration set the amount last year based on past, ongoing and anticipated disasters, and didn’t update it before the February release. (In March, Congress approved $45 billion more for FEMA.)

States, hospitals and health-care professionals soon began saying they were in dire need of basic personal protective gear, weren’t getting their full orders filled, and weren’t getting what they believed they should from the federal stockpile. Officials at HHS’s emergency-planning agency told congressional staffers on Feb. 14 there could be a shortfall of billions of respirator masks if the virus spread across the U.S.

Eleven days later, HHS Secretary Alex Azar told a Senate hearing the U.S. had 30 million N95 masks but would need 270 million more.

The next day, Mr. Azar said he had misspoken. He said there were 30 million of the more-basic surgical masks in the national stockpile but just 12 million N95 masks, five million of which were past expiration dates. Mr. Azar didn’t respond to a request for comment.

Some hospitals were soon rationing masks and reporting delays in getting shipments from China.

Many masks from China were made in Hubei, the province surrounding Wuhan. It was quarantined.

—Rachael Levy and Tom McGinty contributed to this article.

https://www.wsj.com/articles/miscalculation-at-every-level-left-u-s-unequipped-to-fight-coronavirus-11588170921?mod=itp_wsj&ru=yahoo

If you know me, you know I am all for re-shoring production and making things here.

In this instance it would be beneficial, but wouldn't solve the problem. Capacity can't ramp up to surge-demand levels in such a short period of time. Stock piled inventory can expire (dry rotted elastic). Unused inventory sitting in a warehouse or on shelves for years (or decades) isn't cost efficient.

Wondering Bhawk's perspective on this? I saw in one of your posts you openly questioned 3M's marketshare and the reliance on just-in-time ordering. What would you do, what could be done here?