20 April 2020
In recent days, claims have begun to emerge from numerous states that the Trump Administration writ large is seizing urgently-needed medical goods being imported or distributed to states, hospitals, and first responders battling the COVID-19 pandemic.
There’s only one problem — no one appears to be doing actual journalism. In none of the articles linked above are there quotes from medical supply chain experts, active importers of PPE, logistics professionals, or federal law enforcement officials familiar with FEMA’s National Response Framework for emergency management.
This is evident from an impassioned open letter authored by FEMA Administrator Peter Gaynor:
As I continue to do calls with Members of Congress, Governors, and other key stakeholders, I find myself correcting misinformation. One of the areas I get the most questions about is regarding FEMA ‘seizing’ or ‘commandeering’ critical PPE. I want to share the ground-truth with you — FEMA is neither seizing or taking PPE from local or state governments or taking PPE from hospitals or any commercial entity lawfully engaged in the PPE distribution.
Emphasis is mine. He goes on to note that:
However, there are bad actors out there who are hoarding and price gouging and trying to profit from the confusion and widespread fear surrounding COVID-19.
This is indeed true as well. In brief, my professional life has been spent directly in (or adjacent to) international supply chain and logistics management, particularly for specialized niches like food, chemicals, medical, humanitarian, and hazardous materials. That experience is proving valuable in these volatile times, as I’ve tightened my focus to supporting clients in the medical supply chain. My role is usually as logistics middleman, meaning I am personally coordinating details overseas and here stateside, including contract negotiations, factory selection and credentialing, export from China, transport to the U.S., customs clearance, and delivery to the buyers.
As a result, I’ve run across more unscrupulous brokers of medical products in the past three months than I have in my entire career previously. Further, there are many factories in China that pivoted almost overnight from producing garments or shoes or home cleaning chemicals to making medical supplies and hand sanitizer. These are extremely volatile times with many new, untested players seeking to profit from the pandemic. And naturally, a few of them will be outright grifters seeking to extract dollars from desperate medical providers and governments.
Medical supply chain management is a highly regimented sector for a reason: lives are quite literally at stake. The FDA exists for a reason. Many layers of standard-setting bodies exist for a reason. Professional sourcing and distribution companies such as McKesson, Owens & Minor, and Cardinal Health are relatively few because it is difficult to scale with so many regulations. And frankly, this is as it should be. Not everyone who wishes to make money will balance that need with a commitment to life-saving standards. In the absence of oversight, some people will simply cut corners to preserve profits.
This also means that the U.S.’s medical supply chain is not highly agile or scalable when a pandemic hits fast enough, at a large enough scale. Extremely expensive machines and manufacturing lines for goods like N95 respirators can take weeks or months to set up, making additional production of needed articles agonizingly slow to come online. However, with a marketplace full of cash-in-hand buyers anxious to get personal protective equipment (PPE), some factories and sellers are nonetheless pushing out inferior (but visually similar) products and claiming them as certified to standards.
In brief, this is the current lay of the land. It’s the Wild West for medical supply chains right now — and due to lack of expertise amongst the average citizenry, it is easy to spin protective measures and the normal course of business operations into a narrative of incompetence and tyranny.
Fortunately, truth and common sense are the antidote to such gamesmanship.
Eastbound and Down
On 17 April, The New England Journal of Medicine published a concerning account by Dr. Andrew Artenstein, the Chief Physician Executive and Chief Academic Officer at Baystate Health in Springfield, MA. The story reads like a ripped-from-the-headlines episode of a TV crime procedural. Desperate to acquire scarce PPE for his staff, Dr. Artenstein and several of the medical practice’s supply chain team arrange a deal with a medical supplies broker, all but smuggling the PPE across state lines and nearly losing the product to FBI investigators and the Department of Homeland Security. Extraordinary stuff, and a story so juicy that many outlets couldn’t help but pick it up and circulate it without questioning any of the details.
Here’s the problem: no professional journalist or media outlet has, to date, attempted to verify specific details of the story. And to a supply chain expert like me, that sets off alarm bells. This story is either fabricated, exaggerated, or incomplete as presented.
On 19 April, I authored an open letter via tweetstorm to Baystate Health, Congressman Richard Neal (obliquely named in the published account), and the NEJM. In the thread, I ask thirty-four questions that covering the stakeholders, transaction, transportation, and law enforcement intervention. Now bear in mind that these were simply the ones that came quickly to mind, because to a logistics expert who is familiar with the process, they are each obvious questions. Take the time to read it in full.
Relatedly, they should also have been the questions asked by professional journalists who claim to seek impartial truth. The closest anyone has come to committing an actual act of journalism on this story is a brief interview conducted with Dr. Artenstein by WBUR, Boston’s NPR affiliate. However, the interview is mainly softball questions that offer Dr. Artenstein the opportunity to repeat his account, and mount his complaint that state and federal authorities had not provided adequate PPE for his hospital.
Since deeper inquiry is unlikely, I will highlight some points of contention and expand on how the process of importing medical PPE actually works, and how/when law enforcement might have to intervene.
Sourcing, importing, and distributing medical supplies is not something one can “Forrest Gump” their way through on a mix of hard work and dumb luck. It’s especially not the kind of business where a hospital colors outside the lines by cutting a purchase order for millions of dollars worth of potentially-counterfeit N95/KN95 respirators from a broker who is “an acquaintance of a friend of a team member” after only several hours of vetting.
Brokers thrive by projecting total confidence and maintaining an arsenal of plausible excuses for when things (almost inevitably) go wrong. These are adapted tools of survival, since the brokers actually control very little else in the process. They do not own the factory, the ship or airplane, or the trucks to make delivery. They do not usually clear customs, pay the duties, or otherwise have any skin in the game except the risk of losing their profit from brokering the deal. Extreme vetting is called for under normal conditions — it’s mandatory in times like these.
Further, the actual professionals know enough about how the importing and final mile process works to be able to explain it clearly and concisely. With that in mind, here’s how it should work:
- The buyer solicits their requirement to known vendors, and if they cannot meet the demand, the network extends to other pre-vetted sources such as GPO’s and other medical supply chain providers with active experience. Third- and fourth-order broker “connections” are always circling the margins of a deal in desperate times because they are not known quantities with an established track record, and thus require the most extreme and accurate vetting possible.
- That vetting process should include — at a minimum — past performance history, list of current references from other medical supply buyers, itemized summary of specific partners for factory sourcing and logistics, documents validating those partners (Chinese export license, FDA registration numbers, freight forwarder license, etc), review of insurance and customs bond (if the broker is the importer of record), and written proposal of service. If the broker cannot provide ALL of these items, they are not an established vendor, and will be scrambling to stitch together the deal on the fly while pretending to be competent.
- The purchase order issued by the buyer should specify exact quantities, delivery dates, mode of transport, certification requirements for the goods, incoterm, and any specific delivery requirements. Ideally, the purchase order is also backed with a letter of credit, rather than being a pure cash-for-goods deal. This allows the bank to offer an additional layer of security for the buyer in the event of broker-supplier non-performance.
- Even in these uncertain times, there is still a very clearly defined and common import process, and it certainly doesn’t include smuggling goods across state lines in clandestine trucks. The shipment is transported from the factory in China to the origin airport, where Chinese customs officials will examine the documents and articles. The airfreight provider will consolidate all of the product onto air pallets and fly to the U.S. Upon shipping, the articles will be cleared by the customs broker for the importer of record in the U.S., including notification to FDA that articles are coming in which are registered medical devices. Once on ground, the freight will be transported to a Container Freight Station, be stripped from the large air pallets, and restacked for ground transport on normal pallets. At this time, a U.S. Customs officer (and likely an FDA official) will detain the shipment for a time and examine the articles and documents to ensure compliance with all import and sales regulations. Once cleared, the goods are loaded to a normal LTL or over the road truck and sent to the final destination named by the buyer. Shipping documents (bills of lading, commercial invoice, and packing list at a minimum) are prepared with hard copies traveling with the freight, and digital copies held by all stakeholders.
- At no point in time does any other law enforcement agency get involved, except in cases where fraud, smuggling, or other specific criminal behaviors are suspected. These alerts to other agencies are triggered when buyers or sellers have shown cause to be flagged, shipment processes are arranged outside of normal parameters, or a pattern of financial transactions indicates a likelihood of fraudulent activity. In none of these cases are the agencies authorized to seize cargo for the benefit of redirecting it to more “in need” buyers or locations. If the cargo must be seized, it’s because it has become contraband by virtue of the product itself being counterfeit, laws were broken as part of the transaction, or one of the parties to the transaction has committed a crime. Quite simply, that’s how this works, legally or customarily.
On each of these points, Dr. Artenstein and Baystate Health clearly deviated from normative practices, and chose not to engage any experts with experience in this sort of arrangement. Given the apparently-desperate situation, I can understand this, but only to an extent. Desperation is not cause to ignore common sense business processes, especially by the “supply chain team” at Baystate.
Further assuming the details of the FBI’s involvement are correct, there was good cause to do so. As covered in detail by decorated former FBI agent (and former Acting Chief of the Public Corruption Unit) Jeff Cortese, the entire operation was apparently handled the same way experienced smugglers might do it.
From Mr. Cortese’s thread:
“Two semi-trailer trucks, cleverly marked as food-service vehicles, met us at the warehouse.” In what country are we living that smuggling medical devices across state lines is necessary?!
“When fully loaded, the trucks would take two distinct routes back to Massachusetts to minimize the chances that their contents would be detained or redirected.” This is certainly reminiscent of a smuggling operation to avoid law enforcement detection.
Partial order delivery to the mid Atlantic, requiring a medical executive and 3 members of supply team to travel to inspect, followed by two different routes in covert vehicles? Again, reminiscent of a smuggling operation.
FBI wouldn’t normally just show up out of nowhere without some reason. And if a seizure was on there mind, there’d be a lot more than 2 agents. A LOT more agents.
Additionally, the open question of if the Department of Homeland Security might yet seize the freight would be directly related to evidence that the broker and/or goods are not on the level. Further, the claimed involvement of Rep. Richard Neal does not track with established law enforcement or trade practices.
More from Mr. Cortese:
“Only some quick calls leading to intervention by our congressional representative prevented its seizure.” Quick calls led to congressional intervention? FBI/DHS would not take orders from a member of Congress in a law enforcement action.
This doesn’t reconcile with my experience in anyway. Also, as someone who has protected the Speaker of the House, no Member is ever a quick call away unless you are already very close.
Nor would they vouch for anyone without knowing for sure the details and/or completely trust the person calling. Finally, and most importantly, if the doctor had the Congressman or someone else close to him on speed dial…and assuming a member of Congress had sufficient influence to block law enforcement (which experience says they can’t), then why would delivery need to take place somewhere in mid Atlantic; why would unmarked trucks be necessary; why two routes back to MA?
These are salient and important questions, and one which Representative Neal or Baystate Health has so far failed to adequately address. This is especially pertinent as we consider other cases where public officials have been quick to jump into the fray to accuse the Trump Administration of malfeasance in redirecting essential medical goods away from intended recipients, while offering only the flimsiest of hearsay and data.
Let’s explore some of these other situations.
Let’s consider the rhetoric issuing from governors and companies about the issue of PPE and medical devices being “seized” by FEMA:
Business Insider on 8 April:
FEMA “swept up” an order for 500 ventilators made by the state of Colorado last week, Gov. Jared Polis told CNN on April 4.
“We’re competing against any other state, every other country,” he said. “Now we’re even competing against the federal government.”
“We’ve been asking what we’re going to get from FEMA, we’d love a timeline, and numbers,” he added.
Shanel Robinson, freeholder director of the community of Somerset County, New Jersey, told local news outlet the Franklin Reporter and Advocate she had been informed that her order of 35,000 N95 and surgical masks had been diverted by federal government. She said she doesn’t know where the masks went.
New York Times on 6 April:
In Massachusetts, state leaders said they had confirmed a vast order of personal protective equipment for their health workers; then the Trump administration took control of the shipments.
In Kentucky, the head of a hospital system told members of Congress that his broker had pulled out of an agreement to deliver four shipments of desperately needed medical gear after the supplies were commandeered by the Federal Emergency Management Agency.
Gov. Jared Polis of Colorado thought his state had secured 500 ventilators before they were “swept up by FEMA.”
Private companies have also appeared to lose out on supplies. Dr. Ed Ellison, one of Kaiser Permanente’s top doctors and executives, told staff members last month that the company found 20 million masks to purchase the previous week and that Kaiser’s chief executive had authorized a payment for it that was more than usual because of rising mask prices.
“But the feds actually seized that shipment before we were able to acquire it,” Mr. Ellison told staff members, according to a recording of the call reviewed by The Times. “And that’s their right. They’re helping to put together for the nation, but just it goes to show you how challenging procurement can be.”
When asked by The Times days later about the call, a Kaiser spokesman said company officials were unable to find evidence that the government took Kaiser’s masks. The spokesman said the initial information came from a middleman.
Yet in an internal notice to some workers on Monday, Kaiser Permanente said that Cardinal Health, its main supplier of isolation gowns, notified the health system “that FEMA is intervening and taking the U.S. supply from the Cardinal China manufacturer. We will still receive a small resupply under a protected allocation. However, there are very few other sources for isolation gowns.” As a result, Kaiser told workers to conserve the gowns they had.
The reader will note that I’ve done the work of highlighting the same key point: none of these deals were completed, with goods in hand and payment remitted. Alleged journalists are searching for situations that approximate something close to federal intervention, while using loaded language to cast a harsher light on the matter.
Recall the NEJM story about Baystate Health: the FBI allegedly questioned the Baystate buyers, and DHS is allegedly considering still seizing the cargo even after delivery, but in no way was the deal actually blocked and goods not received. However, the narrative being carefully spun is that of tyrannical federal interference in the medical supply chain.
Quite simply, FEMA is not showing up at facilities, literally “seizing” the articles, and vanishing into the night with them.
What FEMA is doing is utilizing customs data and reporting from supply chain providers to examine all articles entering the U.S. medical supply chain from overseas, and making a judgment call on which locations need more of the valuable items than others. And importantly, FEMA is only doing this with vendors who have already executed supply contracts with government agencies that give the federal government first right of refusal under the Stafford Act and Defense Production Act.
This from FEMA Administrator Peter Gaynor’s aforementioned open letter:
Regarding the Defense Production Act (DPA) and the use of priority ratings for “reallocation” of critical resources, DPA authorities are applied to support acceleration and expansion efforts. Priority rated DPA orders do not create a situation of “outbidding;” rather, it puts the federal government requirement to the “front of the line” for fulfillment ahead of other orders so we can best assist you. In this process, we work to balance our authorities while avoiding interference of private sector supply chains that can deliver resources most efficiently and effectively. Therefore, as we process orders through the supply chain, we maintain close coordination with states to identify potential bidding conflicts. We look to you as well as your governors and tribal leaders to make us aware of apparent bidding conflict. If a bidding conflict occurs, we work closely with the state or tribe to resolve it in a way that best serves their needs.
Additionally, DHS and FDA are closely monitoring matters as a matter of public safety. The market is being flooded with counterfeit or low-quality goods from factories (especially in China) who have converted their production lines to make the articles, but lack the proper expertise and quality control to ensure the high-priced items pass muster. There is also the risk of the factory not having the proper licensing to export articles under the ever-shifting regulatory regime in China. On that last matter, I’ve recently witnessed a broker blame the U.S. government to save face with a buyer, despite the factory not having been properly vetted by the broker.
This is all baked into the cake — if buyers are not informed of this risk at the time of issuing their purchase order, then it is the fault of the brokers and companies importing and selling those goods. This is the simple outcome of federalizing the process while manufacturers of quality articles work feverishly to add capacity to the supply chains. And note well, this is not a new problem for China-origin medical products.
It’s a tragic outcome that certain facilities or areas are deficit in PPE…but that is not wholly the fault of the Trump Administration. They are imperfect people doing their best to make value judgments on need versus availability under impossible constraints. There simply isn’t enough density of goods in the market to satisfy all stakeholders worldwide, especially when a majority of the medical sector PPE comes from a handful of suppliers in the country where the outbreak began.
Complicating matters even further is that the majority of the media likewise seems incurious as to how FEMA’s National Response Framework works; how it creates new lines of authority and requirements at the local, state, and federal levels; and how the various Acts available to the president in times of crisis can affect decision making at all levels. While the administration has been very imperfect in responding to the emergent pandemic, the truth remains that in this particular matter of “seized PPE”, they are simply acting to make the best decisions possible for all states and citizens.
It is absolutely essential to our national response to be able to track gaps and inefficiencies. Further, both the public and private sector stakeholders should have maximum flexibility to responsibly source and acquire critical PPE, medicine, and equipment. But we must satisfy these requirements through honest dialogue, use of experts in conjunction with common sense, and a minimal amount of uninformed partisan media influence or heroic narratives spun from incompetence and confirmation bias.
We endanger lives in service of politics by not holding ourselves and everyone involved to a higher standard of conduct.
[To this point, Baystate Health has not responded to my inquiry on the NEJM account. If they do, I will add it to this article in full.]
Follow me on Twitter.