States are bidding against each other and the federal government for important medical supplies — and it's driving up prices

Key Points
  • States are bidding against the federal government to buy personal protective equipment (PPE) for medical staff.
  • Low supplies and the existence of multiple bidders has made it difficult for states to get enough protective equipment for medical staff.
  • Experts interviewed for this article said the federal government could centralize procurement through FEMA to create more efficiency. Some governors have floated a buying consortium as an alternative.
A worker gathers protective face masks during production at the L.L. Bean Inc. manufacturing facility in Brunswick, Maine, U.S., on Tuesday, April 7, 2020.
Adam Glanzman | Bloomberg | Getty Images

As manufacturers struggle to keep up with the surging demand for masks, gloves and gowns for medical professionals, states are bidding against each other — and the federal government — for supplies. 

The situation has slowed down states' ability to purchase personal protective equipment (PPE) during a time of intense need, while also driving up costs.

"Everybody trying to purchase the same things is not an efficient way to do this," said Casey Tingle, deputy director of the Louisiana Governor's Office of Homeland Security and Emergency Preparedness. During past emergencies like Hurricane Katrina, the state has worked closely with regional officials for the Federal Emergency Management Agency (FEMA) and relied on the agency to procure supplies. But in an unprecedented situation that impacts not just Louisiana, but the entire country, the roadmap is murkier.

"There's a real lack of clarity of whether or not the federal government will be able to push from their level down at least to our state," Tingle said. 

The problem comes in part from the federal government's own dwindling supply. Louisiana has requested more than 10 million units of face shields, masks, gowns, coveralls, gloves, vents, hand sanitizers and thermometers from the Strategic National Stockpile for its hospitals and medical centers, according to records kept by the state, but as of April 3, it's received only about 13% of its request.

A FEMA spokesperson said in a statement that the agency's pandemic planning assumptions did not rely on the stockpile fulfilling all of the need on the state level and that "the federal government will exhaust all means to identify and attain medical and other supplies needed to combat the virus."

Lacking supplies from the federal government, states and localities have had to find their own. That's created a market with many bidders, including the federal, state and local governments along with individual consumers, likely contributing to higher prices.

Governors across the country have expressed their frustration with the situation. 

Just when Kentucky seemed like it would be able to procure PPE, Governor Andy Beshear said on March 24, "FEMA came out and bought it all out from under us," as reported in the Courier Journal. "It is a challenge that the federal government says, 'States, you need to go and find your supply chain,' and then the federal government ends up buying from that supply chain."

New York State Governor Andrew Cuomo during a press conference.
Albin Lohr-Jones | Pacific Press | Getty Images

"It's like being on Ebay with 50 other states bidding on a ventilator," New York Gov.Andrew Cuomo said on March 31

Meanwhile, prices are skyrocketing. 

Officials at the Idaho Office of Emergency Management said they've seen N95 respirator masks going for nearly $8 apiece. Though officials didn't know what the typical rate for an N95 mask would usually be, having focused more on procuring equipment like sandbags in the recent past, they said the rate seemed high. According to a report from The Texas Tribune, a bulk order of N95 respirators would typically run about a dollar per mask.

Supply chain back-ups

The first problem is that shortages naturally lead to price increases.

"Whether we have one bidder or 51 bidders you're going to have a price increase," said Christopher Snyder, an economics professor at Dartmouth College. Snyder said that in a shortage, it is usually a "sign of health" for prices to go up and could actually encourage more suppliers to enter the market. Pricing flexibility only becomes a problem when state budgets are exhausted by the prices or the highest bidder is not the one who has the most need, he said.

The medical industry, like many others, has spent decades modifying supply chains with a focus on lower-cost manufacturing abroad. Now it's feeling the negative effects of sourcing so many essential materials overseas, according to Kevin Schulman, a professor of medicine and economics at Stanford University. 

"Maybe the cost of producing that 75 cent mask in the United States would have been 80 cents or 85 cents," Schulman said. "That's the amazing thing in retrospect, is the pennies we were saving by going to international suppliers."

President Donald Trump has invoked Defense Production Act to compel private market manufacturers to ramp up production of PPE. But so far, many of the companies Trump has called on were already ramping up production prior to the order. When Trump called on 3M to produce respirators, the 3M CEO said the company was already doing everything it could. Eventually, the company struck a deal to bring more than 166 million respirator masks to the U.S. over three months. 

3M N95 particulate filtering face mask are seen at a store in East Palo Alto, California, United States on January 26, 2020.
Yichuan Cao | NurPhoto | Getty Images

Competition among governments

Multiple bidders can not only drive up prices by offering more money, but also by providing more favorable terms to distributors.

Tingle, the Louisiana emergency official, said some vendors have told him that other states are willing to pay for half an order up-front instead of on delivery. Louisiana has so far refused for fear that deliveries might not include the quantities or exact products offered.

"That's where I think the federal government could simplify some of this," Tingle said. 

"The federal government should be the quarterback, it should be the neutral player in this," said Schulman, "and that mechanism seems to have failed."

Ben Brunjes, an assistant professor of public policy at the University of Washington, said the federal government could easily take over procurement on the states' behalf and was puzzled why it's so far declined to do so. 

"FEMA and other organizations have the ability to say stop, you stop buying it and we'll disseminate it," said Brunjes, who previously helped set preparedness policy at the Homeland Security Institute, a federally funded center that provides analysis to the government. "They're choosing right now to not use that part of their disaster powers."

Under the current structure, states with greater resources have an advantage in procuring medical supplies. That might work fine if states ultimately share PPE with one another once cases slow down in their regions. Oregon's governor said the state would send 140 ventilators to New York where there was greater need, for example. But with the fear of a pandemic resurgence in the fall, states may become reluctant to give up their surpluses. 

Even if FEMA takes over now, experts say that the agency would have to be transparent about its supplies and how it's allocating them, or states might continue to bid against each other. 

"It would be more efficient from our perspective if FEMA were purchasing everything that they could and answering the requests that the states have," Tingle said. "Because at the end of the day, we still incur a cost share for everything that FEMA purchases for us, so the funding from the federal side doesn't really change, it's the efficiency that changes when FEMA gets involved."

Nurses at Harlem Hospital hold a rally demanding greater access to PPE to slow the spread of coronavirus disease (COVID-19) in front of the hospital in the Manhattan borough of New York City, U.S., April 6, 2020.
Aleksandra Michalska | Reuters

In the absence of the federal government stepping in, Cuomo of New York and California Gov. Gavin Newsom have floated the idea of a purchasing consortium to handle PPE procurement on behalf of states. A spokesperson for the National Governors Association said in a statement the group has been discussing the idea with its members but has nothing yet to announce. 

Though Cuomo most recently brought up the idea of a consortium at the end of his Wednesday press briefing, a week earlier, he'd said the idea would be challenged by the fact that "you just can't find the product."

Conserving supplies

As a last resort, hospitals have begun finding ways to conserve PPE, not knowing when they'll get a next shipment of supplies and how much.

"We are at the unthinkable," said Mahshid Abir, a practicing emergency physician at the University of Michigan and a senior policy researcher at the Rand Corporation. "We're here and I worry that a lot of hospitals are not in that mode."

Abir said some hospitals may not be aware of steps they can take to conserve PPE, which she suggested in a recent research paper. For instance, hospitals could limit the number of staff who enter a patient's room in full protective gear and have some staff talk to them on a phone from outside the room. Or, they could disinfect masks with heat and UV light, which Abir said would typically be sufficient for procedures that don't require sterilization.

Schulman said at Stanford, the hospital had already begun to move patients with COVID-19 near each other to reduce the number of times staff would have to change PPE between visits. He said the measure helped significantly cut down on the PPE the hospital worked through in a day.

To be prepared for the next event like this, Abir said the federal government would have to start continuously funding preparedness measures so stockpiles remain fresh, which she acknowledged is an expensive exercise.

"You're basically investing in events that are ultimately unlikely to ever occur," Abir said. "So it's very hard to convince people that oh well something may happen so on a continuous basis fund x, y and z activities just in case it happens. But that indeed is what we need to be doing."

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