Despite promises from President Donald Trump that private companies would start pumping out personal protective equipment (PPE), doctors and nurses are still pleading for more gloves, gowns, masks, and, most of all, N95 respirators.
This crisis poses a threat to the safety of health care providers and workers on the front lines who are keeping society functioning by staffing grocery stores, delivering packages, and collecting trash.
It also sets the stage to prolong what is already expected to be a devastating economic downturn. Any plausible vision of curtailing the kind of heavy restrictions that have successfully slowed the spread of the novel coronavirus is going to require a significant increase in America’s production of PPE.
Trump has invoked the Defense Production Act (DPA) sporadically as a bargaining lever, and his Democratic opponent, former Vice President Joe Biden, has called for wider use of the law but in a nonspecific way. And prices are soaring without doing much to bring new supplies online. The problem is that even though there’s clearly money to be made selling respirators and masks, managers with good reason don’t want to front the cost of retooling factories for an unknown quantity of orders over an unknown time horizon.
But there is a solution: invoking other titles of the DPA to give companies financial guarantees and some regulatory relief to speed up production. In a paper published by the libertarian-ish Mercatus Institute and jointly authored by Caleb Watney from the center-right R Street Institute and Alex Stapp from the center-left Progressive Policy Institute, they spell out how Trump could do it. The proposal involves spending a lot of money and skewing some sacred cows of both market fundamentalism and the regulatory status quo. They involve accepting some risk of wasted money or improperly functioning equipment.
In a world where the alternatives involve health care workers treating Covid-19 patients while wearing bandanas and America experiencing mass unemployment, it’s time to consider something drastic.
Use the DPA’s full powers
Most discussions of the Defense Production Act have focused on the president’s authority under Title I, which allows the president to force companies to accept and prioritize orders related to national defense. That can be useful in some situations, but the United States is currently not facing an N95 shortage because private sector buyers or export orders are overwhelming supply. There just legitimately aren’t enough to go around.
Stapp and Watney suggest instead that the government instead emphasizes its power under Title III of the DPA to offer loans and purchase guarantees to expand production.
Right now, one huge barrier to scaling up N95 production is that companies have no idea how long the current surge in demand will last. Prestige Ameritech, a Texas-based company that is the largest American manufacturer of surgical masks in the United States, thought the surge in demand associated with the H1N1 flu pandemic in 2009 would be a godsend. But in a recent NPR interview, co-owner Michael Bowen recalls that their efforts to scale up rapidly in that crisis nearly killed the company.
“We hired a lot of people and ramped up,” he told NPR’s Mary Louise Kelly. “And then we nearly went bankrupt afterward. We laid off 150 people and nearly went out of business. You know, it’s not like flipping on a switch. It’s building machines. It’s hiring people. It’s training people. That’s the issue.”
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Guaranteed loans and guaranteed purchases
Retooling a factory to make urgently needed medical equipment is an expensive proposition with an uncertain payoff. And it’s made more difficult by the fact that the normal way the manufacturing business works is you don’t
get paid until the goods are delivered. So you need to incur the full expenses of setting up production and hiring trained staff before you see an ounce of revenue. The federal government has the power to offer guaranteed loans to companies that want to get into the N95 business. And it can guarantee to buy large quantities of masks at prices above the traditional rate.
The idea would be to make a reasonable estimate of how many masks are needed and for how long, and then guarantee to buy more masks than that, and for a longer period. That way, if need turns out to be greater than anticipated, the US is covered. And if it turns out to be less than anticipated (as happened during H1N1), companies that stepped up get made whole anyway.
Excess supplies can be added to national stockpiles and given away to lower-income countries that don’t have the financial resources to do this for themselves.
The same principle could be applied to needed commodities beyond N95 respirators and surgical masks. There are persistent reports of swab shortages as an impediment to scaled-up testing, for example, and though many distilleries are now producing hand sanitizer, this largely seems to be a small scale play for goodwill rather than a real business model. At a time of soaring unemployment and low interest rates, it makes sense for the government to freely hand out purchase agreements at generous prices of everything that’s useful and in short supply. Meanwhile, given the urgency of the crisis, the Food and Drug Administration (FDA) needs to recalibrate its risk assessments.
Regulatory Relief for New Manufacturers
Stapp and Watney note that Title VI of the DPA gives the president the ability to issue certain kinds of liability waivers to companies involved in emergency production. They say this could be useful. But the bigger gains in regulatory relief would come from the FDA, which regulates medical devices.
They note, for example, that “the average approval time for a production facility that is certified to make N95 respirators is more than three months.”
This may make sense in ordinary times when health care providers have ample respirators, so the potential benefits of allowing new entrants are relatively low and the potential cost to human health is relatively high. Right now, however, there is an acute shortage of respirators. The alternative to a potentially faulty one isn’t a rock-solid respirator from a longstanding facility, it’s no respirator at all. That calls for a less risk-averse regulatory stance that would be based on random inspections of products that ship rather than intensive certifications of factories.
Similarly, Stapp and Watney propose that the Centers for Disease Control and Prevention should relax the requirement that PPE manufacturers have their products tested at the National Personal Protective Technology Laboratory, and allow private and university labs that have the right equipment to do it instead. As with shifting to a random inspection model, this may involve some compromises relative to an ideal situation. But equipping a nurse with PPE certified in a university lab is preferable to sending them to work with improvised protection from garbage bags and bandanas.
This is especially true because a much larger than usual set of people could use some level of PPE these days. Currently, the general public is being exhorted to avoid using professional-grade PPE altogether to ameliorate shortages. But the legions of grocery workers, restaurant cooks, delivery people, truckers, bus drivers, and others who are keeping the country running would be much better off with professional equipment made under relaxed regulatory circumstances than with nothing at all.
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