As world turns to China for PPE, U.S. buyers risk knock-offs and price gouging
With virus restrictions in China lifted, the country has directed its manufacturing might toward making the personal protective equipment health care workers need to battle the coronavirus. Now there's a rush to buy these coveted medical supplies from China by global governments, private companies — and profiteers. It's a global free-for-all and CBS News found U.S. states and hospitals struggling to compete.
Aubrey Layne, Virginia's secretary of finance, is responsible for purchasing his state's supply of PPE, and he's turning to China.
"We need the masks, the respirators, all the gowns, the gloves," Layne said, adding that Virginia's current inventory isn't enough to weather the state's anticipated surge in coronavirus cases. Layne said China is currently the only place capable of delivering the bulk orders he needs, but buyers take on plenty of risk.
American distributors and supply chain managers tell CBS News, in China, PPE factories are popping up overnight, some even faking U.S. government approvals. Vendors that once excelled selling cheap watches and children's toys are now hawking what they claim are highly coveted N95 masks. Even when the products are legitimate, American buyers face risk of intervention by the Chinese government.
"We've got to make sure they are real and credible," Layne said. "We've had one case where we went with a very reputable supplier and yet, when it got ready to ship, the Chinese government decided it better take possession of the goods because they want it to go somewhere else."
On Friday, the Chinese government said it would introduce tougher customs inspections of personal protective equipment leaving the country. Under the new rules, shipments must be examined before they leave the factory.
Feds not buying Chinese PPE
Despite widespread shortages, the U.S. has refused to launch a coordinated national procurement effort. At a March 19 press conference, President Donald Trump said the U.S. was "not a shipping clerk."
"The federal government's not supposed to be out there buying vast amounts of items and then shipping," Trump said.
A U.S. official told CBS News the federal government isn't buying PPE directly from Chinese manufacturers, but that FEMA is helping American distributors fly shipments of gloves, gowns and masks from China so it can get to frontline workers faster.
"Per agreements with distributors, 50% of supplies on each plane are for customers within the hotspot areas with most critical needs," said a FEMA spokesperson in a statement. "The remaining 50% is fed into distributors' normal supply chain to their customers in other areas nationwide."
Layne said it's a problem there's no coordinated federal strategy for managing the procurement effort because states are left to fend for themselves, bidding for Chinese PPE against other states, often driving up the price.
"Some of the suppliers know this," Layne said. "They'll call us up and say, you gotta make a decision pretty quickly or it's going to someone else."
He said suppliers have demanded money upfront and told him he only has an hour to decide whether to make purchases of millions of dollars. Layne, who deals with taxpayer money, said he needs to make sure he's not being ripped off.
Manufacturers not waiting "for people to dither around"
Clive Greenwood, a British consultant based in China, represents three local manufacturers that he said sell medical supplies, mostly to foreign governments. He said he gives each potential customer 15 minutes to show that they are serious about a purchase.
"There is a massive world demand and [the Chinese manufacturers] are just not going to wait for people to dither around."
Greenwood said some buyers are "going up to factories with truckloads of cash and taking the entire production."
Nonprofits stepping in
Earlier this month, a shipment of 80,000 masks arrived at Morristown Medical Center in Morristown, New Jersey, from a warehouse outside of Mexico City. The delivery was arranged by a nonprofit called Helena. The group is buying up PPE at inflated costs and selling it back to hospitals at the normal price. High-profile donors include former CIA Director John Brennan, General Stanley McChrystal and Ariadne Getty.
Helena's founder, Henry Elkus, told CBS News the global market for PPE is incredibly chaotic and hospitals aren't capable of keeping up with price gougers.
"Sometimes within an hour, the purchases would actually get sniped away by other parties, maybe add a zero to the price and then sell it to hospitals later or in some cases even hold the product," said Elkus, who has seen masks that should be priced under a dollar sell for $5. "It hurts because it's business, in some cases, and profit motive trumping real lives."
Recently, Helena told one state government it would put down a deposit on 50 ventilators from a Chinese manufacturer, buying time for the state to perform proper due diligence on the order. It turned out, the ventilators were not the correct model to treat coronavirus patients. Separately, the group was able to secure 1,000 ventilators for a U.S. city. The devices started to be delivered last week.
Elkus said he's one of many private individuals stepping in to help while Washington stands by.
"This is not a project we should be doing," Elkus said. "This should be something that is being taken care of by the government."
Layne agrees. He said the federal government needs to step in because he's worried about who he's dealing with. He said he's spending millions of taxpayer dollars on supply, unsure of when it will arrive.
"Hopefully it's more a matter of when and not if," said Layne. "But even that, we won't know until the actual planes get here or the cargo gets here."
Weijia Jiang, Cassidy McDonald and Matthew Sheridan contributed reporting.