Inside the chaotic PPE market where shortages of critical supplies persist
We're nine months into the pandemic, and health care workers still find themselves scrambling for PPE, personal protective equipment. The shortages are more and more acute, as cases keep rising in practically every state, and we're gearing up to launch a nationwide program of vaccinations.
With no effective federal coordination early on, desperate governors, mayors, doctors and sheriffs were left fending for themselves and bidding against each other for supplies like masks and gloves. The global hunt for inventory has created a free-for-all market that's attracted speculators, self-starters, and outright scammers, leading to congressional and criminal investigations. Tonight you'll meet someone who got into the game, and in his first month in business racked up orders worth roughly $630 million. But then, things didn't go quite as planned.
John Thomas: I think I underestimated the challenges, where the entire world was looking for these same supplies.
John Thomas is the president of Blue Flame Medical, a PPE supply company. He and his partner, Mike Gula, were Republican strategists who jumped into the business as COVID hit, despite having zero experience in importing medical supplies.
Lesley Stahl: You, right away, before you were even up and running practically, advertised yourself as, "the largest global network of COVID-19 medical suppliers." Now, that couldn't be true in a million years.
John Thomas: Well, so here's what I did. We started with my long-time relationship with a large Chinese manufacturer. That was our base. And then I started working my connections from Vietnam to Mexico to Malaysia. So we felt comfortable-- now, was it a frenetic pace? Yes. Was the airplane being built while in flight? Yes. But every claim we've made, I stand behind.
Their marketing brochure claimed they could "deliver our goods between 7 to 12 days" – which rarely happened. The brochure goes on, "we pride ourselves on taking [c]are of" our clients. Of the four specifically listed, three never got the PPE they ordered, and the fourth just got part of their order filled.
But state agencies in desperate need had little time to vet Blue Flame. On its second day in business, the state of California ordered masks for well over half a billion dollars. Then came Tennessee and Alabama. All using taxpayer dollars.
Lesley Stahl: How much did you rely on your political connections in the conservative Republican world?
John Thomas: I can't think of a time that we used any political connections to get a contract.
Lesley Stahl: So we have emails that we've acquired from Freedom of Information requests in a number of states. And it seems your network of political contacts actually did kick in for you: wrote letters, made phone calls, on your behalf. That's what I call "connections." What do you call it?
John Thomas: I'd call it happy customer references.
Tiffany Waddell, a Republican advisor to the governor of Maryland, wasn't a customer. She called herself a "good friend" of Thomas' partner and vouched for Blue Flame, that led Maryland to order a million and a half masks and 110 ventilators.
Lesley Stahl: The ventilators that you contracted to Maryland cost $41,000 dollars apiece?
John Thomas: Oh, yeah, oh, yeah.
Lesley Stahl: Well, wait a minute. I mean, that's crazy, actually.
John Thomas: Yeah. These usually cost $5,000 apiece.
Lesley Stahl: How did you get a contract for $41,000 apiece for ventilators?
John Thomas: Yeah, that's an example of how heated the marketplace was. But the pricing was being driven from the manufacturers.
But signing contracts turned out to be a lot easier than filling them; delays and setbacks piled up right away. Take the case of St. John's, a chain of clinics in South Los Angeles serving low-income communities.
Jim Mangia: We were desperate. And we didn't have enough PPE to last us through the week.
Jim Mangia is the CEO of St. John's. When the pandemic hit, his staff scoured the internet to find PPE; states and giant hospital chains kept outbidding them – so they were relieved to discover Blue Flame Medical. Mangia never heard of them, but on April 2, he placed a PPE order for nearly $180,000.
Jim Mangia: And then they come back and they say, "Oh, there's a kink in the supply chain. It'll be a few more days." "It'll be a few more days." "It'll be a few more days." And then at the end of April, they basically said, "We-- we're not gonna be able to deliver. The only thing we can deliver is gloves." And, "you're outta luck."
Lesley Stahl: The deal's finished.
Jim Mangia: The deal is done.
Lesley Stahl: A lot of these smaller entities were left high and dry.
John Thomas: The ones that wanted to be patient got their product. The ones that didn't want to be patient got a refund. There's nothing more I can do than that.
But it wasn't just the smaller entities. Blue Flame sent the state of Maryland similar delay notices. And yet – at that very same time – the company wrote to California: "we feel confident we can deliver large quantities quite quickly… We do not have any problems getting things out of country."
Lesley Stahl: Why did you keep taking orders in mid-April when you were already having to tell customers that you couldn't deliver?
John Thomas: Because we had been finding alternate suppliers. And for us to step back and just say, "Well, this is complicated, there are delays here or there, we're just gonna stop"-- first of all, that's just not in my nature to do that. It's a challenge, we're gonna overcome it. And, secondly, people needed this product.
He blames the delays on China where many factories that could, switched overnight to making PPE. He says it was a wild, wild west gray market where buyers showed up with cash in suitcases. Thomas claims goods he ordered just kept disappearing.
John Thomas: One of our delays was when China literally stole our inventory off the line for one of our state customers. What China was doing, instead of issuing an order saying, "We're not gonna allow America to have medical supplies," they would arbitrarily change the rules almost on a daily basis.
Lesley Stahl: Because of the trade war that we're in?
John Thomas: Absolutely. They wanted America to hurt. So we would have product [that] came off the manufacturing line. It was-- it was waiting to be inspected at customs, and everything's moving fine, moving fine. And then we would hear: "Oh, well, China says everything needs to be reinspected." "Well, why?" "Well, just because." And the-- so it-- it's imagine, like, you're drivin' on the road, and all of a sudden a stop sign appears in front of your face. And then the speed limit goes up and then the speed goes down, and it's all in an effort to make it harder to get--
Lesley Stahl: Squeeze us?
John Thomas: --whether it was ventilators or masks.
Lesley Stahl: Okay. I'm gonna read something to you, and you tell me, when I'm finished, what they all have in common. Okay? Idaho State Police, Florida Department of Law Enforcement, North Carolina State's Bureau of Investigation, Iowa's DCI Crime Lab, Arizona's Department of Public Safety, the Takoma Park Police: What do they have in common?
John Thomas: Law enforcement, of course.
Lesley Stahl: No, they placed orders with you that weren't fulfilled.
Nearly all states and public agencies that ordered from Blue Flame couldn't wait as cases kept rising and the company had to send them refunds. California cancelled after the bank handling the transaction inquired about its legitimacy. And Blue Flame is now suing that bank. Maryland did eventually get the masks and a third of the ventilators after filing a legal claim against the company.
Lesley Stahl: So you or Blue Flame have been the subject of scathing articles, investigations, Congressional investigations, the FBI has come in. Boy, you've been under a lot of pressure. I guess my question is why are you talking to us?
John Thomas: Yes, we have been under a lot of pressure. And while I couldn't disagree more in some of the things people have said about me and my company-- I can assure you this, first and foremost, Lesley: That my company and I have behaved 100% legally and ethically.
Lesley Stahl: Are you saying you didn't exaggerate at all?
John Thomas: I don't think we did anything differently than anyone-- any company selling product and their ability to sell product. I don't think we did anything differently.
The PPE market operates with few rules, and is rife with chaos and broken promises. There are videos circulating online warning of boxes arriving with bags of sand instead of product. Other photos show imported gloves arriving damaged. A charity that ordered masks got instead tissue-thin counterfeits they called a doll's bloomers.
Masks and gloves are hawked in chat groups on texting apps. Fraud is so rampant that buyers have demanded sellers provide a proof of life video like this, where the goods are shown with the buyer's name and current date, like in hostage negotiations.
The most valuable players in this precarious PPE market may be people like Rudy Rong.
We walked through mountains of stock in his warehouse in Los Angeles. The 26-year-old dabbled in crypto-currency, clubs, and cars before discovering PPE.
Lesley Stahl: How and why did you get into this business?
Rudy Rong: It started out by my friend, Paul, called me, be like, "Yo, Rudy, any-- you got any masks?" And I was like, "What? What are masks?" So I was like, (LAUGHTER) "Okay, let's-- let me find out for you, bro." Like, and I found some masks and then connected them. It turned out--
Lesley Stahl: You mean masks-- you found them in China.
Rudy Rong: Yeah, in China. Then I brought them here. And after that it just piled up.
Unlike Blue Flame, which took orders in the U.S. and then went hunting for inventory in China – Rudy's company, Magic Ice Cube, buys massive amounts of PPE in China before they have clients, and then resells it in the U.S. to the highest bidder. In PPE sales lingo he's an OTG – on the ground.
Lesley Stahl: What are the advantages for someone here buying from you as opposed to going directly to China?
Rudy Rong: Well, the biggest advantage is that they can validate what they are buying, you know, they can come and test it out. Also they can just get it quicker. Because everything we sell are ready for pick up or shipped out.
Lesley Stahl: And what are the downsides?
Rudy Rong: Well, it's just a little more expensive.
Lesley Stahl: It's a lot more expensive. It can be a lot more expensive.
Rudy Rong: It can be a little more expensive.
Whatever the pricing, it hasn't deterred buyers, he says, including Kohl's, Victoria's Secret, the U.S. military and the FBI. He keeps replenishing his shelves - relying on his wealthy parents back in China and their connections; or in Chinese: Guan Xi.
Lesley Stahl: Can an American without Guan Xi in China get into this business?
Rudy Rong: it will be hard. It will be hard. We had a lotta clients try to do it themselves, got burned. Now they're not getting their money back. They were calling me, "Rudy? Do you have any lawyer in China that can help me out?" I'm like "Bro, man, like, I don't know. I-- like, the lawyer don't really work in China like they do in the states."
The most dire shortage right now is in gloves, which with the pandemic are worn in restaurants and factories, as well as hospitals. The need is expected to explode once a national vaccination program starts. There are calls for more domestic production of PPE, but meanwhile, one company still trying to import gloves is Blue Flame Medical.
Lesley Stahl: Are you still doing this?
John Thomas: We are still in the business, successfully--
Lesley Stahl: You're kidding.
John Thomas: --delivering, yeah.
Lesley Stahl: You're still getting PPE from China, and delivering it--
John Thomas: We are. There's still a big need. So we're gonna be here until that need disappears.
Produced by Shachar Bar-On. Associate producer, Natalie Jimenez Peel. Broadcast associate, Wren Woodson. Edited by Michael Mongulla.
