Medical Equipment and Global Supply Chains During Coronavirus

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SARAH BALDWIN: All right, enjoy the show. From the Watson Institute at Brown University, this is Trending Globally. I'm Sarah Baldwin. I'm going to take a guess. In the last few months, you've probably tried to buy a face mask, latex gloves, or maybe some other piece of what we've all learned to call personal protective equipment, PPE for short. And you've probably noticed these items are in short supply. And more distressing than that, hospitals are having a hard time buying them, too.

On this episode, we're going to take you on a tour of one of the most essential supply chains in the global economy, that of medical equipment and PPE. And we're going to look at what happens when a pandemic turns everyone into a customer.

There's no better guest to help us make sense of all this than George Barrett. Among other roles in the health care and pharmaceutical industries, George is the former chairman and CEO of Cardinal Health, one of the world's largest manufacturers and distributors of medical products. Watson's director, Ed Steinfeld, talked with George for the podcast about the economics, politics, and science of PPE and medical equipment.

Their conversation sheds a light, not just on our health care system during this pandemic, but on our global economy in the year Twenty-Twenty. Here's Ed.

ED STEINFELD: George, welcome to Trending Globally.

GEORGE BARRETT: Thanks for having me.

ED STEINFELD: So in normal times, what does the supply chain for personal protective equipment look like? Who are the players, and how do the transactions work?

GEORGE BARRETT: So it might be helpful first to define what we think of as personal protective equipment. So there is protective equipment that's technically medical devices. These are regulated either class two-- typically, class two or class one medical devices. These include things like gowns and gloves and drapes.

So I'm going to make that distinction because, as we've come through this crisis, we've had a lot of confusion about what are actually devices that are medical devices regulated by the Food and Drug Administration and other bodies around the world. And what are gear that we use that are barriers. So I want to make sure I identify that distinction because it's become important recently.

In the normal flow of events, let me just go through the players. So we have producers. These producers are all over the world. But I will say for many of the products that we've been talking about, gowns, drapes, gloves, masks, many of them are produced in East Asia. There are the raw materials and the components that go into these products. That's on the production side.

Let's stay with the United States for the moment. There are companies that are what I would call the traditional health care distribution companies. And those products distribute health care products. Everything from medical devices to lab equipment to pharmaceutical products.

Now, we'll say that some medical products like these go directly from manufacturer to hospitals. Many of them flow through these distribution companies. And then, of course, there are the hospitals and the health care providers. Hospitals, our fleet, the VA system, et cetera. These are the customers and the health care providers that are using these products.

There is another player that we see in the mix in regular times and during this crisis as well, which are group purchasing organizations. And those groups came to being many years ago largely to help what were non-profit, not for profit hospitals. Those are the traditional players in the system.

ED STEINFELD: And in normal times, what does the ordering process look like? Does a health care system place an order every month, every year, is it very predictable?

GEORGE BARRETT: Yes. Again, ordering frequency is very high. Part of that really relates to a trend that we started to see several decades ago with the just in time inventory. And so the entire system-- the entire supply chain, in some ways, adapted to this model of management of flow of materials and logistics.

As you know, it became most famous in Toyota and in the Japanese manufacturing world. But the whole idea was to use the flow of data to efficiently produce two signals of demand, and to reduce the amount of inventory in the system. In many ways that's been, for decades, an incredibly efficient way for the system to work. In a crisis, it's turned out to be quite a challenge.

So products are delivered daily. So companies like the company I ran, Cardinal Health, is delivering to thousands of hospitals every day. In some cases, more than once a day. So very, very regular flow of products into these hospital systems.

ED STEINFELD: Right, but it sounds great. I mean, no slack resources, no inventory, margins that are really narrow. But I guess, when demand spikes, all kinds of craziness breaks out. It seemed as a lay observer, I watched what seemed to be all kinds of new buyers jumping in. And, in a way, a kind of a frenzy for equipment. What happened when the pandemic broke out?

GEORGE BARRETT: Yeah, so as I described, again, with some exceptions, again, there are moments where the system has been difficult. But fundamentally over the last 50 years, this system has run relatively efficiently for the health care system. This crisis has been extraordinary in so many different ways.

First, let's talk about demand. So demand surged in a way that no system-- at least here in the United States or anywhere in the world-- was able to really navigate. Again, the demand was global and explosive. We're talking about volumes that, for example, on a given day for some of these products could look like either a very large month, or in some cases, a year. So just extraordinary demand.

Imagine, again, in a hospital, you're not just providing products to the physicians that are in the front line or working in the ICU. You're talking about people in transport in the hospital. People that are working in the warehouse or at the loading docks. So everyone needed equipment in production.

And they were replenishing or having to dispose of this very regularly as this surge really accelerated. And we saw this quite dramatically in New York. So again, just extraordinary demand globally. Drawing essentially on the same sources of global demand. And now comes this important distinction about medical products.

The products that normally that we use in these health care institutions are regulated medical devices. And so there aren't that many producers in the world that have the capacity and the regulatory approvals to do this kind of work. And so the surge was an enormous drain on a system not designed to handle that kind of capacity coming in on a global basis.

ED STEINFELD: And George, I think about even myself and my own family, we wanted surgical masks to protect ourselves. So I'm guessing that, in addition to the traditional buyers of these medical devices, you had all manner of other kind of buyer jump in. Everything from the box stores to individuals.

GEORGE BARRETT: Now again, remember there is a non-medical device industry that produces things like masks and gloves. And you can buy those at retail stores. Everybody wanted protection here, understandably. This has been and continues to be an enormous crisis. And so I think what we saw was hoarding. Again, it's a word that has a very negative connotation. But I think we have to accept the fact that this is a natural thing that happens in a shortage, which is those who are seeing signals of surge suddenly dramatically increase their orders.

ED STEINFELD: They want to build up inventory.

GEORGE BARRETT: At least trying to access or make sure their orders are in place. So one, we saw a surge in orders. And second, now we have consumers understandably are frightened. And in those early days, remember with ambiguous signals as to whether or not they should be taking certain protective measures to-- measures to protect themselves. So I think with ambiguous signals, a supply system under enormous duress, and some confusion about which product should be used in the medical setting and which products should be used in a consumer setting, we had a recipe for a real a real challenge.

Add to that we had lots of players who wanted to help, and who wanted to protect their own institutions and the people that are working and right in the front line in those institutions. So we had states and hospital systems and philanthropists and everyone who wanted to help jumping in to say, we can help. We have a source of products that we can provide you with.

The reality was, at least in those early weeks, there was only so much medical grade supply available. And so when each of those individual entities started saying, look, we have a source in China that we will go to directly because we've got some contacts in China. If it was a regulated medical device, it was probably grabbing the same inventory that when the traditional companies that was-- that does this daily work was expecting to get.

And so actually what it did, inadvertently, again, all well-intentioned, and all done by people-- I shouldn't say all. We're going to come back to the bad actors that emerge in these moments. But much of it done by people really trying to help with a sense of urgency. That created an interesting and more challenging dynamic because it started driving up the price of the medical grade products. It also started driving up the price of products that are not medical grade. It also attracted players who occasionally, in these moments, are there to exploit this situation.

And we've seen thousands of examples of quote, "agents" or brokers who were saying, look, give me money upfront, I will get you these products. And in many cases, those are fraudulent. Just as a frame of reference, Ed, I was talking to some of my former colleagues. I've retired from my work. But of course, calls were coming to me to say, look, we've got this source of supply. We want to make sure that it gets in the system.

So I would reach out to some of the players that do this on a daily basis. And I was doing that so that they could do the vetting. At one point I checked in to see how it was going. And I was told that they had vetted over 700 incoming offers, four of which had any legitimacy where they could actually act on these.

So the amount of frenzy that was occurring-- some of it productive, but much of it not, I think added to the complexity. Again, that's not to blame those trying to help. But I think what we need to do at some point as we really do a lessons learn is ask, so what are the things that we would do to prevent those kinds of dynamics occurring? And that's sort of an interesting question in terms of policy and economics. What do you do to prevent those kinds of black market or gray markets from emerging?

ED STEINFELD: Yeah, even if we take out the bad actors, and surely there's some of them, even if we think about relatively benevolent actors on the demand side and the supply side, I guess that when things get so tired and uncertain on the demand side, legitimate buyers probably put in duplicative orders to different suppliers to guarantee that something comes in. The suppliers then have to guess which order is a valid one, which is just a duplication. And meanwhile, the price is getting bid up.

So it sounds like just the whole price mechanism and supply and demand signals got completely distorted.

GEORGE BARRETT: I think that's right. It is a natural behavior. And in fact, in some cases, the systems are designed if you're having a shortage and you're not getting that replenishment stock to reorder, right? So the system probably becomes somewhat gummed up. And I think this is sort of a natural phenomenon. In a sense, it's a reminder that-- I think we have a tendency, all of us, to under prepare for things that seem very unlikely, but have enormously high consequences.

This is a great example. It's almost like a natural human tendency. And then, when you add to that the fact that we often have to spend money in the near term to anticipate something in the long term that may or may not happen that is highly consequential, that is something we don't do very well. And I really think that that's something we're going to need to think about as a system.

ED STEINFELD: George, with the recent surge, did we discover any surprising bottlenecks in global supply chains?

GEORGE BARRETT: Yeah, I think that-- put it this way. I'm not sure if we discovered but it certainly exposed-- the crisis exposed some challenges. We have a tendency to think about all the products that we needed. Ventilators and masks and test kits, et cetera.

What I think people only began to learn about towards the tail end of the initial surge was-- and, of course, the companies understood this, was that there are components that are needed. So there are what I would think of as sort of the long poles in the tent that are needed. You can't have a ventilator without having filters. You can't have a test kit without swabs or reagents. You can't have masks without access to rubber or latex.

And what we know is that these products are often produced in relatively limited numbers of facilities around the world. Take swabs, for example. Most of our swabs were coming from Italy. So with this enormous surge here in the US, but Italy was also experiencing a terrible crisis. And so trying to get those products exported to the US and produced in a certain quantity were challenging.

And I think that's one of the things that we need to think about is, as we think and learn from this, what are those long poles in the tent? What are the things that we need that make the system work? I'll give you another example that, again, people wouldn't necessarily think about. When patients go into the ICU and they're going to go on a ventilator, they need to be intubated. In order to be intubated, they're probably going to have to be sedated. The pharmaceuticals that are used to do that started getting into short supply.

So again, it's going backwards and thinking about, what are all the critical components that you need in one of these outbreaks and planning for those. And of course, over the years, some of this planning has been done. But we need to refresh that, and we need to make sure we're really thinking carefully about all those component parts. And creating a system that is more resilient and more flexible and responsive to surge than the somewhat rigid system that we've developed today.

ED STEINFELD: And certainly, what you're suggesting is we need a lot more nuance in how we think about these supply chains rather than where is the product ultimately assembled. But there's all this nuance about what's going into the product.

GEORGE BARRETT: We do. And it's also-- I think it reminds us as we do sort of lessons learned on this, we have to be very careful to say, the answer to this is making everything at home. Look, we've seen the challenges of that in the pork industry, right? One facility has a problem, and then we have a problem for the nation. And that was here in the US.

So I think the question is not just-- of course, I think we need to bring more closer to home. I do think that's something that we'll need to explore and explore fully. But I think we really need to make sure that we have a system that's resilient. And we have to be reminded that we're in a moment of hyper nationalism around the world.

There's just been reporting on that over the last couple of days about the pressures around vaccines to make sure that those vaccines produced are funded by a particular government stay first in that country. And then, maybe then can be exported. So I think these are particularly tricky situations or moments when we have a world that is experiencing-- as much nationalism as we've experienced in a very long time. And I think that we'll need to be very careful as we think about lessons learned, and the right policy solutions to protect ourselves going forward.

ED STEINFELD: Is there a kind of a preparedness or flexibility that would involve companies that are not traditionally part of the supply system developing the ability to switch into it? I mean, we've heard about Ford and maybe some of the other automakers getting into the business of producing respirators. Is that a scalable kind of solution for flexibility?

GEORGE BARRETT: I actually think it is. It is a capability that is appropriate and necessary in a crisis. I mean, World War II mobilization has been well-documented. By the way, it wasn't overnight, right? We were not all that well prepared for Pearl Harbor and what transpired afterwards. But we did mobilize. And lots of industries had to re-purpose their activities.

And I think that we could do that, maybe more effectively by actually thinking in advance about the various capabilities that are necessary. So let's take ventilators. I think the system did a good job. American industry did a good job of responding-- not just American industry-- of responding to that need for ventilators.

But again, there is ways of doing that more preparedness upfront to say, what are the kinds of things that can happen, let's say, in a global health care crisis? What are the capabilities needed? You could almost map who has comparable kinds of capabilities. And they will be essentially part of an ongoing discussion as it relates to emergency preparedness. And I think that kind of planning is possible. I really do.

But it, again, it requires, I think, some centralized planning. And that is where we get into some issues that I know you and your folks at Watson talk about, no doubt, a lot, which is the nature of government. What's the role of the federal government versus what's the role of the states? And it does touch on those subjects.

My view is in a crisis-- even those who believe that the states should have tremendous autonomy, and you're seeing that in the polling. People still believe that in a crisis, there is some need for a central body government data source to help us navigate through. And I think that same group could do planning in coordination with all the states and with industry.

ED STEINFELD: Could you talk, George, a little bit more about what, say, government intervention, whether its federal level or otherwise. What would intervention look like when a surge happens? And I also have in mind some of the equity issues. Is it the case, say, that a poor hospital system-- if prices are being bid up-- a poor hospital system can't access goods or a poor state or a poor country. So what would intervention look like, and how might that intersect with the equity issues?

GEORGE BARRETT: Yeah, I think it's a great question and a tricky one. And I think you almost have to do it situationally. I think we have a system that is designed to allow the states autonomy and to do their work in protecting their citizens.

Having said that, depending on the nature of the crisis, there can be moments where I think the federal government should step in. And it's helpful to everyone, including industry. So in this case, for example, there may have come a point where, let's say, the surge-- and we saw some of this-- for PPE was becoming distorted, both in terms of supply and in price. And that may be a situation in which the federal government needs to step in, either as a purchaser or as a coordinator, in some fashion.

I think the situation you described was possible, which is worrisome. So in the crisis, and particularly in the early days, particularly as it hit New York, you had everyone trying to protect their health care workers, their first responders, and their citizens. And because there were shortages, it is totally understandable that when someone would go to the state and say, I have a source available, or someone would go to a major hospital in that area, or a board member of that major hospital and say, look, we've got a source available, that they would pursue that.

It is also possible that a poorer system, or a poor-- a state with less resources would not have had that at their fingertips. Now, as I said, as it turns out, may have been grabbing from the same source as pie. It's hard to say. But there is no question that that inadvertently started to inflate prices.

And again, this was all done, I think, because people were trying to take care of their health care workers, do their job, and take care of their citizens. But these are the moments where maybe it's necessary for there to be some intervention to help prevent that from becoming a crisis, and for exacerbating inequities.

ED STEINFELD: It also seems that when something that resembles panic sets in, and when people are scrambling for resources to move people out of that mode, there's just a degree of societal trust that's needed and a degree of leadership. And I want to ask you, really about your view of leadership under these circumstances, whether in terms of are there other countries and societies that have done this better? Or are there particular players or examples of leadership you could think of in the US system that reflects a possible solution?

GEORGE BARRETT: I think, again, that I'm going to touch on a subject that the Watson Institute no doubt spends plenty of time researching and teaching about which is, democracy is messy in some ways. And so in a crisis, as it turns out, a third turn regimes-- because there is a central body making decisions, whether that is one that people get a chance to weigh in on or not, there can be a response as a strange paradoxical byproduct that we would say can be useful in a crisis.

My view, having a democracy is a precious thing. It does highlight some challenges in leadership in these moments. And I think crisis tends to amplify leadership characteristics. Probably good and bad, in all of us. And it does call for certain things. Trust, you just mentioned trust. I think it's an enormously important issue. Because especially in a world in which information is flowing freely and very rapidly through the internet and through a 24 hour news cycle, we are getting bombarded with information. Much of it not curated.

And it's very hard for people to understand what the truth is, whatever that means. Is there a single source of truth? And a trusted source? And I think those moments are exacerbated by crisis. And I think those moments are exacerbated by the nature of the world that we live in today. I think FDR would have had a bigger challenge if he had to deal with a 24 hour news cycle and the internet.

And so I think this highlights some issues. I think constant communication, transparent, factual communication. So that it feels like there is a single source of truth. In this particular case, the truth has actually changed a lot. We are learning. We are learning about this virus, about its biology, about our ability to respond in the moment. And I think there is a need for a constant very frequent communication about what we know, where we're getting that information from, and how we're going to respond to that.

So clarity and a real clear sense of mission. What is it that we are trying to do? And I think from the leader-- this sense that I will do everything in my power to protect you. Everything that I can do to protect you. And that means surrounding myself with the best and brightest, empowering them to do extraordinary work, making sure that no boundaries, political, historical agreements, nothing will get in the way of that.

So this clarity of mission, a consistency of messaging. I think this issue of trust that to all that which is-- these are all trust builders. And I think also in a really difficult moment like this, the ability to demonstrate empathy. Tons has been written about this. But I do think that this has been an extraordinarily painful thing for millions of people. And there are so many people that are feeling this sense. It is important for the leader to be able to acknowledge the loss.

And the ability to at least attempt to say, I'm trying to put myself in your shoes and acknowledge that loss, is important for the leader. At the same time, the leader needs to be decisive in these moments and the leader needs to be able to try to paint a picture coming out of it on what life looks like. That we do see something at the end of this, and that we do have brighter days ahead. But I do think trying to minimize-- pretend that it's not a challenge is really difficult for people. And that destroys trust.

ED STEINFELD: And for all of the complexities of American culture, it seems clear that the US and US society is capable of a lot of innovation, whether it's the kind of Silicon Valley entrepreneurial innovation or the kind of big national mobilization of science technology that happened during World War II and afterward. I'm hoping that the current crisis will be a driver of a new wave or new waves of innovation. How do you foresee that playing out? What are the possibilities for innovation in the supply chains or innovation in health care generally?

GEORGE BARRETT: You know I think these moments challenge us in so many different ways. But again, I think history tells us there are moments-- these moments where it forces us to use a different lens, or to re-evaluate what we're doing, or the way we're doing it. And it does have a tendency-- we do have a tendency to see innovation in these moments.

I can think of some very specific examples during this crisis. We saw a hometown company of my work in Columbus, Ohio, which is Battelle, which is the research institute that is-- Elite runs a number of our national labs. They developed an extraordinary capability to repurpose existing medical supplies and sterilize those at very large scale. And they were able to deploy that very, very quickly.

Again, pure innovation. We've seen innovation around the development of how vaccines are done. Again, the use of RNA of vaccines. And again, this is very early on, but we're seeing now hundreds of vaccines in development, a number of which are already in clinical trials, using different technologies. Instead of saying, look, we're going to use the old technology and try to squeeze all the timelines of those. Why don't we rethink the entire process?

Now again, that didn't happen just because of the crisis. But the crisis accelerated that work. The use of Telemedicine. Telemedicine wasn't invented during this crisis. But this crisis has created a tipping point where we're now realizing that Telemedicine used in particular ways can be extremely valuable. I also think it's going to force us to ask some questions about our health care system.

So for example, for years we've been saying we have too many beds in the United States. Thousands of too many hospitals. Too many beds. Well as it turns out, in a crisis, we may have too many of the wrong kinds of beds. And so we may need to ask ourselves, what are hospitals really for? And I would think-- and this trend started, really, some time ago. But I think this is going to be accelerated. Is that hospitals are likely to be more for truly sick people. And this requires that we stop using hospitals as a primary care facility, which requires us to think a little bit about access to health care.

As I think about this as a health care person, I think there are certain changes that are going to be very concrete. I think there are certain innovations that are likely to result from this. There's certain things that are just going to be a blip. They're probably not going to change our behavior long term, we're just going to have to wrestle through the crisis. And then, there are other areas that are going to force us to rethink some important aspects of the way we deliver care.

ED STEINFELD: It sounded as if-- when you were talking about the research surrounding vaccines and also your mention of Battelle, that you're talking about a lot of different players, some of whom are fully in the commercial space, they're commercial companies. Others are in public spaces. They're national laboratories or university research organizations. Could you say a word about how in these, hopefully innovative times, some of these public and private players interact?

GEORGE BARRETT: I'm a big believer that there is great opportunity for public private partnership. We have an extraordinary industry in health care and in other industries in this country. And I think that that requires, again, a fair amount of trust between the public sector and the private sector. But I think we've seen it-- whether or not the Defense Production Act was triggered at the right moment is an interesting question.

Again, we'll have a chance to review that as we I think do these lessons learned in terms of sort of forcing certain activities from industry. But I do think there were a lot of industries that were stepping up. And I was literally getting calls saying, here's an idea that we have. how can we do that? And so I think that there is opportunity for us to re-imagine how we do certain things.

If, in fact, there are certain activities that are hard to do in the public sector, let's say the funding cycles don't work, maybe those are areas in which we can partner with industry to do them. There may be other areas where the industry says, look, this is not something that we can do without government involvement or government-- or government guidance on, as I said, allocation methodologies.

And so I think this interchange between government and the private sector can be really positive. I know there are reasons that people can feel concerned about that connection being too tight. But my experience is that I've seen some really positive ways in which the private sector and the public sector can work together. And I've seen this happen with states. The examples in Ohio. Really, really good coordination. We saw the state do a deal with a laboratory company to be able to map-- heat map where certain pieces of equipment were so they could move them to the critical areas.

So I do think that we've seen examples in this at the state level and some of the federal level of demonstrating where the public in the private sector can work together.

ED STEINFELD: Right, and with both Republican and Democratic governors, it's also interesting-- I think that states have been working with each other as well regionally and working across borders.

GEORGE BARRETT: I think that's really, again, for all these difficult and tragic moments, I keep trying to think about what are the things that are encouraging in this difficult time. Watching governors, many of whom have different ideological views, different views on the role of government, watching some of these governors work together regionally-- again, I'll use New York and Ohio as an example. One Republican governor, one Democratic governor, both working their tails off to try to protect the people of their states, and work with health systems to make them safe and to make them productive.

There is a lot to be worried about in this crisis, but I also try to think about what are the things that we can learn both negative and positive. And I think we've demonstrated that the public and private sector can work together, that states can work together, that regions can work together. And I'd like to see more of that happening.

ED STEINFELD: I really like that point. And to your earlier point that a lot of the discourse is about international versus domestic, should we fully reassure supply chains. It seems like, well, within the country too, there are a lot of boundaries. There is the federal local, there's the boundaries across states. But I think what you're demonstrating is, with the right kinds of cooperation, the right kinds of transparency, the right kinds of data and the right kinds of trust, those barriers can be transcended.

GEORGE BARRETT: I think they can. And I think we can also use this as a learning. Look, we know that there are other risks that exist out there. It's not just infectious disease. It's the impact of climate change. So we have certain parts of our country in certain regions that may be at risk. This would be a great time for us to be thinking about having those governors talking to other governors to say, look, in the event that something happens-- and talking to industry-- what are the things that we might think about in advance?

And so they're going to have to be some very tough lessons learned from this experience. And some of them tragic. There are also some lessons learned that can inform us going forward. And it's not just about infectious diseases, it's about how do we respond in a moment of crisis. And there are other kinds of challenges that we face.

And I would hope that this is a moment where we can not only reflect on the negative lessons learned and fixing those and anticipating those, but also some of the lessons-- the positive lessons where we might be able say, actually, there's something that we can draw on in the event that we have a future event. And let's start planning for that.

ED STEINFELD: George Barrett, I really appreciate your leadership on these issues. Your wisdom. I appreciate your illuminating us in this conversation, and showing us a real path to the future. Thank you.

GEORGE BARRETT: Glad to be with you, thanks.

SARAH BALDWIN: This episode of Trending Globally was produced by Dan Richards and Babette Thomas. Our theme music is by Henry Bloomfield. I'm Sarah Baldwin. You can subscribe to us on iTunes, Stitcher, or your favorite podcast app. If you like what you hear, leave us a rating and review on iTunes. It really helps others find the show. For more information about this and other shows, go to watson.brown.edu. Thanks for listening. And tune in in two weeks for another episode of Trending Globally.