Trying To Buy A Coronavirus Mask? Beware These Fraudsters, Hoarders, And Price Gougers.
During the coronavirus crisis, the market for masks and other medical equipment is competitive, confusing, and often corrupt.
Bethenny Frankel seemed poised, earlier this month, to do the impossible: The former Real Housewives of New York star had a line on 10 million 3M N95 respirator masks for her hometown — enough to protect thousands of health care workers in what had become the epicenter of the coronavirus pandemic.
Leveraging her connections to celebrities and politicians, Frankel, who has long been involved in disaster relief, had been hustling for weeks to help a charity acquire masks and gowns for hospitals, public health departments, and law enforcement agencies. But none were even close in magnitude to this coup.
Then everything went sideways. The supplier, a private company that claimed it had the masks stored in a warehouse near the city, suddenly refused to permit an inspection or even provide serial numbers to help authenticate the respirators. The company’s owner, once accessible, grew elusive and vague, and its lawyer stopped responding to calls and emails altogether. The much-needed masks never materialized.
“Were they real? Weren’t they? Who knows?” said Frankel. “It’s an absolute jungle out there. Nobody knows what the hell is going on.”
Until recently, the idea that America’s health care workers would be depending on a former reality television star to find them critical equipment would have been tough to swallow. But so, too, would the idea that two months into the greatest health care crisis in a century, doctors and nurses would still be unable to secure basic supplies such as surgical masks and disposable gowns and instead would be forced to fight COVID-19 without sufficient protection.
Instead of an orderly, centralized process to procure much-needed personal protective equipment (PPE), hospitals, nursing homes, the federal government, states, and municipalities have all been forced to wade into a competitive, confusing, and often corrupt marketplace fueled by speculation, paranoia, and unlikely personal connections. The upshot: Essential equipment now costs 10 times or more what it used to — and all too often never arrives.
“The term ‘shitshow’ is absolutely apt for what's happening right now,” said Rob Handfield, professor of operations and supply chain management at North Carolina State University. “Nobody knows who to cut purchase orders to. Nobody knows where to even find the stuff. It's every man, hospital, and country for itself.”
The federal government has tried to open up the market by authorizing the use of industrial, foreign-certified, and even expired respirator masks; by creating a Justice Department task force to crack down on hoarding and price gouging; and by funding an airlift operation to bring in loads of supplies from abroad on UPS and FedEx jets.
But at the same time, Washington has also contributed to the chaos, driving up prices by signing huge contracts for protective equipment with unproven vendors and terrifying well-intentioned importers by seizing shipments as they arrive at US ports. Last weekend, a top executive at a Massachusetts hospital chain reported being stopped by the FBI when he attempted to pick up a shipment of a million N95 masks in a warehouse early this month.
Because the vast majority of personal protective equipment is made in China — where exports of such goods have been sharply limited as the country deals with its own COVID-19 crisis — traditional supply chains have been almost completely disrupted. To keep costs low, hospitals have also moved in the past decade to just-in-time delivery systems that kept internal stockpiles far too slim to handle a prolonged surge. Further constrained by cumbersome purchasing rules and the lack of a centralized national distribution system, American hospitals and government agencies have been forced to seek out their own suppliers, locking them all in what amounts to ruthless competition with each other.
A review of state, local, and federal contracts as well as interviews with procurement officials, brokers, vendors, academics, international trade attorneys, and well-intentioned philanthropists reveals the depths of the day-to-day pandemonium that has overtaken this market, one that continues to show little signs of stability some three months after the first COVID-19 diagnosis in the US.
As director of contracts and procurement for the Colorado Department of Human Services, Chris Frenz usually doesn’t have surgical masks and face shields at the front of his mind. The agency runs everything from the state’s food stamps program to its child welfare system to an innovative brain injury network. But CDHS also runs four veterans nursing homes, two large psychiatric hospitals, multiple group homes for people with disabilities, and 10 juvenile justice facilities — all potential nodes of viral outbreak.
In late February, Frenz began a PPE review to prepare for the coronavirus. What he found wasn’t encouraging: Inventories were low, and distributors had been postponing or even canceling long-standing contracts for gowns, gloves, face shields, and masks.
Like nearly all government procurement shops around the country, CDHS operated under strict rules that prevented payment until a set number of days after taking delivery. That made it virtually impossible for Frenz to cut deals directly with Chinese suppliers, which started demanding 50% deposits if not full payment up front in the face of soaring demand.
“We issue a purchase order, it gets delivered, and then we pay,” said Frenz. “Otherwise it's a huge risk.”
Then, as if a tap had suddenly been opened, unsolicited offers from brokers offering to sell that PPE and willing to front the cost started coming in; what started as a drip quickly became a flood with a new email or call coming to Frenz’s department every half hour. Most seemed like obvious scams, coming from shady salespeople providing no documentation and demanding cash up front. But wary of overlooking a legitimate offer, Frenz decided to review them all, assigning between eight and ten staffers to deal with solicitations full-time.
The prices were all absurdly high by prepandemic standards, but the procurement team learned to get over sticker shock and move fast; more than once they saw numbers double overnight when they hesitated; sometimes they lost deals altogether. Of the hundreds of solicitations that came in, only a few dozen seemed legitimate, and among those, fewer than five have turned into actual signed contracts.
One of those was with a vendor based in Colorado. An online retailer of survival gear, he didn’t have experience in medical distribution, but pledged to deliver 50,000 N95 masks for $3.50 apiece — about triple the pre-COVID-19 price — and to throw in 1,000 donated masks to boot. The shipment was due in the first days of April.
By April 10, the masks still hadn’t arrived. In fact, the broker said, it appeared the factories had dumped the contracts altogether, and now he was scrambling to secure masks elsewhere. CDHS was back to square one.
“It definitely feels like a race sometimes,” said Frenz. “It doesn't feel great when everybody needs the same thing.”
If you're someone who is seeing the impact of the coronavirus firsthand, we’d like to hear from you. Reach out to us via one of our tip line channels.
Nowhere in the country — and indeed the world — has the coronavirus pandemic been more acute than New York, which as of Wednesday had logged more than 251,690 COVID-19 cases and 14,828 deaths. And few places have put as much effort into digging up masks, gowns, and other protective equipment.
On April 4, an employee from New York City’s Department of Citywide Administrative Services contacted Alex Everett out of the blue to ask him whether he could get masks, gloves, and gowns.
“I thought it was a scam at first,” said Everett, who works as a sales executive at Success Promotions, a promotional sports merchandise company founded by his mother and based in the western suburbs of St. Louis. “I wondered what they were really up to.”
But the contact was in earnest. Less than a week earlier, a Queens-based apron maker had called Everett seeking stretchy bandanas he could sell to restaurants as makeshift mouth coverings. On that call, Everett had mentioned that some of his sportswear suppliers in China had lately been trying to sell him PPE; when the apron maker inked a $112,500 deal to sell cotton masks to the city on April 2, he brought up Everett to the contract specialist, who wasted no time in sending an email.
In just five days, Everett had signed two purchase agreements for 250,000 KN95 masks and 5.2 million gowns, and he suddenly found himself immersed in a deeply competitive, fast-moving market as he tried to nail down the quantity and work out the logistics of getting it halfway around the world. But for Success Promotions, which depends heavily on selling giveaways to professional baseball teams, the $17.5 million contract was a lifesaver and has helped it stave off layoffs.
“It was sheer luck, honestly,” said Everett, who said the first shipment of masks has cleared Chinese customs and is set to arrive this weekend.
Between March 6 and April 19, New York City issued purchase orders for $361 million in personal protective equipment, according to a BuzzFeed News review of contracts. That includes 29.4 million N95 masks, 94 million surgical masks, and 14 million isolation gowns, according to DCAS spokesperson Nick Benson. Following an early April decision by the Food and Drug Administration to authorize emergency use of Chinese-certified respirator masks as substitutes for N95s, New York City also signed deals to purchase 23.4 million KN95 masks as well.
But most of those supplies still haven’t come in. Of 214 million total pieces of PPE ordered by the city, only 17 million have been delivered to date, according to Benson. Fewer than 3% of the N95 masks have been received, and KN95 masks aren’t arriving much faster. At least two large contracts for ventilators, including one for $162 million, have been canceled ”because the vendors couldn't secure the inventory to fulfill the orders,” Benson said in a statement.
Unfilled orders are hardly limited to New York. A batch of 500,000 N95 masks ordered by the city of Philadelphia for its first responders late last month was unceremoniously canceled despite the city agreeing to pay a whopping $5.60 apiece. And a massive trove of 39 million masks allegedly unearthed by the Service Employees International Union late last month never materialized, provoking a federal fraud investigation.
After the owner of a New York uniform supply company claimed on Twitter last month that he could supply 2 million surgical masks a day, the tweet promptly went viral. A few days later, Jeffrey Zhang said he heard from a purchasing agent for New York state.
The official in Albany asked for 2 million masks to start, Zhang recalled, so he sent off an invoice. While he awaited a formal purchase order, Zhang busied himself verifying that the factory he used would pass Chinese and American certification standards, ultimately hiring a lawyer to help speed up the process and ensure New York would get the masks it needed.
Days passed, and then weeks. Zhang said he never heard back from the state, despite reaching out repeatedly. Other brokers have reported similar issues: Although state officials are desperate for supplies, they are also disorganized and overwhelmed. And, knowing how crazy the market is, some officials are reaching out to more vendors than they could ever need.
Scared he’d lose out on the chance to get any masks at all, Zhang decided to stop waiting and began selling masks directly to hospitals, nursing homes, and small businesses. “The factories were losing patience with us,” he said.
He knew that in this market even signed deals can crumble without notice because manufacturers and suppliers in China have no compunctions about walking away from a contract with one customer for a more lucrative offer from another, particularly if they don’t have to wait to get paid.
Some distributors on the ground in China describe buyers arriving at factories carrying bags of cash, which gets them to the front of the line. Many of those buyers have no contacts with hospitals or government agencies and instead are simply trying to unload the supplies to another broker for a quick profit, which only serves to further inflate the final price, according to Lily Liu, a San Francisco entrepreneur with a background in cryptocurrency who last month joined with several friends to found Operation Masks, a nonprofit that tracks down PPE for hospitals in the US.
“When there's a huge breakdown in the supply chain, middlemen rush in,” said Liu. “They are buying for $1 to flip for $2.”
Operation Masks hopes to cut through the complex web of speculators by building direct relationships with suppliers in China. To do that, it employs nine people on the ground in China and covers those costs by charging US hospitals a 5% margin on the PPE it delivers, which Liu said makes the operation more sustainable than other charitable efforts. To date, the group has booked large government orders from New York, Hawaii, and Iowa.
Profiteers aren’t the only obstacle. In recent weeks, many delays have come from the Chinese government itself, which began imposing new inspection and quality requirements on factories before permitting their PPE to be exported. And increasingly, hospitals and local governments complain that FEMA has been using its powers under the Defense Production Act to effectively “seize” their orders and allocate them elsewhere. After importing a total of 400,000 N95 masks this month, for example, a Delaware medical distributor said FEMA took the entire shipment, and only after he complained did it send a written document explaining he would be paid for the goods.
Johnny Beig was pleased after he managed to negotiate a deal to sell nearly a million KN95 masks for $2.30 apiece to Kaiser Permanente hospitals in Southern California several weeks ago. The Los Angeles–based athletic goods importer agreed on a margin of under 15% on the respirators, about half his normal cut, which made him feel he was doing a good deed while also keeping his business going.
Then he took a look at shipping quotes. In normal times, low-cost PPE is shipped by container, but amid a pandemic it has to be sent by air in order to get to health care workers quickly. A dramatic decline in flights in and out of China, coupled with soaring demand for space on the remaining planes had more than tripled the cost of air freight, Beig found, from $3.50 a kilogram to nearly $13.
To help cover that difference, Beig ordered even more PPE and started selling it on social media and the web, only with far more generous margins. The same KN95 masks he sold to Kaiser are currently available to the general public for $3.50 each, which represents a 50% markup; Beig has completely sold out of 100-milliliter bottles of hand sanitizer at $6 a pop — about triple normal retail.
“It’s a lot of pharmacies, doctors, and medical centers making orders of 300–400 pieces at a time,” said Beig. “These are customers who can’t access this stuff on their own.”
Some would-be suppliers believe the federal government has played a role in pushing up air freight prices. Last week, the owner of an apparel company holding two purchase orders from New York City for a total of $4 million worth of KN95 masks saw his shipping quote from UPS jump from $100,000 to $250,000 overnight.
Shocked, he reached out to UPS demanding an explanation and was told that the preferential rates were going only to a handful of large distributors participating in the Trump administration’s “air bridge” program. Other companies not only had to pay more, he learned, but would have to wait days just to get their goods onto planes.
“The feds are essentially screwing the states and cities over,” said the supplier, who requested anonymity for fear of angering the Trump administration. “They want to control the supply of PPE by giving priority to companies they like.”
Bill Lambros, a UPS director of major accounts, said the original price quote was “sent in error” and based on pre-coronavirus pricing. The market, he said, is “out of sync, and when were chartering flights, the rates are going to vary.”
Increasingly, even established suppliers are struggling to bring in big hauls of protective equipment.
On April 6, the Seattle-based Lighthouse for the Blind signed a $1.26 million contract with the Bureau of Prisons to deliver 300,000 N95 masks. The charity had long operated a number of office supply stores on military bases, and had years of experience supplying tools and other goods to the military.
But the charity insisted on using traditional distributors and post-delivery payment protocols, and soon discovered that getting those masks was tougher than expected. Struggling to save the deal, the charity tried to get the Board of Prisons to renegotiate before canceling altogether just two weeks later.
In addition to the collapsed deal for 10 million masks to New York City, Bethenny Frankel said, at least three other million-plus mask deals have blown up in recent weeks, including an order of 1.5 million N95 masks that ended up going to a dentist who she presumes was looking to resell them for a profit.
Frustrated with deals that fall through, the charity Bethenny Frankel works with, Global Empowerment Mission, developed new PPE ground rules: It would only consider supplies that were already in the US and focus only on batches of 100,000 items or less. That might lead to higher costs, said GEM executive director Michael Capponi, but it also helps reduce heartache.
“We don't pay for anything until it gets in our hands and we inspect it,” said Capponi, a former nightclub promoter and real estate developer who has been involved in disaster relief since 2004. He first linked up with Frankel to aid Haiti earthquake victims a decade ago, and together they’ve shipped supplies to victims of natural disasters in Guatemala, Puerto Rico, and the Bahamas, but both describe the coronavirus as the biggest challenge to date.
Their combined effort, which calls itself BStrong GEM, has to date delivered more than $17 million in PPE in batches of as little as 2,000 masks; donations have come from a variety of sources, including Billy Joel, Matthew McConaughey, and Amy Schumer. It maintains a spreadsheet of more than 1,000 organizations seeking PPE and twice as many suppliers looking to sell it. The charity has a 60,000-square-foot warehouse in Miami, teams of volunteers to inspect stashes of supplies at a moment’s notice, a lawyer to write contracts, and an emergency room doctor on call to check for counterfeits.
“When you're dealing with government or groups of hospitals, you have to have credibility,” said Frankel. “I'm not walking in with an MBA in mask shopping; they're trusting you because you can deliver.”
For even the best-intentioned, the turbulent PPE market can feel unsettling and, at times, borderline illicit.
After the collapse of the travel industry earlier this year, entrepreneur Lana Li, who’s based in New York City, abandoned her plans for launching a swimwear line and instead turned to trusted contacts in China who manufactured PPE. Confident about her ability to navigate the supply chain, she focused full-time on importing several kinds of masks and storing them in a warehouse in Ohio.
Li had no contract to fulfill and no connections to hospitals or government agencies; she just figured it would be a snap to unload the merchandise amid so much demand. Through a friend, she got in touch with a broker who said he had a contract with a state that he declined to name. He wanted to buy out her entire stock of 33,000 surgical masks and N95 respirators.
But before he would finalize the deal, he demanded Li send several videos of the boxes containing the masks to prove they were real. The request made her think of kidnappers sending proof of life, but she complied. The broker flaked anyway, and without any details of the contract, Li was stuck with the masks.
The experience made her wonder whether “any of the people we’re talking to are actually serious or real,” said Li. Offloading a shipment of masks, she said, “felt like we were trying to sell cocaine.”