As skilled nursing facilities try to contain COVID-19 within their walls, or prevent it from entering at all, the skyrocketing cost of personal protective equipment (PPE) has been a significant stumbling block to their efforts.
But as PPE stockpiles dwindled, the cost of securing normal supplies skyrocketed, and one calculation from early April estimated that complying with the federal guidance on PPE use could set SNFs back $10,000 a day or more.
For TwinMed, LLC, a medical supply distributor based on Santa Fe Springs, Calif., supply chain challenges are not new, especially given the political tensions between the U.S. and China over trade.
But the COVID-19 pandemic has amplified those challenges beyond expectations, as the company tries to supply its clients — which include about 5,000 SNFs, as well as home care, hospice and other clinical clients.
Skilled Nursing News spoke with TwinMed CEO David Blonder and company spokesman Meyer Greenbaum — who served as executive vice president of business development at TwinMed for 18 years before founding his own firm, Cutting Edge HC — to talk about what’s changed about securing PPE, and the market forces adding to the challenge of squeezed supply chains.
The conversation was conducted on May 18, and reflects the COVID-19 situation at that time; it has also been edited for length and clarity.
When did TwinMed first start to see the effects of COVID-19 on medical supplies? Was it prior to that first major known case in Kirkland, Wash.?
Greenbaum: Given the fact that we’ve been doing this for 20 years and we understand the complexities of the supply chain, for products that come from Southeast Asia and have standard shipping lead times, we maintain a very, very deep safety stock. We have one distribution center, that is well over 180,000 square feet, that is solely committed to be able to house overstock that we bring in to seed all of our distribution centers in the event that there is any supply chain disruption.
We couldn’t have envisioned the extent of what the pandemic would bring on, and certainly we didn’t bring the product into stock in anticipation of a pandemic. But we were in a very enviable position early on because on key product categories, such as isolation gowns and face masks and gloves — we had over six and a half months’ worth of traditional regular supply, based on regular utilization.
Blonder: The supply chain issues with China specifically —which is the largest part of it — have been a problem for about a year and a half to two, going from the president starting to talk and putting tariffs and the trade wars and all that. So we, over the last two years, decided that we need to keep much more stock. Obviously there’s a lot of products that we can do that with, but it has become a major challenge on that side of the business for a while before COVID.
Now once COVID came in, January and February, we were looking at our stock because we knew everything was closed, but we were able to supply all of our customers, and thank God … we never had a hole in our supply chain.
Greenbaum: We established from day one a COVID task force, with key opinion leaders, people that are in Washington, in terms of really getting an understanding of what was occurring, what was going on. And we understood very early on that the most vulnerable population was our customers.
There was the perfect storm. COVID did not inherently disrupt the supply chain. Yes, it was political, and yes, it was during the impeachment process and all the other things that were going along with the tariff trade war.
But what really created the void and the destruction in the supply chain was that it occurred during Chinese New Year. And because it occurred during Chinese New Year, simply put, the largest factories, and the regions which produced the most amount of PPE, were the areas that were shut down.
Indeed, the entire country was shut down, but there were no workers that were able to return to the factories, because it was during Chinese New Year. And during Chinese New Year, there’s an enormous migration of all the factory workers back to oftentimes rural communities, and they were therefore not able to do any production. So, therefore, it created the perfect storm and a void in the market.
The other thing that occurred afterward is once there was just an enormous void of two months of no production, our competitors who operate in other spaces or have contracts with governments that they need to fill, or large health systems, they have to allocate stock initially and primarily to those areas — because those contracts are are much larger and at the time, long term care wasn’t where the patients were being sent; patients were being sent to the hospital.
So we were able to allocate all of our inventory to the vulnerable population in skilled nursing. We made a conscious decision very, very early on that we would not backorder, and we expended an enormous amount of time and energy to literally go to every part of not just Southeast Asia that was closed, but indeed, South American countries that haven’t been shut down yet, parts of India and Pakistan that haven’t been shut down yet.
We were airlifting product from every country in the world to be able ensure that we had adequate supply.
Blonder: One of the challenges of running the business today is that our actual suppliers, they’re still not up to par on getting us what we need. Remember, there are two parts over here: The first thing is that the needs are greater, because our customers are using a lot more, and then the fact some manufacturers are still not running to their capacity.
So we had to go to different manufacturers and even different countries, and that created a different crunch on the financials of our business. Usually we get terms on the product that we purchase. Even from overseas, we have long-term deals with our manufacturers, some partnerships that we do not need to pay them upfront for a product. All of a sudden, we needed to pay everything that we bought — and everything that we continue to buy today that is that is PPE-related — we’re literally paying upfront for the product. That’s just the way it has gone.
That was a big issue on the financial side of it, and we had to go to our bank and and request a specific loan, a very, very significant loan in order to be able to supply, to continue without interruption on getting the product in and paying upfront. So that was a struggle until we got that loan done.
Greenbaum: The other thing I would add is that certainly during our lifetime, we’ve gone through SARS [Severe Acute Respiratory Syndrome], H1N1 [influenza A virus subtype H1N1], and certainly there was a run on supplies.
But given the fact that [COVID-19] was during Chinese New Year, given the fact that a lot of the initial product was being used for domestic needs in China, we’ve never been in a situation when it was global. So every economy, every government in the world, at the same time needed the same products.
It’s not just where we’re having to pay cash upfront; we’re having to bid, literally, on products, because the factories in China were using it as an excuse to be able to decide, if demand is greater than supply, who are they going to allocate resources at products to? Are they going to allocate it to who the highest bidder is?
And unlike other times, as demand grew in the market, just in the United States alone, there was 225, 250 million people sitting at home, their businesses are shuttered. All of a sudden they realized what they thought was a gold rush, which was: Let’s get into the PPE business.
There were companies, millions of people, jumping into something that they had no business jumping into — therefore creating this reseller marketing. Direct suppliers who were selling to health care providers; they would then also have to compete with people sitting at home in their bedrooms, or in their living rooms, just flipping product to the highest bidder and bringing in products that were faulty and not fully validated. So it became sort of like the Wild West in that regard.
What we’re seeing now is it’s no longer about the initial phase. It’s the retail side of it, in terms of going into phase two and phase three considerations. Not just health care providers have to think about PPE — it’s every walk of life, every business has to now consider what they’re looking for. Therefore, masks, sanitizer, gloves, gowns, whatever it might be, you are competing, literally, for product against the entire world.
You mentioned the six and a half months of traditional supply. What were the items you were keeping in stock — and also, how fast did that stock last when the COVID-19 situation hit?
Blonder: You take an item like a three-ply mask, you talk about six months’ stock of a three-ply mask. An average facility could use about five boxes a month, a week to a month, depending on on how much they use. They don’t really use those items very much unless — this is before COVID — the patient was in isolation. You don’t walk into a nursing home and see the nurses walking around with masks. They don’t walk around with gowns, either. They only do that when they’re going into a patient that is in isolation, or when they’re doing some type of a procedure.
So an average facility, before COVID, was buying five boxes of masks a week or a month, depending on how big the facility is — the average facility is 100 beds, so call it 10 boxes a month maximum. All of a sudden, they’re buying 50 boxes a month, because they’re using it every day and changing that five times a day. Same thing with gloves. So your six-month stock might have only lasted for two months.
And I want to give one example of something that’s very important. You take a box of masks that would cost you under $1 a box, and all of a sudden they were costing $15 to $20 a box. In the beginning, it was even more.
Greenbaum: And in the U.S., people were gouging.
How long did that stock last once COVID got underway?
Blonder: It’s still there.
Greenbaum: We’re replenishing it constantly; we’ve maintained quite a level of safety stock to ensure we do not interrupt the critical product supply. Certainly there were certain items where, sporadically, we might have had a very difficult time. For instances — 95% of the world’s disposable gowns are sewn in the Hubei province, which is the province in which Wuhan is located.
So even when other products started coming into production, for instance face masks — face masks are an automated process, as opposed to gowns, which require hand stitching. So it takes a lot of time and energy and effort to be able to get a gown. Because Wuhan opened up so many months later, there was just such a scarcity in the market. That, and gowns are quite bulky items. If you’re going to airlift it, the cost of air freighting went up thirty-fold as there was limited cargo space, and everyone was vying for that space.
What we did preemptively was: For instance, in California, 50,000 or 60,000 fashion workers in the garment district of southern California had been laid off and furloughed. So we scrambled around the country buying up any material that we could to be able to manufacture disposable gowns in the U.S.
Obviously it was more expensive, but we’re still selling gowns. Since that time we’ve supplementing with different kinds of programs that we thought would be more sustainable.
Can you talk a bit about the regions where you were seeing demand? Obviously places that are COVID-19 hotspots would have more, but I’m curious whether there were any surprises.
Blonder: In New York in the East Coast, yes, the demand was through the roof. But don’t forget, there are a lot of people that are dealers — and charging crazy prices — but they’re out there selling product. So there are other people. All those regions had crazy demands, but they had other suppliers.
Obviously we did a ton of business in those places, and continue to, but the people that we were surprised about were the people in the more rural areas. Obviously Illinois was hit very badly, and so was Michigan, Washington — but then you get the places that weren’t even hit very badly. Let’s talk about Texas. Texas wasn’t hit very badly. But the need in Texas became enormous because the state came in and they wanted to prevent what had happened in New York.
It was like a week or two after everything blew up in New York, a lot of states came to the facilities and said: You need to do XYZ. And they actually demanded of them to have X amount of supplies and to even report it on a weekly basis, what their stock of supplies are. As things go on, and still today, there is this underlying need for product, even though they might not be in very hard-hit areas.
Greenbaum: I would also say that a lot of the facilities, health care facilities, and indeed the suppliers, throughout this process have continued to get mixed messages and ambiguity in the direction from the CDC and from the FDA. For instance, initially there was guidance about what products could be used, what products couldn’t be used. CDC was saying things like: In a pandemic, in a rush, use anything that you can. Then there would be other guidance from different regulatory bodies.
The facilities were coming to us for guidance, and we would provide them guidance based on the information that was present — and then two days later, there would be a change in policy. It was just symbolic of just the state of chaos in each of these regulatory bodies.
Facilities are also worried. At the best of times, there’s a high level of scrutiny with regards to regulatory bodies that can come in and cite them for any number of different citations. But now, in the middle of this pandemic, they’re being told different things. It’s very disruptive and concerning for them.