Dan Gorenstein: It’s not surprising there’s been a run on medical masks as fears of the coronavirus continue.

News clip: Pharmacies say face masks have been flying off the shelves

News clip: Basically we have been wiped out, the warehouse is wiped out.

DG: But what may be surprising is this kind of shortage is nothing new.

News clip: And believe it or not it was because doctors were low on surgical gowns.

News clip: White says they’ve always experienced a backlog of IV bags for 2 years now.

News clip: Across the nation, protocols are changing because it’s just not available.

DG: Health workers driven to improvising, hoarding, even rationing due to shortages of basic medical supplies. When drugs run short, we know it because we track it. When it comes to medical supply shortages, we know a lot less. Today, a look at the causes and consequences of these shortages, and what we might be able to do about them.
From the Annenberg Studio at the University of Pennsylvania, I’m Dan Gorenstein, and this is Tradeoffs.

Our story starts in Texas, not with a shortage, but a crisis.

Dr. Eric Haas: As far as Houston, Texas, goes, we have a very, very high volume of colorectal surgery.

DG: That’s Dr. Eric Haas, a surgeon at Houston Methodist Hospital. He specializes in patients with colon cancer.

EH: I think it might have been around this time of the year, about a year ago.

DG: Haas and his team were just about done doing what they do several times a week — cutting cancer out of someone’s colon.

EH: There’s two steps to colon cancer surgery. The first is removing the cancer safely, which we were able to do. The second step is putting the colon back together. This particular day, it was a lengthy procedure because of the size of the cancer, and the patient was a little bit up on the larger side, a little bit more difficult in the anatomy.

DG: The second step of the procedure, putting the colon back together, is often the most difficult part.

EH: It’s always an intense moment because this is what really dictates the quality of life for this patient, pretty much the rest of their life.

DG: If the team doesn’t put the patient’s colon back together safely, the man could end up with a colostomy bag.

EH: You really feel as a surgeon, you feel like this is in your hands. This is what he and his family, this is what they’re depending on you for.

DG: Surgeons have come to rely on staplers for this technical, delicate and high-stakes portion of the surgery. Single-use staplers that fire tiny titanium staples into the tissue to close the colon. Haas compares this moment to airplane pilots before takeoff.

EH: You know, there’s a bunch of checks and buttons and you’re making sure everything’s green light, everything’s on, everything’s working. You’ve got the anesthesiologist, you have my partner, myself, then there’s the nurse who helps us get the right supplies and equipment.

DG: On this particular day, it’s Haas’ partner, the second surgeon in the room, who fires the stapler.

EH: And it appears to be working properly.

DG: The device is supposed to shoot two rows of the metallic staples all at once, finishing with a crunch. Today, there’s no sound at all.

EH: It’s almost like using a conventional stapler. You have a large stack of papers and one of the staple ends bends the wrong way or doesn’t go through all the paper. That’s what we saw all the way around the tissue, a bunch of misformed and malaligned staples.

DG: Everybody else in the room is watching on the big monitors, magnifying the staples.

EH: Without words, everyone in the room knew that something was was wrong.

DG: The doctors and nurses huddle. The good news: Their patient is stable, a few minutes to work out what to do. Haas suggests stitching the two ends of the man’s colon, a technique rarely used or even learned by many surgeons today. They decided what type of suture, what size, they even mapped the plan out. And then, success.

EH: It was airtight. It was sealed. Perfect, perfect, perfect. And lo and behold, the patient did absolutely phenomenal.

The minute you’re finished, you feel like, you know, you you just ran the marathon.

DG: But he knew he had one more step to take. He alerted the stapler-maker Ethicon, a subsidiary of Johnson & Johnson. The company’s representative assured Haas she’d update him as soon as she could.

The next day, Haas and the team found themselves in the exact same situation.

EH: The cancer has been removed. The patient is doing very, very well.

DG: The same tense moment before attempting to reattach the colon. And again, no crunch.

EH: That’s when this went to DEFCON 5. Because happening once in 20 years is, you know, one in a million. But twice in a row, we need to immediately put everybody on alert.

DG: The hospital ditches its entire case of staplers. Haas hoped this was an isolated incident. But it turned out similar problems were cropping up.

EH: We started hearing rumblings, “Hey, are you guys having trouble with your stapler? We had a misfire over here in Cleveland,” or, “We had a misfire over here in New York.”

DG: Last April, Ethicon recalled more than 90,000 staplers. The FDA identified it as a Class I recall, its most serious. Ethicon controls about half the market for these devices, so Haas and other surgeons around the country turned to Medtronic, the only other stapler manufacturer. But it turned out Medtronic was having its own problems and had halted all new production.

EH: So it was almost a perfect storm. In fact, I think it was a perfect storm. And so now we were really on the clock where every day was a day closer to literally running out of these critical staplers for our patients.

DG: Medtronic declined to comment for our story. Ethicon said in a statement it issued a voluntary recall “due to a small number of reports of the devices not performing as intended.” The company says the recall lasted about two months.

At the outset, hospitals borrowed staplers from other hospitals. But as supply dwindled, Haas says the shortage impacted their patients.

EH: When we were really out of staplers in the city of Houston, a big city, we had hit a critical point, a point where we were now maybe prioritizing, let’s operate on them. This other patient, they need surgery, but instead of doing the surgery now and using one of our coveted staplers, let’s push them back by six weeks or eight weeks.

DG: Surgeons started to get desperate.

EH: A circular stapler. It was like gold, like a brick of gold.

DG: Haas remembers securing one of the last staplers during the shortage.

EH: Right before the surgery, I wanted to make sure we had that stapler,and it was missing. We had a team trying to find where was this golden stapler, where did it go off to? Staplers were so critical and there was such a shortage that the stapling device was being hidden. That’s when I sat back and said, “We have a crisis of which I really don’t know if I’ve ever seen in my career.”

DG: Haas said Houston was only out of staplers for a few days before the recall ended and truckloads of new staplers started coming in. But as relieved as Haas and his colleagues were around the country, the shortage had left them shaken.

Clearly the fact that there were only two manufacturers making these staplers was a major driver of this shortage. We wanted to know if other products — things like gowns and masks — were this concentrated too, and if that might be part of what’s causing all these shortages.

We’ve asked one of the few academics in the country who actually studies these things, to look into this for us. Matt Grennan is an economist at Wharton, the business school at the University of Pennsylvania. Matt, thanks for joining us.

Matt Grenna: Thanks for having me, Dan.

DG: So, you’ve run some numbers for us on this. Thank you. That’s very kind of you. What have you found?

MG: So we looked at the top 100 medical devices and supplies by revenue, and then we looked within those to find some of the more low-tech items. And there we found that staplers are pretty much in the middle of what you find here.

DG: The middle?

MG: Yeah, these markets are all highly concentrated.

DG: Like, what are we talking about?

MG: In some categories there might be three manufacturers who make most of their product, in some a few more, but in others there might be one manufacturer who makes up most of the market.

DG: And where’s this data coming from?

MG: So this comes from, we’ve been doing research on hospital supplies for a while now with this really interesting dataset from the ECRI Institute. They are nonprofit, and one of the things they do is collect a lot of purchase order data from many hospitals across the U.S., now slightly over 30% of U.S. hospitals in this dataset.

DG: So let’s just play this game for a second where I’m going to name the top 20 low-tech supplies, the 20 that are the most commonly purchased items. And you tell me the number of manufacturers that there are, at least that serve a majority of the market, say like 75% or more.

MG: Okay

DG: So needles?

MG: One.

DG: Liquid adhesives?

MG: Two.

DG: Surgical drapes?

MG: Five.

DG: Medical gowns?

MG: Three.

DG: Matt says there are a lot of reasons for this kind of concentration including the time and money it takes to start up a highly-regulated manufacturing plant, a desire from hospitals for one-stop shopping and relatively small markets that fly under the radar of anti-trust enforcers at the Department of Justice and Federal Trade Commission.

DG: Surface disinfecting towelettes?

MG: One.

DG: So when you give me these numbers, there were lots of twos and ones. How much do you want to sort of chalk up concentration and consolidation as to why we’re seeing all these medical device shortages?

MG: For that, I think we’d need to know a little bit more about what the actual manufacturing supply chain looks like. This sort of data isn’t going to tell us whether Ethicon is making those staplers in one facility for the whole world or the whole United States versus 10 different facilities. And that would have a potentially big impact for things like shortages. I think we’d also want to think about the tradeoffs here, right? If there are large economies of scale in manufacturing and in distribution and big value to one-stop shopping for hospitals, then that could be a really efficient thing.

DG: Hospitals save money.

MG: Hospitals could be saving lots of money. On the other hand, when you have a few manufacturers, we’re always worried about potential market power and pricing and and the fact that the supply chain only has a few manufacturers could lead to increased probability of shortages.

DG: Matt thanks a lot for being on Tradeoffs.

MG: Thanks, Dan.

DG: So consolidation could be part of the issue. But even if it is, it’s just one piece of the puzzle when it comes to medical supplies shortages.

Ozlem Ergun: It’s actually a systematic issue and nobody’s really taking the perspective of a system to look at the entire production cycle all the way from raw materials to demand.

DG: Ozlem Ergun is a professor of mechanical and industrial engineering at Northeastern University. She studies all kinds of systems from aircraft scheduling to humanitarian relief efforts. But over the last five years, she has turned her attention to supply chains in health care.

OE: When we started getting interested in pharmaceutical shortages and medical supply shortages, all of a sudden we realized that this is a huge problem.

DG: Ozlem says your average medical supply chain is like most supply chains. You start with raw materials which go through the manufacturers, distributors and eventually end up at hospitals and health systems. And she says shortages happen from time to time in most supply chains.

OE: I think what’s surprising here is that this is chronic. I mean, there’s always a shortage of some kind and it gets usually exasperated when there is a demand peak, such as if you are having a particularly bad flu season or an unexpected viral outbreak such as we are seeing right now. Also, there are a lot of shortages that are occurring due to other shortages. And all the stakeholders are aware of this. It’s just the the public is not aware of it. It would come up in the newspapers once in a while…

News clip: A shortage of basic medical equipment used in hospitals every day is having an effect on patients who are in serious need of care.

News clip: Surgeries are reportedly being postponed around the country because of a shortage of surgical gowns.

OE: But usually it will fade away from the news cycle.

DG: And it seems like nobody is doing anything about it.

OE: Well, I would say it’s not true to say that nobody is doing anything about it. What I would say is that everybody is complaining about it and trying to do something. But I think nobody really understands the fact that it is a systemic problem. You know I think it’s human nature that if something is complex, then you kind of throw your hands up and you say, like, I don’t know what to do or everybody’s pointing finger and nobody’s trying to understand the complexity and deal with the complexity of the problem.

DG: Can you give us an example of how complex the problem is?

OE: One example that I know of and I kind of had a personal experience with was the sterile fluid shortage in 2017 early 2018 due to Maria hitting Puerto Rico.

News clip: The majority of America’s largest saline bag manufacturers happened to be in Puerto Rico, and since Hurricane Maria, there’s been a severe nationwide shortage of saline bags and IV fluid.

News clip: These saline bags are critical to hospitals and treatment centers. They are used every day to administer fluids and medicines to patients.

OE: In fact, I was supposed to get a small outpatient operation early 2018, and my doctor started to delay my operation. And at one point when I asked her what’s going on, she told me that they just don’t have the sterile fluids in their practice anymore.

News clip: Several prominent hospitals across the country are scrambling to find alternative supplies or change the way they actually administer drugs to patients.

News clip: An IV is the fastest way to give medications and fluids throughout the body. For months, hospital staff and paramedics have had to manually administer, which takes more time.

OE: And then some months later, I started to hear that within the Boston area, there are certain hospitals that started to actually run out of syringes which was, you know, completely interesting because there was really no problem within the syringe production process, but then because now everybody started to use syringes to deliver some of these drugs, now everybody started to run into a shortage of syringe.

DG: While reporting this story, we tried to get some hard numbers on these shortages. How many are there? Are there more today than there were 10 years ago? But we found out that no one has data like that. With drug shortages, companies have to tell the FDA if there’s a problem. That’s not the case with medical supplies. Adam Saltman, the FDA’s top guy on supply shortages, told us that all the information the agency gets from those manufacturers is voluntary. He says the FDA is pushing for legislation that would require regular reporting from the companies so the agency could respond better, maybe even prevent future shortages.

Ozlem, how important is consolidation of these markets? We spoke with one economist at the University of Pennsylvania who found that many of the most common medical supplies only have one or two manufacturers controlling the market.

EO: I am not an economist, but I can tell you what I am seeing from a supply chain perspective. These are very low margin products. And that I think creates a marketplace that is ripe for mergers and acquisitions. That makes the system more and more leaner and more and more cost effective, right? But then what does that lead to? That leads to having very few production plants, these production plants being in places, you know, like we might end up having 80% of the production that goes into the domestic market in Puerto Rico, which is an island in the hurricane belt. So it kind of tells you that this is not a very resilient system because of cost effectiveness.

DG: What sorts of solutions or policy changes should we be considering to help prevent or at least better respond to these shortages? Do you think the federal government, Ozlem, should subsidize some of these basic products kind of like the way the federal government incentivizes and subsidizes the production of corn and soybeans?

OE: I really do think that’s an option. I would study the impact of definitely subsidies. And I would say definitely information and data. There needs to be some kind of a regulation at the very least in terms of reporting of shortages, potential production, distribution and even user changes so that there is a way to actually anticipate what might be happening.

DG: Ozlem, thank you very much for talking with us on Tradeoffs.

OE: Thank you very much, it was a pleasure.

DG: Experts like Ozlem say policymakers and health care officials must grapple with how much market efficiency we’re willing to sacrifice to make sure we have basic supplies in a crisis.

More often than not, this supply chain is optimized for “just in time” purchasers rather than “just in case” planners, making shortages a chronic condition in U.S. hospitals. And health care workers are forced to pick up the slack. Doctors reusing masks as coronavirus rages on. Paramedics saving up saline for only their sickest patients. Colon cancer surgeons coveting staplers like golden bricks. The stapler shortage made such an impression on surgeons that it inspired special training sessions at their annual meetings this spring. The name of one of the sessions: “My Device Was Recalled. What Do I Do?”

I’m Dan Gorenstein. This is Tradeoffs.