Biden Eyes More Muscular Use of Defense Law to Boost PPE Output

(Bloomberg) -- Manufacturers of protective gear for the fight against Covid-19 could face fresh orders to bolster supplies and greater federal oversight of where those goods get sent once President-elect Joe Biden takes office in January.

Hospitals are clamoring for additional personal protective equipment amid surging new cases even after major increases to domestic production by manufacturers including 3M Co. and Honeywell International Inc. Between now and Inauguration Day, hospitals and industry groups will be watching for signs that Biden plans to follow through on repeated campaign-trail pledges to invoke the Defense Production Act to combat the pandemic.

“We need much more testing, we need much more masking, we need gloves,” Biden said Thursday in Wilmington, Delaware. “We’re going to move on day one.”

Donald Trump wielded that act, a 1950 law that gives a president broad authority to influence industry for the national defense, to expedite production of masks and ventilators earlier this year. But while his administration’s use of the tool has been sporadic and limited -- avoiding perhaps the type of government overreach anathema to Trump’s Republican base -- experts say his successor could take a more aggressive approach.

“Where a Biden administration will be most poised and most needed to use this will be to help shore up health-care supply chains,” said Jeff Schlegelmilch, director of the National Center for Disaster Preparedness at Columbia University. “As we’re seeing these cases go up and up and up, we’ve had a very decentralized federal approach to this, which has really just left states to fend for themselves.”

States have largely had to compete with one another in the absence of greater federal coordination, Schlegelmilch said. Biden could use the act to place more protective equipment under federal purchasing contracts, which would give the Federal Emergency Management Agency and other departments greater control over supplies that can be sent to hot-spots as they emerge or be pulled back and redeployed elsewhere, he said.

Biden’s “day one” promise may be hamstrung by Trump’s refusal to concede the election and allow his administration to brief the president-elect. While Biden says he’s asked governors to inform him of shortages they anticipate, the muddled handoff has made it difficult to determine the sectors he will need to target with the Defense Production Act, a person familiar with the transition team’s planning said.

Avoiding Shortages

3M, Honeywell and Owens & Minor Inc. were tapped by the Pentagon in April to supply some 39 million N95 masks for medical workers via orders issued under Defense Production Act authority. 3M, the largest maker, is on pace to triple global production to 2 billion of the virus-filtering masks this year -- half of them destined for the U.S. Honeywell has added two N95 plants in the U.S. since March, boosting production to 20 million masks a month as part of its effort to increase global production of the respirators by 60 times this year.

Despite the greater output, concerns persist about supplies of gloves, gowns, N95 masks and testing materials as coronavirus cases continue to rise in most U.S. states and influenza season gets underway, said Nancy Foster, vice president for quality and patient safety policy at the American Hospital Association.

“Full implementation of the DPA would help increase the domestic production of medical supplies and equipment that hospitals, health systems, physicians, nurses and all frontline providers need,” Foster said in a statement.

Those tight supplies reflect the Trump administration’s limited use of the act, which Congress passed during the Korean War to give government powers to boost production wartime supplies that the private sector alone otherwise wouldn’t manufacture, said Matt Dallek, a professor of political management at George Washington University.

“The Defense Production Act is really kind of tailor-made for a pandemic and tailor-made to be deployed not in a pinprick sort of way, but in a much more aggressive way to create a national strategy really for helping people avoid getting Covid and caring for people who have Covid,” Dallek said.

Manufacturers’ Lobby

The National Association of Manufacturers, which represents 14,000 companies from every industrial sector, said companies have moved with enthusiasm to boost production and factory space for protective gear, though it acknowledged that current capacity levels are still unlikely to equal full demand.

“The Defense Production Act, when used carefully as a tool to partner with manufacturers, can be beneficial to increase domestic production capacity through economic incentives and to collaborate with industry under a voluntary agreement,” the group said.

3M declined to comment on the prospect of future Defense Production Act orders, other than to say it has worked with officials at all levels of government from both parties on the availability of its products since the pandemic started and will continue to do so.

Honeywell said it continues to study ways to address the unprecedented need for respirators and that it’s accustomed to meeting the demands of the procurement act because of its long history as a government contractor. “We stand ready to work with the next administration just as we did with the current administration,” the company said in a statement.

Weaknesses Exposed

Boosting production alone may not be enough to improve availability. The pandemic has exposed limitations in the health-care supply chain, said Chaun Powell, group vice president of strategic supplier engagement at Premier Inc., a purchasing and consulting company that works with 4,000 hospitals.

States and some hospital systems have imposed stockpiling requirements for N95 respirators, consuming additional output from manufacturers, and the private sector alone has limited ability to swiftly move supplies to areas of greatest need, Powell said. For example, when New York had shortages of testing supplies earlier this year, a nationwide survey by Premier found that hospitals on average had 10 days’ of inventory, he said.

“The fact that Wal-Mart knows at any given time where a box of cereal is on its shelves and there are times we can’t find a $40,000 pacemaker within an entire facility just goes to show how much room we have for improvement,” Powell said. Companies are working to improve those shortcomings so that “we don’t have to rely on DPA, however, there is an opportunity for DPA.”

It’s unclear for now precisely how an eventual Biden administration will make use of the defense law. The Trump administration’s refusal to formally begin the presidential transition process has stymied the Biden team’s ability to assess the level of supplies in the Strategic National Stockpile and ensure critical equipment is available, Marcella Nunez-Smith, a co-chair of Biden’s Covid task force, said Tuesday on a call with reporters.

Transition Snarl

Biden advisers are in contact with state and local leaders across the country to assess stockpiles in states, and they are beginning to make outreach to companies like 3M to better understand their capabilities.

While Biden’s team appears to be focused on masks and other supplies, companies are already preparing for the next big challenge: making, storing, and delivering millions of doses of a Covid-19 vaccine.

FedEx Corp. has said vaccine delivery operations will receive the the highest priority in its vast logistics network. Trane Technologies Plc and Carrier Global Corp. have indicated that there is already sufficient refrigerated trailer capacity to handle vaccine shipping on ground, said RBC Capital Markets analyst Deane Dray, who covers industrial companies.

“The bottom line is the entire industry is gearing up for this already,” Dray said. “No one is going to be blindsided by this.”

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