The Trump administration quietly invoked the Defense Production Act to force medical suppliers in Texas and Colorado to sell to it first — ahead of states, hospitals or foreign countries.
It took this action more than a week before it announced Thursday that it would use the little-known aspect of the law to force 3M to fill its contract to the U.S. first. Firms face fines or jail time if they don’t comply.
The Cold War-era law gives federal officials the power to edge out the competition and force contractors to provide supplies to them before filling orders for other customers.
While it’s unclear how many times the power has been used during the coronavirus pandemic, federal contracting records examined by Kaiser Health News show that federal authorities staked first rights to $137 million in medical supplies. The orders in late March flew under the radar, even as dog-eat-dog bidding wars raged among states and nations for desperately needed medical protective gear.
“It’s like ‘Lord of the Flies’ out there for states and hospitals as they bid against each other for critical medical supplies and equipment,” Sen. Chris Murphy (D-Conn.) said in a statement to KHN. “Plus, there’s no transparency about what the federal government is doing with the equipment that they purchase when they outbid states and hospitals.”
Without public awareness of what was taken on a federal-first basis — and who it was given to — the states are left in the dark after being told repeatedly to procure their own goods. The federal government, President Donald Trump has said, is not the states’ “shipping clerk.”
“It’s putting people into the free market where the invisible hand doesn’t care who it strangles,” said Arthur Caplan, director of the division of medical ethics at New York University School of Medicine.
Trump enacted the first-in-line power of the DPA for the Health and Human Services Department in an executive order on March 18 — and nine days later extended the power to the Department of Homeland Security, which includes the Federal Emergency Management Agency.
On Thursday at his White House press briefing, Trump announced he had invoked the DPA “against” 3M. His executive order states that the government “shall use any and all authority available under the Act to acquire … the number of N-95 respirators that the Administrator determines to be appropriate.”
“We hit 3M hard today after seeing what they were doing with their Masks. ‘P Act’ all the way,” the president tweeted. “Big surprise to many in government as to what they were doing – will have a big price to pay!”
While the administration had asked the company to stop exporting respirators to the Latin American and Canadian markets, 3M stated in a press release Friday there would be humanitarian implications, since the company supplies a critical amount of those countries’ N95 masks. 3M also warned such a move could create a potential trade war where other countries then refuse to sell N95s to the U.S., potentially resulting in fewer N95s in the United States.
When federal authorities use the DPA to seek a so-called rated order, it relieves companies from having to decide which state or hospital or foreign government gets the goods first, said Eric Crusius, a partner at the Washington, D.C., firm Holland & Knight and a contract law specialist. It makes things simple — the federal government’s order is filled first.
The defense law was cited in contracts for an estimated $54 million in medical supplies from Colorado-based Marathon Medical Corp., a medical supply distributor, and an estimated $84 million from Texas-based Retractable Technologies Inc., which makes retractable needles.
A woman who answered the phone at Marathon Medical declined to give her name and said the company policy is not to talk to the media. Officials for RTI, contacted by phone and email, did not respond by press time.
Contracts show that federal HHS officials also invoked their right to be first in line for an estimated $13.5 million in goods produced by New Jersey-based health care products manufacturer and supplier Becton, Dickinson and Co.
A modification to that contract signed March 23 says it applies to “medical and surgical instruments, equipment and supplies” and cites “delegation of authority” under the Defense Production Act “ordered by President Donald J. Trump in response to” the threat of the coronavirus. It’s not clear what product officials ordered from the company.
Becton, Dickinson and Co. told KHN on Thursday that the contract had been modified — again — so that the Defense Production Act was not invoked. Because there is a lag in federal contract disclosures, it’s possible that the contracts for Retractable Technologies and Marathon Medical also have been modified.
All three records name the contract-awarding agency as the HHS Office of the Assistant Secretary for Preparedness and Response and note: “Only the agency awarding the contract may place orders.”
When federal officials made a similar move in Massachusetts, it took state leaders by surprise. Marylou Sudders, who leads the state coronavirus command center, said an order of 400 masks from MSC Industrial Supply was canceled abruptly due to federal intervention, according to a report in The Boston Globe.
MSC spokesperson Paul Mason told KHN that the Defense Production Act compelled his company to put federal orders first.
That cancellation and a similar seizure of goods sowed so much distrust in Massachusetts that the New England Patriots sent a team plane to ship personal protective gear from China, according to The Boston Globe.
Officials from the White House and FEMA declined to directly answer questions about the use of the 1950 law to put the feds first in line for goods. HHS provided a statement saying the Defense Production Act is “an important tool that may be used when necessary to ensure needed supplies are available and going where they are most urgently needed. HHS and FEMA are and will continue working with the private sector and States to increase supply and allocate needed PPE.”
Top Democratic leaders and even a Republican governor were clamoring for a change in how the market was run in recent weeks, as health care workers warned against being sent out to the coronavirus front lines without proper supplies.
In a letter to the president Thursday, Senate Minority Leader Chuck Schumer called for strong federal intervention and leadership on the issue, citing the need for a military logistician to run such a response.
“While you continue to dismiss the Defense Production Act as not being needed, it is clear that the capacity of American industry has not yet been fully harnessed,” Schumer’s letter says.
Trump fired back with his own letter that evening, stating that Navy Rear Adm. John Polowczyk, currently serving as the leader of FEMA’s supply chain task force, was in charge of “purchasing, distributing, etc.”
“The Defense Production Act (DPA) has been consistently used by my team and me for the purchase of billions of dollars’ worth of equipment, medical supplies, ventilators, and other related items,” he wrote. “It has been powerful leverage, so powerful that companies generally do whatever we are asking, without even a formal notice.”
But if the government is going to take more control — which many health and government leaders have urged it to do — it should be transparent about its actions, said Dr. Atul Grover, executive vice president of the Association of American Medical Colleges. He said medical leaders have been whiplashed by their orders for protective gear falling through and speculated that they lost out to federal agencies.
Some institutions “fully expected to be able to purchase [personal protective equipment] from contractors who then turned around and said, ‘No, we’re going with another buyer instead,’” he said.
When asked about this phenomenon during Thursday’s national briefing, Trump said the governments could work it out.
“If you think there is bidding between federal government and state, let us know and we’ll drop out immediately,” Trump said. “There are 151 countries that have this problem, and they’re ordering, too. It’s really a mess.”
Kaiser Health News (KHN) is a national health policy news service. It is an editorially independent program of the Henry J. Kaiser Family Foundation which is not affiliated with Kaiser Permanente.