Burned by COVID Supply Crunch, Hospitals Invest in US Mask-Making
(Reuters) – A cargo ship carrying a mask-making machine left Mumbai two days before Christmas. It was headed for Illinois-based OSF HealthCare. The equipment is used to design its own N95 masks.
This isn’t the only venture into manufacturing for the hospital group. Following the COVID-19 border closures in early 2020 halted shipments from Asia (producer of around 80% of world’s medical masks and protective equipment), OSF and other hospital groups began investing in U.S. manufacturing of key items, including masks, gowns, as well as critical pharmaceuticals.
The goal is to avoid an occurrence similar to the earlier pandemic’s life-threatening shortages of essential protective gear. This is vital as consumers, schools, and employers are buying high-quality N95s and masks to safeguard themselves from the highly infectious Omicron variant.
Pinak Shah, the chief supply chain manager at OSF said that over the last eight months, OSF produced about a million surgical faces for its staff and patients. The facilities serve almost 3 million people across Illinois, Michigan and Illinois.
The new equipment is due to arrive in February and once approved by the Food and Drug Administration, will produce about 1 million N95s a year. OSF’s two mask manufacturing projects will make it 100% self-sufficient, Shah said.
OSF did not reveal the price of the equipment. It is expected to be paid for within two years, compared to 18 months for the surgical mask – an increase largely due to the fact that freight costs are almost four times more expensive than usual, said Salvatore, Stile, president of logistics company Alba Wheels Up, who handled the N95 shipment of machinery.
Shah declared that the investment was an insurance against the risk of uncertainty.
“The manufacturing costs are slightly higher than purchasing from a lower-cost competitor. He said that it allowed him to manage the risk of the market and spot shortage/backorders.
Beyond that, they say that such projects aid in supporting and stabilize manufacturing in the U.S. and downstream supply chains within the domestic supply chain Both of which are vulnerable to boom-and-bust demand cycles and the threat of China flooding the U.S. with very low-cost and, at times, low-quality alternatives.
Michael Alkire, chief executive of the hospital group purchasing organization Premier Michael Alkire, chief executive of the hospital group purchasing organization Premier, told Reuters that he is doubling up on efforts to boost U.S. suppliers after January 2020 in which China diverted Premier-bound N95 shipments from Taiwan to its own use.
For more than 18 months, Premier and rival Vizient have helped U.S. manufacturers via strategic partnerships, expansion financing as well as minority stake investments and joint ventures. While Premier has not disclosed the value of its investments Vizient stated the total as more than $12 million.
Prestige Ameritech is a beneficiary of such dealmaking. Premier and 15 of its hospital members purchased an undisclosed minority stake in the Texas-based company in May 2020. Prestige was also determined to purchase a portion of the surgical masks of hospitals and N95s for up six years. Vizient has also pledged to purchase 9 million N95 masks over the course of a 12 month period.
“That’s the thing a company requires. It requires steady revenue,” said Prestige Ameritech founder Dan Reese, CEO. He also said that he and other U.S. mask makers “prioritize healthcare providers and help them.”
Prestige currently supplies 100% of surgical masks and up to 80 percent of N95s for Baptist Health South Florida, said George Godfrey, the Miami-based company’s vice president of supply chain.
Godfrey declared that the Premier deal “certainly reduces the risk for getting those goods in a time when everyone is trying sourcing them,” Godfrey said.
Hospital executives said the projects will build credibility in an industry in which no single operator has the power of an “big three” U.S. automaker or an established retailer like Walmart or Amazon.com to wield significant sway over suppliers.
Bruce Radcliff, Advocate Aurora Health’s vice-president for supply chain, said that “We are not just customers. We have a seat at a table.” He is also involved in many Premier production projects.
“The healthcare sector is trying to get control of its supply chain,” said Luis Arguello, president of DemeTECH which is a manufacturer in Florida of sutures, medical masks, COVID tests and other supplies. DemeTECH is talking with “several” hospitals that are looking to invest, he said.
With ample production capacity at the ready, members of the American Mask Manufacturer’s Association (AMMA) believe domestic hospital supplies will remain secure throughout the Omicron surge.
Texas mask maker Armbrust American said demand from consumers and school districts virtually filled the 32,000 square-foot distribution center that only a few days ago was packed with masks that were not sold for children and adults.
“It’s wonderful because I’m not going to be able to go bankrupt,” said AMMA president and CEO of the company Lloyd Armbrust, who is once again ramping up production.