Desperate for supplies, some hospitals turn to ‘gray market’

Medical professionals have been forced to turn to nontraditional sources to try to obtain essential supplies, such as respirators, to protect staff and patients. Last month, one EMS company secured some respirators from Home Depot. (Hyosub Shin / Hyosub.Shin@ajc.com)
Medical professionals have been forced to turn to nontraditional sources to try to obtain essential supplies, such as respirators, to protect staff and patients. Last month, one EMS company secured some respirators from Home Depot. (Hyosub Shin / Hyosub.Shin@ajc.com)

It seemed like an offer that couldn’t be refused. Georgia would be able to get a million medical masks from Shanghai. “I have a businessman,’’ the sender wrote, “that can get an airplane full of medical mask (sic) every other day.”

The message, forwarded by the governor’s office to officials at Georgia Emergency Management Agency in late March, mentioned one obstacle. A waiver would be needed to allow planes with the shipments to arrive at the Atlanta airport. Otherwise, the only viable destination was Chicago, according to the message.

Desperate for supplies to stop the spread of the coronavirus, public health authorities, hospitals, health care providers and senior care homes have considered similar pitches. But supply chain experts have a word of advice for all: Proceed with caution.

» COMPLETE COVERAGE: Coronavirus in Georgia

"There is no way suddenly that you are the lucky person who found the missing one million masks," said Sridhar Tayur, professor of operations management at the Tepper School of Business at Carnegie Mellon University in Pittsburgh.

Amid the pandemic, fraudsters are having a heyday, the experts warn. Thousands of entities are offering everything from N-95 masks and test kits to sanitation wipes and ventilators in a “gray market” where untested, unproven and unreliable products are bought and sold.

"There's a lot of bad actors out there who participate on the edges," said Michael J. Alkire, president of a North Carolina-based supply chain company that secures large dollar contracts for medical equipment sold in the U.S. "They prey upon the healthcare system and people's fears."

Agencies and health care providers have been forced to go outside normal procurement channels as they compete with one another for supplies and with the federal government, which has used the Defense Production Act to direct private companies to prioritize its orders. As they turn to nontraditional sources, government authorities are falling victim to schemes in which they are told to put money in escrow accounts for products that never materialize. Hospitals and other healthcare providers, meanwhile, have also seen their trusted supply chains disrupted by counterfeit goods that could put patients or staff at risk.

Sridhar Tayur is a professor at Carnegie Mellon University in Pittsburgh and an expert on illicit supply chains.
Sridhar Tayur is a professor at Carnegie Mellon University in Pittsburgh and an expert on illicit supply chains.

"There's scammers all over the marketplace," said Jimmy Lewis, CEO of HomeTown Health, an advocacy group of dozens of rural Georgia hospitals. "We get inquiries on a daily basis from all over the world, but we try to steer clear."

Phoebe Putney hospital in Albany paid for what was described as isolation gowns; they were dust gowns, which wouldn’t block blood or other bodily fluids. An Atlanta man was arrested for attempting to sell the U.S. Department of Veteran Affairs millions of nonexistent respirator masks. A Braselton man was charged with submitting fraudulent testing claims for coronavirus. One New Jersey hospital got a shipment of fake masks from a trusted supplier, and another hospital bought respirators it discovered didn’t meet government safety standards

“There are always going to be people pushing the limit,” said Doug Evans, a former special agent of the Federal Bureau of Investigation. “And a lot of people are now just desperate for anything they can get.”

‘Hard to fight’

Law enforcement officials have recently stepped up efforts to try to raise public awareness and catch the fraudsters.

The U.S. Department of Justice said it would make investigation and prosecution of coronavirus fraud schemes a priority. The department appointed a coronavirus fraud coordinator in each district across the U.S. and is encouraging the public to file complaints on a database that can be shared with state and local law enforcement officials.

Coronavirus Fraud Hotline

The public should be on guard against scammers offering products in demand because of the coronavirus outbreak, the U.S. Department of Justice says. Fraudsters are using robocalls offering respiratory masks; social media posts seeking donations; emails offering stimulus funds if the recipient enters bank account information or free COVID-19 testing for those who provide their Medicare information.

If you have knowledge of a scam or believe you have been targeted, you can contact the National Center for Disaster Fraud Hotline at (866) 720-5721 or email at disaster@leo.gov.

(Source: U.S. Department of Justice)

 

Authorities have a difficult job ahead, said Tayur, the business school professor who specializes in strategic counterfeiters that operate illicit supply chains.

The fraudsters thrive on chaos and confusion, he said, and have sophisticated methods to access buyers and distributors. Many use snazzy technology, packaging and marketing to make their fake products seem authentic. They can easily access e-commerce sites, like Amazon, that the public believes are without risk. They can claim affiliations with reputable companies, like a New Jersey company recently sued by 3M for claiming such an affiliation and selling N-95 masks at six times the usual cost.

“This problem is very, very, very hard to fight,’’ Tayur said.

Adding to the difficulty is that much of supply chain activity is based in overseas factories with little oversight and transparency.

Some counterfeiters set up “ghost” shifts of workers who steal raw materials to produce and sell products to others in an illicit supply chain. In another scheme, factories skimp on raw materials to product substandard products. In that case, an intermediary buys the product at half the usual costs but sells it at full price.

Some suppliers may be producing authentic products, but it’s hard to tell them apart from those that do not meet standards set by regulators, such as the U.S. Food and Drug Administration, experts say.

To avoid getting bilked, companies need to employ third-party auditors to authenticate equipment, products and inventory, said Evans, now a private security consultant who was asked recently to complete background checks on the owners of companies that ship products to the U.S. from overseas.

“You have to do your due diligence,’’ Evans told the AJC. “Anybody who has had that kind of international commerce experience has to go through all this and do proper sourcing to make sure they are working with a legitimate company.”

To do business with GEMA, companies must complete a survey that provides details about their product and leadership, officials told the AJC. GEMA then reaches out to the company, officials said, if it requires its services.