How much free market do we need during a pandemic?

Just five weeks ago, large academic hospital systems like mine paid $1.25 for an N95 mask. Simple in their design and manufacturing, these masks are an effective tool for keeping clinicians and patients safe from the transmission of infectious diseases.

With COVID-19 pummeling the nation, procuring these masks has become one of the most important things we do in a day. Sadly, this same mask now costs hospitals between $7 to $11 apiece. If a large hospital system needs 1 million of them, it will cost more than $7 million. And surgical masks? They used to cost 7 cents — now they're about $3 a piece. Just when we need masks the most, price gouging is rampant.

This must end. Not only is it immoral, it is putting patients' and healthcare workers' lives at risk.

As we work together to stop the spread of this deadly disease, a key question every industry leader around the world must ask is: How much free market do we really need during a pandemic?

Running hospital systems in Houston during more common disasters, we have faced this issue before when the area of need is localized, and price increases can help direct resources where they are most needed.

During Hurricane Harvey in 2017, for example, Houstonians faced critical shortages of clean water and other goods which sent prices soaring. But the issue, in this case, was not production; unaffected areas of the country had large supplies of our desperately needed items, and they were re-distributed to us. In traditional disasters, markets allow movement of goods to the affected areas.

However, higher prices and redistribution of critical supplies are ineffective when everyone needs the same equipment at the same time. COVID-19 is anything but a local disaster — no corner of the world is unaffected. Hospitals everywhere are in the same boat, competing for the same resources, exacerbating the problem.

Difficulties with hospital purchasing power today are compounded by decreases in revenue as we halt nonessential procedures and brace for the full wave of COVID-19 patients that is present in New York City and may be coming to Houston and Houston Methodist.

Not every hospital system can afford to purchase these supplies at inflated prices. Many hospitals, particularly in rural and underserved urban areas, are operating on a 1 percent margin, often with as little as 90 days of cash on hand. They simply can't compete in a marketplace that has ballooned so quickly. Patients in these systems get referred to larger hospital networks, further straining the capacity that COVID-19 has already overextended.

Thus, we are calling on the federal government to create an organizational structure that manufacturers, distributors, and hospitals can work within; we need to have accessible, real-time data that shows the current supplies and the current demands. The government must set a profit limit on these items to compel the sale of critical medical equipment at a price that will allow all hospitals to make purchases. The Defense Production Act must be invoked within a broader policy, including active involvement from experts in health, industry and economics.

Others have called for the creation of a federal medical aid fund to help hospitals purchase life-saving supplies. We are adding our voice to that call: the federal government must step in and create pathways for hospitals to access necessary supplies.

Data scientists refer to events like the COVID-19 pandemic as "fat tail" events — extreme events with a higher likelihood of occurring than expected and with potentially catastrophic consequences to the economy that are difficult to predict. COVID-19 is causing such devastation in large part because our country was unprepared. The lack of supplies created an environment where the prices could rapidly rise, and price gouging began.

Most of the federal preparation and response is through the stockpiling of supplies in the Strategic National Stockpile. During this pandemic, it has been ineffective, given the massive, widespread, and concurrent nature of the situation. Creating a stockpile for a "fat tail"-style event may be a fool's errand, with the risk of equipment expiring or becoming obsolete while trying to prepare for an event we can't predict. In fact, the Strategic National Stockpile is almost exhausted at the present time.

Overcoming this crisis will require significant international cooperation, and, importantly, the sharing of information between multiple governments and key corporate partners. The federal government must define the supply chain for these critical pieces of equipment and develop plans for the efficient movement of supplies in emergency settings.

Right now, lives are depending on the coordination of corporations, countries and people. When global pandemics hit, there is no "us" versus "them." If we spend too much time worrying about who is going to be first and who is going to come out the best, we miss the opportunity to save lives. We need to focus on the good of the whole right now as we establish policies that will have the most significant impact.

Dr. Marc Boom is the president and CEO of Houston Methodist. Dr. George Naufal is an economist at the Public Policy Research Institute at Texas A&M University.

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