Regulatory Compliance for Personal Protective Equipment (“PPE”)
The manufacturing and distribution of PPE is a growing industry allowing the supply of essential medical and non-medical equipment for a range of businesses during the COVID-19 pandemic. PPE generally refers to medical-grade and non-medical grade equipment that is designed to protect individuals against injury or help prevent exposure to illness or infections. PPE includes non-cloth masks, respirators, surgical masks, face shields, goggles, clothing, plexiglass partitions, wipes and sanitizers.
Partnerships between public and private entities have created pathways for greater access to PPE and are creating safeguards for employers to provide safe working environments as states begin reopening non-essential businesses.
Many state manufacturing associations have partnered with state governments to create unique marketplaces that connect manufacturers to distributors, and employers to suppliers of PPE. Notably, the California Manufacturers & Technology Association (“CMTA”) and the State of California have created the Safely Making California Marketplace (“CA Marketplace”) to help connect manufacturers to employers who need to purchase non-medical grade PPE. The CA Marketplace is available to both members and non-members of the CMTA. In addition, the CA Marketplace provides an extensive directory of California businesses manufacturing PPE, including the list of current stock supplies for those businesses.
On the national level, the National Association of Manufacturers has created a portal, COVID-19 National Marketplace, specifically for manufacturers to register their sale of PPE and allow individuals, businesses and medical centers to purchase PPE from suppliers. Additionally, the FEMA PPE Exchange is another platform to allow manufacturers and distributors to post the supply and sale of PPE available for purchase. Further, Project N95 was created as a partnership between governments, healthcare associations, businesses and philanthropic organizations to provide coordination of PPE sales, accelerate sourcing of PPE and expedite procurement decisions. Manufacturers and suppliers can submit their PPE product information to Project N95, which then conducts due diligence and connects the manufacturers and suppliers to hospitals, healthcare associations, governments and other businesses.
In this manner, the increased partnerships and pathways created for manufacturers, distributors and sellers ensure the rising need to supply PPE in healthcare and other critical industries are satisfied. Local, state and federal regulations that govern the manufacture, distribution and sale of PPE are evolving to provide additional protections to consumers from price gouging, hoarding, and improperly labeling and advertising PPE during a pandemic.
As shortages of PPE supply continue from the recent increases of COVID-19 cases in many states, businesses that seek unfair financial gain in the sale of PPE are facing increased scrutiny by federal and state regulators as increased monitoring of PPE manufacturing and sale have led to sanctions on those individuals and companies violating anti-price gauging and hording regulations. Those involved in PPE manufacturing, distribution and sale should be aware of these regulations to avoid potential sanctions and litigation.
Regulations Governing Standards for Manufacturing, Advertising and Sale of PPE
PPE that are used by medical and healthcare facilities must follow Food and Drug Administration (“FDA”) regulations and criteria including labeling, performance and intended use to demonstrate substantial equivalence. Substantial equivalence is a criterion used by the FDA to ensure sterility, biocompatibility, fluid resistance, filtration efficiency (including bacterial filtration efficiency) and flammability of PPE. Manufacturers must validate the methods used to test conformance to the FDA standards and support each PPE product with appropriate performance tests and data. Certain types of medical-grade PPE must receive a premarket notification or 510(k) clearance from the FDA prior to the marketing and distribution of PPE. This clearance by the FDA is required when manufacturers supplying PPE to medical facilities advertise, label or otherwise represent that the PPE filters specific amounts of viruses or bacteria, reducing the amount of and/or killing viruses, bacteria or fungi, or affecting allergenicity, or intended to prevent a disease or infections. For further standards by the FDA regarding medical-grade PPE, click-here.
Furthermore, the National Institute for Occupational Safety and Health (“NIOSH”) provide additional regulations which govern the supply of PPE to medical facilities. The NIOSH allow medical facilities to purchase NIOSH-approved PPE through its online index of manufacturers (NOISH Online List of Manufacturers).
On the other hand, Occupational Safety and Health Administration (“OSHA”) is the key agency that sets standards and requirements for employers to provide PPE. Specifically, OSHA requires employers to provide PPE when it is necessary to protect employees from job-related injuries, illnesses and fatalities. OSHA issued some guidance in June 2020 (Guidance on Returning to Work) listing various preventative measures employers should take once non-essential business begin to reopen. These include establishing hygiene guidelines and social distancing mechanisms. PPE are not required to be provided by employers who are not in the field of healthcare, constructions and other workplaces highly susceptible to exposure of COVID-19, though OSHA does recommend the use of cloth face masks in all other workplaces. Local mandates, such as in Los Angeles County, require employers to provide non-medical grade face masks or reimburse employees for the cost of such masks if those employees are working in the public and not from home.
Rules and Regulations Protecting against Price Gouging
The Defense Production Act of 1950 (“DPA”) prohibits sale or PPE at prices in excess of prevailing market prices. On the state level, California’s key regulation protecting against price gouging includes California Penal Code Section 396 (“Penal Code 396”) and Executive Order N-44-20.
- Penal Code 396 – Penal Code 396 is the key statute that prohibits price gauging during a declared state of emergency in California. Particularly Penal Code 396 provides the following:
- Prohibits raising the prices of necessary goods after an emergency has been declared and for a period of 30 days following the declaration of such emergency by more than 10%.
- Greater price increases are not unlawful if the seller can prove that the increase in price was directly attributable to additional costs imposed on it by the supplier of the goods, or directly attributable to additional costs for labor or materials used to provide the services, during the emergency, and the price is no more than 10% greater than the total cost to the seller plus the markup customarily applied by the seller for that good or service in the usual course of business immediately prior to the onset of the emergency.
- Executive Order N-44-20 – Governor Gavin Newsom executed Executive Order N-44-20 on April 3, 2020 which declares the current COVID-19 pandemic as a state emergency under Penal Code 396 and specifies the following:
- The price for food items, consumer goods, medical/emergency supplies and materials U.S. Secretary of Health and Human Services have identified as Scarce Materials or Threatened Materials pursuant the DPA, which includes PPE, cannot be more than 10% greater than the highest price charged by a business or person for that item on February 4, 2020.
- Greater price increase are lawful if the seller can show that the prices are attributable to additional costs for the labor, goods or material imposed on the seller and the price is no greater than 10% plus the markup costs for prices seen in the usual course of business on February 4, 2020 or the seller was providing the relevant goods at a reduced price and the increased price is not more than 10% of the ordinary price by the seller.
- If a seller did not sell the item on February 4, 2020, then the price of PPE cannot be more than 50% greater than the amount the person or business paid for the item or the cost of producing and selling the item.
- Violations of Penal Code 396 and the Executive Order N-44-20 are criminal offenses resulting in misdemeanor penalty.
- These price gouging protections have been extended until December 31, 2020.
Rules and Regulations Protecting against Improper Stockpiling and Hoarding
DPA and Executive Order 13910 executed into effect on March 23, 2020 prohibit individuals and businesses from hoarding materials that have been deemed to be scarce, or which would be made scarce by hoarding. Specifically, it prohibits accumulation of such materials:
(1) “In excess of the reasonable demands of business, personal, or home consumption” or
(2) If such accumulation is “for the purpose of resale at prices in excess of prevailing market prices.”
Those in violation of the DPA may be subject to punishment by a fine up to $10,000 and/or imprisonment for up to a year. Further, PPE may be seized by law enforcement and those reselling PPE in violation of the DPA and Executive Order 13910 are likely to be imposed with civil liability. The Department of Justice (“DOJ”) is the key enforcement agency tasked with prosecuting those in violation of DPA and seizing PPE in violation of the DPA. In addition, many manufacturers and distributors are also seeking aggressive litigation to prevent fraudulent and improper resale of PPE. Particularly, 3M is a leading manufacturer and distributer of FDA and NIOSH-approved N95 respirators. 3M has advocated for fair sale of its PPE, including posting the prices of its products and information to detect fraudulent PPE claiming to be manufactured by 3M. Moreover, 3M has been working with the DOJ to file several lawsuits which assert fraudulent resale by individuals and businesses who are either charging grossly inflated prices for 3M products in violation state or federal regulations or fake, defective and damaged respirator products that claim to be made under the 3M brand.
Based on the forgoing, businesses who are selling PPE, directly or indirectly, should be cautious as to keep the sale of PPE within market price and within stated guidelines, especially products that have been specifically designated by the Department of Health and Human Services as scarce material, to prevent any violation of the DPA.
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