Technologist Alec Stapp joins the show to discuss why the US lagged weeks behind South Korea in testing for COVID-19. While the failures of the FDA and CDC have been grim, the show does find a silver lining in the crisis, that technology has greatly eased the transition into social distancing for many Americans.
How is our internet surviving during this global pandemic? How has the private industry stepped up to the plate to tackle COVID-19? Why was the United States late to the game to test patients for COVID-19? Is the FDA to blame for the lack of U.S. testing?
Timeline: The Regulations—and Regulators—That Delayed Coronavirus Testing, written by Alec Stapp
The 4 Key Reasons the U.S. Is So Behind on Coronavirus Testing, written by Olga Khazan
How utility, phone and internet companies are giving consumers a break during coronavirus pandemic, written by Nathan Bomey
Trump adviser outlines cautious approach for reopening economy, written by Rachel Roubein
Netflix will reduce its European network traffic by 25 percent to manage surge, written by Julia Alexander
Libertarianism and the Coronavirus Pandemic, written by Andy Craig
What Made the Internet Possible?, Building Tomorrow Podcast
00:04 Paul Matzko: Welcome to Building Tomorrow, a show about what the future might look like if we embrace innovation and pursue freedom. I’m your host, Paul Matzko.
00:12 Paul Matzko: If you’re anything like me, you’ve been overwhelmed by the rapidity with which the COVID-19 virus and our societal responses to it have transformed the daily life in almost unprecedented ways all around the globe. But now that we’re a few weeks into a world of shelter-at-home policy, social distancing and economic chaos, I thought it was time to take stock of the technological ramifications of this crisis. After all, COVID-19 is a technological problem, as well as a medical and economic problem.
00:43 Paul Matzko: That began with the question of testing for the virus. As soon as the virus was discovered, Chinese scientists mapped its genome and global researchers started developing ways of testing for its presence. Countries that adopted testing early and often, like South Korea, have done much better than countries that have not, like the United States.
01:04 Paul Matzko: So today, we’re gonna talk about why our testing technology in the US lagged so far behind that of other countries. But I don’t wanna just fixate on what went wrong, I’ve also been pleasantly surprised at what has gone right during this crisis. As technological substitutes like Netflix, teleconferencing, social media and the like, have made it easier for us to quarantine ourselves.
01:27 Paul Matzko: So I asked an up-and-coming technologist whom I greatly respect to join me on the show today. Alec Stapp is the Director of Technology Policy at the Progressive Policy Institute, and I’ll add, a great Twitter follow. Welcome to the show, Alec.
01:41 Alec Stapp: Thanks for having me, Paul.
01:43 Paul Matzko: Now, we’re both policy tech wonk types and I’ll admit that when COVID-19, when the pandemic first really started to grab my attention and the public’s attention in the US, I was not thinking about it as a tech person at first, but it’s surprised me in a number of ways. What’s surprised you about how the tech sector has responded to COVID-19?
02:05 Alec Stapp: Yeah, I kind of had actually the same response as you did. I remember I first started hearing about it in early January. So I think that was likely far ahead of the general American public. Because on Twitter, some of the people you might also follow in the tech industry like Balaji Srinivasan who’s an investor and entrepreneur in Silicon Valley and also has a biotech background, he was very early on tracking this and kept saying repeatedly over the course of January, “Hey, keep an eye on this, this could be really bad. We’ll see as it… How China handles this new virus. We’ll see if it spreads worldwide, but we should definitely be worried about this.” And then Scott Gottlieb, who’s recently the FDA Commissioner under the Trump administration, but he resigned last year and now he’s a fellow at AEI, he was also very early on saying, “This is something we should be worried about and preparing for.”
02:54 Alec Stapp: And so I was noting that stuff, but when I was having discussions at the office about this potential virus and the crisis that could come with it, I didn’t think I had much to add. And honestly, I told my boss, I said, “This is a tail risk type event. I’m not really worried about it personally. Right now, this is in January, but I’ll keep an eye on it.” And it really did explode obviously in February and now into March.
03:17 Alec Stapp: And as we’ve seen it explode, I think we’ve really seen the benefits of technology in responding to this crisis, allowing many, especially white-collar professionals to work from home and still accomplish a lot of their daily work using remote tools. I think that’s… Really has the technology industry to thank for the rise of enterprise software over the last decade. And so really, it would have been much harder to cope with this if we didn’t have a lot of the technological tools that we do today.
03:45 Paul Matzko: I suppose to some extent I’m primed, even as someone who has an interest, a professional interest in tech innovation, to discount… I don’t mean that as “disregard”, but discount, to lower my expectations when it comes to the tech sector folks as they speak about areas that aren’t about tech. It’s a sector of folks who are maybe a little more inclined to think that their expertise in one domain means that they’re going to have expertise in other domains that they don’t actually have. But in this case, they were right. So mea culpa.
04:17 Alec Stapp: Exactly, I had the exact same response you did. It’s important to note they continue to be wrong in different areas. So many of my favorite tech follows on Twitter, people who are entrepreneurs in Silicon Valley or venture capitalists are also now opining on federal reserve policy, and I know enough about that to know their wrong. I try to withhold my own comments in terms of saying what’s right or wrong, but I know that they have terrible opinions themselves, oftentimes on monetary policy and weak responses on what fiscal policy should do.
04:43 Alec Stapp: So I think we should leave that to our friends at think tanks and policy experts in those areas who’ve really been experienced, especially the ones who were proven correct in hindsight and how they were responding to the great recession in 2008-2009. I think we can learn a lot from that on how to respond to a crisis like this. And also, obviously adapt because it is a supply side shock and it’s hard to take care of the economy while so many businesses are forced to be closed down.
05:07 Alec Stapp: And I think we also shouldn’t have hindsight bias and say that they definitely got this one right, in fact, the tech folks, but that kind of outcome wasn’t guaranteed. The more careful prognosticators like Balaji Srinivasan would always say, “This could happen. It’s something you should be preparing for and thinking about.” But he was always careful to couch that in terms of cautious language. And I think it really comes down to Tyler Cowen phrased this as base rate thinkers and exponential thinkers. And base rate people will say, “This is not the first global pandemic. We’ve had viruses spread worldwide, at least a few times in the last decade, many, many times over last 50 years.” The average pandemic kills less than 100,000 people worldwide, SARS, the swine flu, and so if you think this is similar to that in scale, the base rate, your base rate assumption should be that it won’t be the end of the world but it could be pretty bad.
06:01 Alec Stapp: And then the exponential thinkers are people who just plotted out the growth rate of cases over January and February and said, “If this thing is doubling every two or three days, if you just extrapolate that out for only a few months, you’ve pretty much infected the entire world.” And the reason I think the tech industry was so quick on this is because they have experience investing. Venture capitalists, they’re investing in startups with exponential growth. Or if they’re startup founders, they’re the ones managing a company that’s undergoing exponential growth. And they know how quickly that can overtake you, or at least spread very rapidly. And the average American doesn’t often interact with exponential growth in the same way that people in tech do. And so I think that’s the main reason why they were so early on this and ended up being proven mostly right in hindsight.
06:01 Paul Matzko: Have you seen that now fleshed out in how the tech sector has actually responded to the crisis? How particular tech companies… ‘Cause you can imagine COVID-19 has placed a particular stress on how consumers use technology as they shelter in place at home.
07:06 Alec Stapp: Yeah, you’ve definitely have seen a rapid change in terms of how people are using technology, and I think the tech industry, and not only were they commenting on this very early in January, they were also making… They really had skin in the game, in terms of making decisions that affected their businesses and their customers early on. And so their work horses some of the first to go to total work from home policies. I think Google was one of the first very large corporations to move everyone who’s non-essential to a work from home policy. And as far as customers go, these products, most big tech companies have software products that are designed and built in California, but they’re distributed worldwide, often via cloud computing, cloud hosting.
07:48 Alec Stapp: And so, these companies have been investing tens of billions of dollars in this infrastructure over the last decade or so, since AWS broke open the cloud computing market, and now we have Microsoft Azure, we have Google Cloud Compute, as well. And so these companies serve markets worldwide, they do it via the internet, and they’ve really seen that their customers are leaning on these tools now, so employees can go work from home. They can video conference via Zoom one day, communicate via Slack with their colleagues. So oftentimes, if you’re doing white-collar work, you can get most of the tasks done that really, 10 years ago would’ve been much, much harder to do without these kind of new tools.
08:27 Paul Matzko: Yeah. After 9/11, folks that I know who were in the sector at the time, the internet essentially shut down in the days right after 9/11. They just didn’t have the bandwidth for folks who were suddenly demanding… They were going online to try to get the latest news. This is obviously pre-social media, so it looked a little bit different, but demand spiked and they just didn’t have the capacity to deal with that up-tick in demand. And I’ve been impressed with how relatively little disruption there has been in consumer-facing applications. Like, Zoom still works, Skype still works. They’ve managed to keep up with that peak in demand. Do you know, did that that require back-end… Have the company’s been doing something since January, February, predicting this surge? Have they been taking steps to address that, to prepare for the incoming wave of consumer demand?
09:21 Alec Stapp: Yes they have, based on the research I’ve been doing, in looking at these statistics and plans that companies have in place. It was really the success story of cloud computing, and moving from on-premise hosted servers, where most large companies do their own server hosting, to it’s all done via the cloud in these big data centers that are hosted in various parts of the country. And the key thing there, is that when any one individual business, say they sell enterprise software, Zoom for example, and I don’t know exactly where Zoom is hosted, but let’s take a guess and say it’s Amazon Web Services. The key is that, if there are big swings in demand, Amazon can very quickly let that surge move to the rest of their servers in a big data warehouse.
10:04 Alec Stapp: So, they can scale up and scale down very, very quickly. Servers moved from being a fixed cost, where you have to buy servers and own them forever based on your peak load demands, to something that is really a variable cost for a business, and as consumer demand increases those resources come online, because AWS turns on new servers for you and your customers don’t have any kind of interruption in service.
10:27 Alec Stapp: And that’s why you can see things like, if you look at data from Apptopia, which tracks app downloads in the Apple Store and Android App Store. Zoom went from having about 100,000 downloads per day to 350,000 downloads in the last few weeks. And so, we’re seeing 3X and 4X usage there, but Zoom has, as far as we can tell, no service interruptions. And same thing with cloud computing, you haven’t seen any big stories about outages.
10:54 Alec Stapp: And one thing more I’ll mention on this topic is that, it’s really a peak load problem, so as demand for these services waxes and wanes throughout the day, the question is at the peak, is that gonna overwhelm the capacity we have? And what I’ve seen telecom executives actually comment on, is that the internet infrastructure, so Broadband systems in residential areas, are actually coping pretty well because they were already designed to handle evening peak load, so when everyone got home from the office, turned on Netflix, started doing the web surfing, that was the peak before this crisis. And so, networks already had to be able to cope with that. And so now that everyone’s home during the day, and they’re streaming video, having web conferences throughout the whole day, it still hasn’t exceeded much, that peak load capacity in the evening that they already were designed to be built with, to handle, and so that’s why you haven’t seen things crash yet.
11:48 Paul Matzko: Now, that switch, what’s the timeline for the switch to cloud-based server capacity? Is it like three-five years?
11:57 Alec Stapp: In terms of how recently has it happened? I would say, I think I wanna say, the AWS started in 2007, 2008, but it’s really only become a major phenomenon where it’s kind of the default for large corporations and the majority of internet activities routed through cloud computing. I would say in the last five years, if you look at a charts on this. And so 10 years ago, even though AWS was in existence, it was very, very small and wouldn’t have made a big factor in this crisis. But now, 2020, firms are expected to spend about $250 billion on cloud services, so it’s a huge market.
12:31 Paul Matzko: But on the subject of peak capacity, it was in the European Union, I’m trying to remember the name of the Commissioner, he’s the gentleman responsible for, I think GDPR roll-out among other things. But he issued a public call, asking Netflix to downgrade service from HD to SD because he was worried that it would exceed capacity if everyone was streaming HD. I remember reading the statement, Netflix and other services responded tactfully that they were taking steps to address this, but didn’t think it was necessary.
13:08 Paul Matzko: I don’t know if you saw that, or is that a realistic concern, is something different in Europe as opposed to the US? We haven’t had equivalent calls here. I’m not really sure that’s a concern in our minds. Why would that be a concern in Europe as opposed to the US?
13:22 Alec Stapp: I did… ‘Cause I believe the one… At least the one I saw was in Financial Times, and it was quoting these European regulators that were basically calling on companies to down-rate their videos so that essential services wouldn’t be congested at peak load times. And this really is a great case study in the potential downfalls of net neutrality, at least as implemented in Title II Regulation, which is what the US had for a few years before we reverted back under the Trump Administration FCC, back to Title I, because if you don’t allow telecom companies to have rate caps to treat certain kinds of internet content differently than each other, which is the policy in Europe, then you’re forced to a situation where you have public officials begging Netflix to voluntarily downgrade they’re content from HD to SD because…
14:11 Paul Matzko: Technically, it’s illegal. Yeah, they’re not supposed to do that.
14:14 Alec Stapp: Yeah, they’re not supposed to do that. And so, it’s a good example of why treating certain kind of content differently, actually could be a good problem for managing network congestion and the peak load problem. And another point is that, in the US, the the main reason why this Netflix HD video isn’t a problem, is because often times Netflix localizes the data files in each city, and so large HD video files are not being routed across hundreds of thousands of miles. It’s coming a very short distance from your local internet provider to the last mile connection to your house. And so, the network can handle that much, much better. And I’ve read that Comcast and various internet service providers actually partner with Netflix and they cover some of the costs of storing these data files locally because it’s good for them and their networks. But that kind of partnership would be frowned upon in Europe because it would be seen as favoritism. That Comcast or whatever ISP is playing favorites with Netflix, but it really does help manage this network congestion issue.
15:14 Paul Matzko: I do suppose the net neutrality debate is not one that lacks for hyperbole. So perhaps the anti-net neutrality folks, which is the corner I put myself in, maybe we shouldn’t run the slogan, “Net Neutrality, it Kills”. [laughter]
15:33 Alec Stapp: Right. Right. Too extreme by half. But yeah, it’s in the right direction.
15:44 Paul Matzko: But there is a sharp contrast between the response of the private tech sector and the response of the public sector, at least in the US. And you have an article out with The Dispatch, and for our listeners look for Alec’s article in the show notes, it’s called, “Timeline: The Regulations-and Regulators-That Delayed Coronavirus Testing”. And so from the piece you talk about these failures of testing and how unnecessary many of those failures were. Explain some of that for our audience. What went wrong? Why are we testing so poorly in the US compared to, say, South Korea?
16:23 Alec Stapp: Yeah, I put a lot of work into this in-depth investigation, because, for me, it was really the essential question of this crisis so far. If you see other countries, like South Korea, that have implemented widespread testing. But in South Korea, which is a much smaller country than the United States in terms of population, they’re doing 10 to 20x the number of daily tests that the US is doing. Why are they so much more successful in it? And you’re also seeing that those tests are allowing them to control the outbreak. And so if you can test a large portion of the population, you can do contact tracing, where when someone tests positive for COVID-19, then you find out who they’ve been in contact with and test them as well. And if you test, test, test and quarantine people who are sick, you can pretty quickly get a hold of this crisis. You can contain it in a way where you don’t need to do what China did in the Wuhan province where they locked down, I believe it was, 60 million people and didn’t let them come in or out or move really beyond their apartment buildings. Really a draconian measure that’s hard to imagine democracies implementing.
17:22 Alec Stapp: And so when we look at this crisis, we have to ask, “What went wrong with testing in the United States?” And all fingers kind of point to the FDA when you look into this issue. And in early January when China decoded the genome for the Coronavirus and publicly announced and shared that data with other countries worldwide to develop their own testing protocols, the CDC very quickly finalized their own testing protocol in mid-January. German researchers also published a paper in mid-January with their own testing protocol that became the basis for the WHO testing kits they send out to less developed countries, that’s served as millions of testing kits worldwide. And at that point in time, the FDA was at a crossroads, so they said, the CDC has announced that they have a testing protocol. On January 31st, the Department of Health and Human Services announced a National Public Health Emergency.
18:16 Alec Stapp: And once a Public Health Emergency is announced, the government needs to decide which testing protocols are valid, which public labs state, county, hospital labs… What are they allowed to do on their own, or are they not allowed to do? And the crucial mistake that the FDA made was on February 4th they only allowed the CDC testing protocol to be validated to receive what’s known as an Emergency Use Authorization. And that forced every other public or private lab in the country that was trying to create their own testing kit, they were forced to pause that development and seek the similar approval. The government did not grant anyone else approval for almost a month. And during that month, they were reassuring everyone, and telling labs and private companies that they had things under control and that their testing protocol would work, and it failed spectacularly.
19:08 Alec Stapp: And so that’s the reason that we’ve had fallen so far behind other countries is because for six weeks from the end of January until mid-March, the CDC testing kits that they mailed out, it was about 200,000 testing kits to different partners across the country, those testing kits failed and were not able to be validated once they were in the field, and so they were never used. And it’s too little too late, but fortunately the problem is being fixed, within the last week the FDA granted all labs and commercial manufacturers an exemption saying, “You don’t need to apply… You no longer need to apply for an Emergency Use Authorization if you’re developing a testing kit, just proceed going forward and we’ll retroactively grant you authorization if your testing kit is validated. But go ahead.”
19:51 Alec Stapp: And so now we’re seeing the very large manufacturers get in the game. So Roche was granted their own Emergency Use Authorization in the last week. So was Thermo Fisher, so was Abbott Labs, and these are healthcare giants that are worth hundreds of billions of dollars, they have capacity to have high throughput automated machines, that can run these tests, thousands of tests per day, instead of the public health labs like the CDC that were doing all these tests manually. And so the problem will be fixed soon, but it’s just a shame that it took six weeks of dithering and mistakes before they made the right call on regulation.
20:24 Paul Matzko: As I was reading about the South Korea success in the same front, ‘cause my understanding is that date in January where the first US patient is diagnosed, is the same as in South Korea. That basically we had, we had the same, or very similar starting points. But that in South Korea, their version of the FDA immediately, essentially immediately said, “Look, go ahead and get started, and check back with us in a week and we’ll make what you do, essentially, legal, retroactively.”
20:54 Alec Stapp: Yeah.
20:55 Paul Matzko: But it took us six weeks to get to that same point, give or take six-seven weeks. Is that an accurate depiction of what happened in South Korea? Or is there something else that they… What’s… Because they have not had to do these draconian measures, right? They’re not mass sheltering in place, their economy doesn’t appear like it’s gonna take the same kind of hit it did in the US?
21:16 Alec Stapp: Yeah, yeah that’s definitely right. I think there’s a great Reuters investigation that in particular talks about what South Korea has been doing, and they really emphasize that because East Asia was hit much harder by the SARS outbreak and the MERS outbreak, that they have kind of developed these protocols much better than the US has, they kind of have exercised those muscles over time and have plans in place, where US really should have had them, but we did not prepare in the same way because we haven’t borne the brunt of these kind of outbreaks in the last decade or two.
21:45 Alec Stapp: And I think in the US, it’s almost kind of the downside of having such a highly respected and trusted institution, the CDC, where once the CDC said on January 21st, they announced that they had detected the first case in the United States, they said they used their own testing protocol to validate that, and therefore, they were ready to go in terms of testing nationwide, and then on February 4th when the FDA gave exclusive emergency use authorization to the CDC, kinda everybody sat back and said, “Oh, the CDC’s got this, like they’re gonna handle this.”
22:16 Alec Stapp: And you also like… I was very frustrated. Even today I saw an article talking about, with comments from Dr. Fauci, who’s kind of been the face of the Coronavirus task response, very widely respected, he claimed today that, “No one’s to blame, don’t blame the FDA, don’t blame Trump. This was a technical error that nobody could have foreseen, and you know accidents happen.” [chuckle] And he’s both, right in the narrow sense and wrong… Completely wrong in the broad sense. Like yes, there was a technical error with the testing kit when it was mailed out to labs across the country. But the thing is, in any kind of crisis, mistakes are always going to happen. You don’t know which mistakes are gonna happen, and errors are going to occur, but they’re going to occur.
22:54 Alec Stapp: So what you want to do is you wanna have a system and plans in place that are resilient to many different kinds of mistakes, both small and large, occurring, and in the US’s case we had a very brittle response. Our response was, “We’re going to create a single point of failure with the CDC because we respect them a lot and trust that they can do no wrong, and we’re gonna put all of our eggs in that one basket and hope it works out.” And when that just blew up, we had really no fallback plan. We had to just basically lose six weeks during that time period when they were trying to fix the problem with the CDC testing kit.
23:25 Alec Stapp: And so it’s really a strategy error that is predictable. We didn’t know that a particular reagent would fail, but you should be able to expect ahead of time that something will go wrong, and you want to have kind of a decentralized distributed approach that can handle those kind of errors.
23:45 Paul Matzko: Well, let’s say we’re centralizing all the power in the hands of Alec Stapp. What would you reform as czar of the combined CDC, FDA, what would you reform, going forward, in light of what we’ve learned from the testing failures?
24:00 Alec Stapp: Yeah, so that’s a great question, and you can centralize all the power in my hands so then I can proceed to very quickly give it away.
24:06 Paul Matzko: There you go. Hey, that’s good.
24:09 Alec Stapp: Yeah, the way I would give it away, is actually, and I do think government decisions in mid March, so just this week, have been the right ones. So those were just the decisions that needed to be made six weeks ago. And so, in particular I’m referencing that Department of Health and Human Services waived various privacy provisions of HIPAA, and the common rule, which are rules around how you should, or you’re required to treat human research subjects. And the reason that you don’t wanna necessarily have a 100% inviolable loyalty to privacy in a scenario like this, is because one; there was a situation in Seattle where there was an ongoing flu study in the region that they just do every year to monitor the seasonal flu.
24:51 Alec Stapp: So they had thousands of testing samples of Seattle residents already in a research lab there who had shown symptoms that suggested there might be something different than the traditional flu. And when researchers started hearing about the Coronavirus outbreak worldwide they said, “Hey, we should be testing these samples to see if there’s Coronavirus in Seattle,” especially when the first case was in the state of Washington. And the FDA quickly intervened and said, “No, you’re not allowed to do this. The test subjects, the humans, as a part of this flu study did not consent to having this tested for COVID-19. So you need to have get affirmative consent from them, you need to stop doing this right now.”
25:30 Alec Stapp: And that could have been the… They ended up testing them later on once they got certain exemptions, but it was very much delayed. And they ended up finding, I think it was at least a few dozen people in the region who had the Coronavirus, and they needed to then have their family members get tested, and that could have been very vital information to have early on. And the idea that we need to respect some kind of affirmative consent in an outbreak that affects all of us, right, this is a classic example where there are trade-offs between values like individual privacy and public health. And in the middle of an exponentially growing disease like COVID-19, we really need to lean away from things like you know HIPAA privacy protections and that sort of thing.
26:09 Alec Stapp: And then the second decision that they made in the middle of March, that they should have made on January 31st when public health emergency was declared, is they should have exempted all public health labs and private testing manufacturers from needing to receive an Emergency Use Authorization. The new policy is, if you’re developing something, go ahead, validate it internally, after this is over, we’ll… Or at least in a few weeks or months, we’ll come to your company or your lab and make sure that we give you retroactive authorization, but please proceed forthwith, this is an emergency, you know damn the torpedoes.
26:45 Alec Stapp: And that should have happened in late January, and so what we can do going forward, is if I had all the power or we wanted to make a plan for the future, is there should be some kind of an automatic trigger, where the moment you declare a national public health emergency, these are the kind of plans that just happen, you don’t need to wait six weeks for things to completely fall apart before you do them.
27:04 Paul Matzko: There is an irony that the Emergency Use Authorization only kicks in, my understanding is from your piece, once an emergency declaration is made. It’s intended to promote public safety and privacy, but it’s actually done the opposite. I mean, so rather than the EUA it should do the exact inverse once an emergency declaration is declared, or something like we should lower the regulatory barrier not raise it as a response to the emergency.
27:33 Alec Stapp: Yeah, that’s definitely what I think the right approach is, and really there are kind of flimsy defenses that, when I was researching my article, that you come across people who are currently or former employees… Current employees or former employees of the FDA, or CDC who say, “A faulty test is worse than no test because in a public health crisis during an outbreak of a new virus, you need to have perfect information. Otherwise, we’re going to be led astray and it’ll make the crisis worse.” And I think that’s actually just completely wrong in terms of how you weigh the costs and benefits and do risk analysis in a crisis like this.
28:07 Alec Stapp: Maybe that’s my bias as an economist and not an epidemiologist, but an imperfect test actually is very useful, especially when there’s a difference between false positives and false negatives. So in this case, say the test is right 98% of the time, that’s imperfect and the CDC would say that that test shouldn’t be approved in an emergency. But if it’s, you know, spitting out 2% false positives, those are 2% of people who are actually healthy and will have to endure a two week quarantine by themselves, right?
28:35 Alec Stapp: So, that’s actually not the worst case. A test that had a very high false negative rate, now that would be a problem because then sick people would be being sent out in general population, but based on the reporting I’ve seen, the reason that CDC testing kits failed in February when they were sent out, it wasn’t because they weren’t accurately identifying COVID-19, it’s because they were giving false positives for other viruses. So the CDC tried to create a more complex and complicated testing kit because they thought they’d be fancy and make it able to find more viruses.
29:08 Alec Stapp: And so, it correctly identified… In the field when it was distributed, it correctly identified the Coronavirus, but it was giving, on just like, when they’re testing laboratory grade water, right, so there’s nothing in this water, it’s perfectly clean, but it’s giving false positives for other viruses. That’s a problem, but in terms of should you stop testing at that point? If that’s the only problem and it is correctly giving you true positives for the Coronavirus, I think you should go forward. But a public health person might disagree, where an economists sees the trade-offs a different way.
29:36 Paul Matzko: I don’t know, I’m not a mathematician, but it turns out that if your choice… If you’ve got one option, the other option is doing nothing, 98% is 98% higher than 0% right? So if your testing is no testing, versus 98%…
29:50 Alec Stapp: Exactly.
29:51 Paul Matzko: I don’t know, and like I said I’m a theoretical mathematician, but that seems pretty straightforward to me.
29:56 Alec Stapp: Right.
29:56 Paul Matzko: But it does sound like during this rollout, during the testing rollout, there were a number of unnecessary bottlenecks created. Like there was the bottleneck over who’s allowed to develop a test? Only the CDC. There was a bottleneck around which labs are allowed to test the result… The tests that do come back. And my understanding was that that was also limited. That only a handful, a relative handful of laboratories were allowed to test, and they had to do so only using manual testing, not automatic testing. Could you explain that a little more for us?
30:31 Alec Stapp: Yeah, yeah. So, in addition to these Emergency Use Authorization regulatory barriers that labs were facing, even when the FDA granted the first exemption from that, it was on February 29th, where the FDA said, “Okay, you don’t need to come get approval from us ahead of time to develop these things internally at your lab, you can go ahead and do that.” They only limited that exemption to, what are known as, labs that are certified to perform high complexity testing consistent with requirements under the Clinical Lab Improvement Amendments, or CLIA. And these requirements are very onerous, only a small percentage of labs meet them.
31:11 Alec Stapp: One researcher estimated that 5000 labs, across the country, meet these standards, which sounds like a lot, but then when you realize that we actually have 250,000 labs across the country, it’s a very small percentage. And so, again, if you’re thinking about risk management in a crisis, again risk management in a crisis versus risk management in ordinary times are very different things, where days and hours matter greatly, but in a crisis, this is a situation where probably what you wanna do is you wanna authorize all labs that believe they’re capable of doing these tests to go ahead and do them and let the local authorities and decision makers figure this out.
31:29 Alec Stapp: And that’s what the FDA ended up doing this week when they expanded the exemption to all public and private labs in going forward, and that was a big boon, it was the right decision. Again, six weeks too late, but it shows you that the earlier you act, the better results you’re gonna get responding to this. And the more capacity you bring online, the better results you’re gonna get.
32:12 Paul Matzko: So this is how you get to a situation where… Because we have laboratories, when you would talk about 250,000 laboratories, I assume every pharmacy has one, every local CVS or Walgreens has some sort of laboratory testing. Obviously, not the highly complex one that was only initially approved. But this is how you end up at drive-thru testing. That phrase gets thrown around a lot. That’s what they’ve been doing in South Korea. Is that because you can basically drive up to the parking lot of your Walgreens, or your CVS, have a test and in theory within a number of hours or days have results?
32:47 Alec Stapp: Yeah, yeah, they’re an actually… The newest tests are moving from down to just a few hours. And the hours versus days statistic is really the difference between where the test is being done and how it’s being done. And so again, in January and early February, all tests were being collected in the field and then shipped to CDC headquarters in Atlanta, where they were manually testing them, like doing literally bench lab science.
33:11 Paul Matzko: Wow. [chuckle] That’s super labor intensive, yeah.
33:15 Alec Stapp: Yeah, and so what we’ve seen in South Korea and other countries that have moved more quickly on this and they… Because they implemented drive-thru testing, they’ve got it down to four hours or less. And the key difference here is, in addition to having them localized and doing the tests on site is, you also wanna move from manual testing to automated testing. And so that’s what we’re seeing now in the US this week with the giant national lab chains like LabCorp and Quest, they’re gonna be running thousands of tests per day on each machine, and they… You get these machines from Abbott Labs or Roche or Thermo Fisher, and these companies, they’re running automated tests. And so, those take longer to develop, so I’m not saying that those could have been online in the early weeks of February right after there was a national emergency declared.
34:00 Alec Stapp: You really wanna do it in two stages, where once a national public health emergency was declared on January 31st, for the next two to three weeks, you should have had all public health labs at the local, county and state and federal levels, doing manual testing, and at hospital labs, etcetera. So that all that capacity could have come online, that’s something that would let us get at least a few 10, 20, 30,000 tests per day nationwide really give us visibility and surveillance of what’s going on.
34:28 Alec Stapp: And then having given the large commercial manufacturers that can do these highly automated tests, having given them permission on January 31st, they would’ve been able to come online late February, maybe early March, with these tests that can do hundreds of thousands or millions of tests per day. And so that’s really the big players in the game. And it’s a two-stage process that all of it was slowed down based on the FDA’s decisions to only give the CDC Emergency Use Authorization.
35:04 Paul Matzko: So if you had said, okay, there’s gonna be a big crisis that is adjacent to the tech sector, and you had told me that a few months ago, I would have assumed it was gonna be somehow related to the so-called “tech-lash”, the backlash against big tech, growing public discomfort with the level of the intrusiveness of tech companies and the violations of privacy and knowledge about user’s lives and use of that to make money and profit, etcetera. You’ve written some in the past about how the tech-lash is probably, was always overrated, that consumers basically didn’t follow… Their opinion of big tech was a lot higher than that, than the opinion of DC area elites. But that entire conversation feels really antiquated right now. Do you have any thoughts about that?
35:55 Alec Stapp: Yeah, yeah, I agree with you. I think it does feel really, really out of date at the moment, especially when people are relying on some of these… We’ve mentioned a lot of different tech services that people are finding really valuable at this moment in time, but we can also mention things like e-commerce, right? I believe Amazon announced they’re hiring 100,000 new workers, they’re raising wages by $2 an hour and implementing paid sick leave for their warehouse workers, to kinda just keep operations going. They’re also prioritizing critical medical supplies in terms of shipping those first to consumers and businesses across the country. And so really moving from brick and mortar retail to e-commerce, is something that, again, will help facilitate social distancing and help people reduce contact with others during the crisis.
36:40 Alec Stapp: And so, Amazon is, in particular, is a company that was extremely highly rated among the public prior to this crisis. So when different groups survey Americans and ask, “Do you approve or disapprove of this company, or do you trust or distrust this company?” Amazon regularly gets 90% approval or 90% of people saying they trust this company. And then when you ask them their opinion of Congress or the media, you get numbers in the teens or the 20s, right? And so there’s a huge gap there. And I think the tech-lash kind of…
37:12 Alec Stapp: It’s really a fallacy of composition where there has been some backlash against particular companies, Facebook in particular. If you look at the survey data over time, Facebook used to be like three or four years ago even, used to be very, very popular, similar to Google, Amazon, Apple, but they have had a significant backlash since the 2016 election. Many people blaming them for the election of Donald Trump or in Europe for Brexit, misinformation, fake news, that sort of stuff. And whether you think those criticisms are valid or not, people are upset with them, in particular.
37:47 Alec Stapp: But if you look at the tech industry more broadly, and especially the other tech giants, they’re all still extremely popular. And so, in this moment in time, especially when Google… The government is turning to Google to create a national website where people can check their symptoms and receive information about where to go get treatment or testing. That shows you that they really are an institution that people view as effective and reliable in a crisis, and it’s probably going to blunt some of the fervor in Congress to investigate or go after these companies.
37:58 Paul Matzko: Obviously, our behavior has changed significantly in response to the pandemic. Working from home, consumption patterns are changing, heck, even movie distribution has changed drastically. Films that normally would be required to be released in movie theaters are being released directly to consumers. So we’re seeing all these changes to consumption and to distribution. Which of those do you think will stick? And how do you think consumer behavior will permanently change as a result of this crisis?
38:53 Alec Stapp: One of the things that I think will definitely stick is, I think, you’ll see an acceleration in trends towards e-commerce. So right now in the US, about 15% of all retail sales are e-commerce, they were projected to grow to about 18% next year, but I could see that trend accelerating to something on the order of 20-21%, and you can see a big uptick in that because once people realize that “Oh, hey, I can buy even more of the goods and services that I thought I could from Amazon or Walmart.com”, things like that. I think it’ll be harder for people to go back from the convenience of same-day shipping, or free two-day shipping as they’re shopping for different products and services.
39:32 Alec Stapp: And as far as entertainment, we could see quite a few movie theaters go bankrupt from this crisis, if there’s not subsidies or bailouts from the government. And so it’s… It’d be hard to imagine that should any large movie chains go bankrupt that people would be looking to make new ones following the crisis, probably you’ll just see a reduced sector and more activity online. And it’s really… We’re just seeing an abundance in content creation online. So it wouldn’t be, let’s say the largest loss for consumers. Last year, there were 500 original scripted TV series across all entertainment channels, so online and cable TV and broadcast TV. And so we’re kind of… We’re drowning in content. People are enjoying consuming it online or via streaming, and so I think those kind of trends will only accelerate given people spending many more hours at home.
40:34 Alec Stapp: I would sort of just add that as I’ve been tracking the crisis and trying to see what trends are emerging, I’ve been following biotech and tele-medicine, in particular. And so I think right now in the broader stock market, the market is down about 30% from its peak in February. So it’s like, obviously a huge crash in such a short period of time, but a few stocks in particular are up over that same period of time. So Gilead Sciences and Regeneron Pharmaceuticals are up, and I guess I’m happy for their shareholders, but that’s really irrelevant to the point that the reason they’re up is that those companies have promising vaccines or treatments for Coronavirus. And so, I really hope they do well, it’s a healthy market signal to others, entrepreneurs and biotech startups, that this is a fruitful area to research and invest in.
41:21 Alec Stapp: And then in terms of telemedicine, there’s a big danger that if you’re sick or you think you might be sick, of people going, of flooding into hospitals or doctors offices, and then infecting people in those areas. And so, doing at least initial screening via telemedicine is really important. And so another company who’s stock has been doing really well is Teladoc, over the same period.
41:42 Alec Stapp: And so, again, I think I’ve seen venture capitalists on Twitter comment that they’re looking to invest very heavily in these kind of businesses that are either biotech related, or enable tele-medicine or remote… Work from home or distance learning and so I’m really excited to see which new start-ups get built to address these problems and make people’s lives better.
42:02 Paul Matzko: When it comes to telemedicine my understanding is that… I mean the technology is not meaningfully different from Zoom or Skype, or any of a number of teleconferencing services. The barrier to telemedicine, at least this is my understanding, has not been technological for quite some time, it’s been regulatory. Really it’s the insurance industry and government regulation. Is that your take on what’s been delaying telemedicine, do you think there’s a chance of that changing?
42:31 Alec Stapp: Yeah, that’s my take as well. And I think what we’re seeing now is, there’s been a meme going around that there are no libertarians in a pandemic, because I think people are saying that this why we need universal health insurance. This is why we need paid sick leave, paid family leave. We need to expand unemployment insurance, and those are usually policies you attribute to center-left or far left individuals. And I think what we’re also seeing, so that’s true that people are asking for those things and there’s valid reasons for wanting to pass them and implement them. What we’re also seeing is a rollback of regulations across many sectors, and that includes, obviously healthcare where they’re reducing occupational licensing, where temporarily doctors and nurses will be able to practice across state lines without needing to get new occupational licenses in each jurisdiction.
43:18 Alec Stapp: And in addition, we’re also seeing regulations waived that prevent telemedicine from operating, where doctors are allowed to do screenings or appointments via video conferencing. And that should help that sector as well.
43:32 Alec Stapp: And then the last point on that, on what’s been holding back telemedicine, or why is it different than Zoom, I believe I also read that reimbursement rates are different for these kind of remote visits, and so they’re much lower which obviously is a huge disincentive for doctors to do them or invest in setting up the infrastructure to reach patients that way. And so if we could do some kind of balancing or equalizing of those rates that could help accelerate this trend a lot as well.
44:16 Paul Matzko: I hope Alec’s comments give you at least a partial sense of just how the social and technological changes that have happened as a result of COVID19 might persist long after the virus is neutralized. For me it has certainly thrown in to high relief just how ludicrous many regulatory barriers are. Rules that are merely ill-advised in ordinary times, can be truly disastrous during a crisis as we saw with the abject failure of the FDA’s initial testing regime.
44:45 Paul Matzko: Also note that the crisis has belied the neo-luddite critics of the tech industry. People like US Senator Josh Hawley, who not that long ago opined that the days of meaningful technological innovation were long past us. Oh contraire my Missouri fraire. Tech has allowed isolated people to connect online. Think of all the concerts that your Facebook friends have performed to cheer each other up in the last couple of weeks. It has provided at least some substitute for a classroom education for children across the country.
45:16 Paul Matzko: Teleconference-ing has prevented many workplaces from screeching to a complete stand still. It’s slowed the spread of contagion and mitigated the implosion of the restaurant industry by making it more friction-less to order and receive take-out food. In these ways and 100 more like them, the tech sector has lessened the blow of COVID19, and it is tech which will, ultimately, be responsible for discovering a cure.
45:40 Paul Matzko: And on that hopeful note, and with an extra dash of meaning this time, let me say until next week, be well.