Thursday, June 19, 2008

Outsourced to Death?

A while back, we posted frequently about the sudden toxicity of what used to be an apparently well understood drug. A summary of the story to date is below (in smaller type.):

- We have posted several times, recently here and here, about the tragic case of suddenly allergenic heparin. Although heparin, an intravenous biologic anti-coagulant, has been in use for over 70 years, serious allergic reactions to it had heretofore been rare. Starting late last year, hundreds of such reactions, and now 21 deaths were reported in the US after intravenous heparin infusions.All the heparin related to these events in the US was made by Baxter International.
- We then learned that although the heparin carried the Baxter label, it was not really made by Baxter. The company had outsourced production of the active ingredient to a long, and ultimately mysterious supply chain. Baxter got the active ingredient from a US company,
Scientific Protein Laboratories LLC, which in turn obtained it from a factory in China operated by Changzhou SPL, which in turn was owned by Scientific Protein Laboratories and by Changzhou Techpool Pharmaceutical Co. Changzhou SPL, in turn, got it from several consolidators or wholesalers, who in turn got it from numerous small, unidentified "workshops," which seemed to produce the product in often primitive and unsanitary conditions. None of the stops in the Chinese supply chain had apparently been inspected by the US Food and Drug Administration nor its Chinese counterpart.
- Then, we found out that the Baxter International labelled heparin was contaminated with over-sulfated chondroitin sulfate, a substance not found in nature, but which mimics heparin according to the simple laboratory tests used in the Chinese facilities to check incoming heparin. (See post
here.) Further testing revealed that the contamination seemed to have taken place in China prior to the provision of the heparin to Changzhou SPL. (See post here.) It is not clear whether Baxter International or Scientific Protein Laboratories had inspected most of the steps in the supply chain, or even knew what went on there.
- The Baxter and Scientific Protein Laboratories CEOs did not seem aware of where they got the heparin on which the Baxter International label was eventually affixed. But one report in the New York Times alleged that Scientific Protein Laboratories would not pay enough for heparin to satisfy any sources other than the small "workshops."
- The parties involved, including the US Congress, the US Food and Drug Administration, its Chinese counterpart, Baxter International, Scientific Protein Laboratories, blamed each other for the problems (see post

Since the beginning of May, the story has become surprisingly anechoic. Just recently, however, a brief, grim reminder appeared (e.g., by Bloomberg News, via the Boston Globe):

The blood thinner heparin has been linked to 149 US deaths in people who had allergic reactions after taking it, US regulators said.

The new tally, posted yesterday on the Food and Drug Administration's website, expands the toll of people who took the drug and suffered allergic reactions. The agency said in April it knew of 81 people who died after suffering allergic reactions from the drug, made from pig intestines.

But since early May, no more seems to be known about where the contaminant was introduced in the supply chain, who introduced it, or whether faulty oversight on the part of Baxter International or Scientific Protein Laboratories allowed the contamination to go undetected.

The mounting death toll from contaminated heparin suggests that the outsourcing of core functions of health care organizations may need to be rethought.

Thus, the recent discussion on the Managed Care Matters Blog, by Joe Paduda about the perils of brain-dead outsourcing seems particularly relevant. He first noted:

In the old days, companies tried to control as much of their raw materials - and the refining and transportation of those raw materials - as possible. In addition to auto plants Ford owned iron mines, steel mills, glass factories, rubber plantations, ships, and railroad cars. Nowadays Ford outsources some of its vehicles' key components (engines, transmissions, steering linkages) to other companies, concentrating on designing, assembling and marketing instead.

Over the last couple of decades, manufacturers found themselves increasingly relying on other companies for critical processes and components - if all worked well, profits zoomed, and if not, heads rolled.

But often this sort of outsourcing often breaks down

and when it does disaster often ensues

He had plenty of examples,

Sony buys LCD panels not on clarity and brightness but on cost, thinking hey, they are cheap so more folks can afford them - don't worry if the picture is lousy and colors muddy - in fact don't even look at the picture before you select a vendor.

Paduda cited the example of Compaq, once one of the major US makers of personal computers (and the first maker of a practical "lugable" computer.) Based on an interview with "disruptive technology" guru, Clayton Christensen, Paduda summarized how Compaq first outsourced some of the circuit boards in the computer, and saved money in the process. Then they outsourced the mother board, the main computer circuit board. Then they outsourced the design of the computer. As Christensen said, Compaq managers agreed, "our core competency is really our brand. We can fire all the engineers...." The result was, "the supplier in the Third World starts to eat their way up inside the customer, and every step forward they take progressively trivializes the remaining value Compaq adds, until in the end they're providing almost no value and the company vaporizes."

The key lesson here, which was not stated by Paduda or Christensen, is confusion about what an organization's core really is. The rationale for a company to outsource is that an outside organization may be able to provide non-core functions at a lower cost. Real problems arise, however, when managers seem to progressively decide that less and less of the organization's functions are core.

It may be that many managers seem to think that what they do is the only real core part of the organization, that is, that they, the managers, are the only indispensable part of the organization. It may be that many managers, trained as super-generalists, believe only they have the brilliance to manage any organization, even if they do not understand the context in which it operates, or the technical or scientific rationale of its products. Scientists, engineers, professionals, assembly line workers, service specialists to such managers are all superfluous. Of course, it may actually be harder to find specialized technical workers or professionals, or to set up complex manufacturing processes, than to find a few more self-proclaimed genius MBAs.

In my humble opinion, this kind of thinking has infected many health care managers. It may have contributed to the death of 149 people from out-sourced, contaminated heparin. More disasters are likely to ensue, and will keep happening until we reaffirm what the core of health care organizations really is.

It is dedicated health care professionals sworn to put patients' interests first. It is scientists who mean to discover the truth about biology and disease. It is the complex, often highly technical infrastructure that allows good care to happen for particular patients at the time it is needed, and the particularly qualified people who staff that infrastructure.

It is not managers who do not understand health care, medicine, or biology. It is not marketing. It is not accounting. It is not legal services. Maybe we have the outsourcing in health care all backwards.


Anonymous said...

As Christensen said, Compaq managers agreed, "our core competency is really our brand. We can fire all the engineers...."

This social malfunction is the fruit of postmodernism and nihilism, not capitalism.

Anonymous said...

I don't think it can be overlooked that one of the motives of outsourcing is to outsource risk, by which I mean liability. If I hire a contractor to re-do my kitchen, I can reduce my risk of having to pay for bad work by making sure my contractor is licensed and bonded (not that it's a guarantee, but it's due diligence on my part to do it that way). But purchases of Heparin or other healthcare supplies rely on FDA approval of the purported item supplied, not the actual item supplied, as pointed out in your summary. So unlike the contractor for my kitchen, who has a financial need to make sure he's using good people to do the work, where's the financial imperative for the supplier to make sure and not accept slap-dash "testing" as paper-compliance that allows pointing of fingers at the organization outsourced to do the work?