Friday, February 29, 2008

Know Your Supplier Baxter

The case of dangerous blood thinner gets scarier with each new revelation. Now up to 21 people may have died as a result of the tainted drug. The number with adverse reactions rose to 448. Those paying attention found more than one abrupt change in the story:

1. Originally the FDA let Baxter keep shipping the dangerous drug due to fear that a total recall would lead to an immediate and severe shortage of the drug. They even provided clinical directions for infusing the unsafe product to minimize reactions. Today Baxter announced a recall of virtually all its heparin products. This shifted to "Though Baxter produces much of the heparin used in the United States, regulators said the other major supplier would be able to meet the demand. "

2. When the news first broke, Baxter said it had two suppliers, one in China and one in Wisconsin. It now appears they are corporately related. Scientific Protein Laboratories is a majority owner of the Chinese plant. They substituted cheaper Asian production through Changzhou SPL. Ever the quick learner, Changzhou sought cheaper inputs through numerous small labs, known as workshops. Their goods were obtained through two consolidators.

3. Neither the FDA, nor its Chinese counterpart inspected the Chinese plant, much less the conditions in the numerous labs providing product to the two consolidators. Official regulatory bodies were clueless as to the methods of production and quality of the pharmaceutical supplies. There is no information on Baxter's knowledge in these areas. That the problem has gone on for months and the cause remains unknown isn't comforting.

Everybody is committed to finding the root cause of the problem, Baxter, SPL, and the FDA. One obvious problem is Baxter doesn't know its suppliers. Substitution of workers, production, inputs for low price does not mean lower total costs. Dr. Deming told us and we continue to ignore his teachings. In the case of healthcare, it's literally at our peril.

The other question is what role profit expectations played in this medical nightmare? SPL was acquired by American Capital Strategies in August 2006. Their corporate press release said ACS owned 87% of the company on a fully diluted basis. What management practices did American Capital institute that contributed to the heparin problem. Their history indicates something changed. What was it? I smell a PEU intent on making profits at any cost...