healthy4u: outsourcing

Six Years Later, Ranbaxy - Oops, Daiichi Sankyo - Pleads Guilty to Adulteration, Pays $500 Million

It only took until 2013, but the US Food and Drug Administration finally secured guilty pleas and fines.  The basics are in an Associated Press story (<a href="http://www.washingtonpost.com/business/subsidiary-of-indian-drug-maker-agrees-to-pay-record-500-million-us-penalty-for-impure-drugs/2013/05/13/2d586104-bc33-11e2-b537-ab47f0325f7c_story.html">via the Washington Post</a>): <blockquote class="tr_bq"> A subsidiary of India’s largest pharmaceutical company has agreed to pay a record $500 million in fines and penalties for selling adulterated drugs and lying to federal regulators in a case that is part of an ongoing crackdown on the quality of generic drugs flowing into the U.S. Federal prosecutors say the guilty plea by Ranbaxy USA Inc. represents the largest financial penalty against a generic drug company for violations of the Federal Food, Drug and Cosmetic Act, which prohibits the sale of impure drugs.</blockquote> Note that the company pleaded guilty to criminal charges. <blockquote class="tr_bq"> The subsidiary of Ranbaxy Laboratories Limited pleaded guilty to federal criminal charges and the company separately agreed to resolve civil claims with all 50 states and the District of Columbia. The company had earlier set aside $500 million to cover potential criminal and civil liability stemming from the Justice Department investigation. It admitted as part of the deal that it sold adulterated batches of drugs — including an antibiotic and generic versions of medications used to treat severe acne, epilepsy and nerve pain — that were developed at two manufacturing sites in India. </blockquote> Ironies Note that this resolution has certain ironies. Lateness There is a saying that justice delayed is justice denied.  Note that it took six years to obtain the guilty pleas.  As noted by the AP, <blockquote class="tr_bq"> The problems were largely revealed by a whistleblower in a federal lawsuit filed in Maryland in 2007. </blockquote> Ambiguities about Responsibility First, note that while all the headlines are about Ranbaxy, Ranbaxy is not really an independent company.  As<a href="http://www.reuters.com/article/2013/05/13/us-ranbaxy-settlement-idUSBRE94C0PT20130513"> reported</a> by Reuters (and only by Reuters so far as I can tell at this time), <blockquote class="tr_bq">Ranbaxy ... [is] majority-owned by Japan's Daiichi Sankyo.</blockquote> Second, as per the AP, see the comment made by the Ranbaxy CEO, <blockquote class="tr_bq">'While we are disappointed by the conduct of the past that led to this investigation, we strongly believe that settling this matter now is in the best interest of all of Ranbaxy’s stakeholders; the conclusion of the DOJ investigation does not materially impact our current financial situation or performance,' Ranbaxy CEO and managing director Arun Sawhney said in a statement.</blockquote> Maybe there was something lost in translation, but the CEO certainly spoke as if someone else was responsible for the "conduct of the past."  Incidentally, it does not appear that so far any journalist has even sought comment from the people really in charge, at Daiichi Sankyo. Third, just like many other cases we have reported before, no individual, especially anyone who authorized, directed, or implemented the bad behavior, was held legally responsible.  The cost of the fines will no doubt be spread among the corporate structures involved.  Since a company pleaded guilty, no individual pays a fine, much less goes to jail. It does appear that when the settlement was first announced in 2011, a cut in compensation for top executives of Daiichi Sankyo was announced, but the cuts were temporary, and apparently in response to the immediate financial consequences of the settlement, not any larger implications.  See Bloomberg's <a href="http://www.bloomberg.com/news/2011-12-21/daiichi-sankyo-lowers-executive-pay-after-500-million-ranbaxy-settlement.html">report</a>: <blockquote class="tr_bq"> Chief Executive Officer Joji Nakayama and board members will receive 5 percent to 30 percent less compensation for six months in response to the cut in the earnings forecast, Daiichi Sankyo said today. The company has lost about half its market value since agreeing to buy a majority stake in Ranbaxy, India's largest drugmaker, in June 2008. </blockquote>  The Contrast with the Case of the Adulterated Heparin Note that in this case, there have been no allegations that patients were harmed by the admitted adulteration,  Per the AP: <blockquote class="tr_bq"> It’s not known whether the problems with the drugs led to any health issues.... The government’s allegations against the company make no claims that the drugs, whose strength, purity or quality differed from the specifications, harmed anyone.</blockquote> In 2008, we <a href="http://hcrenewal.blogspot.com/2008/02/heparin-made-out-of-pigs-from-elsewhere.html">began </a>blogging about how  US patients started to get sick and die after being infused with heparin, the common anti-coagulant drug. As we have discussed repeatedly  (look <a href="http://hcrenewal.blogspot.com/search/label/heparin">here</a>, and see the summary at the end of the post), Baxter International was selling contaminated heparin under its label which was made in unregulated workshops in China, and then transmitted through a complex chain of Chinese and US companies. The AP article stated, <blockquote class="tr_bq"> The case comes as federal regulators and prosecutors focus attention on the quality of ingredients of generics and other drugs manufactured overseas, said Allan Coukell, an expert on drug safety at The Pew Charitable Trusts. He said the 2008 deaths linked to tainted batches of the blood-thinner heparin that were imported from China served as a 'wake up call' about just how much of the nation’s drug supply comes from overseas.</blockquote> So perhaps this wake up call helped propel the current case against Ranbaxy, that is, Daiichi Sankyo.  However, since 2008, if there has been a criminal investigation of the tainted heparin, which appears to have been much more consequential, sometimes fatally so, to patients, the results have not been made public.  A cynic might note that the contaminated heparin was sold by a US based manufacturer of branded pharmaceuticals, not a foreign based manufacturer of generic drugs. Summary The most fundamental obligation of a drug company is to produce pure, unadulterated drugs.  The first attempts to regulate the drug industry in the US were meant to ensure that these companies fulfilled this obligation.  Yet now there is increasing evidence that the contemporary pharmaceutical industry has trouble with this most basic responsibility.  As we discussed <a href="http://hcrenewal.blogspot.com/2012/09/who-really-makes-brand-name.html">here</a>, the managers of pharmaceutical companies have been swept up in a dominant business management fad, <a href="http://hcrenewal.blogspot.com/search/label/outsourcing">outsourcing</a>, as a means to cut costs to the bone.  (It seems that most health care managers are also caught up in the larger rage for <a href="http://hcrenewal.blogspot.com/search/label/financialization">financialization</a>, to emphasize short term revenue over all other concerns, including patients' and the public's health.)  As the New York Times <a href="http://www.nytimes.com/2013/05/14/business/global/ranbaxy-in-500-million-settlement-of-generic-drug-case.html">reported  </a>re the Ranbaxy case, <blockquote class="tr_bq"><div itemprop="articleBody">Others say the company’s problems highlight how little oversight federal drug safety officials have of overseas plants. Studies that have shown the F.D.A. inspects foreign generic manufacturing plants about <a href="http://www.fda.gov/RegulatoryInformation/Legislation/FederalFoodDrugandCosmeticActFDCAct/SignificantAmendmentstotheFDCAct/FDASIA/ucm310992.htm" title="The F.D.A.’s statement on the issue.">once every seven to 13 years</a>, compared with once every two years for domestic manufacturers. A law passed last year will eventually require the F.D.A. to apply the same standards when inspecting all manufacturing plants, regardless of location. But some worry that <a class="meta-classifier" href="http://topics.nytimes.com/top/reference/timestopics/subjects/f/federal_budget_us/index.html?inline=nyt-classifier" title="Recent and archival news about the federal budget.">federal budget</a> cuts are slowing the adoption of that law. </div><div itemprop="articleBody"> </div><div itemprop="articleBody">'They just happened to stumble across the Ranbaxy problem at those two plants in India,' said Joe Graedon, a pharmacologist who runs a consumer Web site, <a href="http://www.peoplespharmacy.com/" title="The Web site.">the People’s Pharmacy</a>, which has raised questions about the safety of generic drugs. 'Ranbaxy was the biggest and one of the best in India. What about all the smaller ones? What does that say about them?' </div></blockquote> <a href="http://hcrenewal.blogspot.com/2012/09/who-really-makes-brand-name.html">Again,</a> all pharmaceutical companies, not just generic drug manufacturers, have seen fit to outsource much, if not most of their production. In our rush to market fundamentalism, we seem to have deregulated, at least de facto, most aspects of health care.  We now cannot trust the drugs we take to have been made by the companies whose labels they bear, or to be pure.  We now cannot trust that regulators will find that out, or having found that out, will do anything about it in a timely manner.  To repeatedly reiterate, as long as the leaders of health care organizations are not held accountable for the results of their decisions on health care quality, cost, and access (even in such extreme quality violations as those resulting in multiple patient deaths), we can expect continuing decisions that sacrifice quality, increase costs, and worsen access, but that are in the self-interest of the people making them. To really reform health care, we must hold health care organizations and their leaders accountable (and not blame all the problems on doctors, other health care professionals, patients, and society at large). - Roy M. Poses MD for Health Care Renewal  Appendix - Heparin Case Summary - We have posted several times, recently <a href="http://hcrenewal.blogspot.com/2011/06/first-contaminated-heparin-case-verdict.html">here</a> 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 in 2007, hundreds of such reactions, and 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. (See posts <a href="http://hcrenewal.blogspot.com/2008/02/in-middle-of-all-those-pigs-in-china.html">here</a> and <a href="http://hcrenewal.blogspot.com/2008/03/heparin-in-era-of-hogwash.html">here</a>.) - 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 <a href="http://hcrenewal.blogspot.com/2008/03/fake-heparin-then-sick-and-dead.html">here</a>.) 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 <a href="http://hcrenewal.blogspot.com/2008/03/who-was-responsible-for-purity-of.html">here</a>.) 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." - Leaders of all organizations involved, Baxter International, Scientific Protein Laboratories, Changzhou SPL, the Chinese government, and the US Food and Drug Administration, and the US Congress assigned blame to each other, but none took individual or organizational responsibility. (See post <a href="http://hcrenewal.blogspot.com/2008/05/blaming-some-dude-for-contaminated.html">here</a>.)  Note that SPL was recently bought out and taken private, making its current leadership even less transparent (see post <a href="http://hcrenewal.blogspot.com/2010/10/more-contaminated-heparin-but-who-leads.html">here</a>).  A 2010 inspection of an SPL facility by the FDA revealed ongoing manufacturing problems (see post <a href="http://hcrenewal.blogspot.com/2011/02/fda-to-scientific-protein-laboratories.html">here</a>). - Researchers (who turned out to have financial ties to a company which is developing an anti-coagulant drug that could compete with the heparin made by Baxter International) investigated the biological mechanisms by which the contamination of the heparin lead to adverse effects, but no one investigated further how the contamination occurred, or who was responsible. (See post <a href="http://hcrenewal.blogspot.com/2009/08/who-investigated-case-of-deadly.html">here</a>.) - Hundreds of lawsuits against Baxter have now been filed, so far without resolution. (See post <a href="http://hcrenewal.blogspot.com/2010/01/blog-post.html">here</a>.)  Efforts to make documents to be used in these cases public so far have not succeeded (see post <a href="http://hcrenewal.blogspot.com/2010/08/proprietary-information-confidentiality.html">here</a>). - A government report which attracted little attention warned of the dangers of pharmaceutical ingredients made in China and subject to virtually no oversight. (See post <a href="http://hcrenewal.blogspot.com/2010/04/another-echo-of-case-of-deadly-heparin.html">here</a>.) -  Despite requests from the US, the Chinese government did not investigate the production of the heparin that lead to the deaths (see post <a href="http://hcrenewal.blogspot.com/2010/07/more-about-what-we-dont-know-about.html">here</a>.) -  In February, 2011, a congressional investigation of the case was announced, but results are so far unavailable (see post <a href="http://hcrenewal.blogspot.com/2011/02/three-years-later-congressional.html">here</a>.) -  In June, 2011, a jury returned the first verdict in a civil case about the contaminated heparin, awarding money from Baxter International and Scientific Protein Laboratories to the estate of a man who apparently died due to tainted heparin (see post <a href="http://hcrenewal.blogspot.com/2011/06/first-contaminated-heparin-case-verdict.html">here</a>). -  If there was a criminal investigation of the case, its results have not yet appeared.

Six Years Later, Ranbaxy - Oops, Daiichi Sankyo - Pleads Guilty to Adulteration, Pays $500 Million

It only took until 2013, but the US Food and Drug Administration finally secured guilty pleas and fines. The basics are in an Associated Pr...

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Who Really Makes Brand-Name Pharmaceuticals?

A striking illustration of the hazards to patients' and the public's health from health care organizational leaders using fashionable management techniques to maximize short-term revenue <a href="http://www.reuters.com/article/2012/08/28/us-china-pharmaceuticals-idUSBRE87R0OD20120828">appeared</a> in Reuters.  Background: The Contaminated Heparin from China The particular issue got public notice after US patients started to get sick and die after being infused with heparin, the common anti-coagulant drug. As we have discussed repeatedly starting in 2008 (look <a href="http://hcrenewal.blogspot.com/search/label/heparin">here</a>, and see the summary at the end of the post), Baxter International was selling contaminated heparin under its label which was made in unregulated workshops in China, and then transmitted through a complex chain of Chinese and US companies.  What helped to further obscure the problem was what Baxter was buying was called the active pharmaceutical ingredient (API), which actualy means it was buying the active drug from poorly documented foreign sources.  In other words, it had entirely outsourced the manufacturing of a drug it sold as if it had been made by Baxter in the US. Continued Outsourcing to Questionable Drug Manufacturers Reuters reported on a new investigation of outsourcing of drug manufacturing to China.  The main point was: <blockquote>Four years ago, Beijing promised to clean up its act following the deaths of at least 149 Americans who received contaminated Chinese supplies of the blood-thinner heparin. But an examination by Reuters has found that unregulated Chinese chemical companies making active pharmaceutical ingredients (API) are still selling their products on the open market with few or no checks. Interviews with more than a dozen API producers and brokers indicate drug ingredients are entering the global supply chain after being made with no oversight from China's State Food and Drug Administration (SFDA), and with no Good Manufacturing Practice (GMP) certification, an internationally recognized standard of quality assurance. 'There is falsification of APIs going on, we know it,' said Lembit Rago, coordinator for Quality Assurance and Safety in Medicines with the World Health Organisation (WHO).</blockquote> In fact, the article made the point that the majority of drugs sold worldwide are the product of outsourced, often unregulated, and potentially contaminated and adulterated manufacturing: <blockquote>'Illegal ingredients in bulk are a big problem, but nobody talks about it,' said Guy Villax, chief executive of Hovione, an API supplier based in Portugal with factories there and in China, the United States and Ireland. About 70 to 80 percent of all active drug ingredients - the biologically active component in medicines - originate in China and India, estimate industry experts, with China accounting for the lion's share. Its export market in these products is worth $22 billion in annual sales, according to the China Chamber of Commerce for Import and Export of Medicines and Health Products. 'If China for some reason decided to stop exporting APIs, within three months all our pharmacies would be empty,' said Villax.</blockquote>How Dodgy Manufacturers Continue to Operate Apparently, a particular problem in China is that APIs, that is, the particular drugs in question, can be made by chemical as opposed to officially designated "pharmaceutical" companies, and these chemical companies are not regulated, <blockquote>A key regulatory weakness in China is the distinction between pharmaceutical and chemical companies. While the former are regulated by the SFDA, the latter, making everything from sweeteners to solvents, are not. Yet many chemical companies also churn out drug ingredients, exploiting a loophole by describing the products as chemicals, which they are, rather than the more specific designation of APIs.</blockquote> For example, the article recounted how an unregulated chemical company was apparently a source for a well-known branded pharmaceutical sold by two big pharmaceutical companies headquartered in developed countries, <blockquote>[A]company, Jinan Hongfangde Pharmatech (JHP), of Jinan city in Shandong province, had a product list showing at least five patented products for sale. They included tiotropium bromide, a blockbuster lung drug co-promoted by Boehringer-Ingelheim and Pfizer Inc and sold under the name Spiriva,...</blockquote> Both Boehringer-Ingelheim and Pfizer spokespeople claimed that they only bought drugs from known sources, but then it would be pointless for Jinan Hongfangde Pharmatech to manufacture tiotropium bromide. The Use of Brokers More questions were raised by the pharmaceutical company's apparently common practice of buying drugs through brokers, <blockquote>The rise of the Internet has facilitated exports of drug ingredients. An online search brings up websites offering hundreds of Chinese API sellers. Those not GMP-certified or SFDA-registered are not necessarily substandard, but buyers lack independent quality assurance. The pervasive presence of brokers in the supply line is another risk. Pharmaceutical companies looking to source APIs in China typically hire middlemen to help them navigate the language, red tape and protocol. That system helps Chinese companies making substandard APIs avoid detection.</blockquote> The reason corporate executives choose to buy drugs in China rather than having their companies manufacture them themselves seems to be to reduce costs. A <a href="http://www.in-pharmatechnologist.com/Ingredients/Substandard-APIs-will-be-made-as-long-as-Pharmas-keep-buying-them-says-WHO">post</a> on the In-Pharma blog quoted Lembit Rago, the same WHO official quoted by Reuters, thus, <blockquote>There are Chinese manufacturers supplying APIs of high quality to multinational companies, but there are also companies producing APIs of poor or not defined quality.</blockquote>So, <blockquote>As long as there are customers for substandard APIs they will be produced and sold.</blockquote> The cheapest Chinese drugs, of course, come from the most questionable manufacturers, and that may not be apparent to companies who use brokers to facilitate purchases. <blockquote>'Any number of foreign pharmaceutical companies go no further than looking for API suppliers at CPhI (an international pharmaceutical fair) based only on price,' [manaing director of Samsara Biopharma Consulting Robert] Walsh said. Reuters spoke to brokers who said an API made by an unregulated chemical company would cost less than one from a company that had a GMP certificate. 'Different (API) grades have different prices. Sometimes we accept an order sheet and we happen to find a factory that can do it cheaper than our factory, we will outsource to them and make a bigger margin,' said one broker based in China who sources for a South African outsourcing firm. In China there are few legal repercussions for broker firms who relabel or misrepresent products, and tracing counterfeit and substandard APIs is extremely difficult. 'There are a lot of brokers who are relabeling (APIs) which means you can't trace where the API comes from and that adds to the risk,' said the WHO's quality assurance expert Rago. Andre, the Belgian drug detective, estimates he has uncovered fraud or misrepresentations in as many as 25 percent of cases where he has been hired to audit factories all over China. 'If you can substitute an API that is expensive to make and manufactured at a high level with something that costs much less, then that can happen,' Andre said. 'It's impossible to give an exact number, but it's not rare. It's a minority, but not tiny minority.'</blockquote>Use of Substandard Raw Materials Meanwhile, a <a href="http://www.pharmalot.com/2012/09/using-cooking-oil-to-make-antibiotics-in-china/">post</a> on PharmaLot suggested that the supposedly regulated Chinese "pharmaceutical" companies may implement questionable manufacturing practices, <blockquote>A subsidiary of the Joincare Pharmaceutical Group reportedly used reprocessed cooking oil – otherwise known as ‘gutter’ oil – to make a widely used antibiotic in China. If the term gutter oil is unfamiliar, this refers to reprocessed oil made from kitchen waste dredged from gutters behind restaurants. The State Food and Drug Administration is now investigating the charge after media reports over the past several days, China Daily reports. Why might gutter oil be purchased to produce antibiotics? The oil is cheaper than the more expensive soybean oil used to make 7-aminocephalosporinic acid, or 7-ACA, a chemical for produce cephalosporins. Joincare produces 25 percent of the total amount of the chemical, although up to a dozen other drugmakers may have purchased gutter oil from various suppliers, according to various Chinese media reports. For its part, Joincare reportedly denied using gutter oil. The companies reportedly bought the recycled cooking oil from a company called Huikang Grease Co., which is facing prosecution over its alleged processing and selling of thousands of tons of gutter oil in 2010 and 2011. The Shanghai Daily reported that Huikang received around $22.5 million for roughly 14,700 tons of gutter oil sold to Jiaozuo Joincare Biological Product, a unit of Joincare.</blockquote> Summary There is increasing evidence that a substantial proportion, probably the majority of drugs sold by big pharmaceutical companies based in developed countries were actually made by often poorly regulated firms based elsewhere, often China or India. To put it more directly, most so called pharmaceutical companies in the US and other developed countries have outsourced the actual manufacturing of drugs. Thus, most companies that appear to be pharmaceutical manufacturing companies are really just pharmaceutical marketing and development companies. (And not so much the latter, look here:  Light DW, Lexchin JR. Pharmaceutical R&D; what do we get for all that money? Brit Med J 2012; 345: 22-25.  Link <a href="http://www.bmj.com/content/345/bmj.e4348">here</a>.) Pharmaceutical companies appear to be abandoning their core essence, but are content to market drugs  under their logos without telling the patients who take them the real source of these products.  This would appear to be a big scandal, but one that stays curiously <a href="http://hcrenewal.blogspot.com/search/label/anechoic%20effect">anechoic</a>. I have yet to see any discussion with pharmaceutical executives about why their companies hardly make drugs anymore. In the absence of such discussion, I can only speculate that most likely, this is first a product of <a href="http://hcrenewal.blogspot.com/search/label/financialization">financialization</a>. Drug company executives, like most organizational leaders, have fallen under the spell that says their only goal should be to increase short-term revenues. It may be cheaper to buy drugs from perhaps dodgy outsourced suppliers rather than manufacturing them them themselves. Continuing stories like those above, and that of the contaminated Chinese heparin suggest that these outsourced drugs are cheap for a reason. It appears that to save money short-term, pharmaceutical executives may be abandoning their most central mission, to provide pure, unadulterated drugs. The continuing story of outsourced pharmaceutical manufacturing provides yet more evidence that current management dogma may be literally toxic. Once again, I suggest that true health care reform requires leadership of health care organization who put patients' and the public's health ahead of short-term revenue (and the personal enrichment that may result). It is likely that a number of policy changes will be needed to reduce the threats posed by contaminated or adulterated outsourced pharmaceuticals.  There is one simple step that ought to be taken quickly to at least make the problem more transparent.  In the US, most manufactured products have a label disclosing the country of origin.  In parallel with that, all pharmaceutical containers, and all pharmaceutical labels and marketing materials ought to disclose the country in which the active pharmaceutical ingredient was manufactured, and the name and location of the company responsible for that manufacture.  Appendix - Heparin Case Summary - We have posted several times, recently <a href="http://hcrenewal.blogspot.com/2011/06/first-contaminated-heparin-case-verdict.html">here</a> 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 in 2007, hundreds of such reactions, and 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. (See posts <a href="http://hcrenewal.blogspot.com/2008/02/in-middle-of-all-those-pigs-in-china.html">here</a> and <a href="http://hcrenewal.blogspot.com/2008/03/heparin-in-era-of-hogwash.html">here</a>.) - 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 <a href="http://hcrenewal.blogspot.com/2008/03/fake-heparin-then-sick-and-dead.html">here</a>.) 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 <a href="http://hcrenewal.blogspot.com/2008/03/who-was-responsible-for-purity-of.html">here</a>.) 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." - Leaders of all organizations involved, Baxter International, Scientific Protein Laboratories, Changzhou SPL, the Chinese government, and the US Food and Drug Administration, and the US Congress assigned blame to each other, but none took individual or organizational responsibility. (See post <a href="http://hcrenewal.blogspot.com/2008/05/blaming-some-dude-for-contaminated.html">here</a>.)  Note that SPL was recently bought out and taken private, making its current leadership even less transparent (see post <a href="http://hcrenewal.blogspot.com/2010/10/more-contaminated-heparin-but-who-leads.html">here</a>).  A 2010 inspection of an SPL facility by the FDA revealed ongoing manufacturing problems (see post <a href="http://hcrenewal.blogspot.com/2011/02/fda-to-scientific-protein-laboratories.html">here</a>). - Researchers (who turned out to have financial ties to a company which is developing an anti-coagulant drug that could compete with the heparin made by Baxter International) investigated the biological mechanisms by which the contamination of the heparin lead to adverse effects, but no one investigated further how the contamination occurred, or who was responsible. (See post <a href="http://hcrenewal.blogspot.com/2009/08/who-investigated-case-of-deadly.html">here</a>.) - Hundreds of lawsuits against Baxter have now been filed, so far without resolution. (See post <a href="http://hcrenewal.blogspot.com/2010/01/blog-post.html">here</a>.)  Efforts to make documents to be used in these cases public so far have not succeeded (see post <a href="http://hcrenewal.blogspot.com/2010/08/proprietary-information-confidentiality.html">here</a>). - A government report which attracted little attention warned of the dangers of pharmaceutical ingredients made in China and subject to virtually no oversight. (See post <a href="http://hcrenewal.blogspot.com/2010/04/another-echo-of-case-of-deadly-heparin.html">here</a>.) -  Despite requests from the US, the Chinese government did not investigate the production of the heparin that lead to the deaths (see post <a href="http://hcrenewal.blogspot.com/2010/07/more-about-what-we-dont-know-about.html">here</a>.) -  In February, 2011, a congressional investigation of the case was announced, but results are so far unavailable (see post <a href="http://hcrenewal.blogspot.com/2011/02/three-years-later-congressional.html">here</a>.) -  In June, 2011, a jury returned the first verdict in a civil case about the contaminated heparin, awarding money from Baxter International and Scientific Protein Laboratories to the estate of a man who apparently died due to tainted heparin (see post <a href="http://hcrenewal.blogspot.com/2011/06/first-contaminated-heparin-case-verdict.html">here</a>).

Who Really Makes Brand-Name Pharmaceuticals?

A striking illustration of the hazards to patients' and the public's health from health care organizational leaders using fashionabl...

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Just Business - Employee Control Fraud, Gresham's Dynamic, and the Race to the Bottom in Health Care

Since Enthoven called for the break up of the physicians' "guild," and handing over its supposed power to managers, (see post <a href="http://hcrenewal.blogspot.com/2006/03/consequences-of-breaking-physicians.html">here</a>) managers have taken over from physicians and other health care professionals as leaders of health care organizations.  Unfortunately, most of these managers are <a href="http://hcrenewal.blogspot.com/search/label/generic%20managers">generic</a>, often lacking knowledge and experience in health care, and understanding of its core values.  Instead, such generic managers may rely on the current management dogma.  The perils of doing so are illustrated by an analysis of the recent expose of conditions at Apple manufacturing plants in China. The Apple Expose The New York Times summarized in a <a href="http://www.nytimes.com/2012/01/26/business/ieconomy-apples-ipad-and-the-human-costs-for-workers-in-china.html">landmark article</a> how bad it is to work in factories building Apple products under contract in China.  Workers endure harsh conditions, toiling up to six days a week, 12 hours a day.  Meanwhile, banners remind them to "work hard on the job today or work hard to find a job tomorrow."  Workers may be exposed to hazardous, even poisonous materials (like n-hexane used to clean components).  Workers have died in explosions due to inadequate control of combustible dust. Over 18 workers at one factory attempted or committed suicide within two years. The article suggested that while Apple managers may be well-intentioned, and "want to improve conditions in factories," the bottom line is more important: <blockquote>that dedication falters when it conflicts with crucial supplier relationships or the fast delivery of new products.</blockquote> In fact, because of its rigid insistence on cost control, its suppliers are sorely tempted to push their workers too hard: <blockquote>Apple typically asks suppliers to specify how much every part costs, how many workers are needed and the size of their salaries. Executives want to know every financial detail. Afterward, Apple calculates how much it will pay for a part. Most suppliers are allowed only the slimmest of profits. So suppliers often try to cut corners, replace expensive chemicals with less costly alternatives, or push their employees to work faster and longer, according to people at those companies. 'The only way you make money working for Apple is figuring out how to do things more efficiently or cheaper,' said an executive at one company that helped bring the iPad to market. 'And then they’ll come back the next year, and force a 10 percent price cut.' </blockquote> So, <blockquote>'You can set all the rules you want, but they’re meaningless if you don’t give suppliers enough profit to treat workers well,' said one former Apple executive with firsthand knowledge of the supplier responsibility group. 'If you squeeze margins, you’re forcing them to cut safety.' </blockquote> William Black's Analysis: Employee Control Fraud and the Race to the Bottom Writing <a href="http://www.huffingtonpost.com/william-k-black/apples-ethical-blindness-_b_1244410.html">in the Huffington Post</a>, William K Black showed how Apple executives' relentless focus on cost could drive a race to the bottom. He began by analyzing Apple executives' explanation for out-sourcing their production: <blockquote>'We shouldn't be criticized for using Chinese workers,' a current Apple executive said. 'The U.S. has stopped producing people with the skills we need.' </blockquote> He noted that it is absurd to suggest that the US does not have workers with the technical skills necessary to build Apple products. He suggests, however, that these are not the skills that matter. <blockquote>The suppliers want engineers and managers who will selectively apply their substantive skills. American engineers and managers cannot be counted on to provide the necessary selectivity. Apple's suppliers' often seek managers willing to order their workers to exceed the lawful workweek, to refuse to pay them for significant portions of the wages they have earned, to unlawfully employ child labor, and even to coerce abortions.</blockquote> So, in the n-hexane example, <blockquote>The engineer did not order the workers to use the nerve poison because he hated the workers. It was 'just business.' The nerve poison reduced cleaning time, so an engineer knowingly ordered the workers to use it and scores of other engineers did nothing to prevent the usage. </blockquote> Note that Black calls this employee control fraud, deceiving the employee that he or she is working in a reasonably safe environment, and that employee health and safety is a concern, when in truth the only concern is the bottom line. So what Apple executives, and by analogy, other multi-national corporate executives want are underlings, particularly middle and line managers who will do anything, anything to cut costs and improve the bottom line. This will produce the race to the bottom: <blockquote>What we are observing is the essence of a Gresham's dynamic in which bad ethics drives good ethics out of the market. Two aspects of this Gresham's dynamic are obscene, and both are produced by neoclassical economics dogma. Calling this process 'creative destruction' is baseless and dishonest. It is the fraudulent destruction of honest businesses, professions, and labor.</blockquote> Black concluded: <blockquote>firms that are anti-employee control frauds are likely to commit other forms of control fraud. Apple and its Western counterparts have driven the creation of an Asian network of fraudulent firms that has distorted international trade, hollowed out U.S. manufacturing, and created a bizarre hybrid: quasi-communist crony capitalism. It boggles the mind that theoclassical economists celebrate the corrupt result as the essence of creative destruction. The network is corrupt. It will not play by the rules. Firms like Apple help create the perverse incentives that encourage the network to cheat. Surviving U.S. manufacturing firms are whipsawed by the powerful Gresham's dynamic that the frauds produce. U.S. firms and workers are constantly pressured to reduce wages and workforce to try to compete with the foreign frauds. This is the 'Road to Bangladesh' strategy that has caused U.S. working class wages to stall for decades. Europe is retreating along this same road at an even more rapid rate. The Gresham's dynamic tilts the world in favor of fraudulent firms operating in fraud-friendly nations. </blockquote>The Race to the Bottom in Health Care Note that we have written about numerous examples of executives of US health care organizations putting revenue ahead of the health care mission, ahead of workers' morale, ahead of patients' and the public's health. Some of these examples involve executives of nominally non-profit organizations that are supposed to have charitable purposes. (Look under our heading of <a href="http://hcrenewal.blogspot.com/search/label/mission-hostile%20management">mission-hostile management</a>.) In fact, just yesterday, Dr Carl Elliott, <a href="http://chronicle.com/blogs/brainstorm/working-the-assembly-line-at-the-human-experimentation-factory/43646">writing</a> for the Chronicle of Higher Education, summarized how pharmaceutical companies have out-sourced clinical research. The resulting commercial clinical research have generated conditions as bad for the research subjects as those endured by the Chinese electronics workers above: <blockquote>If the past decade had an emblematic moment for clinical research, it was probably November 12, 2005, the day when Bloomberg Markets published its cover story, “Big Pharma’s Shameful Secret.” In that issue, Bloomberg reporters laid out the story of SFBC International, a contract research organization in Miami that was paying undocumented immigrants to test the safety of new drugs in a seedy motel. The SFBC owners had converted the lobby into a large waiting area with plastic chairs, and they were housing their research subjects six to a room. The medical director of the research site was unlicensed to practice medicine; the Institutional Review Board that approved many of the studies was owned by the wife of the company vice-president; and the converted motel, which had been cited for fire and safety violations, was eventually demolished. Nonetheless, SFBC had become an astonishingly successful enterprise. Just a few years before the Bloomberg Markets report, Forbes had named SFBC one of the most admired small businesses in America. Virtually every major pharmaceutical company had tested drugs with the company. In fact, with 675 beds, the converted motel was the largest research facility in North America.</blockquote>Note: see our relevant posts here on <a href="http://hcrenewal.blogspot.com/search/label/SFBC%20International">SFBC International</a>, and on <a href="http://hcrenewal.blogspot.com/search/label/contract%20research%20organizations">contract research organizations</a>. Moreover, such out-sourcing has produced the sort of race to the bottom described by Black, but this time involving one of the US most important health care institutions, academic health care: <blockquote>the more important reason is money. In medical schools, faculty members are often expected to generate their own salaries, either by seeing patients or getting grants and contracts. Likewise, academic departments are often expected to be financially self-sufficient, with as little support as possible from central administration. 'Eat what you kill' is the phrase used, without irony, by medical school deans and department heads. And if you are not killing it with NIH grants, you probably need to be killing it with AstraZeneca or Pfizer. This system has not been good for human subjects, but it has not been good for academic physicians either. According to a recent study of over 5,000 faculty members at U.S. medical schools, 51 percent of respondents said that the administration is only interested in me for the revenue I generate.' Thirty-one percent said that their institution discourages altruism; 27 percent said that it does not reward clinical excellence; and over half said that it does not value teaching. Nearly half of respondents were considering leaving their current jobs; almost a third were considering leaving academic medicine altogether. Asked if their values lined up with the medical schools where they worked, over half said no. And just in case you are wondering why these physicians are not standing outside the building with picket signs, protesting the injustice of the system, the survey offers another clue. Thirty percent of respondents agreed with the statement, 'I am reluctant to express my opinion for fear of negative consequences.' [This was from an abstract by Pololi L et al.  See our relevant post <a href="http://hcrenewal.blogspot.com/2010/12/american-medical-schools-are-only-in-it.html">here</a>.] Of course, this survey does does not exactly match up with the happy propaganda disseminated by the media-relations offices at most medical schools. Instead, it offers a picture of alienated, demoralized physicians, unhappy in their jobs, pressed to work according to values that repel them in order to prop up an institution that views them primarily as instruments to generate profit. In this environment, contract research makes perfect sense. It may not require much intellectual work, but it pays the bills and keeps the authorities happy. And if medical schools don’t really value intellectual work anyway, that may well be enough.</blockquote>So the pressures on medical school faculty are little different from those on corporate middle management.  Their only role is to make money, mainly so that the top leaders can become multi-millionaires, and woe unto them if they object. Summary What is missing in all this is any organized opposition to the race to the bottom. As long as top executives can make<a href="http://hcrenewal.blogspot.com/search/label/executive%20compensation"> nearly unlimited money</a>, as long as they can do so by making their subordinates put revenue ahead of all else, as long as there are no countervailing forces, the race to the bottom will continue. To stop it, we need some combination of efforts by honest government regulators, professional and trade organizations, civil society organizations including non-profit organizations and NGOs that really care about patients' and the public's health, and finally an activated, and properly outraged public. As long as we think that a laissez faire policy allowing continual market dysfunction to continue, the good times for executives will keep rolling, over all of the rest of us.

Just Business - Employee Control Fraud, Gresham's Dynamic, and the Race to the Bottom in Health Care

Since Enthoven called for the break up of the physicians' "guild," and handing over its supposed power to managers, (see post ...

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Another Echo of the Case of the Deadly Heparin - A Report on the Perils of Out-Sourcing Drug Production

In 2008, we published multiple posts on how heparin made as an "active pharmaceutical ingredient" in China under apparently primitive conditions, contaminated accidentally or deliberately, was sold in the US bearing the label of a large American pharmaceutical company.  Ultimately, many patients were sickened, or died.  A summary of our posts on the topic, in smaller type, is below. Case Summary - We have posted several times, recently <a href="http://hcrenewal.blogspot.com/2008/03/heparin-in-era-of-hogwash.html">here</a> and <a href="http://hcrenewal.blogspot.com/2008/03/fake-heparin-then-sick-and-dead.html">here</a>, 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. - Most recently, 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 <a href="http://hcrenewal.blogspot.com/2008/03/fake-heparin-then-sick-and-dead.html">here</a>.) 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 <a href="http://hcrenewal.blogspot.com/2008/03/who-was-responsible-for-purity-of.html">here</a>.) 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." - Leaders of all organizations involved, Baxter International, Scientific Protein Laboratories, Changzhou SPL, the Chinese government, and the US Food and Drug Administration, and the US Congress assigned blame to each other, but none took individual or organizational responsibility. (See post <a href="http://hcrenewal.blogspot.com/2008/05/blaming-some-dude-for-contaminated.html">here</a>.) - Researchers (who turned out to have financial ties to a company which is developing an anti-coagulant drug that could compete with the heparin made by Baxter International) investigated the biological mechanisms by which the contamination of the heparin lead to adverse effects, but no one investigated further how the contamination occurred, or who was responsible.  (See post <a href="http://hcrenewal.blogspot.com/2009/08/who-investigated-case-of-deadly.html">here</a>.) - Hundreds of lawsuits against Baxter have now been filed, so far without resolution.  (See post <a href="http://hcrenewal.blogspot.com/2010/01/blog-post.html">here</a>.) <div style="clear: both; padding-bottom: 0.25em;"></div><div class="blogger-labels"> </div>Now, as reported to date only <a href="http://postscript.communitycatalyst.org/?p=1240">on the PostScript blog</a>, a US government report on problems with active pharmaceutical ingredients made in China has appeared. <blockquote>A <a href="http://www.uscc.gov/researchpapers/2010/NSD_BIO_Pharma_Report--Revised_FINAL_for_PDF--14_%20April_2010.pdf">new report </a>(pdf) by the U.S. China Economic and Security Review Commission stresses the safety risks to Americans posed by pharmaceutical ingredients made in China. According to the report, issued by a group that advises Congress on the economic and trade implications of U.S.-China relations, found that the U.S. is the number one destination for Chinese pharmaceutical raw material exports – a $2.2 billion business each year. The U.S. relies heavily on Chinese products not only for over-the-counter drugs but for active pharmaceutical ingredients (API) found in prescription drugs. And the report makes clear that China has neither the will nor the systems in place to monitor its exports. </blockquote> This begs the question that most of the coverage of the deadly heparin also begged.  Are American pharmaceutical companies so besotted with the need for cost-savings that they are willing to buy active pharmaceutical ingredients with unknown provenance overseas as if they were a pig in a poke?  If so, why do we allow company leadership to potentially sacrifice quality, and sell adulterated drugs just to enrich their bottom lines (and their executives' salaries)?

Another Echo of the Case of the Deadly Heparin - A Report on the Perils of Out-Sourcing Drug Production

In 2008, we published multiple posts on how heparin made as an "active pharmaceutical ingredient" in China under apparently primit...

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Just Business - Employee Control Fraud, Gresham's Dynamic, and the Race to the Bottom in Health Care

More Questions, No Answers About the Case of the Deadly Heparin - Some Congressmen Weigh In

Another Echo of the Case of the Deadly Heparin - A Report on the Perils of Out-Sourcing Drug Production