Subjecting technical efficiency to cost-benefit analysis

While I was at the Wall Street Journal:

In a small, damp factory here, blood-smeared men wring pulp from pig intestines, then heat it in concrete vats.

The activity at Yuan Intestine & Casing Factory is the first step in the poorly regulated process of making raw heparin, the main ingredient in a type of blood-thinning medicine that in recent days has come under suspicion in the deaths of four Americans.

More than half the world’s heparin comes from China. The chemical is often extracted from pig entrails in small factories — many as rudimentary as this one, which also manufactures sausage casings from intestines. The heparin eventually ends up in drugs used world-wide by patients having surgery or who need dialysis.

The growing concern over heparin’s safety brings to the forefront the question of whether the raw materials from which it is made — for that matter, the raw materials for any drug derived from animals — should be more tightly controlled. The FDA’s position is that the purification steps in the drug-making process are sufficient to produce a pure product from pig tissue, and that “companies are responsible for sourcing the materials” and “appropriately processing the material.”

The health of the animals from which heparin is extracted can be important to the safety of the drug. Drug makers in the U.S. and Europe stopped using cows — a once-common heparin source — after the discovery of bovine spongiform encephalopathy, or “mad cow” disease, amid concerns that the illness could be passed on.

In China, not all heparin makers answer to drug regulators. That’s partly because some are registered as chemical makers, not drug producers. It’s a legacy of a regulatory system that focuses on finished drugs, not their ingredients, says Shen Chen, a spokesman for the State Food and Drug Administration in Beijing.

This part was interesting:

Mr. Yuan, the owner of the heparin and sausage-casing factory in the village of Yuanlou, is a gregarious man who takes pride in the business he has built. Now 57 years old, he has earned enough money from heparin to send his two sons to university. Mr. Yuan himself never graduated from high school because his family was too poor to pay for school.

He launched the original business in the mid-1980s making sausage casings from intestines. Later he added heparin production.

Funnily enough (sort of), I was being asked, by colleagues, about a related matter just the other day. As a vegan, how do I respond to prescribed pharmaceutical treatments when those drugs may come from animals (the intestines of about 3,000 pigs are required to produce a kilogram of heparin)?

Honestly, I just didn’t know. I don’t know whether drugs are vegan. My guess is that I would ask, and try to find vegan, yet effective, alternatives. At the end of the day if I needed that antibiotic, I’d take it. I’m vegan – but I’m not an idiot. For now, I think I’ll just keep hoping I stay healthy as a (healthy) horse.

More generally, this is our issue: how do we weight technical/productive efficiency (producing things for the lowest possible cost/price/resource use) with, say the risk of harm being caused by the corners cut? For me, this is an issue relating to the value of information.

The known risk of negative side-effects (say, Adrenal, Ovarian or Retroperitoneal hemorrhage, if you’re taking heparin) can be, and are, built into the model for cost-effectiveness employed by health-care systems the world over (risk-adjusted adverse events are negative benefits).

However, there’s this issue: if we agree that a drug is cost-effective, then go and manufacture it (efficiently, productively) in a weird farmhouse in China (for example) and, as a result, suffer four deaths and around 350 allergic reactions among heparin consumers in the US, that is something not a part of the original information set or decision-making.

How, then, do we proceed? It would seem that complexity needs to be considered more fully. When we say “the cost-effectiveness of this compound is this much”, we should be adding “…if it is made for this much in facilities of this quality in these countries.” Pursuing the lowest costs of production overseas has the potential to devalue the information we already had gathered on the benefits vs. the risks of any given pharmaceutical intervention.

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4 comments so far

  1. opit on

    Seems to me you have touched on something more basic. Sourcing supply on a global basis has removed any pretense at oversight : something that, to me at least, guarantees that raw competitive pressures will rule, resulting in a plehora of unreliable and defective products.
    You’re the economist. What – if anything – is wrong with that prediction/premise.

  2. opit on

    s/b ‘plethora’

  3. zooeygoethe on

    It might. Our naive assumptions concerning the responsiveness of markets (although the spate of recalls of toys, recently, backs this up) suggests that pressures from the big consumer markets will force the big supplier markets to respond to the safety concerns.

    Although, sure, (i) people will suffer in each instance, and (ii) “people” means citizens of the consumer market – not, necessarily, those Chinese workers.

  4. opit on

    Mm. I recall reading an article about Chinese workers producing goods for the U.S. market. They were amazed people would choose to buy such trash.


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