Medical Supply Chains And Industrial Policy

After Il Trumpe’s latest policy utterance on steel tariffs and trade, there has been much discussion about trade, manufacturing, protectionism, and the like. Usually, these discussions, when drawing on examples, focus on steel, cars, or other large consumer goods. It makes for ready-made journalism (or churnalism) too: images of rusting factories, blue collar workers, and lots of small-town restaurants. Lots of Heartland Whispering.

Then there’s the now ritualistic discussions of how countries that produce goods more cheaply should be the ones to do so, while others argue that preserving jobs matters. Ladled over the top are tradeoffs between national security concerns about domestic production and the notion that advanced economies should focus on innovation, not production (never mind that improving manufacturing can itself lead to further technological innovation–that point seems to be completely missed by people who have never had to build either a physical or ‘virtual’ production-level system).

And then our all of our trade-related stereotypes crash into a massive market failure, as Scary Disease Woman, aka ‘Maryn McKenna’, explains (boldface mine):

ON THE WEBSITE of the Food and Drug Administration, there’s a page where the agency lists drugs that are in short supply in the United States. Last week, there were 90 entries on the list: antibiotics, drugs for anesthesia, compounds to light up veins and organs for imaging, immunosuppressives to prevent organ rejection, tube-feeding solutions, sedatives. For every type of medical problem, an important drug is off the market or in short supply—and this is routine.

In the fall, after Hurricane Maria tore through Puerto Rico, something new joined the list, not a drug but a category of medical equipment: bags of sterile salt water. When the territory’s electrical grid went down, it took out several plants that make bagged saline for US manufacturer Baxter International. Few noticed at first, until this winter’s flu season got bad. One of the first things you do when someone arrives at a hospital weak and feverish is plug them into a quart bag of saline to rehydrate them. Another might be giving them drugs through a smaller bag hooked to an IV drip. In many hospitals, both were suddenly rationed.

Missing IV bags and missing pharmaceuticals seem like unrelated problems, a temporary disruption layered on top of a longstanding problem. But in fact, they are unavailable for the same reason. The United States has allowed the manufacturing of most of its drugs and medical devices to drift offshore, at the end of long, thin supply chains….

This ought to be a matter of national security. So far, it’s not.

Most people don’t have contact with the ongoing drug and IV shortages, so they can come as a shock. “My wife’s nurse had to stand for 30 mins and administer a drug slowly through a syringe because there are almost no IV bags in the continental US anymore,” Ben Boyer, a former TV executive who lives in San Diego and whose wife is undergoing chemotherapy for brain cancer, tweeted on December 28…

The last US factory making penicillin closed in 2004Only 10 percent of the generic drugs used in this country are made here. Four-fifths of the active ingredients in American pharmaceuticals come from somewhere else, mostly India and China. If anything disrupted delivery of a critically needed drug—a process line collapsing in a factory, a typhoon fouling the path of container ships—supplies would run short, the manufacturer would be far out of US jurisdiction, and there would be no domestic alternative

Supply shocks aren’t only caused by natural disasters. As FDA commissioner Scott Gottlieb wrote at Forbes in 2010—after leaving the Bush-era FDA and before joining the Trump administration—Canada and Australia prevented flu vaccine manufacturers in those countries from filling US vaccine orders in the 2009 H1N1 influenza pandemic, effectively nationalizing the shots. Those orders represented 5 percent of what the US had contracted to buy that year—but by a stroke of fortune, the 2009 pandemic was so mild that most of the vaccine went unused, and the shortage was not noticed…

According to federal data, only 5 percent of the more than 230 million surgical masks and 30 percent of the more than 20 million respirators bought by American health care each year are made in the United States. The rest are made abroad, mostly in factories in Mexico and China. If a flu pandemic began and borders closed, there is no guarantee those masks would be delivered. The 2009 pandemic began in Mexico. China, historically, is the source of most new flu strains.

This is a failure of both industrial policy and trade policy: the U.S. should be able to provide its own medical equipment. We will need surplus capacity, as ‘just-in-time’ supply chains are no good when we need to ramp up production quickly–we can’t build factories on the time scale on which disease happens. It would probably help too, if we took monopoly power and price fixing a bit more seriously too–issues with saline (not to mention insulin) began well before the devastation in Puerto Rico.

I’ll be the first to admit that trade policy is very complex, but I wonder what our discussions about trade and industrial policy would be like if they incorporated or, Intelligent Designer forbid, focused on medical needs. We might approach the problem very differently, and not elevate low prices to the extent we do now.

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3 Responses to Medical Supply Chains And Industrial Policy

  1. Felicis says:

    Here’s a crazy thought – government factories that make these things, build them in the rural areas that have the worst unemployement, at least one in every state – any generic drug or difficult to find item – sell at cost plus and require medicare (or better, the nationalized health care system) to purchase from the cheapest supplier.

    But I am a dirty communist.

  2. John Magoun says:

    Great angle on the import vs domestic debate. I’m curious: is there any record of anyone in a position or power or advice noticing the off-shoring of vital medical supplies over the past 20 years, raising objections or recommending a more protective policy at the relevant meetings, and being shot down or told it’s not a big deal?

    In other words, have the last three administrations, of both parties, been completely blind to this type of national security analysis of our economy? Or was a it a series of considered decisions taken after well-informed internal debates?

  3. The long, thin supply chains are not a bug but a feature. The purpose of offshoring is not to reduce costs — it has the opposite effect. The purpose is to export, diffuse, and confuse accountability. To a businessman, that is better than cash.

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