medical devices – The OM Blog by Heizer, Render, & Munson

OM in the News: China’s Chokehold on Medical Supplies

Alarmed at China’s stranglehold over supplies of masks, gowns, test kits and other front-line weapons for battling the coronavirus, countries around the world have started to set up their own factories to cope with this pandemic and outbreaks of the future, writes The New York Times (July 6, 2020). But when the outbreak subsides, those factories may struggle to survive. American companies have been reluctant to make big investments in fabric manufacturing because they worry that mask demand will be temporary.

China, however, has laid the groundwork to dominate the market for protective and medical supplies for years to come. Its market grip is a testament to its drive to dominate important cogs in the global industrial machine.

Before the pandemic, China already exported more respirators, surgical masks, medical goggles and protective garments than the rest of the world combined. Beijing’s coronavirus response has only added to that dominance. It increased mask production nearly 12-fold in February alone. That is 5 times what China could make before the outbreak, and 15 times the output of U.S. companies even after they ramped up production this spring. The Chinese government played a major role in this year’s medical-equipment build-out with cheap land, subsidies, and a demand that that its own hospitals buy locally.

The U.S. has begun a push for the federal government to buy American-made pharmaceuticals and medical supplies. Likewise, France pledged to produce homegrown masks and respirators by the end of this year. But Chinese pharm companies supply 40-45% of heparin (a blood clot medicine), 70% of acetaminophen, and over 90% of antibiotics, vitamin C, ibuprofen and hydrocortisone to the U.S. About 80% of the active ingredients used in U.S. drugs also come from other countries.

Thus, it begs asking: Is it time for America to take control of its pharmaceutical and medical production?

Classroom discussion questions:

This article suggests risks in outsourcing. Relate this to the pandemic.
How does the theory of comparative advantage stand up in this situation? (See Ch. 2 of your Heizer/Render/Munson text).

OM in the News: Why the Richest Nation Can’t Get You a Face Mask

The U.S. is scrambling for surgical masks

Over the course of the past 50 years, the U.S has organized its economy following the theory of comparative advantage (see Ch. 2 in your Heizer/Render/Munson OM text). That means outsourcing to whatever external organization can provide the good or service at the best price. For much of this half century, the most cost-efficient strategy has been outsourcing to Asia. But outsourcing the wrong activities can be a disaster, as we now see in the coronavirus epidemic.

Critical supplies like medical equipment, pharmaceuticals, and food have been outsourced to China. “Most Americans know their iPhone comes from China but they do not know that more than 80% of all of their antibiotics, vitamin C and tilapia, 50% of their cod and apple juice, and 34% of their mushrooms come from China as well,” says one OM professor .

So I guess we shouldn’t be surprised by The Wall Street Journal headline (April 2, 2020): “Why the Richest Country on Earth Can’t Get You a Face Mask.” Indeed, Americans are asking why the most technologically advanced nation in the world can’t provide its citizens and health-care workers with lifesaving medical equipment.

Years of underinvestment in pandemic planning is a big part of the answer. But as in the pharmaceutical sector—highly dependent on Chinese and Indian producers—a reliance on global supply chains is also making life difficult for Western hospitals struggling to source gear. 85% of global medical mask-production capacity is in China. It is also a major producer of the polypropylene fibers that filter out dust and pathogens in the N95 respirators medical professionals rely on. The U.S. said in early March that it has only about 1% of the medical masks it would need to combat a year-long epidemic.

When the pandemic ends, one of the enduring changes it causes could be a major reassessment of complex global supply chains for critical medical goods.

Classroom discussion questions:

What are the advantages of outsourcing?
Why can’t the U.S. produce the billion masks it needs this year?

OM in the News: Your Smartphone Will See You Now

New smartphone tools, like blood pressure monitors, aim to give more power to patients

Over the past decade, smartphones have radically changed many aspects of our everyday lives, from banking to shopping to entertainment. Medicine is next, writes Dr. Eric Topol in The Wall Street Journal (Jan.10-11, 2015). With the smartphone revolution, an increasingly powerful new set of tools—from attachments that can diagnose an ear infection or track heart rhythms to an app that can monitor mental health—can reduce our use of doctors, cut costs, speed up the pace of care and give more power to patients.

Let’s say you have a rash that you need examined. Today, you can snap a picture of it and download an app to process the image. Within minutes, a computer algorithm can text you your diagnosis. That message could include next steps, such as recommending a topical ointment or a visit to a dermatologist for further assessment. Smartphones already can be used to take blood-pressure readings or even do an EKG.

Now, at any time of day or night, you can get a secure video consultation with a doctor via smartphone at the same cost (about $30-$40) as the typical copay charge. Deloitte has forecast that virtual physician visits (replacing physical office visits) will soon become the norm– that as many as 1 in 6 doctor visits were already virtual in 2014. Even bigger changes are in the works. Using wearable wireless sensors, you can use your smartphone to generate your own medical data, including measuring your blood-oxygen and glucose levels, blood pressure and heart rhythm. And if you’re worried that your child may have an ear infection, a smartphone attachment will let you perform an easy eardrum exam that can rapidly diagnose the problem without a trip to the pediatrician.

“We’re often told that the U.S. faces a big looming shortage of physicians,” writes Dr. Topol. “The expansion of DIY medical capabilities certainly challenges that notion: We may end up not having a physician shortage at all.”

Classroom discussion questions:
1. How can the smartphone be used in other service industries?
2. Why is this an important operations tool?

OM in the News: Clustering in Warsaw, Indiana?

Here in Orlando, we well understand the concept and power of “clustering,” one of our topics in Chapter 8, Location Strategies. Our cluster of theme parks, including the six Disney facilities, two Universal Studio parks, Lego Land, Sea World, Gator Land, and many smaller tourist destinations, employs over 100, 000 people. But one of the more unusual of all the industry clusters in the world exists in Warsaw, Indiana.

“A $13.35 billion deal to combine two medical-device makers was big news on Wall Street,” writes The Wall Street Journal (April 25, 2014)—”and also in this 14,000-person city where both companies are based, which proudly calls itself the Orthopedic Capital of the World.” The deal positions Zimmer, based in Warsaw since 1927, to become the second largest company in the $45 billion global market for artificial knees, hips and other orthopedic and bone-mending implants. In addition to Zimmer and Biomet, medical-device maker DePuy Orthopedics is among the 48 medical equipment firms based in Warsaw. The industry got its start in that town in 1895 when DePuy’s founder, a Canadian pharmacist named Revra DePuy, came up with the idea of making flexible splints to replace the wooden barrel staves then used to set broken bones. The company he created eventually spawned others, as people left to start competing firms.

One of the nation’s last company towns, Warsaw is a microcosm of 1950s Detroit, where manufacturing workers with a high-school education are able to live middle-class lifestyles. Some 21% of workers in Warsaw’s county were employed in medical-equipment and supplies manufacturing in 2012. The average annual salary of workers in the industry was $80,300, compared with $44,600 across all industries in the county.

Classroom discussion questions:

1. Why are so many medical device firms located in Warsaw?

2. Why is the takeover so complex for the city?

OM in the News: J&J’s Hip Implants Run 40% Defective

For a great case study in OM ethics and quality, the New York Times (Jan. 26, 2013) reports that an internal analysis conducted by Johnson & Johnson not long after its 2010 recall of a troubled hip implant (called the A.S.R.) estimated that the all-metal device would fail within 5 years in nearly 40% of patients who received it. J&J never released those projections for the device. And at the same time that the medical products giant was performing that analysis, it was publicly playing down similar findings from a British implant registry about the device’s early failure rate.

The company’s analysis also suggests that the implant is likely to fail prematurely over the next few years in thousands more patients in addition to those who have already had painful and costly procedures to replace it. The J&J analysis is among hundreds of internal company documents expected to become public as the first of over 10,000 lawsuits by patients who got an implant goes to trial this month. The episode represents one of the biggest medical device failures in recent decades. Last year, the company took a $3 billion special charge related to medical/legal costs associated with the device.

The A.S.R. belongs to a once-popular class of hip implants in which a device’s cup and ball component were both made of metal. Surgeons have largely abandoned using such devices in standard hip replacement because their components can grind together, releasing metallic debris that damages a patient’s tissue and bone. Hip implants, which are generally made from metal and plastic, often last for 15 years before they wear out and need to be replaced. The early replacement rate is typically 1% after a year, or 5% at five years.

J&J decided in 2009 to sell off its A.S.R. inventories just weeks after the F.D.A. demanded safety data about the implant. But the F.D.A. said J&J could not dump the device in the U.S. because of concerns about “high concentration of metal ions” in the blood of patients who received it.

Discussion questions:

1. Ask students to follow and report on the current status of the lawsuit.

2. What are the ethical implications of J&J continuing to sell the implant after British and F.D.A. studies warned of its dangers?