Michael Trick's OR Blog and Logistical Planning for a Bird Flu Pandemic

I am off to Rio very shortly, and I will be away for two weeks.

While I am on the road, I will complete up some long incubating posts, but, before I go, I want to post up a quick link to Michael Trick's OR Blog.

In one of his recent posts, Michael mentions the dreadful state of US Emergency rooms, and --- in essence --- he puts out the call for logistical help from the OR community.

I'd like to echo the sentiment from the "bird flu planning community."

Logistical nightmares are at the heart of every H5N1 pandemic senario anyone has ever concocted, yet it is hard to tell if anyone in the OR community is currently looking hard at this.

Isn't it clear that pandemic logistics is a research area that deserves encouragement at every level?

Let's at least catalog what is being done --- or not being done!

Paris Hilton vs Bird Flu: How Do the Internet Mindshares Compare?

One of the most human of qualities is to wonder what other people are thinking.

It's a given that readers of this blog often consider the ways that an H5N1 pandemic are likely to impact society. We have taken the task as our own. Still, it's plain as day that not too many have a comparable level of concern.

So, How About the Average Joe?

In the past, it would have been very expensive to try to compare how much mindshare the world places on "Bird Flu" versus some other topic of pressing world concern --- say, for example, "Paris Hilton."

An honest survey would cost at least several grand. Moreover, even if one is willing to pay, it is not easy to line up a competent polling firm.

Now, amazingly enough, you can get a very useful indication for free.

What's the Trick?

The Digital Point Keyword Suggestion Tool will answer for you the question:

"Today, how many people did an internet search for 'name your phrase'."

For the moment, let's not second guess how Digital Point designed their box. This is intriguing technology, and it deserves a careful look. Still, let's first just see if this nifty tool tells us anything interesting about public concern about bird flu.

So, What Happened?

Pessimist though I am, I was still surprised by the results: (1) "Bird Flu" --- 5,900 searches per day and (2) "Paris Hilton" --- 110,000 searches per day.

Bottom Lines?

Many people who have concerns about the possibility of a bird flu pandemic will have asked themselves, "Am I the only one concerned about this?" Well, the first inference is "Yes, there are many concerned people, but almost 19 times as many are concerned about what's up for Paris Hilton."

In other words, bird flu still has quite a trivial public mindshare.

The second inference is that we now have a stunning new way to use internet search data to help us understand public opinion. For me, this second inference is HUGE.

Entire careers have been made out of less --- much less.

Hand Hygiene: The Boring Way to Save a Few Hundred Thousand Lives (or More)

Donald Goldman, M.D. began his article in the New England Journal of Medicine with the true story:

"A new mother sits by her tiny, premature baby in a neonatal intensive care unit. She watches as a physician touches the baby without first washing his hands or using the waterless, alcohol-based hand antiseptic just a couple of feet away. A few minutes later, a nurse and then another doctor also fail to perform these basic procedures. When her baby was admitted to the unit, the mother was told to remind caregivers to wash their hands, but only after witnessing repeated failures does she muster the courage to speak up about the practice she thought would be routine. By then, her baby has acquired methicillin-resistant Staphylococcus aureus (MRSA) probably transported on the hands of a caregiver who had been examining other babies who are colonized with MRSA. A few days later, MRSA invades the baby's bloodstream; it eventually proves fatal. Such preventable infections, caused by the failure to practice hand hygiene, are far from rare, and they occur in many of the finest neonatal intensive care units in the United States."

Beyond Neonatal Care

The challenge of this blog is not to improve neonatal care, but to think through the likelihoods, possible evolutions, and ultimate denouement of an H5N1 pandemic. Still, there are implications of Goldman's report that are directly relevant:

1. Even among experts and even in highly aware environments, there are repeated incidents of faulty hand hygiene that cost lives.
   
2. Given this and given a pandemic influenza, how many lives might be saved by improving the hand hygeine of the "average Joe"?
   

A Measure of the Benefits

There are only a few things that one can do to increase the probability of living to see the other side of a HPAI pandemic:

1. Social distancing --- the more the better. Self-quarantine is best.
   
2. Hand hygiene
3. Use of N95 (or better) masks when exposed to outsiders
4. Appropriate use of antiviral drugs, such as Tamiflu or Relenza

Each of these measures is capable of cutting your mortality risk by a substantial factor. Naturally, the sizes of these factors are subject to debate, and the realized values will depend on the features of the pandemic.

Anyone can place a bet. If I were to put my money on the values for the discount factors, I would suggest:

1. Social distancing is HUGE. It should at least buy you a factor of 3 and might buy you a factor of 10 depending on the nature of the pandemic and how well you can genuinely isolate yourself.
2. Hand hygiene is likely to buy you a factor of 3 to 5. If you cannot achieve serious social distancing, this is a very important factor.
   
3. Masks are useful, but even if appropriately used they may only buy you a factor of 2. Most likely, they will buy you less.
   
4. Finally, antivirals have been observed to cut serious side effects of 'regular' flu by a factor of 5 or so. Many people expect this ratio to hold up in the case of H5N1. Governments around the globe are making serious bets that this factor, or a larger one, will apply.

Bottom Line

People who can effectively execute all of these defenses will probably be able to cut their risk by a factor of 120 to 400. In the commonly assumed 'worse case' model with 2% US fatality rate, this would cut your probabilities to perhaps about one chance in 10,000.

This is a risk one can live with.

----------------------------
Many Thanks to Dean Foster who provided the reference that motivated this note.

Bird Flu Found in Philadelphia

A Philadelphia live fowl market was closed Wednesday after discovery of bird flu in the inventory.

The press release from a department of agriculture hit the web via brief report from CattleNetwork.com. I am sure this site has never had so many hits from Philadelphia.

To be sure, the flu in question was not H5N1.

What's the Subcontext?

It will be interesting to see what comes of this storm in a tea kettle. If we see more than the tiniest of ripples, then we get some sense of the gale force winds and waves that will come from serious news about H5N1 in an American city.

Paranoid Products: Are We There Yet?

Let me be the first to assert: I am not paranoid about bird flu --- just cautiously pessimistic.

Besides, why shouldn't one make regular use of products like alcohol-based hand cleaner? The new hand cleaners feel good, and they make good health sense even in a non-pandemic world.

Going a step further and acquiring N95 masks, Tamiflu, and a few months of emergency food supplies --- well, these are more substantial actions. Nevertheless, there is nothing in this list that has not been strongly advocated by one or another of the world's leading health experts.

A Product Too Far?

Still, there are products that do go too far, and I am not talking about HEPA air filtering systems for the home. HEPA systems are expensive and perhaps over-the-top, but one can still make a solid argument for them. At a minimum, seasonal allergy sufferers are likely to get valuable help.

No, to qualify as a paranoid product, it has to be truly goofy.

Yes, candidates are starting to appear. One of these was recently reported at Strange New Products, one of my favorite sites. Are you ready?

Sanitary Handles for Shopping Carts!

The product post for July 04, 2006 observes that the Healthy Handle helps you push around a shopping cart without having to worry about getting germs on your hands. It's your first line of defense against the dreadful shopping cart-borne diseases.

The product review notes that "the red plastic handle can be slipped over a shopping cart's handle. When not in use, it can shrink down by pushing the ends together, like a telescope."

You've got to check out the picture via SNP's Perma Link: Sanitary Handle.

Fun to laugh at; insane to buy.

Public Debt and Government Bonds in a Pandemic

Conversation in the hallway:"Don't you think that a pandemic will drive up public spending, drive down the GDP, increase the debt-to-GDP ratio and thus have a negative impact on US Bonds?"

Well, while it is true that the debt-to-GDP ratio will increase, you have to look at the over-all net effect. A pandemic is very likely to prompt a classic "flight to quality" situation, which would increase credit spreads. Moreover, central banks around the world will do everything they can to preserve order, and their tool of choice would be to increase liquidity.

Debt-to-GDP in Perspective

There are good reasons to believe that the increase in the debt-to-GDP ratio is a much smaller order effect. For example, consider the current CIA Fact Book list of debt-to-GDP ratios. Using the 2005 data, the US ratio is an uncomfortably high 64.7%, but this is not the worst the US has seen. The ratio at the end of the Second World War was 120%. Also, this ratio is not bad in comparison with Japan with a current ratio of 170%.

To be sure, Japan's debt level does hamper its economy, and it should be reduced. The point is simply that if the US debt-to-GDP were to increase substantially in the event of an H5N1 Pandemic, then the long-term impacts on the bond market or economic activity would probably no worse than those of a "normal" recession.

Practical Advice

I am not a registered financial advisor, nor do I play one on TV. Still, I happily argue that if the H5N1 virus acquires efficient H2H transmission, then---

• Stocks will go down
• Credit spreads will widen
• Reserve currencies (USD, JPY, EURO) will appreciate vis-a-vis non-reserve currencies
• US Government Bonds will do very well
  

"It's hard to make predictions..."

And, as Yogi Bera continued, "especially about the future." Moreover, Yogi was right. In particular, it is hard to make a serious, scientifically defensible prediction of the arrival time of the next influenza pandemic.

Still, the uncertainty of the arrival time should not cloak the fact that some subsequent economic developments are essentially forced. Specifically, I would argue that price appreciation of US Government bonds is as close to a "lock" as one is likely to find in a financial lifetime.

Chinese Chickens Smuggled to Troy, Michigan? What's Next?

Poultry is cheap and China is far away. You'd think that these facts alone would guarantee that smugglers could find better things to do than illegally import poultry meat from China to --- say --- Troy, Michigan.

Nevertheless, according to a report in the Detroit Free Press, the U.S. Department of Agriculture has seized almost a ton of illegally imported birds from Troy food wholesaler Tinsway Co, a supplier to about 300 Chinese restaurants and Asian grocery stores in Michigan.

A Bigger picture

What moves this bizarre event beyond the "Stupid Crooks" department is the way that the government bureaucrats handled the situation.

• The USDA destroyed the seized meat before testing it for flu virus --- or anything else. After all, they "knew it came from an infected area."


• The USDA waited two weeks before notifying the State of Michigan of the seizure.


• Once notified, Michigan inspectors then scurried around searching more than a hundred restaurants and grocers that "might have been" customers of Tinsway Co. Finally, according to the investigators, no illegal meat was found.

Cockroach Theory: There's Never Just One

It's hard to see how anyone can make a buck by importing tainted poultry from China. Still, if one smuggler can find a way to make a go of it, then so can others. Moreover, in a world filled with all kinds of scary contraband, hunting down tainted poultry importers will not make it to the top of many bureaucratic to-do lists. Most of the Tinsways of America will continue to practice their chosen profession, and there is remarkably little that can be done about it.

P.S. The USDA revisited Tinsway Co two weeks after the original raid. They found 150 pounds of illegal goose guts and pig carcasses. The license of Tinsway Co has been revoked.

Tamiflu Tricksters --- On-Line Pharmacies "Show But Don't Tell"

Current public health policy in the US discourages physicians from writing prescriptions of Tamiflu for people who want to have it on hand case of an H5N1 pandemic. This is a defensible policy, but it has side effects.

For starters, many decent citizens will look for ways around the policy. In particular, they'll look for Tamiflu on the internet, and this can introduce them to some shady practices.

But You Can Find It, Right?

Pop"Tamiflu" into Google and you will see hundreds (if not thousands) of internet pharmacies offering what you want. Unfortunately, if you look for those that do not require that a prescription in hand, then you filter out all the trusted household names like Wal-Mart and Drugstore.com. Firms that are left have chosen to work at the borderline of legality.

A Best of Breed?

How do you choose among such frontier vendors? Like all frontier dealing, it is dangerous, but some paths are better than others.

First, does your candidate offer a telephone number? If not, then you can look elsewhere, so let's suppose your guy does have a telephone number. As I suggested in an earlier note, pop that number into Google and stand back. You will often be surprised to see dozens of clone pharmacies with the same number. These are not forthright folks, and they can be skipped.

Are we now left with just a few honest wild west Libertarians who have built their businesses on the legal frontier because they think that the FDA is a mindless bureaucracy? Whoa --- not so fast cowboy.

Evolution at Work

Until just a short while ago, you might have had hope, but now there is a new trick in town. When you go to copy that telephone number, you can't copy it with a click of your mouse. What gives?

The phone number you see was not put on that page in the traditional way. What you see is an image (a GIF or JPG) --- not a telephone number at all --- just a picture of a telephone number.

No Problem?

"Hell," you say, "I'll just put the number into Google by hand." Well, yes, you can put it into Google, but don't expect the interesting results you got last time. This time you probably won't get any Google hits.

You might hope that this is a good thing, but, sadly, it is not.

Oh, Just Wait!

You --- and Google --- have been tricked. Just as you could not copy the phone number with you mouse, neither could Google "read" the phone number off the page and stuff it into its index.

It just saw the equivalent of the message "put picture of phone number here" --- and Google can't read inside a picture. This is an example of cloaking, which is the generic term for an under-handed trick where a web site shows the human visitor one thing and shows another thing to search engines like Google. Here the human sees a telephone number, but the search engine does not.

Bottom Line: The pharmacy you have found could have a zillion clones --- and this time Google will not (so easily) let you discover this.

What's a Person to Do?

Those who choose to purchase Tamiflu outside of normal channels will be forced to count on the councel of their own community. Since the dawn of time, personal referrals have been the gold standard when one does not have the full protection of the law. In the long haul, you've got your friends, and not much else.

Guard to Enforce Quarantine --- Time to Scram?

Lindsay Beyerstein argues in her piece "You and Whose Army? Flu and Quarantine" on the blog Majikthises that military quarantine would probably spread the flu as citizens flee to escape quarantine. Her feeling for the situation is put in a useful --- if rhetorical --- question: "Wouldn't you get out of town if you heard that your county was about to be locked down by the National Guard?"

To be sure, I would be taken aback to hear that the National Guard had been called to Philadelphia for any reason. Still, is it credible that the Guard could be asked to enforce a quarantine?

One Step at a Time Please

Let's put this possibility into perspective. What is likely to happen in an 1918-level H5N1 pandemic before a city or state calls on the National Guard?

Naturally, influenza would have to be established in the community. That's a given. For sure, this means that the local government would have taken all of the easy steps it could take. Schools would have been asked to close. Most public gatherings would have been banned --- first on a voluntary basis, then --- if necessary --- by municipal order.

Hospitals would have been reorganized on the principles of triage. Flu patients would be sent to facilities set up in schools and public buildings. Great efforts would have been taken to keep hospitals as free as possible of the influenza virus. Some hospitals would have failed (and essentially gone into meltdown), but many hospitals would succeed in keeping infections under control.

Public transportation would continue to work, although there would be problems. Many regular travelers would avoid public transportation as much as possible. Buses and subways would run, but absenteeism would cause frequent and worrisome interruptions. More people than usual would want to drive, but gas lines would be long and supplies uncertain. Self-quarantining would be common. Many parents would turn to home schooling --- one of the wisest actions at their disposal.

These are events that are almost certain to take place long before any situation could evolve where a state or municipal official could imagine calling in the National Guard.

But When the Guard is Called?

If and when the National Guard is called upon, it will almost certainly be for

1. Prevention of looting
   
2. Protection of the distribution of food and water
   
3. Protection of the channels of distribution, especially trucking and warehousing
4. Assistance with sanitation, including mortuary functions
   

As a Philaldelphian, I would welcome these services. Moreover, I do not think that it is sensible to expect any others.

Forced Quarantines --- Just Not in the Cards

During their two hundred and thirty years, US governments (city, state, and federal) have done their share of stupid things. Nevertheless, forced quarantines should not be on anyone's short list of the stupid things that our governments are likely to do in the event of an influenza pandemic.

To be sure there are government blunders and blind spots that we should worry about. For starters, we should be worried that our public water facilities have their hands tied by short-sighted regulations that would force them to shut down water supplies because of arbitrary standards which would be impossible to meet in a pandemic. Such feasible disasters --- and the actions we can take to forestall them --- are topics for later posts.

Back to the Original Question

How would I respond to Beyerstein's rhetorical question? If I heard that the National Guard was imposing a quarantine on Philadelphia, what would I think? One can never say for sure, but my best guess is that I would think that the report must be wrong. I suppose that I would be a little worried, but I also believe that I would be reasonably confident that a correction would soon be announced.

Forced quarantine is infeasible (and largely irrelevant) under any scenario one can credibly imagine. If the Guard is on the way, it's on the way for reasons that are much more practical than quarantine. We should be relieved upon its arrival.

H5N1 in North American Birds Will Send Economic Feathers Flying

More than a year ago (4-14-05), The Economist concluded that H5N1 influenza had become endemic in the domestic and wild fowl of Asia. Moreover, one can now calculate that even ignoring the current costs and consequence of human infections, the impact of avian flu on the economies of Vietnam and Thailand has been substantial.

Economic Cost of Bird Flu for Birds

The graphics that US magazines and newspapers use to illustrate bird flu stories tend to leave the impression that the large scale industrial model for poultry production is not used in Asia. This is misleading. Industrial poultry production is used widely in Thailand and Indonesia, and it accounts for a substantial fraction of total poultry production there.

Still, the US is different. Here the industrial model accounts for almost all poultry production. One could hope that this difference means that emergence of H5N1 in North American wild fowl will have little economic impact.

It's Safe to Eat, Right?

When H5N1 is found in North American wild fowl, one can be certain that every news program in the nation will reassure the public that domestic fowl are still safe. Media and PR campaigns from firms like Tyson's and McDonald's will reinforce the story. Even peer pressure will be at work. Anyone who confesses to being a little worried about chicken will be hooted down by friends who have read the media reports.

Oops, There's Not a Chicken in Every Pot

But you know what? The smart money says that chicken sales will still sink. Money managers and others are counting on the old "Don't think of an elephant" syndrome. As millions of us make our own individual consumer decisions, a decent fraction of us will move away just a bit from our usual behavior. Somehow the phrase "I think I'll have roast beef," will come just a little more quickly to a few more lips.

Do the Markets Know This?

This effect has been discounted by stock prices of poultry producers and other firms with products that are tied to chicken consumption. In many cases, the current discounts are substantial. It's anyone's guess whether the current discounts are too light or too heavy.

What happens when we hear the news? Unfortunately, this is not likely to be one of those situations where prices of depressed stocks rally upon the confirmation of the worrisome event.

After the first report of H5N1 in North American wild fowl, one thing is certain. The first report will not be the last. In every media venue, reports (and discussions of reports) will be standard fare for months, perhaps years.

During this long period, our rational minds may often remind us that H5N1 in the wild fowl population has nothing to do with the safety of well-inspected, well-cooked domestic chicken.

Unfortunately for poultry producers, the mind that tells us what to eat is not always the rational one.

Hospitals and HMOs in a Bird Flu Pandemic

According to conventional wisdom, the businesses that would be hardest hit in the event of a bird flu pandemic (or even a pandemic scare) are those that aggregate people:

1. Malls and other forms of bricks-and-mortar retail
2. Entertainment venues, including movie theaters and sports facilities
   
3. Restaurants and bars
4. Transportation of all kinds, especially air travel and cruise lines

Are these really the most vulnerable sectors? How about hospitals and HMOs?

There are two scenarios one has to consider when imagining how a hospital will experience a bona fide pandemic. Hospitals with a rigorous pandemic plan and a strong management team will face a much different future than those without a sound plan or those whose management falls prey to the "fog of pandemic."

Poorly Prepared Hospitals

A hospital can easily blunder into a disaster. Consider a hospital that simply keeps filling beds as serious flu cases arrive. This is not an unnatural thing to do; it's what any hospital would do in the case of a train wreck.

Unfortunately, if a hospital admits an overload of influenza cases, there can be dangerous consequences. Many people at the hospital will understand the dangers, but without a good plan and good management, it is still easy to fail to react quickly enough or definitively enough.

Things can easily get out of hand. With just a little bad luck, influenza can spread throughout the hospital infecting both staff and non-influenza patients, including maternity patients for whom influenza is especially life threatening. Also, without a huge amount of planning and pre-event education, there will be substantial absenteeism at all levels. If the situation becomes bleak, the effects of attrition and desertion can send the hospital into total meltdown.

This is a horrible vision, but, for the hosptial as an instituion, the aftermath is also bad. Law suits are almost certain to destroy whatever remains of the hospital's finances.

Best Practice Hospitals

Even a hospital with a good plan and a strong management team can fall into traps, but such hospitals will have much better chances of avoiding disaster. Temporary facilities in near-by schools or other public buildings will be used to segregate the influenza patients from all other hospital patients. Staff at all levels will be provided with Tamiflu or other antiviral prophylaxis. Staff will have clear evidence that should they become ill, they will receive effective, quality care. There will be absenteeism, but there is a chance of keeping it at controlled levels. Good media relations and self-evident professionalism can give courage to volunteers to come forward to help the hospital through the crisis.

What Are the Business Consequences?

With the possibility of a pandemic on the horizon, this seems to be a bad time to be deeply invested in a small private hospital, even if one has confidence that it will manage to attain best practice. In any pandemic scenario, a private hospital will face substantial losses from the deferral of almost all of its traditional for-profit business. Such hospitals will also suffer from substantial under-compensation for the public services which they will surely provide.

University hospitals are not exempt from the disaster scenario. Most will have a sensible plan, but for many their decentralized managements will make it difficult for them to execute the plan. The challenge is especially serious for large teaching hospitals in urban environments.

In the case of 1918-level pandemic, a hospital like that of the University of Pennsylvania will be faced with huge political and community pressures. It will take a exceptionally clear manegerial vision to do what must be done to avoid disaster.

How will HMOs do Financially?

Because of the litigation that is likely to follow a pandemic, if an HMO has even one unit that goes into meltdown, then the HMO is at risk as a whole. At a bare minimum HMOs will face years of legal defense. Settlements, as always, are uncertian, but the odds are that they will be substantial.

If a pandemic develops, HMOs are likely to suffer much more than holdings like cruise lines or retail malls. The cruise lines and malls will recover much of their lost business when the pandemic abates, and they face no substantial post-event risks.

HMOs will have excessive costs during the pandemic, and then the will face extensive litigation after the pandemic. Certainly, HMOs will try to pass these costs along to participants through increased fees in subsequent years, but this will not be easy --- especially if a local competitor has less legal exposure. Those HMOs with numerous meltdown units will lose much of their customer base when they try to increase rates to cover losses from the pandemic.

In the years following a 1918-level pandemic, some currently health HMOs can be expected to be pushed into bankruptcy --- or at least into forced consolidation.

On the other hand, financially healthy retail REITs and financially healthy cruise lines are unlikely to go bust in the wake of an influenza pandemic. Lost business will cause such firms big cashflow problems, but there are balancing forces. Interest rates are almost certain to decline, and creditors are bound to understand that the cashflow problems are not premanent.

Counterfeit Drugs --- Especially Tamiflu

Drug counterfeiting is very big business. The World Health Organization has stated that it expects worldwide counterfeit drug sales to reach $75 billion by 2010, which would just about double their estimates of 2005 counterfeit drug sales.

If the counterfeiting was just for Viagra and Rogaine, then perhaps one could say that this fraud just exploits misplaced vanity. While it is true that vanity drugs are widely counterfeited, so are many drugs that have important heath consequences, such as those needed by HIV patients to minimize the risks of infection and those used by chemotherapy patients to help them cope with chronic anemia.

Tamiflu Is a Sitting Duck

The antiviral Tamiflu is the drug of choice for treatment and prevention of influenza infection. It has a profound role in global pandemic preparations, and governments throughout the world have create substantial stockpiles of the drug. Still, only a few nations (such as Kuwait) have enough Tamiflu on hand to provide for every resident. The US stockpile provides a course of treatment for only about 3% of the population.

In this situation it is natural for consumers to seek a private supply of Tamiflu for the protection of their family. A year or so ago, many physicians were willing to write prescriptions for patients who just wanted to have some Tamiflu on hand in case of a pandemic. Today, because of the established public health policies, most US physicians will no longer write such prescriptions.

This pushes many consumers to the internet and into the real possibility of purchasing counterfeit drugs. Where demand exceeds supply and where it is difficult to tell if a product is counterfeit, it is a law of economics that counterfeit products will be produced and sold.

Worse yet, once there is some established market for a counterfeit product the lure of large margins virtually guarantees that the counterfeiters will try to expand their markets. What is then the greatest market of them all? Nothing less than Hometown Pharmacy, USA .

The possibility of counterfeit drugs entering into mainstream distribution is a huge treat to public heath.

Current Defensive Measures

Many feel that the government has been slow to guard citizens against drug counterfeiting but actions are being taken. As of December 2, 2006 pharmaceutical distributors in the United States will be required to provide "pedigrees" for the products that they sell. That is, they must be able to provide a paper trail that confirms the proper custody of the drugs as wind their way from manufacturer through a distributor and a retailer on to the consumer.

The Next Level of Defense: RFID Supply Chain Tracking

For reasons of cost saving, RFID has been actively promoted by major retailers such as Wal-Mart, but it is in pharmaceutical supply chains that RFID may offer the greatest public benefit. With the use of RFID the chain of custody of a pharmaceutical can be maintained with very little human interruption from the point of manufacture to the point of consumption. There is no doubt that this will be the technology of choice. The use of RFID is cheap and inevitable. Firms or lobbyists choosing to resist this transition simply paint themselves as fools.

One Internet Trick for Spotting Untrustworthy Merchants

If after all due consideration, you still decide to buy Tamiflu over the internet, then there are some precautions you can take. First, if the site you are considering does not have a telephone number, just forget it --- that is not the internet pharmacy for you.

There is a second, more subtle, check that is also informative. Take that listed phone number from your candidate pharmacy, copy it into the Google search box, and stand back. Do not be surprised it you find that literally HUNDREDS of internet pharmacies are using the same telephone number.

While there is a logical possibility that these "pharmacies" sell only genuine products, any internet business that feels the need to create hundreds of slightly camouflaged clones --- well --- one might say that they that have not shown an abiding commitment to clear, honest, and forthright business practices. You may want to continue --- or perhaps discontinue --- your search.

Probability of Pandemic --- When (If Ever) Will Experts Give Us a Number?

As a statistician (and a probabilist) I would greatly appreciate the work and courage of any influenza experts who would take on the challenge of putting a number on the likelihood of an H5N1 1918-level pandemic.

Many public health officials have made statements in the style of "Not a matter of IF but of WHEN." These are surely true, and perhaps they are the most responsible statements one can make with the current state of knowledge.

Still, do these statements really help? That the sun will eventually evolve to a red star and vaporize the earth is an absolute fact of stellar evolution --- but so what? The sun's evolution offers no cause for concern on any human time scale.

For personal planning, what I and others like me would greatly wish is an estimate for probability of a pandemic in 2006, 2007, 2008, etc. This is, I believe, a rational desire, but is it a realistic desire?

Why Essentially All Experts Will Pass

They will decline from offering a probability estimate for good reasons, the biggest being that there is no established methodology for making such estimates. They could try speaking from the gut and just put a number on what they feel. Unfortunately, this is not likely to add much value.

• Without training in probability (and a gambler's good sense) a virologist (or other) is unlikely to be very good at making probability predictions --- even about bland day-to-day events, much less life changing events.


• Studies initiated by Amos Tversky and Daniel Kahneman and continued by many others suggest that almost everyone tends to treat 20% events as "impossible" and 80% events as "certain". About the only people who do much better at understanding long odds are those who make regular bets, such as actuaries, options traders, and bookies.


• Without data (and something like repeated trials) the only bases for probability estimates are futures market prices and the intuitions of informed individuals. Unfortunately, as I mentioned in an earlier piece on TradeSports, the current futures markets are too thin to be used. This leaves us with the experts.

Influenza experts have so far shied away from quantitative statements about the likelihood of a 1918-level pandemic, but after the usual not-if-but-when statement many experts have added something personal about the preparations they have taken for their families. This is a genuine measure of seriousness --- as are the expenditures that have been undertaken by governments. Still, these measures fall far short of a probability estimate.

Are Probability Estimates "Taboo"?

One question that has been asked is if probability estimates are taboo in the public health community. It certainly is not the custom to provide such estimates, and there is not even any evidence that they are encouraged.

This may be for good reasons. First, most consumers do not know what to do with a probability estimate, and, second, most experts do not know how to reframe their insight into an appropriate probability estimate.

How About Trying?

While I would encourage influenza experts to try to put their personal beliefs into the language of subjective probability, I would not think less of them if they simply said they could not. Moreover, though I would appreciate their efforts to form probability estimates, I would not bet the ranch that they would get it right.

People are great at probability estimates when they have the experience of repeated trials (Poker, Bridge ... even baseball), but with one-time events (or few-times events) humanity has no competence to estimate probabilities. Even retrospective estimates may baffle us. How close did Khrushchev come to launching his missiles during the Cuba crisis? The question has been discussed for forty years and we still have no honest answers.

What Would Be Ideal?

I believe that we already possess a rich enough scientific base for the probability estimation problem to be moved beyond the simple subjective probability estimates of individuals.

We know the mechanisms that matter --- shift, reassortment, etc., and there is substantial understanding of the kinds of changes that would be needed for current H5N1 strains to achieve an H2H efficient mutation. Mutation rates can be estimated --- or at least guessed by analogy from historical data on other viruses. Many --- but not all --- of the puzzle pieces are in place.

If a group of virologist and probability modelers gave priority to the task, we could obtain honest probability estimates. This would be useful now and useful in the future.


Reference:Tversky, Amos and Kahneman, Daniel,"The Framing of Decisions and the Psychology of Choice." Science v. 211 no. 4481, 1981.

Bird Flu Stock Scams!?

Mirror, mirror, on the wall --- who are the quickest acting entrepreneurs of all?

It takes time to build a business with a solid value proposition, but it doesn't take much more than a website to develop a fraud. Well, I suppose it also takes a certain willingness to "do the time if you do the crime," though the history of white collar crime suggests that the time need not be lengthy.

The possibility of an H5N1 pandemic is now calmly ignored by the great majority of citizens, but it fires the imagination of some people --- and not all of these are healthcare professionals. There are also scam artists who pick up on pandemic planning as a pointer to the "new new thing."

The NASDAQ is monitoring the situation, and they have issued an informative Bird Flu Stock Scam Alert. Like many consumer alerts, this one preaches to the choir. The suspicious folks who regularly read scam alerts are not exactly the scammers prime targets. Still, there may be the rare bird or two who will be saved just in the nick of time.

Market professionals, investment educators, and even individual investors may want to sign up for one or more of the NASDAQ regular newsletters.

Flu Scenarios --- Are You Scared Yet?

Conventional wisdom among bloggers is that one should not send readers away at the beginning of an article. This rule makes good sense, but I am going to break it. There is a beautifully prepared four-page cover article from Risk and Insurance that is worth your attention. In particular, at the end of the article there is a table that you may want to pin to a wall. It provides a clear half-page summary of five scenarios that deserve a serious slice of the collective mindshare.

After you have read "Model Apocalypse" by Matthew Borodsky please return for a discussion of the underlying methodology.

Scenario Development --- What is It and How is It Used?

In a nutshell, scenario development is a matter of writing down (or just considering) the way things might work out. This is an ancient process that is quite familiar to anyone who has ever played chess or read a biography of Napoleon.

It is natural to hope that computers could improve this process, and in some limited domains they can. When I was an assistant professor, I could beat any chess playing program in the world; now some thirty years later I play chess about as well as before, but there are shareware programs that can beat me 100 games in a row. This progress has been achieved by efficient computation of a vast number of feasible scenarios.

In war gaming there has also been substantial --- though less definitive --- progress. However one feels about the wisdom of the Wars in Iraq, it is plain that military planning took place with vastly more depth and detail than could have been imagined by commanders of an earlier generation.

Computers and Scenario Generation

How does one design a scenario generator? If we leave aside for the moment a few bells and whistles, we see that the design process is both simple and highly limiting:

• You consider a collection of discrete and continuous variables that your core scientific knowledge tells you to be relevant to your scenarios. In this case, the truly key variables are contagion rates and mortality rates. The other event variables that appear in the table on the last page of the Risk and Insurance article may seem to add realism, but with a little thought they will be seen to be largely cosmetic.
• You then generate scenarios using either cross tables (if you have few variables) or event trees (if you have many variables).

When you strip the process down to its basic elements, you come to grips with the lamentably GIGO nature of scenario generation. We have some basic possibilities for infection rates and mortality rates that are not garbage, but when we start to go beyond these --- well, that's when the garbage starts to show up.

Scenario Development --- What Went Wrong Here?

In chess or even in military conflict, computers help us deal with massive detail. In chess the breakthrough came when investigators at IBM decided to approach the problem via direct, brute-force computation. Earlier attempts to use clever human-like heuristics had all ended in failure.

In the pandemic flu situation we (1) have no reliable detail and (2) no more complexity than one can handle with a few index cards. In such situations, computers cannot perform more effectively than creative well-informed individuals.

Finally --- Waterman's Paradox

In a Wharton seminar not long ago, Richard Waterman isolated an important behavioral phenomenon that I have come to call Waterman's Paradox. Richard talked from the heart about his own consulting experience; I'll put his story in a few lines:

• As a consultant you build a model, run it, and --- by luck of the draw --- you happen to get results that you know your clients won't like and won't believe.
• You say to yourself "This can't be right." You then change the model.
• After another loop (or two) through this process, you finally get a model that is consistent with the original intuition of your clients. Incidentally, this tends to happen about the time your clients start asking for their report.
• With some relief that you now have a model that confirms what everybody believed at the beginning, you say to yourself "This looks right" and you start writing the report.

It takes exceptional personal integrity for a consultant to tell the story that Richard told, but as he was telling it you could see the heads in the room nodding up and down. Richard was telling the truth. All model builders have a huge bias toward confirming their original intuition.

Computers can add little or nothing to the honest development of top-level scenarios for pandemic flu. So far --- and in the foreseeable future --- they just repeat what we have already sketched on the backs of envelopes. For genuinely novel insight, I'd rather count on a late-night Charlie Rose roundtable session with guests like Tom Clancy and Laurie Garrett.

On the other hand, if you want to get down to more detailed scenarios, say of the kind that might tell you the order by which Houston hospitals will start closing due to flu case overload, then computer models can be of genuine help. Such projects are worth doing, even if --- like all projects --- they must live with Waterman's paradox.

TradeSports Futures Market -- Bird Flu USA

TradeSports has initiated a futures market for the time of arrival of Asian Avian Flu in the USA. The values of these contracts (as well as open volume and traded contracts) will vary over time, but as of this writing (7/1/06) there are three contracts:

• Sept06 bid= 22.5 offer=22.8
• Dec06 bid=40.5 offer=43.8
• Mar07 bid=50.5 offer=59.9

The contract specifies "Asian Bird flu to be confirmed in the U.S." but as a contract specification, this really is a bit too imprecise. Still, if we accept the spirit of the specification, we can interpret this as "confirmation of H5N1 virus in US domestic or wild fowl or in other species, including man." The triggering event for this contract is most likely to be via wild fowl.

If the markets are efficient and informed (unbiased), then the suggested probability of the triggering event is approximated by the average of the bid and offer.

Unfortunately, the open interest in these contracts is small, so it seems that these contracts have not yet attracted an informed following. Thus, their use as a predictive tool is limited, even for those individuals who regard futures contracts as the gold standard for probability predictions.

Nevertheless, the inferences are still interesting, and the quality of the estimates can be expected to grow with the size of the market, or at least that is the conventional wisdom that emanates from Chicago.

What Does the Time Series Tells Us?

Those clever folks at TradeSports know that data generates business, so they happily provide a nice graph of the time evolution of the contract prices. Part of the decay in the value of this contract is from the approach of the expiration, but the decay is larger than I would have expected from such a time effect.




One seat-of-the-pants inference is that around the middle of May the market sharply revised its view of likelihood of a triggering by Sept 30. Can anyone make the link to why this revision (if real) took place?

Flu Fear Focused Marketing --- Yea or nay?

Given the personal, financial, and economic consequences of a full-blown H5N1 pandemic, it may be surprising that bird flu worries have inspired so few business developments. Are the marketers of the world missing an opportunity? Or, do there exist intrinsic barriers to flu fear focused marketing?

Certainly if we set aside the anti-viral and vaccine manufacturers, we find a rather lackluster spectrum of flu-inspired business activities:

• Manufacturers of N95 masks have increased production and added new distribution channels.
  
• Manufacturers of HEPA filters and equipment have stepped up sales to hospitals and are broadening their base of industrial clients.
  
• Suppliers to agribusinesses (especially in Europe) have directed incremental marketing efforts to the concerns of poultry producers.
• Suppliers to the "Food for Storage" niche have stirred up a little extra business that goes beyond their traditional survivalists market.
  

Over all, this is a piddling level of development when contrasted with the many billions of dollars that are being spent by the world's governments. Can it be that governments are more precient than entrepreneurs, or, alternatively, can there be natural impediments to flu fear focused marketing?

My Favorite Bird Flu Profiteer: LYSOL

Of the major retail brands, the one that has most taken bird flu fear to heart is the old household standby Lysol. The search engine optimizer behind the Lysol Bird Flu website has done a marvelous job, and anyone who searches the flu-web will find it post-haste. The site is well done and provides useful consumer-level information.

If we do have a bird flu pandemic, Lysol deserves to be acknowledged as a genuine leader. Their efforts will definitely have saved lives. On the other hand, if the population of people worried about bird flu does not continue to grow, then Lysol will have simply packed the tail end of the supply chain. Consumers who are now loading with Lysol may not need to buy another bottle for years. If a pandemic does not arrive, Lysol could be in trouble.

This underscores the difficulty of "flu fear focused" marketing by the big brands. Unlike the manufactures of N95 masks, they are unlikely to reach genuinely new customers, and this severely limits the long-term profitability of a flu fear focused business plan.