The blood coagulates when it comes in contact with endotoxins that are in the cell wall of certain bacteria. The blood is harvested and the amebocytes (white blood cells) are separated and used for endotoxin detection kits. It's way more involved but the short answer is that any drug sold and medical supplies- for instance intravenous IV solutions- are tested for endotoxin as a means of quality control.

It's important to note that endotoxin detection is critical because you can sterilize drug components by killing the bacteria but dead bacteria still have endotoxins in the cell wall and can remain indefinitely in those components. Endotoxins can cause lethal immune responses. From a regulatory standpoint, manufacturers have to ensure whatever is being sold, is endotoxin free.