Guest Column | September 11, 2019

5 Barriers To Blockchain Adoption In The Rx Supply Chain — And How To Overcome Them

By Mark Karhoff, Ten Count Consulting, LLC

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Most stakeholders in the pharma supply chain are aware of the hype and some of the unfolding reality surrounding blockchain. One of the Drug Supply Chain Security Act’s (DSCSA's) more advanced requirements is interoperability, targeted for 2023, which many informed stakeholders believe blockchain can address. In my previous article, I explained why companies should look beyond basic compliance to make a significant leap in a fragmented supply chain, while advancing patient safety and value. Technology that can address many of these concerns has existed for years, and companies have attempted to implement it in some point-to-point and limited areas of collaboration. The questions we should now be asking are: Why has this fragmentation not already been solved? And can Blockchain help open a new path forward?

5 Barriers To Evolutionary Change

Current software provider marketing and historical pharmaceutical industry trends make the concept of independent, neutral, self-governed blockchain solutions seem impossible. However, for encouragement we can look to the financial sector, where a history of these type of platforms and now blockchain have brought about evolutionary change in even the most tightly regulated environments. There is no doubt that lack of trust within the pharmaceutical supply chain will continue to hamper any new technology adoption, so if blockchain is to succeed it is critical the industry must overcome the following barriers to adoption.

1. Regulation And Controls

There are many laws, guidance documents, standards, and other requirements that drug sponsors (and their partners) must follow to ensure the safety and security of patients and other participants. As a result, implementing new systems requires significant investments of time to vet, validate, and implement. The FDA can either help or hinder this process with their expected guidance outlining requirements of an interoperable system, based on analysis of the 20 agency-approved blockchain pilots currently being conducted. The hope is that this guidance will strike the right balance of openness and competition, helping avoid the cumbersome and error-prone point-to-point methods of the past.

2. Competition

The pharma industry has some unique areas of competition that can make it difficult for participants to collaborate. The landscape of horizontal and vertical mergers and acquisitions creates incredible complexity in determining where lower-risk areas for partnership exist. Companies are resistant to exposing information or offerings to others in fear of it being used in a competitive way. Recent developments such as leading hospital systems exploring the possibility of producing generic prescription drugs, due to concerns about supply and/or price, should be warning signs to drug companies that things need to change. The industry should keep in mind that collaboration in the name of patient safety and transparency will need to carry greater weight in decisions traditionally driven more by competition.

3. Limited Focus On Supply Chain Efficiencies

In an industry where blockbuster drugs have long been a key driver on the supply end — and with a high percentage of not-for-profits on the healthcare provider side — there has historically been less focus on supply chain efficiencies and more on “supply at all costs.” Problems become exaggerated due to limited visibility in forecasting, high-demand drug stockpiling, and pressure to increase production (often leading to overproduction as product demand and supply begin to normalize). The industry’s primary focus, understandably, tends to be on patient care and on complying with ever-evolving regulations, with cost controls as a secondary concern. As the industry continues to move away from blockbusters toward personalized medicine, the need for efficiency improvement will mirror similar shifts from mass production to build-to-order in the automotive, personal computer, and other industries. This will require the industry to seek new levels of visibility, transparency, and planning, which can only be found in a well-connected supply chain.

4. Lack Of Consumer Trust

Frequent news coverage of the opioid crisis, soaring healthcare costs, drug shortages, diluted medicines, and other related issues has led to certain segments of the industry viewing the supply chain as a zero-sum game in which they need to be overly conservative. This position is understandable, given public demand for accountability, as well as the fines and lawsuits that can eventually materialize. Over the past 30 years, other industries have proven it is impossible to experience significant improvement without a spirit of transparency and partnership leading the way. Defining interoperability within the context of DSCSA could represent a possible turning point in building a platform that engages healthcare providers and patients. Doing so, however, requires agents of change in each segment to act before the focus narrows to compliance and the opportunity is lost.

5. Complexity

Rather than moving towards a more direct and efficient distribution and payment model, the industry historically has relied upon additional systems and middlemen to solve its problems. Look no further than an explanation of benefits statement from your healthcare provider to see how complex and confusing the system has become. The rise of pharmacy benefit managers (PBMs) and multiple layers of group purchasing organizations (GPOs); the practice of chargebacks, claw backs, and rebates; overreliance on safety stock and stockpiling; and dependence on repackagers at multiple points in the supply chain all signal an industry in need of monumental disruption. Blockchain coupled with serialized prescription drugs promises the possibility of moving from a system of blind spots to one that is value-added and transparent to a unit transaction level — a truly digital supply chain.

Finding A Way Forward

Much attention has been given to the largely political approach of allowing drug importation from Canada, but it raises the question: How did we get to a place where re-importing and added supply chain complexity, including cross-border shipments, is actually less expensive for the consumer? We must focus on replicating and advancing what has succeeded in other industries for years through greater connectivity, visibility, transparency, collaboration, elimination of redundancy, and new supply chain best practices. We can look to the way passenger safety has evolved and continues to advance in the automotive industry, as one example. More recent models are developing in the food industry, where product traceability is evolving, allowing dangerous product to be more quickly identified and customers to see product pedigree at the point of purchase prior to consumption.

A Perfect Use Case for Blockchain?

A perfect storm has moved into the U.S. pharmaceutical industry that could break through these traditional barriers. This storm is composed of legislation, technology evolution, and enlightened stakeholders and patients. Government requirements like the DSCSA, the unique device identification (UDI) system, and those promoting pricing transparency are prompting pharma stakeholders to develop new systems and implement new processes.

Technology is advancing at an increasing pace and is bringing disruptive possibilities by combining such developments as blockchain, artificial intelligence, the internet of things (IOT), digital fingerprinting, and drone technology. Each of these offer new possibilities for overall process improvement, cost reduction, and advancing patient outcomes and safety.

Manufacturers, distributors, hospitals, and pharmacies are beginning to see the incredible benefits these solutions can offer as they collaborate in new ways, pilot new technologies, and implement cross-sector solutions. Doctors, pharmacist, nurses, and patients are likely to demand greater transparency and cost reductions from the pharmaceutical industry as they see new capabilities rapidly being adopted in industries such as food, beverage, and transportation.

Agents of change in the pharmaceutical industry should look beyond point-to-point movement of data, which could ultimately render the implementation of serialization nearly useless from a value perspective. Industry resistance to emerging technologies like blockchain could inadvertently enable leading supply chain companies like Walmart, Amazon, and Google to become more holistic adopters and quickly expand into the pharmaceutical space. In any event, it should be a fascinating few years ahead.

How Pharma Stakeholders Can Get Involved

Blockchain has already started to find fit-for-purpose use cases in the pharmaceutical industry, as evidenced by the recent move by large wholesalers and manufacturers to leverage the technology for cross-solution provider connectivity and distribution of verification connectivity data. Some of the largest technology providers and pharma companies in the world are now conducting pilots and are expected to move towards production cases in the coming year. Don’t be left behind while disruptors bring transformation into the industry and the internet of pharma unfolds.

Get involved. Talk with peers, trading partners, and first movers. Reach out to groups conducting FDA pilots on 2023 interoperability, especially those working on visibility across segments and solution providers. The time to start planning is now, while the FDA is overseeing industry pilots that will very likely be used to develop guidance and frame requirements for years to come.

For Further Reading:

  1. Countering the Problem of Falsified and Substandard Drugs https://www.ncbi.nlm.nih.gov/books/NBK202523/
  2. Mayo Clinic joins hospitals to launch a not-for-profit generic drug companyhttps://newsnetwork.mayoclinic.org/discussion/mayo-clinic-joins-hospitals-to-launch-a-not-for-profit-generic-drug-company/
  3. U.S. FDA: DSCSA Pilot Project Program https://www.fda.gov/drugs/drug-supply-chain-security-act-dscsa/dscsa-pilot-project-program
  4. Supply Chain in the Pharmaceutical Industry: Strategic Influences and Supply Chain Responses. 2010. Rob Whewell
  5. The Vaccine Reaction: Google Joins the Pharmaceutical Industryhttps://thevaccinereaction.org/2019/08/google-joins-the-pharmaceutical-industry/

About The Author:

Mark Karhoff is a supply chain consultant and founder of Ten Count Consulting, LLC, which provides clients guidance with program management, supply chain solutions, as well as DSCSA and global serialization compliance and readiness assessment. Mark has over 20 years of experience in supply chain operations and systems. He is currently working with multiple pharmaceutical supply chain clients in the implementation of serialization and integration projects to meet global serialization requirements, improve patient safety, and achieve value beyond compliance. You can reach him at mark.karhoff@tencountconsulting.com or connect with him on LinkedIn.