The pharmacy industry has been working together since 2017 on the Mediledger blockchain network, which started with the Drug Supply Chain Security Act (DSCSA). The future potential use cases should have the entire Pharmacy industry excited about the possibilities. First, let’s start with “what is blockchain?”
“Blockchain is a distributed database that maintains a continuously growing list of ordered records, called blocks. These blocks are linked using cryptography. Each block contains a cryptographic hash of the previous block, a timestamp, and transaction data. A blockchain is a decentralized, distributed, and public digital ledger that is used to record transactions across many computers so that the record cannot be altered retroactively without the alteration of all subsequent blocks and the consensus of the network.”1
DSCSA is an ideal use case, as the custody of drugs pass amongst multiple partners where there is incremental value in documenting each exchange amongst trading partners. With blockchain, you will have a historical record, that cannot be altered, of when the possession was transferred from one trading partner to another for the entirety of that product’s life cycle.
The next use case the workgroup looked to address was rostering. The price paid for drugs depends on the location and the class of trade of that location. This data is typically housed on the health system’s roster with their group purchasing organization (GPO) and includes, but is not limited to, legal name, address, DEA, HIN, NPI, NCPDP, GPO ID, and 340B ID. The manufacturers maintain a separate roster when communicating pricing to the wholesalers, and the wholesalers have yet another roster of accounts, which needs to match what the manufacturers and GPOs have in their database. So, if you are keeping track, we have three rosters: a GPO/Health System roster, a wholesaler roster, and a manufacturer roster that need to match to ensure the correct price of one given product. Then the pricing being sent by manufacturers to wholesalers are either EDI feeds or emails with Excel files to instruct the price to be given by the wholesaler to each health system location.
The current process is antiquated, repetitive, and is the cause of contract misalignment, which leads to errors in the price paid for pharmaceuticals. There is a white paper that states 4% of all pharmaceutical purchases through a wholesaler result in a pricing dispute.2 My health system is disputing successfully ~0.25%, which is ~9,000 invoices per year resulting in ~$1 million in credits from overpayments. The length of time in resolving pricing disputes creates a cash flow issue, and the discrepancies being identified are all manual so there are overpayments being missed. It would be challenging to determine the financial impact of when a product should have been ordered because it is cheaper, but the contract was not loaded correctly at the time of purchase.
When the purchase price of a product is disputed, the manufacturer is the source of truth for the price that should be paid. So, the wholesaler reaches out to the manufacturer eligibility point of contact, which is typically a different contact at the manufacturer than the contact the GPO or health system worked with to define the contracted price. Then the manufacturer and GPO have no visibility into the wholesaler ordering platform to determine when the price has been corrected. So, it is a triangle of communication where all parties should have visibility to specific information around the contracts, but do not in today’s ecosystem. This “credit and rebill” process is cumbersome, lengthy, and provides no value to any party involved.
In the future blockchain state, the rostering and contracts would be loaded onto the network and each participating member would be permissioned by the owner of that data (the manufacturer in this example) to see the data elements they should have access to. For example, the health system should have access to the price being communicated to the wholesaler for their locations, but not other health systems or the distributor fees being charged to the manufacturers. The manufacturer should have visibility to their prices that are loaded at the wholesaler, but not other competitive manufacturer products.
Once you have real-time data visibility across trading partners, you can implement “smart contracts.” Smart contracts are where you can set parameters that can automatically be implemented. For example, you can set tiers where prices change based on purchase volume, or rebates could be triggered for payment once thresholds are met. Today, rebates are a cumbersome and delayed process, which is ripe for automating. Tiered pricing and rebates are just some of the use cases available. Health systems, group purchasing organizations, manufacturers, and distributors should look internally at their processes to see if there is value implementing this technology. As a pharmacy industry, we need to be partnering together with our data to stop duplicating processes and improve efficiencies for all parties involved in the Pharmacy Supply Chain. Blockchain is a solution for contract alignment that can be implemented today, and it will provide more opportunities for streamlined workflows in the years to come.