The next big thing in pharmacy supply chain: Blockchain

With $200 billion lost to counterfeit drugs annually and patient safety issues, a chain-of-custody log that blockchain could enable holds promise.
By Bill Siwicki
10:26 AM
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Blockchain in healthcare

Blockchain has the potential to transform healthcare in general and the pharmacy supply chain in particular.

The distributed ledger technology could offer legislative, logistical and patient safety benefits for pharmaceutical supply chain management. From a regulatory perspective in the United States, blockchain technological and structural capabilities, in fact, extraordinarily map to the key requirements of the Drug Supply Chain Security Act.

The DSCSA outlines a 10-year timeframe that will require elements including medication track-and-trace, product verification and notification of stakeholders about illegitimate drugs. A shared ledger of information to enable each of these steps is a foundational aspect of blockchain technology.

[Also: Blockchain beyond EHRs: Transforming value-based payment, precision medicine, patient-centric care]

“Logistically, blockchain aligns well with federal efforts like the National Strategy for Global Chain Security,” said Kevin Clauson, Associate Professor in the College of Pharmacy and Health Sciences at Lipscomb University. “One of the most promising benefits of blockchain from a patient safety perspective is to help stem the tide of the so-called SSFFC medicines – substandard, spurious, falsely labeled, falsified and counterfeit – that continue to plague the pharmaceutical supply chain.”

Counterfeit drug prevention

Counterfeit drug prevention is a major use-case for blockchain in healthcare, said Tapan Mehta, market development executive, healthcare and life sciences services practice, at DMI, a mobile technology and services company.

“With an estimated global annual loss of $200 billion due to counterfeit drugs, pharmaceutical supply chain integrity may be one of the most relevant and demanding use-cases for blockchain,” Mehta said. “A blockchain-based system could ensure a chain-of-custody log, tracking each step of the supply chain at the individual drug or product level.”

Potential applications for blockchain in the pharmaceutical industry already are being explored. Take the BlockRX initiative, for example, that has been set up to address the drug supply chain integrity problem by leveraging the distributed digital ledger to support and manage the drug development lifecycle.

“Add-on functionality, such as private keys and smart contracts, could be leveraged as part of this process for seamless supply chain integrity,” Mehta said. “Smart contracts feature software on a blockchain that defines agreement terms and execution that could help to mitigate fraud and lower costs.”

Mehta also said transparency and traceability are key to blockchain in the pharmacy supply chain.

“In the event that a drug shipment is disrupted or goes missing, the data stored on the common ledger provides a rapid way for all parties to trace it, and determine who handled the shipment last,” Mehta explained. “The public availability of the ledger would make it possible to trace every drug product all the way back to the origin of the raw material used to make it.”

The decentralized structure of the ledger would make it impossible for any one party to hold ownership of the ledger and manipulate the data to their own advantage, Mehta added.

Four significant use-cases

Shahram Ebadollahi, vice president of innovations and chief science officer at IBM Watson Health, said he sees four use-cases for blockchain that are especially well suited for the pharmacy supply chain.

“First, Drug Quality and Security Act compliance and track-and-trace,” he said. “DSCSA regulation requires an electronic, interoperable system to identify and trace prescription drugs distributed in the United States. Other countries are implementing similar programs. All manufacturers, distributors and dispensers of prescription drugs in the U.S. market are required to comply.”

Second, controlled substance monitoring. The federal government increasingly is holding the pharmaceutical industry responsible for monitoring the supply chain for the illegal and out-of-pattern ordering of Schedule II drugs (opioids) and is penalizing distributors. Manufacturers are concerned that they, too, will soon be held accountable.

“Third, Cold Chain monitoring,” Ebadollahi said. “Ensure the temperature integrity of pharmaceuticals across the supply chain according to the FDA, USP-NF, EU GDP and WHO guidelines and regulations. Cold Chain shipments are projected to grow 52 percent between 2014 and 2020.”

And fourth, active pharmaceutical ingredients. Monitoring the source and provenance of active pharmaceutical ingredients from raw materials through active pharmaceutical ingredients stage manufacturing and final product manufacturing. The active pharmaceutical ingredients process ends where the processes covered in the Drug Supply Chain Security Act begin.

Two critical opportunities

Blockchain offers two critical opportunities for the pharmaceutical supply chain, according to Maria Palombini, director of emerging communities and initiatives development at the IEEE Standards Association. Those being combatting counterfeits and supply chain optimization.

“The U.S. distribution model is comprised of three key trading partners – manufacturers, wholesalers and pharmacies,” Palombini said. “The current supply chain infrastructure is siloed and fragmented and trying to utilize a patch-fix approach by integrating track-and-trace and other technologies over an outdated approach. The fragmented infrastructure has created an opportunistic market for the growth of Internet pharmacies and the overall counterfeit drug trade. No one patient or entity can truly verify the source of the drug.”

The nature of the drug distribution model compels all three trading partners to have equal transparency into the auditing and tracking of inventory as one depends on the other to ensure medicine is delivered to patients as securely and quickly as possible.

Therefore, again, there are three trusted partners who need visibility of the supply chain and verifying the journey of the drug from manufacturing to the patient. If every entity on the supply chain can have visibility of inventory and audit the distribution of the medicine, that certainly makes it more difficult for counterfeits to reach the market.

Doing what other tech cannot

Manufacturers, wholesalers and pharmacies currently use a variety of tools to help with all of these processes. But there are simply things that blockchain can do that other technologies cannot.

Big pharma, for instance, currently uses several different software programs and databases to manage drug supplies. The introduction of a blockchain system – in which each participant controls a node on the network, and each transaction requires a consensus – would revolutionize the drug supply chain, said Mehta of DMI.

“The decentralization of blockchain also sets it apart from other technologies,” Mehta said. “Most pharmaceutical companies use central databases to manage their supply chains that have systems administrators who can edit, modify or delete records. With blockchain, records are permanent and cannot be altered in any way, ensuring the most secure transfer of data possible. As a result, a company could prevent human error, logistical delays and costs.”

Blockchain is unique because all permissioned users are working with one original, immutable source of information where every chronologically stamped transaction is replicated in every block of the chain that can never be altered, IEEE’s Palombini explained.

“This allows for all parties to verify the source of the information without doubt,” she said. “The very fact that information on the blockchain is immutable enables all the partners on the chain to know they are working with one single record of truth.

True end-to-end supply chain management

Blockchain offers the potential as a unifying solution for management of the pharmaceutical supply chain. Its distributed construct would enable true end-to-end supply chain management and allow participation by multiple stakeholders, rather than being architected as the vulnerable patchwork database approach currently in place, said Clauson of Lipscomb University.

“However, one of the greatest challenges in doing so is around interoperability with legacy systems, which remains a necessity for the near-term,” he added. “This is why work like that by the Center for Supply Chain Studies in simulating models of compatibility will be so interesting to monitor.”

Today, pharmacy supply chains are a series of linked but separate events. Participants often end up buying back data to gain a view of how their products are used or consumed.

By allowing all parties to a transaction access a common record, the veil is lifted, said Giles Ward, executive director at Hashed Health, a consortium of healthcare companies focused on accelerating innovation using blockchain and distributed ledger technologies.

“Blockchain is a network solution. A company does not build their own blockchain – they assemble a network of participants around a problem or process and build a common solution,” Ward said. “If the rules are agreed upon at inception, trust is moved to the protocol level, and transparency is the enforcer.”

Unlike with other solutions, Blockchain participants retain control over their data, including who can see it. Trading partners can share data necessary to complete transactions while keeping priority information confidential.

Streamlining processes, enhancing data

A big question is, how can blockchain help streamline processes or enhance data in the pharmacy supply chain? There are many ways.

In a linear, transparent process, it becomes very clear who is adding value to a transaction and who are merely “rent seekers,” Hashed Health’s Ward said.

“Intermediaries are going to be forced to prove their value or they will be circumvented,” he explained.

Large pharmaceutical companies function through complex and often outdated centralized systems that impede optimal supply chain efficiency, DMI’s Mehta added.

“With blockchain, companies can streamline the development, testing and distribution of drugs, allowing supply chain management to be much more flexible, transparent and secure,” Mehta said. “The future of blockchain in the industry involves highly efficient decentralized structures that enable high transactional throughput and programmability of complex relationships of a large number of users, and therefore can handle a large volume of product and transaction data.”

Simply put: The ability for blockchain to track and distribute data throughout the chain delivers visibility to inventory that was never present before.

“With blockchain, manufacturers can better anticipate drug shortages and better target drug recalls,” IEE’s Palombini noted. “The autonomous and decentralized nature of blockchain streamlines the operations of the pharmacy supply chain removing the manual process of payments, invoicing and routine human error.”

Improving data integrity

Depending on the specific blockchain protocol employed and its accompanying features, the immutable nature of blockchain could enhance data integrity, thereby reducing the load on data stewardship functions.

Acknowledging that the aforementioned benefits are still theoretical in nature, Lipscomb University’s Clauson said that half-a-dozen companies have for the past few years been working on blockchain-enabled Drug Supply Chain Security Act compliance platforms. Those include BlockVerify, iSolve/BlockRx, Chronicled, The LinkLab, Modum, and Vechain.

Blockchain holds great promise for the pharmacy supply chain, as it does for other healthcare applications. It’s early days, but the great potential of blockchain may move more companies into the fold.

As the United State’s national healthcare expenses keep rising, “most ideas are adding cost or nibbling around the edges of the existing cost structure,” Hashed Health’s Ward said. “Blockchain is a once in a generation opportunity to cut up to a third out of the middle. Nothing else comes close to blockchain’s potential.”

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Twitter: @SiwickiHealthIT
Email the writer: bill.siwicki@himssmedia.com