Quantifying the Value of Blockchain-Based Supply Chain Networks—Part Four

Quantify the Value of Patient Adherence and Ease of Doing Business for Pharmaceutical Manufacturers

Abstract

We estimate the value that a multi-enterprise supply chain network could potentially provide via patient adherence and ease of doing business improvements. The value is quantified for a hypothetical archetypal pharmaceutical manufacturer. We elucidate the key metrics improved, mechanisms of improvement, and typical improvement range expected.

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In Part Three of this series, we proposed a supply chain application network (PharmaNet) providing a ‘produce-to-use’ chain-of-custody solution for pharmaceutical supply chains. We specified its capabilities and made an estimate (in dollars) of the total value it could provide to an archetypal pharmaceutical manufacturer. Here in part four of the series, we begin drilling down into the components of the total value estimate from part three, starting with estimates for value from Patient Adherence and Ease of Doing Business capabilities provided by the proposed PharmaNet multi-enterprise application network.

Patient outcomes


Patient adherence

Improved patient outcomes are the ultimate purpose of the healthcare system. Improvements to outcomes may be the most ambitious goal of the envisioned PharmaNet platform. There are several ways in which PharmaNet improves patient out­comes. The biggest impact comes from improving patient adherence, which is the focus of this section. The following sections describe some additional ways that the platform improves outcomes, such as reducing drug shortages (covered in Ease of doing business) and reducing undetected excursions for temperature-sensitive drugs (covered in Compliance and ).

The envisioned PharmaNet improves patient adherence by providing patients with an app that includes reminders, education, personal tracking, monitoring of consumption, and counseling or remote interaction with the patient’s primary care doctor, pharmacist, and counselors. The app also provides drug recall alerts and instructions. Fully anonymized data about patient compliance is provided to manufacturers to help them understand adherence rates and correlated outcomes. A complete patient adherence initiative of the type envisioned here requires the integration of healthcare providers, drug packaging and delivery systems, the development of related educational and counseling materials and programs, and ideally insurance-funded incentives for patient compliance. This requires a multi-party investment that the PharmaNet convener could coordinate. Healthcare providers, insurance compan­ies, pharmacists and drug manufacturers should all be willing to invest in a system that delivers results, as lack of adherence is costly to all of them.

The platform’s capabilities primarily impact two adherence-related metrics: 1) unfulfilled subscriptions, and 2) improperly consumed drugs. About 20 percent to 30 percent of prescriptions remain unfilled (Viswanathan, et al. 2012). The most common reason patients fail to fill their prescriptions is high costs. Because of this, reducing subscription abandon­ment rates dispropor­tion­ate­ly impacts the most expensive drugs (i.e., patent-protected), thereby lifting margins as well. Other reasons for not filling prescriptions include fear of undesirable side effects and simply not wanting to take the drugs. The plat­form, together with the patient’s care­givers connected on the platform, actively intervene to solve these problems, such as prescribing a lower-cost alternative drug or one without the specific offending side effects, as well as helping the patient understand the consequences of not taking the drug and coaching on how to mitigate side effects. We estimate that
the platform, integrated with a program incorporating the
envisioned interventions, could reduce unfulfilled subscriptions by 10 percent to 50 percent.

Research indicates that about 50 percent of drugs for chronic diseases are not taken as prescribed (Marie T. Brown 2011). This can include skipped doses, taking medications at the wrong time or quantities, and other problems. The platform notifies caregivers of nonadherence so they can intervene[4] appropriately. It also can provide reminders, alerts, educational materials and so forth directly to the patient. Studies have shown that behavioral and educational interventions can improve adherence by 4 percent to 11 percent. Some interventions are even more effective; for example, changing the frequency of a drug’s dosing from four times a day to once a day improves adherence on average by almost 30 percent (Marie T. Brown 2011). Improving how often drugs are taken as prescribed improves outcomes, often dramatically. For example, when stent recipients discontinued their thienopyridine therapy (by their own non-adherence, not due to advice of their physician), their mortality rate after one year was 10 times higher than those who continued the thienopyridine therapy (7.5 percent vs 0.7 percent) (Marie T. Brown 2011). If current rates of non-adherence were cut in half, it would save the US healthcare system an estimated $50B – $150B per year and add $120B – $350B of productivity back into the economy.[5]

Ease of doing business

Many factors (such as price and drug efficacy) influence which drugs that PBMs, GPOs, and healthcare providers select. Ease of doing business is one of those factors that comes into play. PharmaNet provides a number of capabilities that make things easier for pharmacies and healthcare providers, and the PBMs, GPOs, and distributors that supply them. This makes them more likely to buy drugs via the PharmaNet network. The ease of doing business that a PharmaNet would provide includes:

  • Streamlined receiving and invoicing processes—The blockchain network records physical events around movement of goods, creating a shared, trusted source of truth that can be used to streamline receiving and invoicing processes, such as by implementing evaluated receipt settlement (ERS), which eliminates non-value-add invoicing and reconciliation tasks. When a shipment is received, the platform already knows exactly what was ordered and what was shipped. The receiving party confirms that the items were received in good condition, ideally via an unforgeable scan (e.g., RFID or barcode) of the goods. Normally at this point, the supplier issues an invoice that the buyer’s AP department checks and reconciles before issuing a payment. With evaluated receipts settlement, those steps are eliminated. Instead, a pay­ment is auto­mat­ically scheduled, according to agreed-to terms, based on the existing contract and pricing agreement, taking into account any volume discounts. This saves a lot of manual labor and disputes for both parties.
  • VMI and automatic-replenishment—Because the system is monitoring inventory levels, suppliers can automatically replenish inventory when stock falls below a certain level.
  • Inventory management tools—The platform can provide simple inventory management tools to healthcare providers, independent pharmacies, and others in the supply chain that may be currently managing inventory using manual, paper-based processes. These systems have the advantage of being fully pre-integrated into the network.
  • Shortages management—After falling for five years in a row (2011 – 2016), drug shortages have been on the rise since 2017. According to the FDA,[6] 62 percent of shortages (in 2019) were due to quality issues, 12 percent due to increase in demand, 5 percent from natural disasters, 3 percent from discontinuation of production, and 18 percent ”unknown.” Many aspects of the market structure disincentivize manufacturers to invest in addressing shortages. The envisioned PharmaNet does not materially address these structural issues, but nevertheless can help somewhat in reducing shortages and their impact. The PharmaNet we describe here does not provide inbound supply chain disruptions visibility for manufacturers, which would be one element of addressing shortage issues. However, it provides wholesalers and dispensers better visibility into available finished goods supply across the network, as well as providing manufactur­ers with better visibility into demand surges. More accurate near-term and mid-term forecasting allows earlier adjustment to deviations from plan and more accurate inventory optimization calculations (getting limited supply to where it is most needed). This enables the platform to reduce a portion of shortages. The platform also provides coordination and communication mechanisms between different healthcare providers, distributors and manufacturers to execute a more coordinated chain-wide response. As well, the platform would include tools to help communicate and update clinical guidelines, including policy recommendations (such as prioritization policies), alternative treatments, and threat analysis tools (assessing the duration of the shortage, for example). For many manufacturers (especially those providing patent-protected drugs), shortages do not have a significant impact on their revenue or profit. However, shortages have a material impact on the cost and efficacy of care for care providers. Thereby, tools that limit the scope and impact of shortages will be welcomed by care providers and may influence which manufacturer becomes a preferred supplier.
Image by hosny salah from Pixabay

Estimating the impact that ease of doing business has on a pharmaceuti­cal manufacturer’s revenue is challeng­ing.[7] For those making the buying decisions (PBMs, GPOs, pharmacies, healthcare providers), many factors go into selection of one drug (or provider) over another. Providing streamlined receiving and payments processes, inventory management tools, and auto-replenishment should help specific drug manufacturers become the preferred providers for hospitals and pharmacies. Better shortages management, coupled with some type of service level agreement (SLA) commitment, could also make particular manufactu­rers more desirable to the ultimate buyers. Together, we estimate these ease-of-doing-business capabilities could add 0.5 percent to 5 percent to a drug maker’s revenue.

In Part Five of this series, we continue our drill down into the components of value for our hypothetical supply chain application network solution, PharmaNet. We will focus on the value that the network creates by providing inventory management, reduction in expired drugs, and anti-counterfeiting functionality.


[1] The impact on providers’ revenue depends on whether their revenue model is volume-based (per-unit model) or value-based (outcome model). A platform like PharmaNet can also be an enabler of value-based pricing by providing precise information about patient adherence, which can then be correlated to outcomes. — Return to article text above

[2] Currently, outcome-based contracts are not widely used. When used, they are often for durable drug therapies, such as gene therapies, that can have lifetime benefits, for which dose prices are often astronomical. In those cases, adherence rates are expected to be virtually 100 percent. In the future, if outcome-based contracts become more prevalent and used more often with maintenance drugs, then manufacturers will become more incented to help improve adherence rates for those. — Return to article text above

[3] Current revenue is 75 percent of what it would be if all subscriptions were filled. Lowering the unfilled subscription rate from 25 percent to 20 percent raises revenue to 80 percent of the full potential: 80 percent = 75 percent X 106⅔ percent, thereby 6⅔ percent greater than current revenue. — Return to article text above

[4] Interventions may be behavioral (e.g., simpler dosage schedule, skill building, rewards, reminders) or educational (providing information about the disease or medication). — Return to article text above

[5] Based on estimates of drug non-adherence adding $100B – $300B annually to healthcare costs (Viswanathan, et al. 2012) and the economic cost of lost productivity averaging 2.3 times the added healthcare costs (Healthentic 2015) — Return to article text above

[6] Per the FDA’s Seventh Annual Report on Drug Shortages for Calendar Year 2019 (U.S. Food & Drug Administration 2020) — Return to article text above

[7] While cross-industry research suggests that non-price factors outweigh price in determining market share, we found a dearth of research on the impact to pharmaceutical revenue from ease of doing business. — Return to article text above

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