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NACDS Study Puts Price Tag on Pharmacy RFID Systems

It would cost pharmacies between $84,000 and $110,000 to comply with proposed RFID and 2D bar code requirements for tracking prescription drugs, according to a new study from Accenture and the Coalition for Community Pharmacy Action. The study did not break out costs for specific technologies and didn't look at potential benefits.
Jun 26, 2008This article was originally published by RFID Update.

June 26, 2008—It would cost each individual pharmacy between $84,000 and $110,000, an average of 0.88 percent of annual sales, to implement RFID and bar code systems and processes to satisfy proposed US federal mandates for pharmaceutical electronic pedigree (e-pedigree) and track-and-trace systems, according to a new study prepared by Accenture on behalf of the Coalition for Community Pharmacy Action (CCPA). The figures vary by pharmacy size and represent total costs associated with implementing hardware, software and processes to support pharmaceutical identification by UHF RFID, HF RFID and two-dimensional (2D) bar code technologies. The report does not break out the specific costs for each technology, nor does it consider any potential time- and cost-saving benefits the technologies could provide.

"Until it is known what technology is chosen and the accompanying costs for implementation, it is difficult to determine the impact on costs," Chrissy Kopple, vice president of media relations for the National Association of Chain Drug Stores (NACDS), told RFID Update. "We anticipate significant differences in labor costs between 2D [bar code] and RFID in terms of reading the bar code, however we have also anticipated the potential for higher exception handling labor and processing costs due to unreadable RFID tags."

The NACDS, whose members operate more than 37,000 retail pharmacies, and the National Community Pharmacists Association, which represents 24,000 community pharmacists, formed the CCPA, which hired Accenture to conduct the study. The report addresses proposed e-pedigree and track-and-trace requirements outlined in the H.R. 5839 Safeguarding America's Pharmaceuticals Act of 2008 legislation that was introduced this spring (see Newest Drug Pedigree Proposal Highlights RFID). H.R. 5839 is only one of several overlapping federal and state initiatives to create requirements or standards to identify and track pharmaceuticals. Pharmacies and other organizations throughout the supply chain have no assurance that a single technology or software system will meet their future needs because of the uncertain regulatory climate (for more background see this analysis by the Healthcare Distribution Management Association, FDA, EC Considering RFID for Drug Pedigrees and California Not Ready for Drug Pedigrees -- Is RFID?).

The NACDS asserts the U.S. pharmaceutical supply chain is very safe, most counterfeit and adulterated drugs reach consumers through Internet sales rather than retail stores, and that technology-driven e-pedigree and track-and-trace requirements will place a tremendous cost burden on retail pharmacies. These concerns are summarized in the NACDS announcement of the report, in which NCPA executive vice president and CEO Bruce Roberts calls H.R. 5839 "...an enormous unfunded mandate that would create a tremendous financial strain on community pharmacies."

The report provides evidence that supports these positions, but may have been designed to do so. It expressly did not examine how RFID or bar code systems could save labor and money for pharmacies (a statement on page 14 reads: Any proposed operational efficiencies or inventory management benefits realized from RFID product in the supply chain have not been considered.

Dr. Adam Fein of Pembroke Consulting is a pharmaceutical supply chain expert not affiliated with the study who favors a national approach to pedigree and track-and-trace systems. He notes in this blog post that the implementation costs Accenture included in the new report are much higher than the organization quoted in its State of the Industry presentation in November, 2007 (see slide 9 for the implementation cost estimates). In November, Accenture reported the one-time costs to pharmacies to implement track-and-trace systems would range from 0.5 to 1.5 percent of annual revenue, depending on the pharmacy chain side. Data in the new report predicts first-year implementation costs will range between about 2 to 2.5 percent of annual pharmacy for the four categories of pharmacies. The average cost for all categories to implement and operate systems over seven years is 0.88 percent of annual revenue. Fein's analysis of the new Accenture data puts the implementation costs even higher.

"But given the surprisingly large inflationary bump, I also surmise that NACDS and NCPA got their money's worth from Accenture," Fein writes.

Regardless of the actual costs, the report highlights the challenges that multiple regulations and proposals pose for companies in the pharmaceutical supply chain. Kopple of NACDS told RFID Update antitrust concerns make it difficult for the pharmaceutical industry to have discussions about standardizing on a single technology.

"Federal legislation enacted in 2007 [the Food and Drug Administration Amendments Act of 2007 (FDAAA)] directs FDA to develop and adopt standards for a numerical identifier and track and trace technologies," she said. "However, the law does not direct selection of a single technology. We will need to wait and see what FDA does."

The NACDS and Healthcare Distribution Management Association (HDMA) will hold their fourth annual RFID Track & Trace Summit November 16-18 in Arlington, Virginia.
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