CVS, for example, contracted with Checkpoint Systems in June 2004 to outfit all 5,300 CVS stores with Checkpoint's Liberty PX antennas, as part of a digital RF-Electronic Article Surveillance solution. EAS technology, which is already employed by retailers to combat theft, would allow for "source tagging" of retail items in drugstores. It would help store managers curtail shoplifting, replenish shelves, and make sure vitamins and other goods are removed from shelves before their sell-by dates.

But pharmacy chains are concerned about the cost of outfitting each of their stores with antennas and readers to receive tagged drugs. Unlike a pharmaceutical manufacturer that can apply a tag and raise the price of the drug to cover the cost, more than 90 percent of prescriptions are under negotiated contract for reimbursement to drugstores. "An insurance company is not likely to say, 'OK, because you have built all of this to take care of state or federal regulations, we're going to raise your reimbursement,'" says Perlowski.


The pharmaceutical industry is studying ways to protect consumers' privacy by making make sure RFID tags are removed at the pharmacy, so tagged bottles never end up in the hands of consumers, says Accenture's Hintlian. Pharmacists usually remove bulk medication from the bottles they receive from manufacturers and distributors and dispense tablet medication to patients in industry-standard amber vials. But a pharmacist could use a tagged bottle and the last few tablets in it to fill a prescription. Pfizer, for one, is experimenting with a tear-off RFID label similar to coupons found on certain products at the supermarket, to guard against such mistakes.

Beyond Safety and Mandates
While few would argue that RFID has the potential to fight counterfeiting and ensure patient safety, the question remains: Can RFID provide cost-reducing benefits to manufacturers, distributors and retailers in the pharmaceutical supply chain?

The cost benefits have yet to be proved. The long-term promise of RFID is that data could be gathered and shared between trading partners to improve inventory control, reduce discrepancies between manufacturers and distributors, facilitate product recalls or withdraw expired products from the supply chain, and cut down on labor costs in the warehouse. But many of those returns on investment will be achieved only if all products in the supply chain and all trading partners rapidly convert to RFID technology. The efficiencies won't be gained if companies have to support dual technologies: RFID and 2-D bar codes.

"We haven't taken this forward and promised management all sorts of operational benefits and savings," says Pfizer's Staver. "In fact, we've said there would be none. It's not an ROI-driven project for us."

An HDMA study published in November 2004 entitled "Adopting EPC in Healthcare: Cost and Benefits" said there were financial gains to be made through widespread incorporation of RFID into the supply chain. It estimated that pharmaceutical manufacturers stand to gain $500 million to $1 billion annually by adopting RFID technologies. For distributors, that annual gain would amount to $200 million to $400 million. The report, based on research by A.T. Kearney, said most benefits would be realized by bettering the accuracy of claims and deductions and improving inventory and warehouse efficiency.

The report also spelled out the startup costs of implementing RFID, including systems integration, hardware, tags and software. For large manufacturers, those costs were pegged to range between $15 million and $20 million. For a large distributor, the startup cost of RFID infrastructure and software would range between $9 million and $20 million.

Further studies are under way to determine whether RFID technology can provide cost-reducing benefits. But for now, many manufacturers, retailers and the distributors caught in the middle view RFID as a necessary cost-dispensing counterfeit medicine is bad for business. If a patient gets ill from a counterfeit product and a manufacturer isn't held liable by authorities, the company could still suffer significant damage to its brand name. And both the manufacturer and the retailer that sold the tainted drug could lose sales from negative publicity.

"Certainly, brand protection is important to us," says Staver, "but our primary driver is patient safety." With RFID in the pharmaceutical supply chain, Pfizer and other companies hope to address both issues.