The Cost of Drug Security

By Mark Roberti

A recent report spotlights the high cost of implementing drug pedigrees, but there is a way forward.

Accenture has published an informative report on the cost of complying with possible U.S. federal drug pedigree requirements, which aim to ensure that all drugs sold through pharmacies are legitimate. The global consulting and services company's report is valuable because it points out that the cost of complying with a mandate involving several technologies could be onerous to pharmacies of all sizes. (It doesn't address costs to manufacturers and distributors, but the same concerns would apply to distributors that break down large shipments from manufacturers into smaller shipments to pharmacies.)

Sponsored by the Coalition for Community Pharmacy Action (CCPA), an alliance of the National Association of Chain Drug Stores (NACDS) and the National Community Pharmacists Association (NCPA), the study was undertaken in response to the proposed Safeguarding America's Pharmaceuticals Act of 2008 (H.R. 5839), introduced in April. If enacted, the bill would require the U.S. Food and Drug Administration to create a unified track-and-trace pedigree standard for pharmaceutical drugs.

The aim of the bill is laudable—to protect the public from counterfeit drugs—but there are better ways to achieve that goal.

The study found that it would cost $84,000 to $110,000 per pharmacy for the hardware, software, infrastructure, labor and resources to implement a track-and-trace system that uses 2-D bar codes and both high-frequency and ultrahigh-frequency RFID tags, the three technologies the industry is currently exploring. This amounts to more than $1.3 billion in total cumulative costs for a large chain with 14 distribution centers and 4,000 pharmacies, $46 million for a medium-size chain with one distribution facility and 100 pharmacies, and almost $4 million for a small chain with no distribution facilities and 15 pharmacies.

Charlie Sewell, senior VP of government affairs for the NCPA and co-president and founder of the CCPA, says these costs would be prohibitive for most pharmacies and could bankrupt smaller ones. "This could be the straw that breaks the camel's back," he says. "It would really make the economic viability of community pharmacies come into serious question, and it would definitely have an impact on chain pharmacies."

The aim of the bill is laudable, and shared by every company in the pharmaceutical industry: to protect the public from counterfeit drugs by establishing a means to track drugs through the supply chain and ensure their authenticity. But there are better ways to achieve that goal than forcing all manufacturers, wholesalers, distributors and pharmacies to adopt three costly systems—or to adopt the even less attractive possible alternative, which is to comply with 50 different drug pedigree requirements enacted by the individual states.

So how can the industry meet federal and state goals to secure the drug supply chain without bankrupting small pharmacies and imposing a heavy financial burden on larger pharmacies and distributors? The answer is to agree on which technologies to adopt and then to take a phased approach, deploying the technology first in the areas where the threat is greatest.

Drug manufacturers, wholesalers and distributors need to agree on a serialized bar-code standard and an RFID standard—either HF or UHF, but not both. The industry needs to work with federal regulators and a coalition of state regulators to determine what information must be collected, where and when. And the industry and government should agree on a phased approach that targets the problem. The goal would be to shift from 2-D bar codes, which cost little for the manufacturers to apply, to RFID—and to transition from focusing on the most at-risk drug shipments to all drug shipments.

Here's how this approach could work: Manufacturers apply serialized bar codes to all pallets, cases and individual doses of drugs to start. Tracking all these drugs with 2-D bar codes would be very expensive for distributors and pharmacies, because they would need to hire many workers to pick up and scan bar codes on every case, pill bottle and vial. To limit labor costs, the initial focus would be on potential problem areas.

Drugs are sometimes shipped directly from a manufacturer, such as Pfizer, to a pharmacy chain, such as CVS. The potential for these drugs to be counterfeit is low. Sometimes drug companies ship to major distributors, such as McKesson or Cardinal Health, and then those shipments are sent on to pharmacies. Again, the potential for counterfeit drugs to enter this highly organized channel is low.

But sometimes drugs are shipped from a large wholesaler to a smaller wholesaler, and then to another. When shipments switch hands several times, the potential for bogus drugs to enter the supply chain becomes greater, so this is where the initial focus should be.

To get to item-level track-and-trace on a large scale, the industry needs to adopt RFID. It would be prohibitively expensive to pay an army of workers to scan the bar codes on millions of individual doses of drugs. But it would also be prohibitively expensive to put a 10-cent RFID tag on every individual dose. By phasing in RFID, the industry could drive down the cost of tags, readers and infrastructure, eventually making a solution affordable.

The industry could start by tagging all pallets, returnable totes, and cases of high-value products or drugs that are often stolen, such as painkillers. The RFID tag would have the same serial number as a bar code on the product, allowing smaller distributors and pharmacies to capture the serial number even if they didn't have an RFID infrastructure. Over time, more shipments could be tracked with RFID. The increased volume could drive down the cost of tags to the point where in four or five years RFID might be viable on individual bottles of pills. During the transition period, tagging would be required on certain types of shipments and drugs, but companies might choose to use RFID on other shipments to achieve internal efficiencies.

The Accenture study didn't take into account any efficiencies that an RFID system might bring to pharmacies large and small, but the benefits could be significant. For example, distributors could improve shipping accuracy and reduce shrinkage of certain products. Pharmacies could save by decreasing the time and labor needed to receive goods into inventory, they could check sell-by dates of products (an RFID system could automatically alert staff when a bottle of pills has passed its expiration date), and they could reduce errors and the potential liability associated with giving customers the wrong drugs.

A system that's gradually phased in spreads the cost over time, and cuts the overall cost by driving the price of the technology lower. This makes it easier for all players in the industry to deploy the technology in a way that isn't cost-prohibitive and might actually deliver efficiencies that offset the cost of the technology. And by focusing on the most at-risk shipments first, the public is protected, which is what the authors of H.R. 5839 and state regulators are after in the first place.