Blockchain Basics for Pharma

I was having a conversation with Mike, a colleague of mine who has been in the pharmaceutical industry for over 15 years, and I tried to impress on him the potential I saw for blockchain in health care and more specifically pharma. After several attempts at explaining how blockchain works and its benefits, it was clear he was not getting it. I was struggling to get through to him, and he was getting frustrated. “I don’t understand how it’s supposed to deal with issues like security and patient privacy,” he finally said.

After doing some research, I realized Mike and I were not the only ones struggling. Many different sources cite the single biggest challenge to adopting blockchain technology is explaining how it works. ¹ My discussion with Mike inspired me to write this blog.

What is blockchain?

In simple terms, it’s a secure transactional database or ledger spread across multiple computers or the cloud shared by various stakeholders who participate in it. Okay, so what’s the big deal? Well, it has a few other characteristics that make it powerful.

First, it becomes an immutable record of a transaction; a time-stamped verified, cleared, and stored permanent record created within minutes. This makes it best suited for transactions where trust and transparency are critical, and where there is a benefit of having a permanent record. It requires the cooperation of different partners and can be private (permissioned) or open. It uses encrypted code, and because it’s not stored in a central database, there is no single site to hack. Finally, only limited information, or “hash,” is stored so it doesn’t displace existing databases.

Think about the opportunity in claims processing between payers and providers. Typically, a manual process is required to validate contracts and authenticate memberships. Smart contracts act as “digital promises” with agreed-to business rules that execute or approve agreements autonomously, speeding processing time and dramatically reducing operating costs. Payers and providers would have visibility to transactions in real time; reducing errors in areas such as billing and prescriptions and serving as a single source of truth. An encrypted, permanent record ensures the security of patient and financial records.

Deloitte identifies four elements that would serve as a guide for where blockchain technology may be applied²:

• For interactions between multiple partners
• Where trust is a concern
• Where intermediaries are inefficient
• Where enhanced security is a benefit

Blockchain solutions are becoming reality 

Part of the real estate industry that hasn’t evolved in decades is title registries. Blockchain can solve the issue of trust that title companies provide in real estate transactions with permanent digital records that are transparent, secure, and do not require management by intermediaries. Sweden is already looking at blockchain title registries.

Maersk, the world’s largest shipping company, tracks its cargo containers through blockchain, making customs processing easier and faster. Walmart already tracks some 1.1 million items through their blockchain. A boutique can ensure its diamonds are ethically sourced—as promised. Everledger uses a blockchain-based registry to track 2.2 million certified diamonds and is adding 100,000 per month.³

In health care, Robomed uses smart contracts to connect patient service requests with medical providers who can deliver the service. The provider is paid based on the success of the procedure as dictated by clinical guidelines. Robomed has enrolled 20 clinics and connected 1.7 million clients, leveraging 2,900 treatment guidelines and counting.

Opportunities for leveraging blockchain in pharma

When considering the use of blockchain by drug manufacturers, four obvious cases come to mind.

• In streamlining and securing the supply chain by preventing counterfeit products from entering the market and reducing operating and manual processes in the manufacturing and distribution.
• For clinical trial records management by eliminating a burdensome and costly manual record-keeping processes.
• Blockchain has the potential to provide more secure and automated means for maintaining regulatory compliance. In an increasingly digital world with customer expectations for omnichannel communication and service delivery, regulatory compliance requirements for tracking, identifying, and storing interactions using centralized databases is not only antiquated but also risky. In 2015, there were 112 million health care record breaches.⁴
• Automating smart contracts between payer, provider, and pharma and employing rules for processing and storing information as part of the contract management process. Each time a transaction takes place, the information is validated by the smart contract, which then stores it and executes payment if it meets the business rules.

Another more interesting application could be in processing data from wearables or text messages for adherence management programs. Tokenization or cryptocurrencies (e.g., Bitcoin) may have a role where value can be passed on from one participant in the blockchain to another. For example, the cost of treating a patient is paid by one payer, yet the benefit accrues to another when the patient switches coverage. A token can be created for the value of the heath benefit going to the initial payer.

What’s next?

In some ways, health care companies are actually ahead of financial institutions in blockchain adoption. IBM did a study on blockchain interviewing 200 health care executives including payers and providers in 17 countries and found that 9 out of 10 respondents plan on investing in blockchain pilots in 2018.⁵ One example is McKesson’s spin-off Change Healthcare, which signed on with Hyperledger to develop a health care blockchain platform, joining other players like IBM, Accenture, Intel, and Kaiser.

Cognizant asked 558 global health care leaders where they see the benefit of blockchain; 48% indicated it would be most beneficial in eliminating or streamlining non-value generating processes, improving data security and integrity (47%), and driving value-based contracts with drug manufacturers (47%).⁶

Organizations pursuing blockchain efforts will tackle smaller problems through experimentation as they work to develop capabilities before trying to be disruptive. Those who are first movers will have the opportunity to shape policy and regulations. Frost and Sullivan expects 55% of health care companies will have commercially deployed blockchain applications by 2025.⁷

Will blockchain’s impact be incremental or revolutionary?

For certain functions, blockchain technology will be revolutionary or disruptive, but for many others, particularly in health care, it will be an incremental change or enabling technology. The health care businesses that will see the most significant changes are data providers, aggregators, and intermediaries. EMR businesses will become the processor and patients would become the data owners. However, for most companies, it will automate processes and/or lower the bar to take action or collaborate. When data is trusted and protected, collaboration increases.

Take, for example, value-based arrangements between payers and drug manufacturers. The effort for payer and drug manufacturers to undertake these arrangements is overwhelming. They are encumbered with partner mistrust, inconsistent ways of measuring and defining outcomes across multiple parties (payer, provider, pharma, and patient), and different data platforms, not to mention legal/regulatory hurdles. Blockchain technology could help overcome some of these barriers for collaboration making them more compelling to undertake. The ability to effectively execute arrangements with payers could be a differentiator for a manufacturer, and for a payer, may offer a defensive strategy to lock in partners or to prevent competitors from entering a market or region.

What outstanding questions remain?

Who will pay for it? Who owns the data on the blockchain? How to get buy-in from key users and decision-makers to implement? What industry standards and regulations need to be introduced to ensure the blockchains meet other requirements (e.g., HIPAA)? How do you get slow adopters to buy-in and invest? 

With multiple health care stakeholders investing in blockchain, now is the time to begin to understand implications and begin to identify opportunities. Different organizations have different levels of risk taking for the adoption of new technologies and business processes. With blockchain, doing nothing is more of a risk than doing the wrong thing—just ask Kodak.