Even the name “Tag Data Standard” reflects this wrong-headed binding of EPC to RFID by seeming to place the RFID “Tag” at the center of the “standard”.  Yes, there is a need for a “Tag Data Standard”, to show how to encode an EPC into an RFID tag, but it is wrong to hide the definition of the EPC inside such a limited specification.  EPC is carrier technology independent.  RFID is only one of several carrier technologies that can carry EPC information. 

This disconnect between the standard and reality has caused a lot of confusion, even within GS1 where people seem to fall into one of two catagories distinguished by either bar codes or RFID.  People from both worlds within GS1 have assured me that and EPC can only be encoded into an RFID tag.  They are wrong, and GS1 would be a better organization if everyone associated with it would study the EPC and think about what it means to GS1 and its users.  I think it would expand their minds.

But finally, in TDS 1.5 it is made clear…  

“Nevertheless, it should always be remembered that the EPC and RFID are not at all synonymous: EPC is an identifier, and RFID is a data carrier. RFID tags contain other data besides EPC identifiers (and in some applications may not carry an EPC identifier at all), and the EPC identifier exists in non-RFID contexts (those non-RFID contexts including the URI form used within information systems, printed human-readable EPC URIs, and EPC identifiers derived from bar code data following the procedures in this standard).”

Now GS1 needs to update a lot of their documentation to reflect this reality.  Much of it continues to perpetuate the tight linkage of EPC and RFID.  See this FAQ for example.

This separation of EPC and RFID is pertinent in the pharmaceutical supply chain right now because many companies are planning to apply globally unique serial numbers to their products to comply with regulatory requirements in countries like Turkey, Brazil, Italy and in states like California.  At the same time most of them are also planning to apply globally unique serial numbers to their cases, pallets and totes.  The companies I am aware of are currently planning to use GS1 EPC’s for these serial numbers, but, as I predict in “RFID is DEAD, at Unit-Level in Pharma“, most will not use RFID to carry those numbers, but will use 2D barcodes instead.  A few will use RFID and 2D barcodes to carry a single EPC.  None of these uses would be possible if the EPC wasn’t fully distinct from the carrier technology.

TDS 1.5 IS A MASTERPIECE…BUT…

Yes, TDS 1.5 is a masterpiece.  For the first time there are separate sections for the EPC and for RFID as a carrier technology of EPC’s, and it is written in a way that is very easy to understand.  This version also includes clear information about encoding GS1 element strings into EPC’s.  GS1 element strings are values that are typically encoded into barcodes.  But if it were up to me in the future, GS1 would entirely remove the specification of the EPC from TDS.  There would be an EPC Standard, a Tag Data Standard (let’s call it TDS 2.0), and a Barcode Standard.  Or perhaps they should keep all carrier technologies in a single standard.  I’d call it the “EPC Carrier Standard” and it would have an RFID section and a barcode section.  It would show how to encode any EPC into one carrier technology or the other and how to convert from one to the other without data loss or ambiguity.  TDS 1.5 is very close to this ideal.

It seems simple and the need is great because pharmaceutical companies are moving forward right now, but GS1 has been grappling with RFID and bar code interoperability for quite a few years.  TDS 1.5 goes a long way toward resolving these issues, but full resolution is still ahead of us.  Oh well, maybe TDS 1.6 will be an even better masterpiece.  Watch for it to arrive sometime next year.

WHAT IS THE EPC AND WHY HIBCC SHOULD PAY ATTENTION

The EPC standard, encased inside of the RFID-Tag Data Standard 1.5, is so simple that it’s not surprising that people miss it.  Section 4 of TDS 1.5 expresses it this way:

“The EPC is a universal identifier that provides a unique identity for any physical object. The EPC is designed to be unique across all physical objects in the world, over all time, and across all categories of physical objects. It is expressly intended for use by business applications that need to track all categories of physical objects, whatever they may be.”

The most likely systems to recognize and operate on EPC’s are those that are based on the GS1 Drug Pedigree Messaging Standard (DPMS, a.k.a., the GS1 Ratified Pedigree Standard), or the GS1 EPC Information Services (EPCIS) standard.  Both of these standards specifically work with EPC’s.  DPMS, of course, is specificly designed for compliance with U.S. electronic document-based pharmaceutical pedigree laws like California, Florida and the federal PDMA.  EPCIS is an interface standard for use in systems that focus on documenting object visibility in a supply chain.  The future GS1 Discovery Services standard will also operate on EPC’s.

I assume that GS1 has copyrighted the acronym “EPC”, but what’s interesting is that there is nothing special–nothing GS1-specific–about creating an object identifier that can be used in systems based on DPMS or EPCIS.  That’s because those two standards simply require the use of unique identifiers that follow a set of open W3C standards, specifically RFC2396 (see also RFC2141 and RFC3406).  GS1 refers to this as an identifier in “pure identity” format, which is also known as “URN” format (“URI format” to purists).

For example, a valid identifier for use in DPMS or EPCIS for an object serial number that I took from TDS 1.5 is:

urn:epc:id:sgtin:0614141.112345.400 

GS1 was issued the namespace “epc” by the Internet Assigned Numbers Authority (IANA) and that gives them the authority to define the schema for all of the data elements to the right of the letters “epc:” in the identifier above.  TDS 1.5 specifies what each of those segments mean and their value ranges.

But DPMS and EPCIS would work just as well if the object’s unique serial number were defined with some other valid URN: namespace besides “epc:”.  Nothing stops organizations (like the Heath Industry Business Communications Council, HIBCC) from acquiring their own namespace from IANA and defining their own schema that would encode their own unique, non-GS1 serial numbers.  And those URN: formatted (URI formatted for the purists) unique identifiers would work just as well and would be fully interoperable with other “URN:EPC:” serial numbers.  Of course, just don’t call them EPC’s.

For many types of commercial objects, there are no viable alternatives to GS1 numbering so use of GS1 EPC’s are a given.  But whenever medical products are serialized at some time in the future, GS1 is only the latest entrant (though growing fast as I point out in “WAR: GS1 Vs. HIBCC“).  HIBCC was the traditional numbering not-for-profit organization for these type of devices and they recently introduced their own approach to unique identification based on their Labeler Identification Code (LIC) and an added serial number.  Like GS1, they hid it inside of their RFID specification.

With version 1.5, TDS has gone through an impressive rewrite.  It’s easy to read, especially the first 6 sections (23 pages).  I highly recommend it to anyone wishing to better understand the EPC standard at the conceptual level.

Ivan in happier times

I received news last night that my friend and co-worker, Ivan Shen, passed away on Sunday after losing a five month battle with cancer.  During his career Ivan worked for serialization and pedigree companies including Oat Systems, Reva Systems and SupplyScape (now TraceLink).  Many RxTrace subscribers are current or former co-workers or former customers of Ivan.

I met Ivan a few years ago when we both worked for SupplyScape.  At that time I was struck by his quick wit and sense of humor.  Since that time we both ended up employed by the same company again.  When I started the RxTrace blog, Ivan was among my earliest subscribers and I always appreciated his thoughts and comments on my essays.

Ivan was intensely proud of his Chinese…err, Shanghai-ese…ancestry.  He was active in his Church.  He is survived by a daughter, a sister and his former wife.  If the family posts a full obituary I will update this post with a link to it.  [UPDATE:  Ivan's funeral will be held in Waltham, MA on Saturday, August 21, 2010.  If you want the details, please contact me directly. -- Dirk.]

[2nd UPDATE:  Click here for Ivan's Obituary]

[3rd UPDATE:  Click here for a slide show featuring great photos of Ivan throughout his adult life]

Back in April, Ivan bought a bicycle and challenged me to a competition to see who would ride his bike to work most often.  The first time he rode to work it exhausted him.   That was the first indication something was wrong with his health.  He didn’t ride again.  Tragically, he waited four more weeks before seeing a doctor, with his health deteriorating each day.

Shortly after he was diagnosed, I signed up to ride my bike in the Pelotonia, a cancer fundraiser with 100% of the donations going to fund cancer research at The Ohio State University Comprehensive Cancer Center – James Cancer Hospital and Solove Research Institute.  I dedicated my planned ride to the memory of my father, who died of cancer two years ago, and to Ivan, a “future cancer survivor” as I put it back then.  The ride is this coming weekend, August 21, 2010.

If you knew Ivan, you may be interested in donating to fund research that we hope will end cancer as we know it.  You can donate generally here, or you can donate through my personal ride page by clicking here.  Donations can be made through October 2010.  (I do not receive any financial benefit from donations.)

Ivan was a special person.  He will be missed.

Ivan and Dirk May 26, 2010

In my analysis at that time, I theorized that the actual percentage would start out following my “low” estimate line, but at some unpredictable point, something would happen that would cause the percentage to jump up to the “high” estimate line.  At the time, I assumed the event that would cause that jump would be the U.S. Federal government issuing some kind of pedigree regulation that included a unit-level serialization requirement.

As it turned out, things moved slower than I had guessed.  Here it is 2010 and the percentage of drugs in the supply chain with unit-level serial numbers on them is so small that it’s tough to give it a percentage.  But I think my estimate from way back in 2005 was not bad for its time (but notice I’m not publishing the actual graph).  After all, the California Pedigree deadline has been pushed out at least three times since then (from 2007 to 2009, to 2011, to 2015/1016).

I think the future is a little less murky now because, since 2005, pharma manufacturers are increasingly facing serialization requirements from around the globe, in addition to the one in California.  From my observation, more and more, manufacturers are viewing the addition of unit-level serialization as just another regulatory cost of doing business globally in the future.  The pharmaceutical markets in Italy, Turkey and Brazil (countries with drug serialization requirements) are small enough that manufacturers can deal with them by adding the serial numbers to their packages as the drugs first arrive in country, even though that’s not very efficient. 

But the U.S. market is different.  It’s the largest market for pharmaceuticals in the world.  A serialization requirement that will take effect in 2015 and 2016–even one that affects only those drugs entering California–cannot be handled in that same way.  The California law has become the trigger that leads many manufacturers to draw up plans for adding the necessary systems to all of their packaging lines so that they can apply serial numbers as efficiently and as flexibly as possible–and for all markets. 

And manufacturers aren’t just going to serialize the portion of their production that ends up in California either.  How could they know which ones will and which ones won’t.  They will have to serialize (and pedigree) all drugs in the entire U.S. market so they can ensure that those that do make it to California are properly serialized (and pedigreed).

For this to work, standardization is essential, and that’s one reason why the FDA’s Standardized Numeric Identifier (SNI) guidance of this past March and its alignment with GS1 identification standards is so important.  Everyone hopes this will cause governments around the world to adopt the same, or at least a compatible, approach.  That’s the only way to guarantee true global traceability.

THE FIRST ANNUAL RxTRACE ESTIMATE OF SERIALIZATION

Last weekend, I created a new graph that contains my latest prediction.  This time it’s based on the known deadlines contained in the latest California Pedigree Law.  Pharma manufacturers whose drugs will be sold to California residents must apply serial numbers to all of their packages that make it to that state after January 1, 2016.  By January 1, 2015 they are supposed to have serial numbers on 50% of their drugs that enter the state (the definition of 50% is left up to each manufacturer).  Of course, they also have to start an electronic pedigree for each one too. 

If you know those dates, and you listened to the commitments to meet them that various large manufacturers made publicly to the California Board of Pharmacy, as I did, you have to figure that most drugs are going to be serialized by 2016.  Here is my new graph (click on the graph to enlarge it for viewing):

This is just an educated guess that I’m making publicly so that, someday, we can all see how close it comes to the reality.  Of course, you will have to allow me to change my prediction if any of a number of things happen before 2016.

• California changes their pedigree deadlines, or certain other requirements
• The Federal Government (Congress and/or the FDA) imposes a nationwide pedigree law/regulation
• Some other state adds a serialization-based pedigree requirement to their regulations
• “The Big One” happens and the State of California slides into the Pacific Ocean

The problem is, it will be near impossible to measure the percentage of actual serialized product in the U.S. supply chain with any degree of accuracy unless some authority is willing to release statistics.  So we may never know for sure how the industry is progressing toward these deadlines, but I think we will start to get a feel for it as time progresses from here on.

SO IF IT’S JUST A GUESS AND YOU CAN’T MEASURE PROGRESS, WHAT’S THE POINT?

That’s a good question.  I think it has significant value as a prediction because it shows what must happen if there is any hope of widespread compliance with the California law by these deadlines.  It gives us a yardstick to measure progress against (assuming someone releases statistics). 

And if we don’t start seeing the percentage of drugs that are serialized in the supply chain begin to rise soon, I think the industry risks missing the deadlines.  That’s because it takes so much time for a large company to add reliable serialization capability to a single line, if they aren’t making progress soon, they may eventually run into shortages of talented and qualified individuals who can help them get done on time.  I predict (another guess!) that the demand for such people will begin to exceed the supply sometime in 2012.  After that you will only find the “B” teams available.

But it also gives us a picture of what may be about to happen in the U.S. pharma supply chain.  Supposedly lots of serialized products will start to appear in the supply chain in the next few years.  If you have confidence that this is an accurate statement, then perhaps you might begin working on some non-compliance application that can take advantage of that amazing resource:  large-scale, unit-level serialization of drug packages.  I’ve already predicted that it may eventually result in a transformation of the drug wholesaling business.  The rise in unit-level serialization is the first step in the sequence of events that would lead there.

What is your prediction?  Leave a comment below.

My personal favorite essays from the past year, in chronological sequence are:

• The Florida Pedigree Law (August 10, 2009)
• The California Pedigree Law (September 7, 2009)
• What Are Pedigree Laws Trying To Accomplish Anyway? (November 2, 2009)
• Who owns supply chain visibility data? (December 31, 2009)
• The Deputized Supply Chain (January 31, 2010)
• FDA Aligns with GS1 SGTIN For SNDC (March 29, 2010)
• RFID is DEAD…at Unit-Level in Pharma (April 12, 2010)
• The Modern Pharmaceutical Wholesaler and the Approaching Transformation (May 7, 2010)
• California Pedigree Law:  Historic Change to Commerce (June 14, 2010)

Since late January I have been collecting some statistics on page views on RxTrace and here is the list of the essays in the sequence of page views since that time.  Of course, these results are a little skewed because essays published prior to January did not benefit from their initial rush of page views, but some of those continue to get a regular cadence of views.  For example, it is remarkable that the continual interest in “The Florida Pedigree Law” essay–first published last August–places it in the #4 position since January. 

1. RFID is DEAD…at Unit-Level in Pharma
2. WAR: GS1 Vs. HIBCC
3. FDA Aligns with GS1 SGTIN For SNDC
4. The Florida Pedigree Law
5. So a customer demands that you use GLN’s and GTIN’s. What next?
6. Will The Pharma Supply Chain Find Any Value In GS1 Discovery Services?
7. The Modern Pharmaceutical Wholesaler and the Approaching Transformation
8. The Deputized Supply Chain
9. Inference in the Pharmaceutical Supply Chain
10. California Pedigree Law: Historic Change to Commerce
11. Supply Chain Data Synchronization and Patient Safety
12. Will The Pharma Supply Chain Be Able To Use Inference? Maybe Not!
13. Innovation and the “Authenticating Wholesaler” Idea
14. The California Pedigree Law
15. “Why the rush for GS1 standards?”
16. “The State of Healthcare Logistics”
17. The “Normal Distribution” Concept
18. What are Pedigree Laws Trying to Accomplish Anyway?
19. How to Stop Pharmaceutical Cargo Theft
20. Who’s Responsible for Global Supply Chain Security?
21. Who owns supply chain visibility data?
22.  The Importance of Standards
23. Master Data, Supply Chain Master Data and Instance Data
24. Charles “Chuck” Schramek (1945 – 2010)
25. The Legitimate and Illegitimate Supply Chains
26. Digital Signatures
27. Use of GLN and GTIN for Pedigree Regulatory Compliance
28. Pedigree Models and Supply Chain Master Data
29. Dangerous Doses
30. PDMA Lawsuit Resolved?
31. GS1
32. Fundamental Law of Commerce
33. New Layout for RxTrace
34. Subscribing to RxTrace

I’ve covered a lot of ground in those 34 essays and received a lot of great comments in response.   There are a lot of topics I want to cover in the next 12 months, including:

• GS1 Tag Data Standard 1.5
• More on Pedigree Models
• More on GS1 Standards
• My “Semi-Centralized, Semi-Distributed” Pedigree Model idea
• GS1 “Process” Standards
• What HIBCC can do to remain relevant in a GS1 world
• The Problem of Counterfeit Drugs around the world and the widely varying ideas to block them
• The BRIDGE Project and its wealth of documentation
• Review of federal pedigree legislation introduced (if/when introduced)
• Review of future FDA pedigree or track and trace guidance (if/when published)
• Review of future publications from GS1, HDMA and HIBCC
• Pharmaceutical Supply Chain organization and dynamics related to supply chain integrity and security
• More on the vast implications of wide-spread serilization and carrier technology choices

So if you are not yet a subscriber, enter your email address in the subscription box in the upper left corner of this page and stay tuned.

Dirk.

When a pedigree law is a “normal distribution” law, it generally means that pedigrees are not needed for any shipment or change of ownership where the drugs do not leave this common/typical/normal path as defined in the law.  But as soon as a change of ownership or custody occurs where the drug leaves this “normal” path, a pedigree is then necessary. 

Typically, when a pedigree is required outside the “normal distribution channel”, that pedigree must document the entire supply chain history from the manufacturer to the pharmacy that ultimately dispenses the drug.

Most states in the U.S. that have pedigree laws have “normal distribution” laws.  Each state tends to define the term differently although there are only a few major variations.  I haven’t cataloged them all, but it appears that the most common type of “normal distribution” pedigree laws are those that define the term as drugs that only move between the manufacturer (or their 3PL), one wholesaler and one pharmacy, whether chain or independent (I’m paraphrasing here).  There are a few that define it to mean drugs that only move between the manufacturer (or their 3PL), up to two wholesalers sequentially, and one pharmacy.

The actual language varies and can be fairly complex so you really have to read the text of each state’s pedigree laws to fully understand the particulars.  Here are a few quick examples:  Colorado, Wisconsin, Illinois, Indiana and Texas.  In each case, search the document or page for the word “normal” (usually multiple times) until you find the definition of the term.  Please don’t use my links as your only reference to the regulations.  Some of these references may not be the actual current regulation but they include the state’s definition of the term “normal distribution channel”.

As I understand it, the original concept of “normal distribution” came from, or through, the National Association of Boards of Pharmacy (NABP) which publishes “model rules” for states to use as a reference as they create and adjust their pharmaceutical supply chain regulations in an effort to produce uniformity–or at least similarity–among the state laws.  In 2004, NABP revised their model rules to include pedigree rules.  Most states with pedigree regulations follow the NABP model rules, but to varying degrees.  The NABP model rules include the concept and definition of “normal distribution channel” and the model requirement that pedigrees would be required for any drugs that move through the supply chain on a path that departs from this “normal distribution channel”.

THE PROBLEM WITH “NORMAL DISTRIBUTION” PEDIGREE LAWS

Requiring pedigrees for drugs that move outside the “normal distribution channel” seems to make sense on first thought.  When you look at the kind of crimes that have resulted in the introduction of illegitimate drugs into the legitimate supply chain in the past, you find that the drugs were often characterized by many changes in ownership.  Sometimes initially legitimate drugs passed from “wholesaler” to “wholesaler” to “wholesaler”, many times, and at some point, criminally transformed into illegitimate drugs and were eventually sold to pharmacies where they were sometimes dispensed to patients.  These many changes in ownership are the target of the “normal distribution” pedigree laws. 

The goal is to allow most drugs to move through the “normal” supply chain unhindered by the need to keep a pedigree up-to-date–something that can be costly when done on a large-scale basis.  Since the largest volume of drugs do pass through these “normal” routes, few drugs would actually need a pedigree.

Once a “normal distribution” wholesaler sells a drug to a non-“normal distribution” customer, a pedigree must be provided, and that pedigree must show the complete supply chain history from the time the drug was received by the first wholesaler–the one that received it from the original manufacturer–until the current transaction.  The problem is, to be capable of accurately knowing the complete supply chain history of any single package of drugs, everyone–even “normal distribution” wholesalers–would have to keep pedigree-like records and carefully track each package through their own facilities from source to customer.  This would need to occur for all drugs, just in case one was eventually sold outside of the “normal distribution channel”.  

One possible alternative is for wholesalers to simply decide that the record-keeping burden is too heavy and therefore choose not to sell to customers who are not within the “normal distribution channel”.  The perception that some companies have taken this path has caused other companies to seek protection from the courts.  (See also this and this.)

California is the only state that has a pedigree law but does not make use of the concept of “normal distribution”.  All manufacturers, wholesalers and pharmacies that distribute drugs inside the state of California after 2015-2017 (the date depends on the segment) must participate in the passing of drug pedigrees.  No company or segment is exempt.  Since those dates are in our future, today, very few drugs pass through the U.S. supply chain with pedigrees accompanying them.  This is despite the fact that more than half of the states have some kind of drug pedigree regulation on their books.  But once 2015 arrives, many companies in the supply chain will experience a huge increase in the number of pedigrees that must be received, tracked, updated and passed.

In my view, a truly viable pedigree regulation and pedigree model must work as well for both large and small legitimate companies.  Put another way, a pedigree regulation or model that only works well for larger legitimate companies and does not also work for smaller legitimate companies is not acceptable.  “Normal distribution” laws cause unnecessary hardship on legitimate companies in the supply chain just because they are too small to be able to buy directly from the manufacturer, while giving a free pass to larger companies who can.  For that reason, “normal distribution” pedigree laws do not meet this acceptability test.   

The goals of the “normal distribution” concept are noble.  It’s just that the concept falls short of being acceptable.  In a future essay, I hope to contrast the “normal distribution” concept with the “authenticating wholesaler” concept to see how they compare.  Both are intended to reduce the number of pedigrees that must be maintained in the supply chain but they accomplish it in different ways.  Stay tuned.

“…[C]ommencing on July 1, 2016, a wholesaler or repackager may not sell, trade, or transfer a [prescription] drug at wholesale without providing a pedigree.

…[C]ommencing on July 1, 2016, a wholesaler or repackager may not acquire a [prescription] drug without receiving a pedigree.

…[C]ommencing on July 1, 2017, a pharmacy may not sell, trade, or transfer a [prescription] drug at wholesale without providing a pedigree.

…[C]ommencing on July 1, 2017, a pharmacy may not acquire a [prescription] drug without receiving a pedigree.”

With these words the State of California introduced a significant change to the way the pharmaceutical supply chain works (see section 4163 of the California Business and Professions Code) and has written a new page in the history of commerce.  It brings pharmaceutical commerce fully into the computer age.  Adam Smith would not recognize it.  Today, and up to the effective dates of these provisions, the value of a legitimate pharmaceutical in the legitimate U.S. supply chain is determined by the physical condition of the product and its package.  After July 1, 2016, the value of a legitimate pharmaceutical in the supply chain in California will be determined by the combination of the physical condition of the product and its package, and the sellers ability to provide the buyer with an electronic pedigree. 

The intended effect of this new regulatory requirement is to place a significant roadblock in front of counterfeiters, diverters and others who would try to scam patients and the legitimate participants in the supply chain.  This is a noble cause.  By requiring sellers to provide buyers with a pedigree at each change in ownership in the supply chain, illegitimate parties will find it very hard to inject illegitimate drugs without exposing their actions and, at the same time, creating evidence that can be used against them in their own prosecution.  By providing a pedigree at each change in ownership, supply chain buyers will be able to check the authenticity of the full supply chain transaction history provided by the seller, maximizing the likelihood that any suspicious activity would be detected long before a patient would receive the drugs.

But I’m more interested today in exploring a surprising unintended effect of these requirements.  I’ve touched on this briefly in past essays but I’ve recently concluded that the implications of these requirements are much more significant than I realized before.  This may be the first time in the history of commerce that the value of a large class of physical merchandise will be bound tightly to the availability of a collection of electronic data.  That is, if you don’t have the data (the pedigree), the value of the physical merchandise (the drugs) you hold in inventory in California will be zero because you won’t be able to sell one without the other.  The value of the drugs will be inextricably bound to the availability of the pedigree data.  The theory is, because a wholesaler or pharmacy can’t buy legitimate drugs in California without receiving a pedigree, then if your drugs are legitimate, you will have a pedigree because you couldn’t have bought them in the first place without having received one. 

But what if that pedigree data you originally received from your supplier is subsequently lost for some reason?  According to the law, you won’t be able to sell or dispense these drugs, so their value drops instantly to zero.  Thud!  Because the value of the drugs in your California inventory will be totally dependent on your ability to retain and (for wholesalers) supply the pedigree data to your customer, the value of that pedigree data will equal the value of the drugs.

Which pedigree model you are operating under at the time of your data loss will have an important impact on how serious this is.  If you are using the GS1 Drug Pedigree Messaging Standard (DPMS) as the basis of your pedigree system (a document-based pedigree model), the data loss could either have been caused by the failure of an IT infrastructure component, a security breach, or perhaps a errant software component—any of which could occur in your systems or in that of your contracted Software as a Service (SaaS) pedigree service provider (if you choose to outsource this service).  These are components that would be fully under your control either directly or through contracts. 

In this document-based pedigree scenario you should be able to request copies of the lost pedigrees from your suppliers (for your current inventory) and your customers (for inventory you shipped to them in the past).  Normally, they would have an exact copy.  Rebuilding your pedigree database this way will be very painful, but at least it would be possible to reclaim the value of your current inventory of drugs.

If you are operating under a distributed pedigree system, pieces of the data for your pedigrees would be held by all previous owners of the drugs and all you would hold is the part about your receipt and shipment.  To get the full pedigree for a given unit at the time it is needed you would have to query each of the previous owners for their piece of the data and collect them all into a single collection of event data.  Under this distributed pedigree system, a data loss could either have been caused by the failure of an IT infrastructure component, a security breach, or an errant software component–any of which could occur in your systems, your SaaS service provider (if you choose to outsource this service), or in those of any one of the previous owners of the drugs.  These last components would not be under your control, either directly or indirectly.

In this distributed pedigree scenario, no one will necessarily have a copy of the data you are missing and so there would be no inherent way to reclaim the value of your inventory.  In that case, you would permanently lose the inventory involved.  If I’m reading the law correctly, once you no longer have a pedigree, you won’t even be able to transfer the inventory to another state (this is subject to your own interpretation of the “transfer” provision, of course).

In the document-based pedigree model the loss of the data could only occur through failure of devices, software or a  security breach within systems that you control either directly or through a contract.  You have the opportunity, prior to any data loss, to choose to put into place whatever level of IT sophistication you deem is appropriate for holding data that is so important that its total loss could cause your business to fail.  For most companies, this would include some very sophisticated and expensive hardware and software with multiple copies in multiple locations and high security mechanisms to ensure against inappropriate access and many other kinds of potential disasters and catastrophes. 

But in the distributed pedigree model, your data loss exposure includes devices, software and security breaches within systems that you have no say in because they are owned by companies upstream in the supply chain.

YOU’VE GOT INSURANCE COVERAGE FOR THAT LOSS, RIGHT?

Most companies purchase insurance coverage against losses due to fire, theft or other physical damage to physical merchandise held in their inventories.  All of these can result in a partial or total loss of inventory value in a very short period of time.  After the effective date of the California pedigree law, pedigree data loss will have the identical effect on value.  It is not inconceivable for a single event to cause the loss of all pedigree data for an entire warehouse of merchandise—even multiple warehouses, depending on how the data is stored.  This is regardless of the pedigree model in use by the supply chain.  Companies should be thinking now about how they are going to mitigate the risk of data loss through the deployment of very robust pedigree IT infrastructure and–for the cases where all else fails–data loss insurance that covers the loss of inventory value as a result… if you can even get it.

This strikes me as remarkable.  I have some idea of how an insurance company might evaluate the risk of loss when all of the data is held by the company purchasing the policy or by their contractual service provider when a document-based pedigree model is in use, but I don’t know how they might evaluate the risk of data loss when the necessary pedigree data is held in IT systems that are not in the control of the potential policyholder like it would be in a distributed pedigree model.  It seems to me that a distributed pedigree system will be uninsurable against data/value loss. 

In that instance, all a company can do will be to only buy products from suppliers who agree to meet their own high level of security and data protection.  When parts of your pedigrees are being held by upstream suppliers, their IT practices will become very important to you and to your customers, and their customer’s customers…  Perhaps you will need a process to certify the IT infrastructure of your suppliers and their supplier’s suppliers.  This could be hundreds, perhaps thousands of companies that would need to be certified, depending on the depth of your upstream supply chain, before drugs can be purchased.    The need for certification leads to the need to recertify whenever any upstream supplier switches suppliers.  Again, this seems unworkable, particularly for supply chain members who are deeper than the “normal distribution” crowd.  (“Normal Distribution” supply chain members typically include the original manufacturer, the first wholesaler and the first pharmacy to own a given drug.)

DOES A DISTRIBUTED PEDIGREE EVEN COMPLY?

Those readers who have followed RxTrace since the beginning know that I have visited this flaw in the distributed pedigree approach several times over the last year.  Those essays are worth reviewing.  And, you know that I don’t believe a distributed pedigree comes close to complying with the California Pedigree Law in its current state for multiple reasons.  Some people from outside the supply chain seem to disagree.  The problem raised in this essay shows that a distributed pedigree approach would result in real and unnecessary harm to companies in the pharmaceutical supply chain.

But the projections of widespread reliance on inference lead directly to a new concern.  Let me explain.  Successful use of inference for determining the contents of cases is totally dependent on the accuracy of the aggregation information established and provided by the manufacturer, or whoever packed them.  If a packer uses a casepacking process that is incapable of yielding highly accurate aggregation information, inference will not work well.

This is a problem.  A big problem, because many pharma manufacturers currently use casepacking processes that will likely not yield highly accurate aggregation information.

Knowing which units were packed into which case is called the “unit-to-case aggregation”.  Drug manufacturers will need to know, reliably and repeatably, the exact unit-to-case aggregation of every case they (or their packaging partner) pack.  This will be necessary in a serialized-pedigree-mandated supply chain because the manufacturer will need to know exactly which units were shipped to which customer. 

At this point, let’s not forget that if every unit had an RFID tag on it, manufacturers/packagers would simply have to run each case down a conveyor through a tunnel reader after they sealed them and read the serial numbers on the units and on the case at the same time.  Voila!  You know the unit-to-case aggregation for that case of product.  And that technique would be very reliable and repeatable.  Downstream trading partners could do the same thing to verify the unit serial numbers inside each case without opening them.

But, if all units have serial numbers carried only in barcodes, you have to read the serial numbers before you seal each case.  A common approach to this new requirement is to simply arm the workers who are today manually packing product into cases, with 2D barcode readers and ask them to scan the serial number on each unit as they are manually placed into the case.  The problem is, no matter how slow the process, and no matter how “careful” you instruct your workers to be, you just can’t expect the kind of accuracy that a pedigree law will require if human beings are responsible for manually aiming a barcode reader at each unit as it is manually loaded into a case.  People make mistakes and they are prone to seeking out error-inducing shortcuts that make their tasks easier.  That’s human nature.  We all do things like that. 

No.  This can only be done reliably and repeatably with some kind of automated system.  Generally, these systems are not going to be cheap, and you would probably need one complete system per packaging line.  It would be an automated case-packing machine with integrated 2D barcode reading capability of some kind.

In my relative cost comparisons I focused mostly on the steady-state reoccurring costs at the manufacturer.  I noted that these ongoing costs for RFID will be much higher, relatively speaking, than for 2D barcodes.  But if the projected ongoing costs lead manufacturers to serialized their units with barcodes, as I predict, then their initial costs could be even higher because of the cost of these automated casepacking systems that will be necessary to accurately determine the unit-to-case aggregations.  For really large manufacturers, this initial cost could be very large. 

Until recently, most people hadn’t realized that they would need to include this cost as part of a barcode serialization plan.  This additional cost is just hitting some people and that depressing realization has led to the introduction of a new idea that is being kicked around in the industry.  This is the shift in attitudes about how a pedigree system might work that I was referring to in recent essays. 

A NEW IDEA:  NO AGGREGATION INFORMATION

This new idea is that, if it is necessary to generate accurate unit-to-case aggregation so you can know exactly which units were shipped to which customer, and if it is so expensive to reliably and repeatably generate accurate unit-to-case aggregation information, then perhaps a manufacturer shouldn’t really need to know exactly which units were shipped to which customer.  That is, if to do A requires that you first do B, but B is much more expensive than you originally thought it would be, then maybe you really don’t want to do A after all.  This semi-circular logic quickly spirals into uncharted territory.

So the new idea is that perhaps manufacturers would not even attempt to determine the unit-to-case aggregation.  In that case, manufacturers/packers would still put serial number barcodes on their units, but they wouldn’t bother to scan each one as they are being loaded into cases. 

If manufacturers don’t generate aggregation information, then downstream trading partners would not receive any and would therefore not be able to perform inference, because, as I pointed out above, the practice of inference relies on the availability of accurate aggregation information from the company that did the casepacking.

But let’s assume this idea is someday accepted and implemented.  In doing so, we are definitely in uncharted territory, but that’s exactly where innovation is most likely to occur.  How would a supply chain pedigree system work, and how would it protect the supply chain?  First, it would require a radical new view of the concepts of “pedigree” and “track and trace”.  Consider this:

• The manufacturer wouldn’t know for sure which unit went into which case, but they would always know exactly the full set of unit serial numbers that they produced so they could at least respond to an authentication request from downstream trading partners with a response of “valid” or “not valid”.  In this approach, it could be left up to their immediate customer, whether wholesaler, chain pharmacy, mailorder pharmacy, etc., to read the serial number on each unit they receive and then authenticate the unit serial number with the manufacturer through some sort of real-time, internet-based electronic communication.  Through this communication, the manufacturer would learn exactly where they had previously shipped each unit.  Once authenticated, the immediate customer could then start a pedigree, including proof of product identifier/serial number authentication, and pass it on to their supply chain customer, if any.  

This approach has some similarities with the EFPIA approach known as authentication at the “Point Of Dispense”, or POD, except that the serial number authentication would only be necessary at the first trading partner after the manufacturer (and optionally downstream as well).  Trading partners downstream of the first recipient would have to receive, validate, update and pass traditional electronic pedigrees (something that is not part of the EFPIA proposed approach).

• As an alternative to an authentication service, the manufacturer could simply give their immediate customers all of the serial numbers that they produced in the entire lots/batches that are represented in their shipment, perhaps in an electronic pedigree, but without indicating where each serial number was actually shipped (because they wouldn’t know that).  When the customer receives the shipment (or at some point later in their processes), they would open the cases and scan the serial numbers on each unit and check it against the full list of valid serial numbers provided by the manufacturer.  This is similar to the first bullet above, except that the manufacturer would pass on the data necessary to perform the serial number authentication to their customer and let them do it locally.  Again, trading partners downstream of the first recipient would have to receive, validate, update and pass traditional electronic pedigrees. 

This approach would require a great deal of trust by each manufacturer of their immediate customers because they would be giving them all of the serial numbers that were produced.  Armed with those numbers, an untrustworthy customer could cause lots of damage to the security of the supply chain.  For this reason, this idea is probably not workable without some kind of additional checks and balances.

Both of these approaches could work up to a point because wholesalers and pharmacies would open cases and could read each of the unit serial numbers at some point during their ownership of them.  But both approaches fall apart whenever the first recipient is a wholesaler who sells and ships one or more full manufacturer’s cases of product to a certain set of their customers.  This probably describes all major, and many smaller, wholesalers.  It would be very costly, inefficient and risky to expect wholesalers to manually open full cases, read all of the barcodes on the units and then seal them back up for shipment.  The accuracy of this step would be no better than if the manufacturer’s had done it in the first place, and this is where the destruction of supply chain efficiencies would occur without inference. 

Perhaps as a new service to manufacturers, wholesalers or 3PL’s could install their own automated systems for the purpose of determining the aggregation information on behalf of the manufacturer, but that would almost certainly result in an ongoing fee.  Would that fee be comparable to the higher ongoing cost of RFID in the first place?  Hard to say.

Perhaps the biggest problem with the whole idea is that it wouldn’t come close to complying with existing state serialized pedigree laws.  That’s because the California pedigree law requires manufacturers to provide pedigrees that include the unit serial numbers to their customers.  That is, the law requires all trading partners to pass the exact pedigrees for the exact unit serial numbers they ship to their customers.  Any discrepancies means that the recipient will have one or more units that do not have a pedigree and these units would be unsellable from that point on.  In effect, without a pedigree, these units would have no value and would have to be returned.

So the only possible way it could work at all is if the FDA were to recognize this problem and then adopt a national pedigree architecture that would accommodate an approach like one of the two I have outlined above, or something else.  That would be a pretty radical departure from the current direction of pedigree laws and even the pedigree-containing bills that have been introduced into Congress in past sessions (but failed to pass).  For something like this to be accepted by the Feds, this concept would have to get the attention quickly of those who are currently crafting proposed pedigree legislation.

IT’S JUST AN IDEA, NOT A PROPOSAL…YET

Remember, it’s just an idea that’s being kicked around by a few people.  I don’t think anyone knows how to make it work, but you can’t innovate unless you start by thinking about something that seems impossible.  We just need someone to extend the idea in some way that would make it work to the benefit of everyone.  Submit a comment below with your thoughts on what might make it work.

BARCODES WILL PREDOMINATE.  LET’S MOVE ON… 

In a mixed-but-predominantly-barcode-serialized U.S. pharmaceutical supply chain, companies will not be able to tell which unit serial numbers are inside of each sealed case at receiving or at shipping.  Because barcodes are a “line-of-sight” technology, the only way to tell with absolute certainty what the sealed-up unit serial numbers are will be to cut the tape seal, open the case, expose the barcodes, scan each unit and tape the case closed again. 

It is a ridiculous notion to believe that this should happen at each receiving and shipping point because it would measurably elevate the risk of error introduction, damage and theft.  It would even cause greater suspicion of tampering by downstream trading partners who receive cases that have obviously been cut open and re-sealed after the manufacturer originally sealed them.  But most significantly, it cannot happen because it is super-inefficient (read:  unacceptably costly).

Notice here that if the units had been serialized with RFID tags it would not be necessary to open the case to read the unit serial number so each recipient of the case could read the contents without opening it.  Unlike barcodes, RFID does not require “line-of-sight”.  But because barcodes do, a recipient can never be sure what is hidden from sight inside a case without opening it up.

This is a well-known dilemma in the industry groups that I participate in.  The California pedigree law requires recipients of drugs to certify, under some stiff penalty, that they received specific drug units based on the serial numbers.  That’s how a pedigree works, but to be able to really certify that you have received a given set of unit serial numbers that only use barcodes, you would have to open, scan the units and reseal every case.  But if this can’t happen without a huge increase in costs, the only other way to do it is to simply trust what your upstream trading partner told you was in each case.  After all, the same pedigree law applies to them.  They are required, under the same stiff penalty, to give you a pedigree with exactly the serial numbers that they shipped to you so you should be able to trust them, right?

As long as the manufacturer puts a serial number on each case, whether RFID or barcode, and they read each of the unit serial numbers, whether RFID or barcode, as they are loading them into the cases, and if they accurately associate the case serial number with the unit serial numbers contained inside,  they would build a containment hierarchy for each case.  This is perfect for an Electronic Product Code Information Services (EPCIS) aggregation event, or a Drug Pedigree Messaging Standard (DPMS) envelope.  Both of these XML documents are designed to hold the kind of serialized containment hierarchy that I just described.

Armed with the containment hierarchy documented in this way, one could infer the unit serial numbers contained inside of a case by using the case serial number as a lookup key.  This is known as “inference” in the pharmaceutical supply chain. 

Inference can be performed at any level that the containment hierarchy allows.  If the containment hierarchy includes unit-to-bundle, bundle-to-case, case-to-pallet, pallet-to-shipping-container aggregations, then given a shipping container serial number and using inference, one could determine (infer) all of the unit serial numbers that are present inside of it without opening and without scanning(barcode or RFID). 

GS1 U.S. ON INFERENCE

The topic of inference in the drug supply chain has been getting a lot of attention in the Traceability Adoption work group of GS1 Healthcare U.S..  That group just published their paper, “The Practice of Inference in the U.S. Pharmaceutical Supply Chain Pedigree Regulatory Environment” which provides a good definition and background on the concept.  My purpose is not to reproduce the contents of the GS1 paper but, just to make sure you know what we’re talking about here I’ll give you my own definition of inference. 

Inference is an approach to identifying the contents of a shipping container without actually opening it to confirm exactly what it contains.  The types of “shipping containers” most often considered for the application of inference are cases packed by manufacturers and totes packed by wholesalers.  Being “an approach…”, the use of inference by any given company within any given business process (normally shipping and receiving), is optional and would be a conscious decision. 

When units are serialized with barcodes, if you choose not to use inference then you simply must open every container and confirm the contents by viewing and/or reading them.  Use of RFID serialization on items inside the container could be used to avoid the use of inference and still not open the container, but that assumes that you will always read 100% of the tags.  As soon as you get anything less than 100% you will have to decide whether you want to open the container to confirm the presence of those units you didn’t read, or use inference to infer that they are present. 

There is an important distinction between the use of inference with serialized and non-serialized items.  Today, very few pharmaceuticals have serial numbers applied (either barcode or RFID) at the item level.  When trading partners ship and receive a full casepack of drugs they normally never open it just to confirm that it contains exactly what the case label and the ASN says.  They infer that the case label is accurate, including NDC and quantity.  This type of inference is standard operating procedure across the entire supply chain—and has been from the beginning of time.  Use of inference specifically for serialized units is the focus of the current brainstorming activity.  This type of inference allows one to infer a given container contains the NDC and quantity, and the exact serial numbers that are specified in an ASN or pedigree. 

THE NEED FOR INFERENCE 

You can’t really understand inference unless you understand exactly why it might be needed.  The need is the result of the combination of three important things that I have previously written about: 

1. The California Pedigree Law (effective in 2015-2017) will require shippers and receivers to certify, under penalty of fines and potentially prison, that the exact item serial numbers inside of the shipping containers match the pedigree;
2. The modern U.S. pharmaceutical supply chain moves massive quantities of drugs at a high level of efficiency on a daily, overnight delivery cycle;
3. Due to the continuing relative high cost of item-level RFID, most Pharma manufacturers appear to be planning to use 2D barcodes to serialize their items.

The California Pedigree Law has a very noble purpose—to protect the public from crimes perpetrated against the pharmaceutical supply chain and ultimately against patients.  I don’t question that purpose.  I know the purpose of the pedigree law is not to destroy the efficiency of the current supply chain, but without the use of inference, it will.

When we reach the point where many pallets-worth of serialized/pedigreed products are moving through the supply chain (unlike today where it’s just a few SKU’s and the shipment quantities are small), trading partners will be forced to maximize the use of inference whenever they can to avoid having to open every case.

THE PROBLEMS WITH INFERENCE

But there are problems with the use of inference.  First, no pedigree law automatically allows its use.  Supply chain members who plan to use inference may find that law enforcement officers will not accept the excuse that they were using inference whenever the actual serial numbers in a shipping container do not match the pedigree.

Though rare, mistakes in casepacking, shipping and receiving occasionally happen today.  Even at the low occurrence frequency of these errors, the vast majority, if not all, of them are unrelated to the crimes that are targeted by the California Pedigree Law.  They are just unintended mistakes.  Today, the primary driver for trading partners to correct these errors is financial.  Once the law goes into effect, mistakes like these will open each occurrence to wider scrutiny and potentially result in a fine or worse. 

Second, the decision by a member of the supply chain to use inference must be based on their trust that the company who packed the container has very reliable case/tote packing and data collection processes.  Think about what will happen under the California pedigree law when the contents of a single case are not captured properly by the manufacturer (or their contract packager).  That is, the containment hierarchy for the case that is supplied to the wholesaler is incorrect.  Most wholesalers open the majority of the cases they receive at some point during their processes, but a few cases are shipped to customers without being opened.  Imagine that this incorrectly documented case is one of those that are passed on to their customer.  When using inference, the wholesaler will simply pass on the same containment hierarchy they received from the manufacturer. 

Now assume the wholesaler’s customer opens the case and finally finds that the serial number on one or more units are not the same as the electronic pedigree record indicates.  Those units have no value regardless of the price of the drug because the owner does not possess a valid pedigree and they cannot be sold without one.  There are only three ways to address this situation:

1. Destroy the units and take a total loss on the undocumented units;
2. Contact the wholesaler and negotiate with them to get a valid pedigree from the manufacturer and pass it to them.  This is unlikely to ever work because neither the wholesaler nor the manufacturer may have anything that confirms that they made a mistake.  Even if the greater mess gets revealed to them when someone else makes a claim that they received the matching undocumented serial number (which is far from guaranteed when only a single state has a serialized pedigree law), the manufacturer may not feel confident enough to update their original pedigree document and pass it to the wholesaler.  If they do, then the wholesaler also has to feel comfortable updating that new pedigree with shipping information that occurred in the past and finally pass it to the current owner;
3. Contact the wholesaler and negotiate a return of the undocumented units for credit.  The wholesaler may not be receptive to taking the undocumented units back because they have nothing to indicate that an inference error really did occur.  They may fear that they will get stuck with the unit and end up having to take a loss on it before it gets resolved.

All of these alternatives represent a lot of special handling and cost.

In addition to these special handling costs, inference errors will cause shortages of product in the supply chain.  That’s because the supply chain is becoming increasingly optimized through lean approaches to inventory management.  When a case of drugs arrives at a location in the supply chain, it is needed to fulfill customer orders, including patient prescriptions.  If even a handful of drugs are ordered, shipped and arrive but cannot be sold because of an inference error, chances are order fulfillment of some kind could be delayed.

WHAT THE STATE OF CALIFORNIA SAYS ABOUT INFERENCE

Surprisingly, the Ridley Thomas bill in California (SB 1307) that became law in the fall of 2008 included more detail about inference than most people realize.  See Section 4163.3 of the California Business And Professions Code, which reads, in part:

“…the board shall, by regulation, define the circumstances under which participants in the distribution chain may infer the contents of a case, pallet, or other aggregate of individual units, packages, or containers of dangerous drugs, from a unique identifier associated with the case, pallet, or other aggregate, without opening each case, pallet, or other aggregate or otherwise individually validating each unit.” 

It goes on to say:

“Manufacturers, wholesalers, and pharmacies opting to employ the use of inference as authorized by the board to comply with the pedigree requirements shall document their processes and procedures in their standard operating procedures (SOPs) and shall make those SOPs available for board review.  SOPs regarding inference shall include a process for statistically sampling the accuracy of information sent with inbound product.”

 And:

“Liability associated with accuracy of product information and pedigree using inference shall be specified in the board’s regulations.”

As I understand it, the Board of Pharmacy has deferred their mandated work on inference until we get closer to the effective date of the regulation.

SHIFTING ATTITUDES

In my last post, “The Modern Pharmaceutical Wholesaler and the Approaching Transformation” I said that I had observed a significant shift in attitudes creeping in about how a serialization-based supply chain pedigree system might operate.  I said it I thought it was a direct result of the growing realization that RFID will not be the predominant carrier technology at the unit level.  A few important manufactures are realizing that their choice of adopting barcodes instead of RFID will force their downstream trading partners in the supply chain to rely too much on the accuracy of their containment hierarchy information for use in inference.  This essay is already way too long, so in my next post I will analyze this concern and explore where it leads.

Photo by Rafael Vila

The modern pharmaceutical supply chain is an amazing thing.  No other supply chain handles the combination of volume, variety, value and complexity, and does it as efficiently and accurately as the U.S. pharmaceutical supply chain.  And it does it on an overnight order-to-delivery cycle from wholesaler to pharmacy.  Wholesalers are the key to the efficient operation of the pharmaceutical supply chain, and that’s why I am personally drawn to that segment. 

The heart of the modern drug wholesale business—the thing that makes it live, kicking or screaming—is the modern pharmaceutical distribution center (DC).  That magical combination of people, processes, data and automation produces a dance every night across the country where individual drug packages are picked from cases and combined with other individual drug packages to fulfill the orders of pharmacies everywhere.  It is musical to watch and understand, and the crescendo occurs around 10:30pm every night local time at every pharma DC.  Today’s successful wholesalers have figured out how to deal with this specific complexity by organizing their people, processes, data and automation in a stabilizing way to make it all manageable, repeatable and very efficient, and thus making it possible to carve out a thin but well-earned and reliable profit. 

Over the last 20 years only a few companies have found a way to surf this traditional complexity to profitability.  But faced with the supply chain transformation that will occur soon as the result of widespread serialization and pedigree requirements, the complexity these companies face seems likely to take another jump–perhaps by as much as double.  With the forced addition of serialization and pedigree, those existing wholesaler formulas will have new destabilizing parameters added to them, which will require wholesalers who wish to remain successful to re-jigger their people, processes, data and automation into a new stabilizing way.  One that embraces and fully integrates serialization and pedigree into their processes, data and automation.

Yes, the costs are going to be higher.  You can’t expect this kind of transformation of a complex and already highly efficient process without adding cost, but the companies who figure out how to minimize those added costs–and who figure out ways to capitalize on new capabilities that are enabled by the new data granularity–are going to remain profitable.  Those who don’t may find it hard to remain in business.  This is nothing new, it’s just the way things work.

OK, SO WHERE IS THIS TRANSFORMATION COMING FROM?

So far the transformation I’m writing about will likely occur in California for U.S. wholesalers, which, if that’s as far as it goes, probably wouldn’t qualify it for the word “transformation”.  Even as big as the California pharmaceutical market is, wholesalers could probably get by taking a Band-Aid approach and then hope the whole thing stops there and eventually goes away.  

But the recent FDA SNI Guidance provides a hint that the FDA believes they already possess the authority they need to develop, if not impose, nationwide serialization and pedigree or track and trace regulations.  If that isn’t enough, it seems only a matter of time before Congress enacts a law that explicitly mandates the FDA to impose them nationally.  The FDA recently asked the members of the House Committee on Energy and Commerce Subcommittee on Health for additional authority along those lines (among other things). 

People watching the development of the Buyer-Matheson ”Safeguarding America’s Pharmaceuticals Act” bill fully expect it to be reintroduced in the future and they keep telling me that the more it gets revised, the more it sounds like the enacted California legislation.  I don’t have an insider view of that bill and its trajectory so, like most of you, I’ll just have to watch where it ends up.  Indications are that the European Commission (EC) may take some action sooner or later as well (though probably not following California). 

Bottom line, the trend is clearly slanted toward widely mandated serialization and some kind of pedigree, which will usher in exactly the kind of transformation that I’m talking about.  Savvy supply chain members are aware of this and are trying to figure out the new parameters in their business formula that will ensure their future in that kind of environment. 

UH-OH, ATTITUDES ARE SHIFTING

There have been some interesting developments in the last 12 months in the ideas being discussed and debated at industry forums and in the halls outside industry events.  I have observed a significant shift in attitudes creeping in about how a serialization-based supply chain pedigree system might operate.  I believe this shift is a direct result of the growing realization that RFID will not be the predominant carrier technology at the unit level.  In the next few posts I will try to explain this shift and its potentially far-reaching implications to the business formulas of wholesalers and others.  Stay tuned.

In my view, there are three main stages to innovation:  experimentation, enlightenment and transformation.   Experimentation is the most assured pathway to innovation but it is also one of the first things to get cut when belt-tightening occurs.  It requires an organization to spend time on lots of things that eventually get discarded because they end up never taking root.  To an accountant, experimentation looks a lot like “play-time” activity that isn’t needed.  Innovation can occur without an experimentation stage, but reliance on “bolts-out-of-the-blue” to kick-start innovation will ensure that you will almost never actually get there. 

Enlightenment is nothing more than an improved understanding of reality.  It occurs when a series of experiments from the experimentation stage are accepted by a group as having special significance because they reveal a part of reality that was previously hidden from view.  Enlightenment is the removal of blind-spots.  Once the blind-spots are removed, easier or more profitable paths become more obvious—or at least one of them becomes less foggy. 

To actually benefit from enlightenment, and thus achieve the final stage of innovation, transformation, you need the courage to take a path that has been revealed by the enlightenment stage.  Without courage, innovation won’t occur and stagnation will result.  What a shame, after the experimentation and enlightenment stages and being able to see a better path but fail to innovate due to lack of courage to transform.  I suspect it happens a lot.

HOW TO PRODUCE “INNOVATION” THROUGH IDEAS

In hard sciences, the experimentation stage of innovation is literally that:  running a bunch of laboratory experiments.  But in a lot of other areas, experimentation is simply the raising of a lot of ideas and debating their merits and drawbacks.  Good ideas, bad ideas, stupid ideas, new ideas, old ideas—it doesn’t matter.  You just need a lot of them.  I think “supply chain architecture” is one of those kind of areas and essays in blogs like this one are an excellent way of raising and debating those kinds of ideas. 

When it works right, an idea is exposed to a larger audience who’s role is to respond through comments with improvements, alternate perspectives and corrections.  In the rare instance when it results in “improved understanding of reality”, it is on its way to becoming “innovation”.  The only question is whether someone will have the courage to act on it.

Generally, what I write about in this blog are my own ideas that I think should be considered and debated.  Some of them just might end up getting someone to the enlightenment stage and then perhaps, with some courage, to true innovation.

THE “AUTHENTICATING WHOLESALER” IDEA

But today I have a potentially innovative idea to expose that is not mine.  The first time I heard the idea of the “authenticating wholesaler” I didn’t like it.  At that time, I was purely focused on industry adoption of an interoperable approach for complying with existing pedigree laws, including the federal PDMA, Florida and California laws.  The idea of an “authenticating wholesaler” would clearly not comply with those existing laws, so I wasn’t interested in the idea at the time. 

An “authenticating wholesaler” is a pharmaceutical wholesaler who pledges (probably through a contract) to validate all of the prior sales and shipment transactions on the pedigrees of all drugs sold to their customers, and who is willing to absorb their customer’s liability for doing so.  Unlike an Authorized Distributor of Record (ADR) designation (for the definition of ADR, see § 203.3 Definitions of the Prescription Drug Marketing section of 21 CFR Part 203), any wholesaler could become an authenticating wholesaler (let’s now call it an “AW” for short), even a wholesaler who buys from another wholesaler.  In this way, the concept solves the big clash between the big and small wholesalers.

The AW concept would provide the pharmacy segment with the ability to forego all serialization and pedigree activities.  Instead, they would pledge to only buy pharmaceuticals from an AW.  This would nearly eliminate the estimated high costs associated with deploying the hardware, software and high-speed internet access (and perhaps GS1 fees for GLN’s too) to every pharmacy in the U.S..  Although, wholesalers who offer the service will need to be compensated somehow for taking on greater risk.  How that might be done is not yet part of the idea as documented here.

An AW would take on additional risk because if they fail to fulfill their pledged duty, and an illegitimate drug makes it through to a pharmacy or a patient, they would be the party responsible for the results.  The risk would pass from the pharmacy to the AW so it would be in the best interest of the AW to take their pledge very seriously.  In fact, this would require the regulatory body to acknowledge and enforce the liability arrangement that underlies the AW concept.

Some characteristics of the AW idea are:

• Provide the option to pharmacies to not have to deal with the complexities of reading standardized numeric identifiers (SNI’s), and validating and updating pedigrees.  If they wouldn’t want to be limited to buying only from an AW they could choose to deploy the necessary technology and take on the responsibility to do those things for themselves.
• Provide the option to wholesalers to offer the AW service to their customers.  If they don’t want to take on the extra liability then they would simply not offer the AW service.  They would still be responsible for validating all incoming SNI’s and pedigrees, but they would only be liable to themselves for those steps.  The optional AW service offering would simply be to take over the liability of their customers.
• It is possible that the AW service would be offered by a given wholesaler—or accepted by a given customer—on certain drugs but not others, although that may defeat the purpose of the pharmacy not having to invest in new systems.  The AW concept would have to be contract-based since liability is transferred.

The second time I heard someone pitch the AW idea my mind was more open to ideas that might be offered as a better industry adoption model than the existing pedigree laws.  That is, ideas that the U.S. Congress or FDA might consider as they develop their regulations in the future.  Even though it’s not my idea, I decided to write it up and put it out there because both of the individuals who told it to me are not likely to ever carry it any further.  The first person is no longer in this industry and the second person is an executive in a large organization in the supply chain.  This executive is too busy dealing with other things to submit an idea like this for consideration by a wider audience.

I’m still not sure the concept could actually work in a regulated supply chain, but as an initial idea for consideration, I think it is definitely worthy.  What do you think?  Could the AW concept help lower the cost of starting up a nationwide drug pedigree system?