[This essay is one of two long lost essays that have now been restored on RxTrace. It was originally published on November 15, 2010. See “Return Of Two Classics” for an explanation.]
In one of my most widely read essays, “RFID is DEAD…At Unit-Level in Pharma”, I pointed out that the choice of serial number carrier technology to be used for compliance with the California Pedigree Law would be decided solely by the pharmaceutical manufacturers. I pointed out that most of them would end up choosing 2D barcodes because their ongoing costs for Radio Frequency IDentification (RFID) would be too high.
Since the law doesn’t specify a carrier technology, and because the manufacturers will foot the bill for whatever technology is used, naturally, they get to lead the supply chain in that choice. If you don’t like what they are choosing, then please, step up and pay them to put your preferred carrier technology on their packages. I’m sure the manufacturer’s would put whatever you want to pay for on their packages as long as it would comply with the law.
But what about the pedigree model that the supply chain will use for compliance? Can we apply similar logic to determine who will get to choose the technology that defines what a compliant pedigree is? Yes we can! And here it is.
“…AN INTEROPERABLE ELECTRONIC SYSTEM…”
The California Pedigree Law states that pedigrees,
“…shall be created and maintained in an interoperable electronic system, ensuring compatibility throughout all stages of distribution.”
Interoperability throughout the supply chain is the key concept here. All participants in the supply chain that services California must invest in systems that conform to a single pedigree model. If there are any investments made by some of the participants in technologies or approaches that are incapable of interoperating with the technologies or approaches that other participants have invested in, these groups of trading partners will not be able to trade with one another and, more than likely, costs will go up and drug availability will go down.
You would think that this fact would cause the industry to converge on a single interoperable approach to pedigree–that is, a single pedigree model–but from what I can tell from listening to comments made by people from different supply chain companies in the last year, it seems more like the industry is diverging rather than converging. Too many people don’t understand the full implications of the concept of “interoperability”.
Perhaps that’s not surprising. People can be confused by the varying claims made by solution providers. And I can’t blame anyone for being confused by the messages that GS1 US is sending with their 2015 Readiness Program where they strongly imply that you can be compliant with the California Pedigree Law if you just follow the track and trace model that they are building. Beware, these companies are biased, and it isn’t necessarily toward ensuring that you are compliant.
SO WHO WILL DECIDE?
What is likely to happen between now and 2015? I’m about to tell you my idea for that, but first, because to many of you I am not just some distant and faceless blogger, I feel compelled to remind you all of the following:
“This blog contains some of the personal thoughts, ideas and opinions of Dirk Rodgers. They are not pre-authorized or pre-approved by his employer or organizations that he is a member of. Do not assume that his employer holds the same views that are expressed here. This blog is not a vehicle for communicating the positions of any company, organization or individual other than Dirk Rodgers.”
OK. With that out of the way, I can tell you my personal view:
It will be the U.S. pharmaceutical wholesalers that distribute into California–those that actually transport pharmaceuticals across the state border–who will dictate exactly which pedigree model and technology must be used by the entire supply chain. More precisely, it will be their lawyers who will decide.
I believe that no drug will be transported into California after the law goes into effect unless one or more wholesalers are confident that they have the pedigree information in a format that will allow them to distribute that drug further without being fined by the state. I don’t think it will matter if a manufacturer believes that what they provided is a compliant pedigree. If the wholesalers don’t believe that it is, then their drugs will not make it to California. Keep in mind, the fines will be $5,000 for each saleable unit that doesn’t comply. That’s over a half million dollars for a single case of some pharmaceuticals!
The section of the California law that would be violated by bringing non-conforming drugs into the state for distribution is the one that reads:
“…commencing on July 1, 2016, a wholesaler or repackager may not sell, trade, or transfer a dangerous drug at wholesale without providing a pedigree.”
It would be the wholealer who sells, trades or transfers the drugs without a valid pedigree so it would be the wholesaler who violates this law. So you can bet, at some point before July 2016, each wholesaler is going to announce, in detail, exactly what they believe will provide them enough confidence that they will not incur huge fines for distributing drugs without a pedigree. Manufacturers who expect to have their drugs distributed into California after that date should expect to have systems deployed that will be capable of providing the information that the wholesalers identify.
Pharmacies who expect to buy drugs from wholesalers in California after that date should expect to have systems deployed that will be capable of receiving the information that the wholesalers identify. Companies who have already mistakenly invested in pedigree technology and approaches that are not interoperable with those that the wholesalers select will be forced to invest further to be able to participate.
That’s the only way it’s going to work…in my opinion.
But wait a minute, haven’t the wholesaler’s already provided their requirements, you ask? I’ve seen or heard about pretty detailed requirements surrounding serialization from each of the larger wholesalers, but those who have provided requirements for pedigree are pretty vague about it. These statements sound more like what they would accept today for pilots–not necessarily for compliance in 2016.
I think that’s because they probably haven’t engaged their legal team to take a serious, professional look at the law and the technology and come up with decisions on what it is that will provide them with the confidence that they won’t be fined. Until they do that, we won’t know what pedigree model or technology will be a safe investment.
SO WHAT? NOBODY CARES RIGHT NOW, RIGHT?
Pharmacies aren’t really paying attention right now so the current situation isn’t a problem for them. Their deadline (mid-2017) isn’t until a year after that for the wholesalers anyway.
Manufacturers are busy investing in serialization equipment and systems to meet global requirements. Most are deferring their pedigree decisions until later. But when is “later”? We are approaching the four year mark in the count-down for the creation of the first production pedigrees by all drug manufacturers. They will need to start focusing on their pedigree technology selection pretty soon now.
But the problem is, the manufacturer’s face a deadline (January 2015) that is a full year and a half earlier than that of the wholesalers (July 2016). Wholesalers had better recognize their special role in this technology decision, because the entire supply chain has a huge stake in it. They won’t be deciding just for themselves, they will be deciding for every company involved in supplying California with pharmaceuticals. To avoid delays and complications that could lead to drug availability problems, they must do their analysis, make their choices and make their announcements with enough time for solution providers to gear up and for every manufacturer to get compatible systems integrated and deployed. Be aware, that will take years, not months.
The U.S. wholesalers owe it to the entire supply chain. They must lead on this one. And soon.
5 thoughts on “Who Will Decide Which Pedigree Model You Will Invest In?”
Dirk – Nice to meet in person last week at HDMA.
Again – all excellent points.
As long as laws (California’s or an eventual federal law) are written to be technologically neutral, the actual compliance onus is first on regulatory rulemaking – which in the case of federal law would be FDA – and then, secondarily, the market, i.e., as you say – the three major wholesalers. Case in point – California’s rulemaking process on inference, which appears vital to most compliance plans presently – does not begin until next summer…Many large manufacturers have already developed strategies and are implementing pilots assuming inference.
From my perspective, it would help manufacturer compliance to have a federal law that established a certain technology – mandated 2D would not be a stretch here as it seems most everyone has dropped RFID at present.
Alternatively, I continue to advocate for an end point authorization system as it would be less complicated due to an elimination of the need for aggregation and non-line-of-sight technologies at any level – and would therefore be quicker and cheaper to implement – while still increasing patient safety. Additionally, it largely takes the wholesalers and distributors out of this equation, at least for present – again removing many complex issues for compliance – and eventually, higher prices for patients.
Thanks for your comment, but a quick clarification is needed. My comments are not saying that, as you put it, “the three major wholesalers” will decide which pedigree model the industry must use. I am saying that the wholesalers as a segment will decide. Big or small doesn’t matter. Any wholesaler who distributes in California will be faced with deciding which kind of pedigree–and the associated products–they will be willing to transport into the state.
Bold thoughts, Dirk. Your provocative essay implies a period of extreme uncertainty and jockeying for position within the supply chain.
If you are correct about the wholesalers’ collective influence due to California, then do you expect the wholesalers to push hard for national standards? Or will manufacturers and pharmacies now be more interested in a national approach as a way to minimize the wholesalers’ power?
Will the FDA take a leadership role or sit out this debate while waiting for California to sort itself out? As I note over on Drug Channels, neither track-and-trace nor pedigree appear to be “strategic priorities” for the FDA: http://www.drugchannels.net/2010/11/is-track-and-trace-priority-for-fda.html
Regardless, I imagine those fines might be pretty tempting targets for the cash-strapped Golden State. As we both know, the Deputy Attorney General at the California Dept. of Justice recently highlighted the “pledges” of readiness made by many manufacturers and wholesalers in 2008. This should get interesting!
Thanks for the comment. In fact, the HDMA and some of its member wholesalers are already on record in support of a national pedigree law. Other members are not in favor. I think you will find that most manufacturers are also in favor of a national pedigree law. I think you will even find that NACDS is in favor of a national law. But I think you will find that all of this support is for a national law that has favorable characteristics. That is, a “normal distribution” law.
Regarding the FDA, it appears that they believe that they currently do not have the authority to impose a new pedigree law (note that the PDMA is still partly in effect), but they are working with Congress to help draft proposed legislation that would give them that authority. According to a recent speech by Ilisa Bernstein, FDA is in favor of a national electronic pedigree regulation that would require pedigrees to be passed by all supply chain stakeholders. I don’t think that’s the regulation that HDMA and NACDS are in favor of.
It will get interesting indeed.
Interesting points. I think that, apart from the warnings of a few observers, the corporate liability issue has been chronically under-addressed in the whole pedigree story. It may actually represent an opportunity for service providers as well as a threat to everyone else. If a partnership of insurance company and technology provider can come up with a new business model that provides a way of verifying, controlling and hedging pedigree risks, my bet is that there would be some takers. The closer we get to 2015 (assuming the date doesn’t slip again) the more supply chain stakeholders will pay to make this problem go away.
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