Why Aren’t Health Insurance Companies Interested In Pharma Traceability in the US?

Except for Medicare/Medicaid, the United States and Australia are the only countries in the world that do not rely primarily on “single-payer healthcare”.  The term refers only to who pays for the healthcare of citizens, not how that care is delivered.  Those two countries rely primarily on private insurance companies to act as “payers” of healthcare for most citizens and the funds used to pay are collected through premiums.  This results in multiple—actually, many—payers.  In “single-payer” countries, that single payer is the government and the funds used to pay are collected through taxes.

As healthcare costs have risen over the last twenty years, “healthcare” is consuming an ever increasing portion of the national budgets of single-payer governments.  If this trend continues for the next twenty years, healthcare costs could overwhelm some governments around the world. 

Italy may not have been the first government to figure out that reimbursement fraud and the occasional counterfeit drug could cause their single-payer system to fail, but they were the first to choose drug serialization to try to stop it.  They started requiring drug importers and manufactures to obtain government supplied stickers containing a progressive numeric ID, known as Bollino codes, to apply to their packages in 2001-2002.  In 2004 the government established a central tracking database to document all supply chain movements of each package.  The government only made reimbursement payments to dispensers when they provided the Bollino codes from each package dispensed.  Problem solved (as far as we know).


Shortly after Italy, it was Turkey, Greece, Belgium, China, Brazil and on and on.  As pharma serialization mandates have spread, the justification has shifted to emphasize protection from counterfeit drugs and a deemphasis on combating reimbursement fraud.  I’m skeptical about that shift. 

Certainly, governments do want to block counterfeit drugs from reaching their citizens, but I suspect that the thing that drives most governments toward imposing a serialization requirement is to stem the loss of revenues.  Not only losses from reimbursement fraud, but also loss of tax revenues from manufacturers who might underreport sales.  Even some of the concern about counterfeit drugs comes from the loss of revenue for reimbursing dispensers for drugs that have little or no effect.  You can see these things in the actions taken recently by the governments in Turkey and Russia.  For example, the five governmental agencies that will monitor the data in Russia’s centralized pharma traceability repository include the Federal Tax Service and the Ministry of Finance (see “The Russia Serialization Pilot Guideline”).

In a Single Payer Healthcare system, it is no surprise the payer wants full supply chain visibility.  What surprises me, and others, is that in a Multi-Payer Healthcare system, the payers do not seem interested in that same kind of supply chain visibility.  Lots of people, over many years, have asked me why the health insurance companies are not pressing for pharma traceability—or at least appear at the table when the government and industry discuss solutions? 


I don’t know, but here’s my guess.  Maybe the health insurance companies have applied their formidable actuarial expertise to calculate their likely loss of revenue from counterfeit drugs and reimbursement fraud here in the US, and they have concluded it is so small that dealing with massive amounts of supply chain visibility data just isn’t worth it (see “Illegitimate Drugs In The U.S. Supply Chain: Needle In A Haystack”).  But if the health insurance companies have decided it isn’t worth caring about, then why do we have the Drug Supply Chain Security Act (DSCSA)? 

Ah ha!  Actually, the primary reason we have the DSCSA is that the companies in the pharma supply chain approached Congress back in 2012 and literally asked them to pass something like it (see “What If RxTEC Isn’t Adopted?” and “Congressional Legislation Development: Mad Libs Edition!”).  You see, prior to the DSCSA the industry was facing the California Pedigree law, which was based on fear of crimes that were happening around the country between 2000 and 2006—the year when most of those crimes came to an abrupt halt (see “Dangerous Doses” and “Do We Even Need To Mandate Drug Pedigrees Anymore?”).  To block the California law, the industry was willing to swallow a national law, which turned out to be the DSCSA (see “It’s Official, President Obama Signs H.R. 3204, DQSA, Into Law”).

So there you go.  In my view, the industry is currently dealing with implementing a complex and expensive regulation, which only exists because that same industry asked for it as a way of blocking an even more complex and expensive regulation, which was aimed at fighting a battle that had already been won.  In other words, what we are dealing with today is merely an echo of something really scary that happened more than a decade ago.  As they say…only in America.


One thought on “Why Aren’t Health Insurance Companies Interested In Pharma Traceability in the US?”

  1. Hi Dirk,

    I got a kick at your sub-title for this article! I know you’re aware of this, but …

    Maybe this is a case of “the journey is more important than the destination”. While it might seem that the DSCSA law and industry is attempting to solve the problems of 2003 in 2017, it also seems the industry has implemented practices that have improved supply chain integrity as they have confronted counterfeit, diversion and theft issues together.

    As we worked through the early years of the Florida, Nevada and California laws leading up to the DSCSA, the wholesale industry moved from trading based on price arbitrage (an incentive for diverters and counterfeiters) to trading on a fee for service basis. Meanwhile, regulators and industry moved from licensing and selling to anyone who claimed to be a wholesaler to stricter licensing and trading with “Authorized Trading Partners”. Remember the days when “you could get a wholesale license if you had $750 and a refrigerator”? These and a lot of other changes have created a safer, more self-scrutinized supply chain.

    So, while it may be true that the DSCSA and all its requirements, will provide a tremendous amount of data documenting the safety of the supply chain, it’s due to the business practices that regulators and industry have put in place that have increased vigilance and better secured the supply chain. I’m not sure what would happen to all of that if the DSCSA was to be removed. Would things remain at this higher state of vigilance, or would other concerns and pressures lead us to take our eye off the ball?

    Lastly, it’s hard not to be saddened at the tremendous cost that has and will be absorbed by the industry, regulators and patients solely because people exist (counterfeiters, diverters and thieves) that would gladly turn a profit on other’s misery.

    Keep up the good work!


Comments are closed.