Frustration with the US pharmaceutical industry has been on the rise along with the steadily increasing out-of-pocket copays for prescriptions drugs. The news cycle has also been reporting more frequently about extreme overnight price hikes on, at times, life-saving drugs. Many people are suspecting foul play because drug price negotiations are often held behind closed doors. Together, these factors have increased the average American’s mistrust of “Big Pharma”.
What could the pharmaceutical industry do to rebuild trust and improve the public perception of the sector? Can cutting-edge technology be utilized to make drug price negotiations more transparent?
Cambridge Consultants recently announced the launch of their proposed solution to this dilemma. Their platform utilizes blockchain technology to ensure transparent and open drug pricing negotiations for the US market. Medgadget had a chance to speak with Jaquie Finn, Head of the Digital Health group at Cambridge Consultants, and John-Mark Allen, one of the lead programmers on the project, to help us better understand how prescription drug prices are currently set in the US, and how their proposed solution works.
Mohammad Saleh, Medgadget: Tell us about your roles with the Digital Health group at Cambridge Consultants and how you came to be a part of it?
Jaquie Finn, Cambridge Consultants: I run the initiative and my role is quite broad – it involves advising on market strategies for clients who come to us to make smart connected devices and understand how to leverage the data for competitive advantages by designing a compelling service based on data. It could include a bit of behavioral sciences, artificial intelligence for actionable insights, data security, and so on. It’s a very broad but exciting role.
John-Mark Allen, Cambridge Consultants: I’m a software engineer at Cambridge Consultants. I design and produce software products for our various projects. I’ve been acting as a blockchain expert on this project, designing the technical aspects of the solution.
Finn: The Digital Health group started off originally named the Connected Health group, around 8 years ago or so. This was before people had realized the importance of connective technologies for drivers such as improving outcomes or for reimbursement purposes. Because we have a very strong history of communications experts and antenna design, we were able to marry that with the understanding we have of medical technology with respect to drug delivery, diagnostics, surgical devices, and so on. Then we moved into digital health over the past couple of years. People understand the need behind making connected medical devices, but what do you do with the data once you’ve acquired it? That’s where we’ve moved the team’s focus now – designing compelling systems and partner systems that enable easy interactions.
The Digital Health group draws upon a wide variety of talents and capabilities ranging from business expertise, technical knowledge on wireless communications or data security (such as John-Mark, here), user experience and human factors, and so on. It ensures that all of our clients’ solutions are quite unique.
Medgadget: Can you give our non-US readers a quick primer on how drug pricing is done in the US?
Finn: Here in the UK, and in most of Europe, we have a system in which our governments, through some appointed body, negotiate directly with pharmaceutical companies to ensure low drug prices. This agency would be the central point of contact for any pharmaceutical company wishing to get on the formulary [an official list giving details of approved medicines]. That’s quite an open and transparent process.
What’s different and unique about the US healthcare system is that it is much more commercially-driven. The government doesn’t play a role in setting the drug pricing or the formulary. So pharmaceutical companies have to negotiate with insurance companies through a middle-man called a Pharmacy Benefit Manager (PBM). PBMs do an awful lot of good work but have come under a lot of fire recently for not being open and transparent about how they strategize for formularies – the list of drugs that are eligible for coverage by a given insurance company. That lack of transparency has led to a breakdown in trust amongst many of the stakeholders in the US. Pharmacies, wholesalers, pharmaceutical manufacturers, and insurance providers are all interested in doing the right thing, but with such a lot of ‘closed door negotiations’ happening, many roles such as that of the PBM have been called into question.
We’ve designed a blockchain-based system that enables the buying and selling of prescription drugs in a similar fashion to the stock exchange. Our system is based on trust and transparency for setting drug prices and guaranteeing that all stakeholders have access to the price negotiation transactions that are listed on the formularies.
Medgadget: How is drug price negotiation currently done? Is your proposed solution trying to replace PBMs?
Finn: Presently, the price setting meetings (mostly behind closed doors) lead people to suspect unfairness. It’s the reason behind many litigation trials and generates mistrust of pharmaceutical companies. It’s also why pharmaceutical companies tend to have very high list prices, because they often have to give significant discounts and rebates in these meetings to ensure their product is added to formularies. Everybody is in a world of pain at the moment, and this is one elegant solution with which stakeholders can continue to play nice in an open, transparent way.
This solution isn’t aiming to replace PBMs. I don’t think that they are going anywhere – the market is larger than $250 billion and is growing. What they will do in light of this possible solution is to start and redefine their role. They do a lot more than help negotiate formularies – they try to improve patient outcomes through outreach services, specialist pharmacies, and focusing on clinical outcomes. They’re not “the bad guys.” But because they have been able to meet with pharmaceuticals behind closed doors and insist on very large discounts or rebates, it’s lead to a lot of people wondering why they have to have such high copays. That out-of-pocket expense has been on the rise by about 600% the last few years.
It’s also more beneficial for a PBM to focus on rebates and not to negotiate large upfront discounts, because they also get paid by the pharmacy for every time the drug is administered – again, based on the drug’s list price.
Suppose I currently have a new drug that I want to list on a formulary that is managed by a large PBM. They may have hundreds of millions of consumers that they negotiate on behalf of – so they have great negotiating power with the pharmaceutical companies to ensure the lowest possible price for the insurance companies.
However, a competitor can come along and offer a better set of discounts and rebates to exclude the first company from the PBM’s formulary. At the end of the day, that means less choice for the consumer, and if they need a drug that’s not on the formulary, the patients have to pay for it themselves.
Medgadget: Who will be directly using your solution?
Finn: A lot of the smaller pharmacies, PBMs, and pharmaceutical companies will probably come together in a partnership and join a blockchain for the benefit of openness and transparency when it comes to fair price setting. None of them may have large bargaining power, so they’re currently always at a disadvantage against the top three or five competitors and PBMs.
Medgadget: What are smart contracts and how do they enable this blockchain solution?
Allen: Smart contracts are essentially programs that are built on the blockchain and people can interact with, much like with any other computer on the network. You can send them requests to do things, and they will respond by either complying or rejecting them (while providing reasons). A typical interaction may be that a pharmaceutical company wanting to sell a very large batch of their drugs would publish a smart contract that encapsulates the batch information and is then visible to everybody else. The batch details include the quantity, expiry, a link to the FDA approval, and a cryptographic accumulator that encapsulates all of the unique identifiers for every single unit of that drug in that batch.
So, if anyone wants to buy the batch, the buyer can make an offer through the published contract. The offer then gets written onto the blockchain such that it’s visible to everybody – and after a certain number of buy offers have been made, the seller can choose the offer that they accept. The monetary transaction does not get processed on the blockchain in our design, but the fact that the transaction is occurring (and at what price) gets recorded. You can repeat this process as many times as you would like down the supply chain, down to when a pharmacy would like to acquire the drug.
The system that we’ve designed is an open one, so anyone with the legal rights to buy the drugs would be able to propose an offer. The system does not require the seller to choose the buy offer with the highest price. But if the seller does not choose the highest offer, the inherent openness and transparency of the system leads other users to question why that is the case.
Medgadget: How deeply is cryptography involved in your solution?
Allen: Cryptography is obviously crucial for how the blockchain operates. On top of the standard cryptography, we’ve added the cryptographic accumulators that come with each contract. It doesn’t just give you a long list of unique identifiers for the drug units, but rather a much smaller piece of data that is designed in a way such that if you give me the UDI (unique device identifier), I can cross-check it against the accumulator to see if the UDI was present for the creation of the accumulator. This enables confirmation of the unit identity while avoiding the storage of large information on the blockchain (which is expensive).
Finn: When a drug leaves the factory, it may pass through many logistical touch points. Any one of those is a risk for swapping the real drug with a counterfeit or less efficacious one. That’s why you need to categorically confirm that the UDI is what it should be.
Medgadget: Why did you pick the Ethereum blockchain and does the price of cryptocurrencies play a role in this system?
Allen: We chose to design on Ethereum because we were keen to use a public blockchain. Given that the nodes are very diverse and well-distributed across the world, it leads to an increase in the intrinsic security of the chain. A smaller blockchain is much more vulnerable to attacks that can change what’s stored on them. Ethereum, in particular, was chosen because we have experience developing for it. But if a more appropriate alternative were to come along, we would be happy to make the switch.
As for the price of the cryptocurrencies, it would have absolutely no effect on the functioning of this solution, beyond the fact that increased coin value leads to increased distribution, and hence security, of the network. Even if the Ethereum coin were to crash, you wouldn’t lose any data because it would still be present and distributed around the world.
Medgadget: I understand that you’re not the first to try and utilize blockchain technology for this purpose. How does your solution differ?
Finn: There are solutions that are closed, commission-based blockchains intended as proofs of principle. There is a project between Genentech, Pfizer, and Chronicled trying to simulate the supply chain from Genentech or Pfizer and put it on Ethereum to see whether they can cope with the millions of transactions. They want to see whether the blockchain is robust enough for the massive supply chain. But to our knowledge, no one who is using blockchain has designed it for this purpose – a transparent and trust-based system for drug pricing negotiations. The alternative uses of blockchain technology all model the current dynamics of the healthcare industry.
Medgadget: Where do you see blockchain technology in healthcare in 10 years?
Finn: Supply-chain logistics is one very important use – the blockchain is very pragmatic for it. The World Health Organization estimates that about 10% of drugs circulating in the US and about 30% in developing countries are counterfeit. While unique identifiers were brought about to combat this issue globally, you’ve still got the traditional hub-and-spoke model where all the manufactured identifiers are being held in large centralized databases, which are more vulnerable to attacks than a blockchain’s distributed technology. I see a future where someone who is about to buy an expensive drug or get a medical implant can access the blockchain to confirm provenance and authenticity.
As it becomes an established practice, more and more companies will be expected to adopt the technology and list their drugs on the blockchain. Those who are actively not on it may be looked at with less trust.
Allen: You’ll also have ethical consumers increasingly using this technology. The entire supply-chain of the product they are buying will be publicly available, so instead of trusting the supplier, they can easily check for themselves that the drugs they are purchasing were ethically sourced.
Medgadget: What are your plans for the division over the next few years?
Finn: Expect to see a lot of medical technology applications from our artificial intelligence work. We have a lot of different flavours of AI in this company. One of the cutting-edge applications we have is GAN, Generative Adversarial Networks. Nvidia has chosen Cambridge Consultants as their deep-learning partner, and that is based on our GAN work. We have an R&D facility focused on developing the latest AI algorithms and we are utilizing that expertise and bringing it into medical technology. We’ll be announcing some of those projects over the next year or so.
For more information from Cambridge Consultants, refer to their press release.