Leading life sciences and healthcare companies Pfizer Inc., McKesson Corporation, AmerisourceBergen Corporation, and Premier Inc. have all joined a working group that is using blockchain technology to dramatically improve the complex process of chargebacks.
The MediLedger Project Contracting and Chargebacks working group, which is an initiative of Chronicled, Inc., has been designing a blockchain-based protocol to solve misalignments that happen between contracting and chargebacks in the pharmaceutical industry.
Chargebacks in healthcare are not a regulatory driven problem, but rather a business inefficiency. Last summer we came together with a smaller set of companies to build a prototype to solve some of the problems that happen today between contracting and chargebacks. We are excited to announce the addition of leading healthcare companies to the working group,” Susanne Somerville, Chronicled’s CEO, told me.
Chargebacks occur when medicines are sold via wholesale distributors. However, pricing and eligibility contracts are negotiated separately. In turn, pharmaceutical companies deal with a number of players within the supply chain. For instance, drugs are manufactured by a business, sold to wholesalers, potentially purchased by buying groups and finally bought by consumers. With multiple parties involved, transactions are not always made clear for pharmaceutical companies, leading to a chargeback.
According to The Global Pharmaceutical and Life Sciences Industry Group at PwC, chargebacks represent the single largest deduction from gross sales for most pharmaceutical and healthcare product companies.
MediLedger’s protocol aims to eliminate friction by connecting the disparate parties on a common blockchain-based network, which will then automate the contract reconciliation and chargeback processes. The design phase is currently underway, with a plan to begin testing the protocol later this year.
As for the newly announced working group participants, they believe this protocol will reduce costly errors, enable healthcare participants to operate more efficiently and lower the cost of patient care.
“This innovative approach has the potential to transform how chargebacks work for the industry, allowing us to deliver better services to our members,” said Bill Marquardt, Vice President of Product Strategy and Planning for Premier Inc. “We are excited to collaborate with our partners to deliver these improvements.”
Justin Bowers, VP of Contract Administration and Financial Services at McKesson, also commented on the power of blockchain technology to combat difficult supply chain management.
We as business leaders must collaborate and leverage innovative technology to drive accuracy, efficiency, and simplification to tackle complex supply chain processes. Chronicled has brought great opportunities to the industry to embrace blockchain not only driving cost out, but to deliver higher quality results to all of our customers and ultimately the patient. Technology is an enabler, not the silver bullet. As leaders we are an integral part in identifying best practices, synergies and alignments that make sense. Blockchain is empowering us to evolve and engage so there is a single source of truth for the network of decisions rather than individual processes within siloed infrastructures.”
According to Chronicled’s CTO, Maurizio Greco, MediLedger uses blockchain technology to achieve three things. First, it stores synchronized public data, ensuring that everyone is using the same “source of truth.” Second, it holds an immutable record of transactions that have taken place, but in a confidential way that safeguards valuable business intelligence. Finally, it utilizes smart contracts to enforce business rules and execute transactions to ensure the integrity of the system.
“These are the things we believe a blockchain should be used for. Blockchain technology, in the context of MediLedger, ensures that there is one source of truth, and we can design it so only the license holder can create records for its own products, for example. This may seem like a simple illustration, but it is revolutionary,” said Greco.
Moreover, data being loaded into a company’s own system is another reason for dispute issues.
“Data can be loaded at different times and new members are constantly joining group purchasing organizations, creating more misalignment if contracts are not understood. By using a blockchain solution, we can create a shared source of truth, while keeping certain information private through zero knowledge proofs,” explained Greco.
While MediLedger’s open protocols are available to anyone in the industry who wants to participate in the system, users’ data is kept safe behind a firewall. According to Chronicled, information is only shared with the trading partners a user specifically chooses. There is no central repository of all data, as the blockchain serves the purpose to cryptographically connect records. And the system has no “super user” access – even Chronicled, the network manager, does not have access to its users’ private and sensitive data.
Ultimately, all of these initiatives represent progress toward creating a network and ecosystem where competitors and trading partners can dramatically improve the processes they use to conduct business across the industry value chain.
“This is what makes the project so special. It’s distributed, it’s decentralized, and the data is private. Even though Chronicled is providing the technology, industry users operate the software themselves,” said Sommerville.
Date: May 03, 2019