Value based drug pricing: Supply chain security’s opportunity to shine

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The pricing of prescription drugs has become a recent focus of the media and politicians. Value based and reference pricing models have become increasingly common topics for discussion among policy makers and pharmaceutical industry experts. This new approach to pricing is an excellent opportunity for supply chain security teams to claim their contribution to overall product value – if they can track their success all the way to the patient.

Security is an inherent assumption for value calculations

Value based pricing strategies share one assumption: the drug is delivered intact and unadulterated to the patient without substitution by an inert or potentially harmful counterfeit. This critical assumption allows supply chain security and brand protection teams to add their work to the value statement of their company’s drug portfolio. If the supply chain is compromised, no value is created for the payer or patient and a negative value (patient harm) may result.

Security provides a hefty return on investment

The positive return on investment of popular drugs has recently been emphasized by prominent pharma executives, including Pfizer’s Ian Read underscoring Lipitor’s $4 to $1 return on investment to U.S. healthcare payers.

But what happens if a drug’s supply chain is compromised? The value created erodes at a multiple to the price of the drug. That is, the return on investment works in reverse. For example, for two drugs with a theoretical $4 to $1 return on investment, if Drug A has a counterfeit prevalence of 2% within the supply chain, and Drug B has a 3% prevalence, then Drug A has a 4% advantage in value based pricing (1% increase in counterfeits reduces value by 4%) – plus the cost of any harm caused by the additional counterfeits. Major purchasing decisions are decided by much smaller differences.

Solution: Robust, scalable, consumer-friendly product authentication

To accurately measure how often the supply chain succeeds we must authenticate at the endpoint – dispensation or patient consumption. While track and trace technologies work well at the lot level for transfers of product within the traditional distribution network, they require costly specialized hardware, do not authenticate the actual product, and are not scalable to hundreds of thousands or millions of users.

A scalable, consumer friendly approach delivering robust, product focused authentication can provide the foundation for quantifying the value of a secure supply chain.

As you might have guessed, my company provides such a system. MedSnap uses patented computer vision and the scalability of the iPhone platform to authenticate the physical product – without any product or packaging modification. In addition, counterfeits detected can be “fingerprinted” providing insights for internal and external investigations and valuable data for prosecution.

In summary, investments in supply chain security and brand protection pay dividends in a value based pricing world. But new tools and measurement capabilities are required to quantify these benefits and transform security from a cost center to a core part of the value proposition.

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