Transforming the U.S. prescription drug market with public blockchain

Feb 7, 2018

Addressing the skyrocketing costs of prescription drugs, and the lack of transparency around how drug prices are set in the United States, product design and development firm Cambridge Consultants has designed an open market trading platform for drug price negotiation, based on public blockchain.

By devising a set of smart contracts to be deployed on the Ethereum blockchain, Cambridge Consultants has created a transparent and trust-based mechanism that enables the trading of drug products as if they were commodities. With an open market trading place, each stakeholder – from pharmaceutical and insurance companies to the individual patient – stands to benefit.

Unlike healthcare systems around the world, pricing strategies in the U.S. severely lack trust and transparency. Pharmaceutical Benefits Managers (PBMs), the intermediaries between insurers and pharmaceutical companies, set formularies of preferred drugs based on closed-door negotiations on discounts and rebates. This often results in artificially high list prices that increase co-pay for patients, and reduced access to drugs that do not make it onto the formulary.

“Drug pricing in the U.S. healthcare system is broken because of the way the market is set up,” said Jaquie Finn, Head of Digital Health, Cambridge Consultants. “By moving to an open market that creates price competition and improves access, there is an enormous opportunity to fix it, providing the right technology is in place.”

Cambridge Consultants is leveraging blockchain’s ability to create an auditable and transparent transaction network for pharmaceutical supply and price setting. Using a public blockchain, as opposed to the private blockchains that are being trialed by some healthcare organizations, the network allows access for more traders and generates greater trust through the large number of distributed parties involved.

The platform uses a set of five smart contracts that sit on top of the public blockchain to enable and authorize trades. In addition to sell-side and buy-side contracts, contracts for sale and for products required, the trading platform also includes a smart contract for FDA approvals that automatically validates buy/sell orders, ensuring the products being sold have regulatory approval.

By creating a more transparent formulary design strategy, the platform opens the door for pharmaceutical companies of all sizes to be listed, creating greater choice for consumers, reducing the need to set high list prices and in turn, lowering out-of-pocket expenses. Meanwhile, insurance companies and PBMs can reduce administrative overhead while rebuilding trust with consumers. With greater visibility around supply and demand, the platform also has the potential to transform the secondary market, preventing third parties from profiting off supply shortages and reducing the risk of counterfeit drugs entering the market.

“Blockchain is best known as the key innovation behind digital currencies, but the opportunity is to use it to build a trust fabric in any industry that requires the linking of large volumes of dynamic data, whilst maintaining traceability – including in healthcare.” Finn continued, “we’ve done the hard part: adapting blockchain’s design and use case to address a significant problem in the healthcare industry. Now there is a practical new direction for the market, in order to address the problem of drug pricing in America.”

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