The pharmaceutical industry is rife with fraud, and blockchain technology has the potential to combat this problem.
By Alyssa Kwan, Jessica Pang, Boris Kung and Crystal Lam
COVID-19 has taken a toll on public health globally since 2019, and pharmaceutical companies have been competing to offer new medical products to the public. Simultaneously, the pandemic has brought a global surge in black-market vaccines, posing an extreme threat to public health. In April 2021, the WHO flagged the danger of fake COVID vaccines. Examples include the discovery of counterfeits of Pfizer vaccines in Mexico and Poland, which cost USD$1,000 each.
Coupled with the pandemic, the globalization of the pharmaceutical industry is also a factor behind the growth of pharmaceutical fraud. Pharmaceutical frauds are criminal activities involving the manufacturing, marketing and distribution of fake pharmaceutical goods with the intention of financial gain.
With blockchain technology currently being piloted to fight against fraud across industries, such as real estate, shipping, and wine, it has the potential to tackle the prevalence of counterfeit drugs as well.
Loopholes in the pharmaceutical manufacturing process
Before we delve into how blockchain technology can solve pharmaceutical fraud, let’s first understand how pharmaceutical companies manufacture drugs and deliver them to you. The pharmaceutical supply chain consists of five major steps:
- Pharmaceuticals are produced at manufacturing sites.
- They are transferred to wholesale distributors.
- The drugs are stocked in retail, mail-order and pharmacy locations.
- Pharmacy benefit managers assess the product’s affordability and appropriateness for patients.
- Pharmacies dispense the products to their patients.
While the steps appear to be quite straightforward, manufacturing pharmaceuticals is very complex. Due to the globalization of the pharmaceutical industry, the origin of active ingredients, locations of manufacturing and packaging all take place in different countries. Pharmaceuticals can be repackaged and shipped to another country to take advantage of exchange rates. Such a long process makes it vulnerable to fraudulent practices.
The outbreak of COVID-19 has put a significant strain on healthcare systems around the world and countries have had to adapt quickly to meet the urgent need for medication and other medical supplies. This has resulted in some countries relaxing certain regulations and restrictions regarding pharmaceuticals. In the midst of such a crisis, it becomes easier for fraud or counterfeit activities to take place and go unnoticed, with counterfeiters reaping significant profits.
To tackle pharmaceutical fraud, one of the most common approaches is the utilization of management economies of scale by pharma companies. Companies with a high reputation and capital can afford to invest in specialists to monitor the production and delivery of products.
Another approach is incorporating unique elements of designs in packaging, like barcoding and radio-frequency identification (RFID) tags, for drug tracking. However, counterfeiters have developed the skills to copy those design elements as well, decreasing their effectiveness in cracking down on fake drugs.
Blockchain to the rescue
To ensure high traceability and transparent data in the supply chain of medical goods while keeping it low-cost, blockchain technology is the answer. Blockchain technology is a decentralized, distributed ledger that stores the record of ownership of digital assets. Any data stored on the blockchain cannot be modified, allowing it to be a legitimate disruptor for industries like cybersecurity, payments and healthcare, plagued with fraud.
Through a decentralized network, the history of any digital asset is displayed with full transparency. It ensures data integrity as each bit of data acquired is stamped with the time and origin. Updating data is possible, but the version history would never be overwritten. With everything being publicly recorded, data would not be destroyed or tampered with, making it one of the most promising and revolutionary technologies to reduce security risks and fraud.
As most pharmaceutical frauds occur because of malicious traces, assigning a digital identity to a tangible product is the key. Blockchain technology can be used to help curb counterfeit or unproven drugs by providing a secure and transparent way to track pharmaceutical products throughout the supply chain.
The process can begin with recording data on a drug, such as its expiry date, manufacturer’s name, manufacturing date and ingredients, on blockchains via hashes onto previous records, creating a chain of identifiable data blocks. To access the data, distributors, pharmacies, wholesalers, retailers and customers can scan the product’s QR code created by the manufacturer. This way, they will know if they’re getting counterfeit pills and find out more about the product with a quick scan of the code.
UK-based FarmaTrust is one of the companies actively implementing blockchain technology to combat counterfeit drugs and secure the pharmaceutical supply chain. They implemented the “Track and Trace” solution, allowing consumers to keep an immutable record of transactions and data. To help consumers identify authentic products, FarmaTrust has also developed a Consumer Confidence app. The app allows consumers to check the authenticity of drugs by scanning a barcode on the packaging. Being linked and real-time, the consumer is informed to return the product if a regulator or manufacturer has deemed it unfit or has irregularities during its transaction history.
Blockchain technology’s unique features, such as immutability and decentralization, can aid the pharmaceutical industry to combat counterfeit drugs by providing traceability with verifiable sources. However, it still comes with its set of challenges. For one, setting up the in-house system for using blockchain technology could be very challenging and expensive, which might not be affordable for smaller pharma companies. Also, it still needs to be paired up with data capture methods like barcodes and RFID tags on packages to allow for tracking.
That said, as blockchain technology and its applications continue to evolve, there will likely be more comprehensive solutions to counter fake drugs by combining blockchain and other tech methods.
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