How blockchain could automate GPO contract administration

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Alexander Gaffney Senior Manager, Health Research Institute, PwC US January 23, 2019

A blockchain-enabled platform could greatly simplify how products are paid for and reimbursed as part of the contract administration process used by group purchasing organizations (GPOs), manufacturers and distributors.

The need

The contract administration process is considerably complex. A contract between a drug manufacturer and a GPO involves multiple steps, including adjudication, disputes, chargebacks and rebate payments. Each form, such as the electronic data interchange (EDI) 844 product transfer account adjustment form, requires dozens of data elements from each party.

A core challenge of the current system is ensuring that all parties simultaneously have up-to-date information about pricing and contracts. A wholesaler purchasing a drug is unaware if that product is going to an independent pharmacy, retail chain or health system. All such entities can have different pricing and contract terms, leading to chargebacks and contract disputes.

End-to-end, the contract administration process can involve a half dozen back-and-forth processes between a manufacturer and wholesaler and take more than 45 days, according to companies interviewed by PwC.

How the GPO process works now

  1. GPO and Manufacturer contract for discounted pricing
  2. Manufacturer sends contract details to Wholesaler using electronic data interchange (EDI) document type 845 or 832
  3. GPO member (e.g. dispenser) purchases product at contract price from Wholesaler
  4. Wholesaler validates eligibility and allows purchase, then requests chargeback from Manufacturer (EDI 844)
  5. Manufacturer adjudicates and reconciles chargeback request with contract data; Manufacturer issues chargeback payment or rejects chargeback (EDI 849)
  6. Wholesaler resubmits chargeback data or disputes adjudicated transaction
  7. Manufacturer re-adjudicates chargeback
  8. Wholesaler and Manufacturer go to dispute resolution
  9. Manufacturer calculates and pays GPO rebates and admin fees at end of quarter
  10. GPO reconciles and acknowledges rebate and admin fee payments based on manufacturer data
Group purchasing organization contract admin with blockchain

GPO contract administration with blockchain
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How the process would look like with blockchain

  1. Pharmaceutical manufacturers and GPOs create and authorize a smart contract on the blockchain that contains membership and pricing information
  2. Wholesalers with GPO membership are provided necessary permission to access the smart contract and transact using negotiated rates
  3. Dispensers purchase product from the wholesaler at the contract price
  4. Wholesalers pre-validate the sale using the smart contract to authorize the purchase
  5. Wholesalers report and record the sale on the smart contract
  6. Product is shipped to the dispenser

HRI impact analysis

A blockchain-based system could dramatically shrink this process to one to two days with smart contract architecture, PwC estimates. Smart contracts code business processes on a blockchain and trigger automatic actions in response to certain other actions.

For example, validating the sale of a specific dose of a medical product to a specific vendor—such as a hospital—could trigger a specific sale price that previously was set by the contract. In addition to reducing how much time the process takes, this system could largely automate that process.

However, the biggest hurdle to implementing blockchain may be finding suitable partners. In most traditional business transformations involving technology, a company needs only itself to start building. In the case of blockchain, multiple partners are often necessary. Those partnerships don’t form overnight; they require trust, alignment of objectives and a willingness to work together.

Where to read more

For more information on how blockchain could impact the healthcare industry, read the Health Research Institute report, A prescription for blockchain and healthcare: Reinvent or be reinvented.

Contact us

Benjamin Isgur

Health Research Institute Leader, PwC US

Alexander Gaffney

Senior Manager, Health Research Institute, PwC US

Tel: +1 (202) 836 1604

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