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Blockchain, AI, and The Rising Cost of Drugs
23 May 2018

The Problem

For many years now, the costs of drugs and medicines have been soaring across the world. This is the result of a combination of factors. The main one is the exponential increase in the cost of drug development. The average length of time for a new drug to make its way through the pipeline to launch is an astounding 15 years. The first phase, discovery, where promising drug targets are identified to proceed down the pipeline, generally takes between 4 and 5 years. All before doctors and researchers can even think about animal testing, let alone human clinical trials.

When a drug finally does reach the market, it has passed through so many intermediaries — wholesalers, brokers, distributors, retailers — and has been marked up every step of the way. In order to make a return, pharmaceutical companies have to 1) raise prices and 2) only pursue the projects with the highest chance of success, both of which are undesirable for consumers and for public health.

The Trump Solution

In the U.S this week, where consumers spend the most and pay the highest prices for pharmaceuticals anywhere in the world, President Trump has announced his plan to fight this incredibly complex and long-running issue with trademark strongman / “common sense” approaches, which many are calling toothless. It involves much of the same that politicians have suggested in the past, such as direct government negotiation with the drug companies. While on the surface, this might sound like a reasonable approach, “The only way that direct negotiation could possibly save money is by… denying access to certain medicines for all Medicare beneficiaries through rationing, or setting prices for drugs by government fiat,” says Secretary of Health and Human Services, Alex M. Azar II.

In essence, it seems the only way the US government can have an effect on prices is to reduce services and medications covered by insurance. One new idea is to require prices to be listed in drug commercials, only there are a few problems: there are several different prices for any one drug, listing the price wouldn’t necessarily lower any prices, just more visible, and not to mention advertisers have become experts at distracting customers from the endless lists of life-altering side effects, so why would the price be different? Other ideas include “calling out” drug companies by name that makes it difficult to produce generics, in hopes of shaming some of the most shameless companies on earth. Another is pressuring other countries to raise their prices… countries that have already successfully negotiated lower prices from drug companies.

The AI and Blockchain Solution

So if that’s not going to cut it, what will? Enter Blockchain and AI. If you are not up to speed, check out this article for a crash course.

To briefly summarize, Blockchain is a technology that, among other things, allows two entities to transact with other, without necessarily trusting one another, in such a way that all transactions are auditable and immutable. The same capabilities are what allow it to be used as the ultimate record keeping and/or resource management technology in almost any industry you can think of. AI, on the other hand, is how you process all that data into actionable steps, taking advantage of trends and patterns too complex or on too large a scale for human comprehension, in order to optimize outcomes.

So what does that mean for drug prices? And how will day-to-day life improve?

Generally, there are just too many steps in the chain. AI and Blockchain can work together to reduce the length of time-consuming steps and eliminate many of the costly intermediaries.

Regarding AI, there are already over 100 companies with projects looking into healthcare and pharmaceutical-related predictive analytics (AI). In industries like pharma where the product is very standard and very high volume, there is big money at stake when it comes to having products and resources in the right place at the right time. AI is the perfect tool to balance supply and demand and can unquestionably do this better than any human judge, so long as the program is sound. It can also be used to form more accurate hypotheses of outcomes, which will greatly increase the speed during the discovery phase and lead to more successful and more meaningful outcomes.

Coupled with Blockchain, AI could even be used to securely scour electronic medical records and public health data to discover macro trends in illness and viruses as well as the potential molecular target for disease and genetic predispositions.

Furthermore, there is huge potential for Blockchain when it comes to the pharmaceutical supply chain, and that’s because it is a high volume, high value, and high-security industry. This means that companies have to spend millions of dollars on compliance, brokers, forwarders, and expensive third-party coordination to ensure compatibility between systems, all of which could be eliminated or reduced ten-fold with Blockchain and Smart Contracts. Not only that, but the potential savings from removing counterfeit and expired medicines from the supply chain as well as curbing returns-fraud could be as high as $200 B.

Lastly, the security and efficiency of Blockchain could allow for semi-real-time data gathering from patients, hospitals, pharmacies, etc. that would provide previously unthinkable insight into the lives of patients, the life cycle of drugs, and the entire supply chain within the pharmaceutical industry without compromising patient health information and without exorbitant costs.

With Blockchain and AI, the healthcare and pharmaceutical industries will be able to provide exponentially better products and services while reducing costs and shortening timelines. All of which really add up. Quite simply, they will improve efficiency and eliminate steps, which is a tried and true method for reducing costs, one that is much more effective than rallies and intimidation. When it comes to pharmaceuticals and even supply chain management in general, logistical solutions will always outperform emotional appeals.