Pharmaceutical Returns: The Weak Link in the US Rx Supply Chain

By: Alan Clock, Senior Vice President, XStream Systems, Inc.

As many within domestic regulatory agencies and pharmaceutical industry leaders ponder the battles against counterfeit medications and the many solutions available to combat this global scourge, most have over looked probably the most obvious and weakest link in the overall supply chain, returns.

Pharmaceutical returns, although a small percentage of the overall transactions of the supply chain, account for a significant amount of fraud and counterfeit activities. Most major wholesale pharmaceutical distributors average less than 1% of their monthly gross sales revenues in returns however given the size of their transactions and revenues; this is still a multi-billion dollar weak link that cannot be ignored.

In addition, product transfers within a given distributor, entity or dispenser also are part of this weak link. It is not unusual for a single bottle of pills to be transferred a dozen or more times before a product reaches the dispenser.

Returns are also a necessary component of any supply chain; it is unlikely that restricting the process altogether is a reasonable solution given the enormity of the cost and the thin profit margins of most of the members of the pharmaceutical supply chain.

Most current anti-counterfeiting solutions are capturing the transaction (pedigree) or utilize a sensor based technology on the packaging (RFID) and are totally ineffective in tracking the validity of the product once it has left a secure chain of custody and is returned back into a distributors inventory.

In a time of economic tough times it is far too easy and far too profitable for a pharmaceutical provider or dispenser to fraudulently extract good product, replace all or some of it with inexpensive fillers and then re-seal the bottle. At best a pharmacist can double his profitability on a bottle of pharmaceuticals by replacing good product with harmless fillers, minimally he can re-coup margin lost to unprofitable reimbursement by replacing some pills from a bottle to cover his losses.

Although all pharmaceutical wholesalers require some sort of statement from the provider stating that the product they are returning is the original product that was purchased, sophisticated providers realize that the distributor has very little chance in identifying the adulterated products in its returns as most are tracking hundreds of thousands of bottles that flow through their receiving and returns departments daily. These healthcare professionals must rationalize that their fraud will ultimately be realized in a future transaction by a dispensing pharmacist when they go to fill a prescription and realize that the product in the sealed container is filler and not the actual medication. Even though a pharmacist will be dispensing the medication, it seems likely that too high of a percentage of this fraudulent product will make its way to the consumer and will impact their health adversely.

To date, the majority of the counterfeit materials that XStream’s Authentication solution is discovering at our distributor end users are primarily products that have been fraudulently tampered/adulterated and somehow brought back into the pharmaceutical supply chain inventory via a return goods or transfer process.

XStream encourages all within the pharmaceutical supply chain to protect their inventories by validating their inventories and using an authentication solution to identify the product. The only way that the pharmaceutical supply chain can protect itself is for its members to authenticate its inventories especially when it is processing returns.

If you are a member of the pharmaceutical supply chain or an end user consumer it is important that you are aware of and insist that the partners that you trade with as it relates to pharmaceuticals utilize an authentication technology to protect their inventories and fill in the holes that potentially will impact your health.