Pharma Supply Chain: Source or Savior of the Opioid Crisis in America?
A digitized supply chain in pharma has unfortunately failed to mitigate the growing opioid crisis in America. Can it and will it?
The opioid crisis rippling through America’s communities has garnered significant media, government and corporate attention in the past few years, culminating in President Trump’s recent, and perhaps overdue, declaration of a “national emergency” in October of this year . Research from the Centers for Disease Control and Prevention (CDC) gives some credence to the hysteria. The CDC reports that physicians prescribed 259 million bottles of opioids in 2012, more than one for every American adult, and that there were 33,091 overdose deaths related to opioids in 2015, nearly triple what they were in 1999 and rapidly becoming one of the leading causes of accidental death in the U.S. .
In recent years, both regulatory bodies and industry best practices have led to an adoption of serialization technology, or ‘track and trace’, of prescription drugs from the point of manufacturing to the patient’s hands. This practice, enforced here in the U.S. by the Drug Quality and Security Act passed in November 2013, was originally intended to keep counterfeit drugs out of the supply chain as well as correct for issues resulting from compounding pharmacies mixing drugs . The regulation has also spurred the creation of real-time tracking software for drugs, giving manufacturers, distributors and pharmacies greater visibility into their supply chains. This has led to increased flexibility with drug recalls, more efficient drug development and manufacturing decision-making and improved customer relationships.
McKesson, as the largest drug distributor in the U.S. with nearly $200 billion in annual revenue, has benefitted from this digitized supply chain development. However, upon closer examination of the opioid crisis, it appears McKesson has failed to leverage this technology to combat opioid abuse. Just this past January, McKesson agreed to pay a $150 million settlement for alleged violations stemming from failure to report suspicious shipments of opioids to certain geographies . This fine is the largest of its kind against any drug wholesaler in history and follows up on a $13 million civil penalty for similar violations in 2008 . Currently, McKesson, along with the two other largest drug distributors in the U.S., Cardinal and AmeriSource Bergen, are facing additional lawsuits from West Virginia, Ohio and the Cherokee Nation on the grounds of failure to notify authorities of suspicious shipments . Investors have taken notice as McKesson shares have fallen more than 40% from a peak of about $237 per share in May 2015 to $136 per share in November 2017 .
McKesson historically distanced themselves from these types of conversations, putting much of the responsibility in the hands of manufacturers, authorities, pharmacies, doctors and patients . However, given the public pressure and financial considerations, they have re-hauled their compliance and controlled substances program yet again. Some of the initial courses of action included hiring employees from the DEA and other enforcement backgrounds, agreeing to independent auditors for compliance, suspending distribution of controlled substances in specific regions, adding a comprehensive diligence process on new pharmacy customers and tighter controls on the physical supply chain . In addition, McKesson has invested in more sophisticated analytics and tracking software to better flag and alert them to potential suspicious shipments to a pharmacy or region. On a more strategic, long-term front, McKesson has begun working with the DEA in a closely aligned partnership to hopefully share pieces of their digitized supply chain. And finally, McKesson has initiated policy efforts in Washington D.C., publishing a white paper and asking legislators to establish a National Patient Safety Network that would allow pharmacists to quickly and accurately check a patient’s prescription history, among several other initiatives .
McKesson has clearly taken a greater role to help solve the opioid epidemic in the U.S. However, the task ahead remains daunting. The drug distribution business is a thin margin industry and inherently competitive. While traceability and documentation will allow McKesson to provide a better, and perhaps more ethical, service, the competitive landscape is shifting as well. In addition, McKesson will also need to consider how their relationships with mom-and-pop and independent pharmacies develop, given these communities are often the hardest hit by the crisis and will be under greater scrutiny going forward. Ultimately, transparency in the prescription pain drug market should benefit these relationships. McKesson could move to improve information sharing among Prescription Drug Monitoring Programs (PDMPs), especially across state lines, leveraging its data to allow various pharmacies and physicians to understand when patients or physicians might be abusing the system.
While McKesson has had to pay recently, it remains a question of how much responsibility and potential solutions for the opioid crisis lie with the pharma distributors? And, as McKesson and others leverage better technology to limit the proliferation of pain medications, how do they ensure that their heightened sensitivity doesn’t prevent the drugs from getting to the patients who need them most?
 Hirschfield Davis, Julie, “Trump Declares Opioid Crisis a ‘Health Emergency’ but Requests No Funds,” New York Times, October 26, 2017, [https://www.nytimes.com/2017/10/26/us/politics/trump-opioid-crisis.html], accessed November 2017.
 Rudd RA, Seth P, David F, Scholl L. Increases in Drug and Opioid-Involved Overdose Deaths — United States, 2010–2015. MMWR Morb Mortal Wkly Rep 2016;65:1445–1452. DOI: http://dx.doi.org/10.15585/mmwr.mm655051e1
 Drug Supply Chain Security Act of 2013 (DSCSA). HR 3204. 113th Congress, 54th session. Congressional Record 127, no. 587. (Nov 27, 2013).
 U.S. Department of Justice, “McKesson Agrees to Pay Record $150 Million Settlement for Failure to Report Suspicious Orders of Pharmaceutical Drugs,” January 17, 2017 (Washington, D.C.), [https://www.justice.gov/opa/pr/mckesson-agrees-pay-record-150-million-settlement-failure-report-suspicious-orders], accessed November 2017.
 Kacik, Alex, “Pharma supply chain ramps up technology to battle opioid epidemic,” Modern Healthcare, September 16, 2017, [http://www.modernhealthcare.com/article/20170916/NEWS/170919916], accessed November 2017.
 Cortez, Michelle, “Drug Distributors Fall Ahead of ‘60 Minutes’ Report on Opioid Crisis,” Bloomberg Markets, October 13, 2017, [https://www.bloomberg.com/news/articles/2017-10-13/drug-distributors-fall-ahead-of-60-minutes-on-opioid-crisis], accessed November 2017.
 Fry, Erika, “As America’s Opioid Crisis Spirals, Giant Drug Distributor McKesson Is Feeling the Pain,” Fortune Health, June 13, 2017, [http://fortune.com/go/health/fortune-500-mckesson-opioid-epidemic/], accessed November 2017.
 Public Affairs, McKesson Corporation, “Combating the Opioid Abuse Epidemic: A Shared Responsibility that Requires Innovative Solutions,” March 2017, accessed November 2017.
Student comments on Pharma Supply Chain: Source or Savior of the Opioid Crisis in America?
This is a very thought-provoking piece and it’s interesting to see how players across the pharmaceutical value chain have borne culpability for the Opioid epidemic. On one hand it seems that through implementing serialization technology, McKesson can play a crucial role in creating transparency and responsibility in the distribution of pharmaceuticals. Thus, reducing improper access to opioids.
On the other hand, I think the first question you posed is the most salient in the context of the broader crisis – how responsible are pharmaceutical distributors for the opioid epidemic?
Before opioid products were ever commercialized, trusted and prominent medical researchers and key opinion leaders aggressively marketed opioids as safe and critical for pain management. Pharmaceutical manufacturers themselves – such as Purdue Pharma, who produces an oxycodone product that generates over $2 billion in annual sales – also employed aggressive marketing tactics and made misleading claims about the safety and efficacy of their drugs. Moreover, physicians have been accused of over-prescribing opioids. Even on the consumer level, the majority of people that “abuse prescription opioid drugs get them for free from a friend or relative.”
And beyond traditional medical channels, as demand for opioids has grown to exceed prescription supply, the use of illicit opioids – such as street manufactured fentanyl – has also boomed in recent history, contributing to the spike in opioid-related fatalities.
The rampant improprieties throughout the pharmaceutical value chain make it clear that several stakeholders bear responsibility for the opioid epidemic we have on our hands. That said, it’s interesting to think about the applications of serialization technology and the role that businesses like McKesson can play in alleviating opioid abuse through enforcing a safer and more transparent distribution channel.
 Sarpatwari, Ameet. “The Opioid Epidemic: Fixing a Broken Pharmaceutical Market.” Harvard Law & Policy Review, vol. 11, 2017, pp. 463–484.
 CDC Newsroom. https://www.cdc.gov/media/releases/2014/p0303-prescription-opioids.htm
In addition to the potential applications on the opioid crisis, I wonder how the digitized supply chain could be leveraged to deliver more value to customers and to society. For instance, are there any learnings that can be picked up from patterns of prescription drugs that aren’t abused (i.e. insight into what health issues are more prevalent in certain geographies or with certain demographics).
Great article! Well written and researched. You do raise a great point about how accountable distributors are for the impact of the product they are distributing. In my view, given the need for prescriptions, the responsibility truly lies with Doctors who control patient access to these addictive medications. However, as a distributor of a product with the ability to have such a terrible impact on people’s lives, distributors should be investing in management of accounts to avoid incidents where drugs may be shipped to accounts who may be bypassing prescriptions and distributing the drugs illegally. Additionally, as you made clear, it is in their financial interest to invest in avoiding risky distribution tactics that could land them in the media and crash their stock price.
Thank you for this thoughtful review and valuable insights on this emergent national crisis particularly hitting our close neighborhoods in the Northeast.
While every participant in the pharma supply system—from manufacturers and distributors to providers and pharmacists, ultimately to the patients in need and even abusers—shares collective responsibility in this opioid crisis, it is encouraging to see all partakers finally taking actions, whether voluntary or not, to solve this crisis together. Given the vast amount of narcotics in demand and prescribed daily in our current health care system, it seems unrealistic to expect safe controlling of these substances at the level of individual prescribers or pharmacists who would have difficulty gauging patterns of opioid consumptions at levels beyond individual patients. It would likewise seem unrealistic to expect pharmaceutical manufacturers to control their productions when the expectation and demand among the public on pain management is already high than ever with the advent and use of narcotics for decades. Adoption of aforementioned serialization technology, real-time tracking, and improved information sharing via digitalization by distribution businesses would seem necessary to avert this public health crisis at regional and national levels.
It is also worth noting that the majority of global opioids consumption and sales are disproportionately high in the United States.