Are You Smart Enough? Blockchain & Smart Contract Applications in Pharma


Merck Group’s Vice President Global Market Access & Pricing Strategic Planning Marco Rauland casts his eye over blockchain-based smart contracts and their applications for pharma across supply chain enhancement, improving clinical trials, and outcome-based contracting.


Smart contracts are self-executing digital contracts based on blockchain technology that provides decentralized data access to the patients and different service providers. As such, any contract between multiple parties enabled through blockchain is termed a ‘smart contract.’ This is actually a computer program and is automatically executed once pre-determined conditions are met. The use of smart contract applications is rising, and the pharma industry is therefore continuously exploring these platform applications to help with several topics such as storing patient health data safely, accelerating clinical trials, managing supply chain accountability, and executing outcome-based contracts.


How do Smart Contracts work?

A smart contract is created between two parties where both parties remain anonymous. Smart contracts work by following simple statements that are written into codes on a blockchain which are encrypted locally at the data source and never decrypted. The system automatically executes the actions when predetermined conditions have been met and verified without any third party’s involvement. The correctness of the behaviour of each party can be verified separately and independently, implying both the correctness of the results of the whole computation and data privacy. The blockchain gets updated when the transaction is completed.

Within a smart contract, there can be as many stipulations as needed to satisfy the parties that the task will be completed satisfactorily. Smart contract platforms are designed to provide aggregate reports across multiple healthcare providers in a privacy-preserving manner.


Benefits of Smart Contracts

Smart contracts are replacing the traditional payment, time and material models and come with numerous advantages.

  • Integrity: Encrypted records are shared across participants ensuring transparency and auditability of medical data.
  • Trust: There is no third-party involvement, and compliance with privacy regulations is ensured.
  • Speed, efficiency, and accuracy: Such contracts are executed immediately after the conditions are met and automation saves paperwork and time spent on reconciling errors.
  • Security: Each record is connected to the previous and subsequent records on a distributed ledger making it extremely difficult to hack.
  • Savings: Smart contracts remove the need for intermediaries to handle transactions and the associated time delays and fees.


Challenges with Smart Contracts

Despite all the benefits, smart contracts do have some potential drawbacks. The idea is fairly new, and new limitations are introduced now and then.

  • Awareness and education: Lack of awareness about smart contracts is the key issue for its limited application.
  • Platform Integrity: Ensuring the authenticity of smart contract platforms is the first hurdle.
  • Predictability: The triggering of smart contracts is event-based and thus the depending parameters might be manipulated in advance.
  • Error: Coding errors can lead to unintentional loopholes. Any unhandled error can be exploited.
  • Rouge Contracts: Smart contracts are extremely difficult to hack, but in case the system gets hacked, any illegal activities would also self-execute.


Use of Smart Contracts in the Pharma Industry

Many leading pharma companies have started taking initiatives to explore the usage of blockchain-based smart contracts to address current healthcare challenges by providing a wide range of solutions, including:

  • Managing pharma supply chain accountability and visibility
  • Innovative clinical trials patient recruitment, follow-up and data management
  • Intelligent data visibility and liquidity management
  • Issuing and filing medical prescriptions
  • Data flow for healthcare reimbursement
  • Decentralised data access for outcome-based contracting


1. Supply Chain Enhancement

The pharma supply chain is complex, with drugs changing ownership from manufacturers to customers, and there is a lack of visibility throughout to track authenticity. Challenges within the pharma supply chain include counterfeit drugs, pharmaceutical arbitrage opportunities and tracking environmental conditions. The blockchain and smart contracts can streamline financial settlements associated with getting the drug from factory to pharmacy to patient, while addressing the details of health benefits, drug rebates, and chargebacks for contracting.

Drugs are frequently returned to the manufacturers when excess orders have been placed and there is a need to return the unsold stock. Pharma companies re-sell these drugs, however, first, they need to verify the authenticity of the returned products. In the US, the Drug Supply Chain Security Act (DSCSA) is mandated to serialize or barcode all drugs at the package level. The act has been implemented in stages and will go into full effect by 2023. Similarly, Europe has a regulatory enactment called the Falsified Medicine Directive (FMD) that requires all drugs to be serialized or barcoded. While the EU has adopted a centralized database to verify the authenticity, in the US there is no centralized database regulator. Blockchain provides a better platform that is decentralized and distributed ledger where both parties can then verify the authenticity of a drug by connecting to the blockchain.


2. Improving Clinical Trials

Blockchain technology in clinical trials can provide transparency and traceability of consent. It acts as a distributed ledger system that can enhance the performance of clinical trials as it involves multiple parties and is a very complex procedure requiring compliance to regulatory standards, patient recruitment, data security and privacy. Efforts to leverage blockchain technology for storing patient health data safely, speeding up clinical trials, and lowering drug development costs. Some promising pilot projects are designed to prevent the leaking of proprietary information from one data set to another and only non-sensitive models and info are exchanged.


3. Outcome-Based Contracting (OBC) in Healthcare

Increasing healthcare costs and uncertainty around treatment outcomes in the real world have led the pharma industry and payers to move towards pricing based on drug performance. Outcome-based contracting (OBC) determines rewards to the manufacturer if the drug achieves exceptional outcomes, and also guarantees payback in case the drug fails to achieve the outcomes demonstrated by a drug manufacturer. OBC has been used widely across the healthcare industry for a few years, but the uptake has been slow due to several challenges, including a lack of data privacy, mistrust between concerned parties, and sustainability challenges. Smart contract platforms potentially improve the healthcare ecosystem for insurers, hospitals, pharma service providers and patients. These platforms align drug prices with their outcome for health insurance companies and pharmaceutical manufacturers. Smart contracts ensure sustainable drug procurement and maintain the entire supply chain using OBC on a decentralized platform. In order to provide a holistic view of blockchain technology usage, a great deal of pharma companies have completed various PoC projects and are continuously initiating several pilot programs using these platforms, enabling OBC for healthcare. These platforms use real-world data insights and analytics to execute pay-for-performance healthcare agreements efficiently and securely while removing the administrative burden of implementing such agreements. Reimbursement allows users to define patient eligibility, outcomes of interest and pricing conditions that form the basis of the OBC agreements.



Smart contracts have been proven to overcome the data privacy and sustainability challenges faced by the pharma industry and smart contract applications have thus far been a huge success. Blockchain-based smart contracts have been tested by big pharma companies in various applications including supply chain and clinical trials with positive results. Smart contracts are being increasingly recognized among the pharma industry and the current trends are favouring advancement in their usage in the coming years. They have the potential to be most successful in environments that prioritize privacy, efficiency in sharing information, and data accuracy. Pharma companies and their supply chains will be obliged to adapt their operations to keep up with these generational changes in order to competitively deliver services and treatments in the future. In parallel, cultural, investment, and operational challenges with blockchain adoption need to be addressed.




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