International Business Systems’ approach to ERP systems in light of the DSCSA requirements.

Effective in January of 2015, pharmaceutical distributors were required to report the chain of custody of the products they sell: who they acquired the drug from and who they sold the drug to. In 2017, the track-and-trace requirements become much more complex for the pharmaceutical distributors, as they must report this same chain of custody at the serial number level of the individual drug.

As a result, many companies are now seeking out pharmaceutical-specific enterprise resource planning (ERP) solutions to support their operations. The same traceability infrastructure has to be in place for a company with 5 employees and 5 thousand employees.

“It’s a lot of information for small- and mid-sized companies,” said Michael O’Brien, VP-Americas at International Business Systems (IBS)—a mid-market distribution ERP software company.

“The requirements to stay compliant are pretty onerous for a small- to mid-sized distribution company,” said O’Brien. “It’s also very expensive for a pharmaceutical distributor to modify their system to be compliant and have the reporting agencies that they are requiring.”

The pharmaceutical distributors have to report to the unit number: how long they have had it, who they have sold it to, and the chain of custody down to the unit of drug.

“Most ERP systems don’t currently track down to the serial number of a product,” said O’Brien.

One of the concerns that companies expressed with regards to the DSCSA requirements, according to O’Brien, is how they know if software is compliant with legislation. This is largely due to the consequences if a company is not compliant—the DEA can revoke the license of a pharmaceutical distributor.

“It’s a compliance-driven industry, and it should be by its nature,” said O’Brien.

But how can small- and mid-sized companies work toward the implementation of these compliance requirements?

What Do (and Will) Pharmaceutical Distributors Need to Keep Track of?

In its ERP system, IBS has some key features that aid pharmaceutical distributors in keeping track of the following information pertaining to compliance:

1. DEA Licensing

Pharmaceutical distributors must maintain the licensing information of their customers at both the federal and state levels to assure that they are permitted to sell pharmaceutical products to properly-licensed entities.

2. National Drug Code (NDC Numbering)

Pharmaceutical distributors must be able to report sales of pharmaceutical products using a common coding system.

3. Traceability

“This isn’t unique to pharma,” said O’Brien. “What’s unique is that it has to be reported.”

Distributors, as well as all other professionals who interact with a particular drug in the supply chain, have to know all aspects of a drug’s location—where it was received, who it was sold to, etc. In the case of a recall, the manufacturer has to know where their drug was sold.

This is further complicated by the need to ensure that when a drug is sold, it needs to have enough shelf life left. In other words, the pharmacy needs to have a reasonable amount of time before the drug goes bad. If a product is within six months of its expiration date, a process called “short dating” must be observed. The pharmacists have to notify the patients receiving these drugs that they are using short-dated products.

4. Rebates and Charge-Backs

“In the legal drug trade, the pricing is extremely competitive between distributors,” said O’Brien. “They want to compete on price, but a distributor attains their profit margin through supplier rebates. The distributor is required to submit to the manufacturer a list of the transactions where they sold their product—it’s a line item detail.”

O’Brien comments on rebates further: “It’s a detail-oriented process. If it’s not done right by the distributor, then the manufacturer can dispute.

“We [IBS] track down to the line level. Not a lot of systems out there automate that.”

In IBS’ ERP system, an order is placed through their entry process. The order is captured in a pending rebate file. Then, the reports are automated to the manufacturers that the distributor has sold the product for (usually on a monthly basis)—after which point they receive payment back from the manufacturer.

5. ARCOS Reporting

This stands for Automation of Reports and Consolidated Orders System, which—according to the U.S. Department of Justice—is an “automated, comprehensive drug reporting system which monitors the flow of DEA controlled substances from their point of manufacture through commercial distribution channels to point of sale or distribution at the dispensing/retail.”

6. Control Substances

This refers to the different classification of drugs: OTC, generic, prescriptions, etc., and also encompasses the 222 Report. 

A pharmaceutical distributor must report the ordering or selling of Controlled Substances (Class I and II drugs). IBS’ system captures the information that is required to be reported on Form 222.

“We are the keepers of a transaction and have integrated the information into these systems,” explains O’Brien. “Information can be uploaded into the portal to follow the chain of custody.”

How Can Pharmaceutical Distributors Streamline their Processes in Order to Ensure Traceability?

“First and foremost, completely understand what the requirements are because it’s new,” O’Brien said. “There’s a lot of information out there about what is actually required.

“Pharmaceutical distributors need to be educated on the different aspects of the legislation to make sure they can be in compliance.”

Depending on the reason why a pharmaceutical distributor is out of compliance, the reconciliation may involve automating processes within their company or getting out the excel spreadsheets to record information that they have not recorded previously.

“If the assessment of where they are in compliance shows not just that they are out of compliance, but there is no easy way to get into compliance, then it’s probably wise to at least look around and see what systems are out there to help them with that,” said O’Brien. “That is typically how we get involved.”

Cloud Platforms & ERP Software

“The cloud is a perfect medium for pharmaceutical distribution because it’s so highly regulated,” O’Brien said. “It’s not open for interpretation.

“As the pharmaceutical software author and provider, we ensure that the solution is compliant with current legislation. The ability to deploy the same solution either on-premise or in the cloud allows us to scale from very small to very large pharmaceutical distributors. Regardless of company size, they all have the same regulatory requirements that they have to deal with on a daily basis.”

Some of the companies that work with IBS are looking for pharmaceutical-specific solutions, such as ARCOS reporting and NDC cross-referencing.

“Few ERP solutions cater to the pharmaceutical distribution industry. The industry is highly regulated and the informational reporting requirements mandated by both federal and state agencies can be overwhelming,” O’Brien explains. “It’s a specialized industry.”

The Future of Traceability

“Based on the current regulation, it’s going to get more and more detailed as we get closer to 2023,” O’Brien said. “Fortunately, there are a lot of interim dates to help people be ready from what’s around the corner.”

The DSCSA laid out the goal of track-and-trace—breaking it into manageable chunks of different compliance requirements on different dates. This way, companies can gradually (and in the most efficient manner) get to the point that the legislation requires.

“It’s one of those situations where the distributor welcomes the ultimate clean up goal of the supply chain, but what they dread and are trying to cope with is the change required to be in compliance,” explains O’Brien. “It’s a lot of detail.”

The future holds not only the promise of change, but the promise of some mystery as well.

“I don’t know what’s past 2023,” said O’Brien, “but if we get to the ultimate end of the security act, it will squeeze the people that are dealing with controlled substances and other types of drugs out of the supply chains.” Which, hopefully, will help to lessen the number of counterfeit drugs on the market.

About Michael O’Brien, VP-Americas at IBS:

Michael O’Brien has been at IBS for five years. He has expertise in leading global and regional application software organizations. He also has experience in general management, sales, business development, business consulting, professional services, and support. His application expertise includes: SCM (WMS, TMS, APS), ERP, eCommerce, business intelligence (BI), mobile computing, and voice response technologies. His vertical market expertise includes: distribution, manufacturing, retail, grocery, health sciences, and construction/property management.

This article can also be found in the January/February 2016 edition. 

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