Interoperability and blockchain networks in pharmaceutical supply chains

A note on the challenges in interoperability between pharmaceutical supply chain blockchain networks

Hi everyone!

This week I dove deeper into one subject than I usually do because I thought the dynamics were interesting and had a lot of nuance. Please do let me know what you think of long form deep dives like this, either by emailing me directly or liking this post by clicking the heart above (which also helps me get visibility on SubStack).


In February of 2019 the FDA announced a program where teams could pilot the usage of emerging technologies to comply with the Drug Supply Chain Security Act (DSCSA), which deals with how prescription drugs are identified and traced. In particular the DSCSA mandates an “electronic interoperable system” to trace pharmaceutical products at the package level by 2023, and it was this requirement that the FDA pilot projects focused on. Interoperability is important because if systems can’t talk to each other blind spots are created in our supply chain, potentially allowing counterfeit medicine to sneak in.

20 teams participated in the FDA’s program, a few of which had blockchain tech at the core of their pilots and are issuing reports of their experience. The MediLedger and LedgerDomain reports were previously published, and the IBM, KPMG, Merck, and Walmart team is the latest to issue their report. That promoted me to dig into the nuances and issues of interoperability.

Both of the MediLedger and LedgerDomain reports stated they were able to demonstrate interoperability within their networks but left open the question of how to demonstrate interoperability between networks. Put another way if you’re a participant in one of these networks you can exchange data with others in that network. But these networks aren’t talking to each other today such that a participant in one network can exchange data with someone else in a different network. From the MediLedger report:

There are clear challenges with making disparate track and trace systems interoperable. The project group is concerned that no standards currently exist to make the multiple systems interoperable, and without appropriate standards, it is not likely that disparate systems can be made successfully interoperable.

As I noted at the time this is an industry wide problem not specific to any solution. Further, the nature of blockchains should give us pause here. If the whole point of a blockchain is to be able to participate in the consensus process and/or verify transactions yourself then what is the benefit of relying on information from a blockchain network you’re not a part of? Doing so is functionally similar to relying on information that isn’t from a blockchain network. Thus, the benefits of using a blockchain are limited to only transactions within networks and not between networks. This might be fine, as I suspect geographical and industry dynamics mean that there are already natural “networks” in pharma supply chains. But it would be ideal for the entire industry to be using one system.

Anyway, this brings us to the IBM, KPMG, Merck, and Walmart team’s report today. The report goes over their pilot, results, and solution design. For the most part none of this surprised me, at least after reading the MediLedger and LedgerDomain reports. But what stands out the most is in this line:

Solving for an interoperable solution that will track and trace pharmaceutical products between trading partners will require a fundamental consideration for governance. To foster industry adoption, an egalitarian, inclusive, open-sourced commercial solution should be considered to help launch a blockchain network intended for information exchange of the pharmaceutical product transactions in the United States.

Here the team explicitly frames interoperability as a problem of governance, not of technology, something that the MediLedger report also gestured at. The report proposes an “egalitarian, inclusive, open-sourced commercial” solution. A close reading of each word is revealing:

  • Egalitarian: all are equal and have equal rights

  • Inclusive: covering all parties involved in something

  • Open-sourced: software whose source code is freely available and may be built on, redistributed, and modified

  • Commercial: intending to make a profit

On the other hand, they do follow this up with “to help launch a blockchain network,” as in, the network they formed and are advocating for. Still this sort of language is not what you would typically expect to hear from solution provider(s). A few lines later the team continues:

Given the broad adoption of a select number of technical solutions – each adhering to a common standard – that have been deployed to achieve compliance to date, the integration challenge of interoperability can be accelerated.

Just prior they say that to foster adoption an egalitarian, inclusive, open-sourced solution should be considered. If such a solution existed then it could be the “common standard” referred to here. But, as far as I know, no such solution exists. So, you have to wonder if the IBM, KPMG, Merck, and Walmart team are either calling for collaboration to create that open-source solution, or if they are considering opening their solution up to others. It’s hard to make sense of the usage of those specific words otherwise.

Creating the aforementioned open-source solution would be highly challenging. Different networks have different design philosophies, like the MediLedger network using zero-knowledge proofs, and these different approaches might not be reconcilable. Moreover, I know of at least three different blockchain protocols being used by DSCSA pilot projects, and of course everyone thinks their blockchain is the best. Finally, aligning the industry on how that open-source solution should be governed would be incredibly difficult.

Though this is pretty in the weeds by now it is worth remembering that this matters because these are systems that will be tracking prescription drugs. If they can’t talk to each other then blind spots will be created where bad drugs can enter the supply chain. I also think that this story is one that we can expect to play out across different domains as blockchains are increasingly adopted. If blockchain enabled immunity passports gain traction these same issues will arise! As a last note, this story reminds us that while blockchains are interesting from a technology stand point, it is business and governance problems that are truly important and hard to solve.


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