If you are a pharma/healthcare company (manufacturer, wholesaler, distributor or a pharmacy), this article is a must-read to learn all about the role of EDI in the pharmaceutical industry and devise your business automation strategy for 2024 and beyond.
EDI in the pharma industry goes beyond simple data exchange like in any other industry—it’s a comprehensive solution that addresses order management, supply chain transparency, product traceability, regulatory compliance, and financial processes. It streamlines processes, reducing overall operation costs, enhancing efficiency, and ensuring regulatory compliance. Implementing a fully scalable integrated EDI solution is key to navigating the complexities of the pharmaceutical landscape and ensuring operational excellence.
Role of EDI in Pharmaceutical Industry
Automation of Order to Cash Cycle:
In the standard EDI order-to-cash cycle within the pharmaceutical industry, a distributor, retailer, or wholesaler (referred to as a trading partner) initiates the process by submitting a purchase order (EDI 850) to inform their supplier(s) about the demand for medical products.
Upon receiving the purchase order, the supplier promptly sends a purchase order acknowledgement (EDI 855) back to the trading partner, confirming the details of the order.
The purchase order is then directed to the warehouse for the picking and packing process through an Enterprise Resource Planning (ERP) system which is used by a business as their backend software used by different departments to input data and communicate effectively. Once completed, the order is fulfilled and prepared for shipment.
A crucial step follows with the generation of an advance ship notice (EDI 856) containing tracking details and the estimated arrival time. This information, extracted from the supplier’s shipping ERP, not only facilitates logistics but also serves as a significant source for product traceability. This includes vital details such as point of origin, lot numbers, expiration dates, manufacturing location, addressing potential issues like losses or thefts during the process.
Next, the supplier generates an invoice (EDI 810) using their ERP or accounting software and transmits it to the trading partner via EDI.
On the trading partner’s end, the received invoice is cross-referenced against the initial purchase order and advance ship notice for any discrepancies. If none are found, the process proceeds to payment.
This streamlined cycle not only provides better control over inventory but also enhances the efficiency of order processing and deliveries. Moreover, envision the benefits of sharing sales data (EDI 852) between partners, enabling insights into product performance, alerting each other to low sales, and fostering collaborative strategies for mutual success.
Suppliers send advance ship notices (EDI 856) with tracking details and arrival times. This not only facilitates logistics but also provides crucial information for product traceability, including lot numbers, expiration dates, and manufacturing locations.
Suppliers generate electronic invoices (EDI 810), expediting the billing process. Trading partners can reconcile these invoices against the initial purchase order and advance ship notice, ensuring accuracy and speeding up payment cycles.
EDI automates processes, improves visibility, ensures compliance, and facilitates seamless communication between trading partners. The result is a more streamlined and responsive supply chain that can adapt to the dynamic needs of the pharmaceutical market.
Regulatory Compliance and Product Traceability:
Post the opioid crises, compliance with the Drug Supply Chain Security Act (DSCSA) has become crucial. FDA mandated the pharma companies to build an electronic, interoperable system to identify and trace prescription drugs when distributed in the United States. This was to enhance FDA’s ability to help protect consumers from exposure to drugs that may be counterfeit, stolen or contaminated.
Advance Ship Notices (ASNs) have been extremely helpful in not only providing tracking information but also critical details such as point of origin, lot numbers, expiration dates, and manufacturing locations. This aids in product traceability, a crucial aspect for regulatory compliance and quality control.
What is a chargeback fee and how does it work in pharmaceutical industry?
A Drug Manufacturer and a Wholesaler engage in a negotiated contract, establishing a reduced cost termed Wholesaler Acquisition Cost (WAC).
Contrary to common perception, the Wholesaler doesn’t mark up the price for further sale to a Pharmacy. Instead, the Wholesaler sells at a contractually reduced price, determined by negotiations involving the Pharmacy/Health Insurance Company and the Manufacturer providing services to an enrolled patient.
This discrepancy in price, owed to the Wholesaler by the Manufacturer, is known as a Chargeback. Chargebacks are prevalent in the pharmaceutical industry, given that over 90% of drug transactions occur through contracts.
This system poses financial challenges for manufacturers due to the following risks:
- Potential for negative chargebacks
- Inaccuracy in submitted data
- Errors in chargeback processing, leading to overpayment
To enhance efficiency and curb wasteful expenditures, Drug Manufacturers strive to minimize chargebacks. Implementing Electronic Data Interchange (EDI) and integrating it with Contract Management software is a strategic move to address this challenge.
The Product Transfer Account Adjustment (EDI 844) serves as a key component, specifying chargeback requests and any resubmissions. The Wholesaler transmits the EDI 844 to the Pharmaceutical Manufacturer, detailing the claimed chargeback, including WAC and Contract Price, quantity of units sold, customer details, and contract number.
The Manufacturer meticulously verifies this information against the established contract with the pharmacy, ensuring accuracy in the calculated chargeback amount and addressing any discrepancies.
A Response to Product Transfer Account Adjustment (EDI 849) is then transmitted through the Manufacturer’s contract management software via EDI. This step confirms acceptance or disputes chargeback and rebate details.
Upon approval of the chargeback amount by the Manufacturer, credit is issued accordingly. This streamlined process not only mitigates financial risks but also contributes to a more transparent and efficient chargeback management system.
Integration with ERP Systems:
Whether on-premise or cloud-based solutions, integration between EDI and Enterprise Resource Planning (ERP) systems has become so common for fully automating your order-to-cash cycle that companies know no other way of curbing data silos. This integration ensures a cohesive business workflow, reducing errors, and improving overall efficiency.
Serialization and Traceability:
Serialized data transmitted through EDI offers real-time visibility into the movement of products. This visibility is crucial for tracking products at various stages of the supply chain, from manufacturing to distribution to end-users. Serialized data exchanged via EDI enables verification of product authenticity. By confirming the unique identifiers and other serialized details, stakeholders can ensure that products are genuine and have not been tampered with. In the event of recalls or quality issues, EDI facilitates efficient traceability. Serialized data allows businesses to quickly identify affected products, minimizing the scope of recalls and improving overall responsiveness to issues. EDI acts as the common language for communication, ensuring that serialized data is accurately shared among manufacturers, distributors, and other stakeholders.
You need to build a comprehensive business strategy putting all the pieces of the puzzle together and deep diving into your business workflows if you plan on scaling your business. Implementing a fully scalable integrated EDI solution with the right team that will help you tackle all the regulatory compliance issues and improve your bottom line should be the way to go if you haven’t thought about integrating your systems already.