RFID stays well in healthcare, pharma markets

The excitement over radio frequency identification (RFID) technology has gained momentum in the last five years, with a diversification in the range of applications. The market is experiencing tremendous growth predictions with the increasing use of passive RFID technology in volume-driven vertical markets such as pharmaceutical and retail.

The healthcare and pharmaceutical market is slated to become one of the most promising verticals for the future of RFID technology. Patient safety and process efficiency can be improved by RFID in the development of drugs and the running of clinical trials of drugs. It may also increase patient safety, manage critical-care assets and hospital equipment and reduce counterfeiting and diversion of pharmaceutical products. The commercial feasibility of the technology makes for a stronger business case in this market, due to the presence of high-value products and the resultant margins. But RFID is still relatively new in the healthcare market, where end users rely most on bar coding, and many have traditionally been slow to adopt technological advancements.

The following analysis from "World RFID in Healthcare and Pharmaceutical Applications Markets," reveals that RFID in healthcare and pharmaceutical applications markets earned revenues of $370 million in 2004, and estimates indicate that it will reach $2,318.8 million in 2011. During 2004, the market grew at a modest rate of 11.8 percent over the previous year. During the forecast period, this market is expected to grow at a very healthy compound annual growth rate (CAGR) of 29.9 percent.

However, increased investments in RFID are taking place in pharmaceutical and patient-tracking applications with the advent of regulatory recommendations. Initial interest was triggered by retail mandates in North America and Europe that require pharmacy chains supported by such stores to adopt RFID tagging. Pharmaceutical companies are now focused on pilot activities to integrate the technology in their supply chains. The deployment rates, however, are expected to see regional disparities, with most deployments likely to be centered in the North American region. The European region is still grappling with issues related to standards, frequencies and the lack of government-driven initiatives. The Asia Pacific region holds huge promise for growth in light of their existing initiatives in patient-tracking applications and anti-counterfeiting measures.

RFID technology has been traditionally used in asset-management and equipment-tracking applications. The technology is expected to have huge potential in drug-tracking applications following regulatory and legislative developments, while the security of pharmaceutical supply chains is driving a number of large deployments. Benefits of the technology remain focused on safety concerns across the applications.

The full report indicates that the American market is the biggest for RFID applications in healthcare and pharmaceutical markets in terms of revenues as well as growth rate, and is expected to grow the fastest, at a CAGR of 31.3 percent. Growth rates across geographic regions are marginally different. The U.S market is the driver within the American region, followed by Canada, which is followed by Asia Pacific, Europe, the Middle East and Asia.

Of the three applications analyzed, the drug-tracking applications market is expected to have the strongest CAGR of nearly 32.8 percent during the forecast period.

It's expected to be closely followed by the medical-equipment tracking applications market, with a CAGR of 28.9 percent compared with the forecast period.

The RFID application market for healthcare has progressed from the initial iteration stages of experimentation toward early adoption. The potential of RFID in the healthcare vertical is quite promising, since it would have a direct impact on the service offering. The success of RFID implementation would depend on its compatibility with systems that are already in place. The U.S. Food and Drug Administration and the Health Insurance Portability and Accountability Act of 1996 (HIPAA) security mandates could further the adoption of the technology in the healthcare vertical.

RFID has a wide variety of applications within the healthcare market and the pharmaceutical supply chain. These applications can be broadly classified, in terms of application areas, into healthcare and pharmaceutical applications. Within the healthcare vertical market, there are categories including personnel and patient tracking, equipment tracking, patient admission and registration, patient self services like bill payment, dosage and disposal of medicines and updating medical records. On the other hand, for the pharmaceutical supply chain, typical application areas are drug development laboratories and drug tracking along the supply chain from development to retail sale.

A tough road ahead

In the present market, there are a number of issues that are restraining the growth of RFID technology. One such issue is compatibility. RFID solutions call for integration with existing technologies. A complete overhaul of the system wouldn't be a sensible ROI decision in the short term. This would prove critical to manufacturers integrating the RFID tagging process further up the supply chain at the point of manufacturing itself. Existing RFID systems would also require a certain level of compatibility to upgrade to newer protocols and advancements.

The cost of adopting RFID is also another cause of concern for the industry. Whereas bar-code labels are available for $0.001 per unit, RFID tags cost around 20 to 25 cents per unit. The challenge of the cost factor is particularly relevant since the healthcare vertical has not traditionally been a market for tagging. Pharmaceutical companies have only recently begun tracking their supply chains. However, the high price of items to be tagged, particularly in the medical equipment and devices segment, would justify the implementation of RFID systems.

Privacy infringement in RFID systems constitutes security concerns among end-user segments. The issue seems to be more acute after the FDA's approval of human implant chips. Manufacturers would have to address issues here, since the same could hinder early adoption of the technology.

Reasons to smile

Along with the above restraining factors, there are factors that can help the market grow. One such factor is the possibility of improving operational efficiency. The use of RFID calls for an in-depth understanding of business processes. This provides good opportunities for companies to improve processes resulting in a competitive advantage. It would also enable a real-time location of key personnel and critical equipment, thereby improving operational efficiency. Real-time tracking of mobile medical equipment would enable cost containment in terms of rent and labor. Healthcare facilities, especially hospitals, would gain a competitive advantage in their service delivery.

The same tracking ability is also expected to result in avoidance of lawsuits filed by patients who have been administered the wrong tests or faulty medication. Though errors are still prone to happen, RFID systems are expected to reduce the frequency and magnitude of such errors, if they are used properly.

Another factor that can also be considered a driver is the possibility of curbing down losses that happen from the counterfeiting of drugs. An estimated $15 billion is lost globally every year due to counterfeits. (The first chart presents the increasing number of drug counterfeit cases in the world.)

There's also the issue of parallel trading and online pharmacies. RFID technology provides a means to authenticate drug products from development to dispensing from pharmacies. But compared with bar codes, the higher tag costs are a concern.

The FDA report, "Combating Counterfeit Drugs," published on Feb. 18, 2004, envisages RFID technology being critical in drug supply safety. Close on the heels of the above-mentioned report, a compliance policy guide was issued in November 2004 to facilitate the implementation of feasibility studies and pilot tests related to RFID. The FDA recommendations have resulted in several states, including California and Florida, requiring tracking of drug shipments through the supply chain. There are a number of other initiatives that have been taken by authorities like the CIMIT Operation Room of the Future (ORF) project. This project was initiated to explore the impact of the new technology platforms and systems on the safety and efficiency of patient care in a high-tech and minimally invasive environment. Another such example is the HIPAA of 1996 and Joint Commission on Accreditation of Healthcare Organizations (JCAHO) security mandates expected to enable hospitals to meet security and privacy regulations.

Pilot studies: A possible indication of future potential?

A three-month pilot study involving eight manufacturers, including Merck, Novartis and Solvay, ended in January 2005 after tagging approximately 180,000 medicines to counter illegal drug trafficking. The system, called Authentication at the Point of Dispensing (APOD), would verify prescribed name and dosage, expiry dates and recalls. Other companies implementing pilot projects include GlaxoSmithKline and Purdue Pharma (for the painkiller Oxycontin). Both companies have already begun pallet tagging in compliance with the Wal-Mart mandate.

The article was written by Soumilya Banerjee and Priyanka Gouthaman, analysts at Frost & Sullivan, a Palo Alto, CA, research firm that provides growth consulting and corporate training services to clients in more than 50 countries. The full report, "World RFID in Healthcare and Pharmaceutical Applications Markets," is available from Frost & Sullivan as part of the firm's 9201 subscription.