Unique Device Identification and GS1:

Defining Elements in the Future of Global Healthcare Logistics

A Loftware, Inc. White Paper First Quarter 2010

Christopher Piela, Director of Healthcare Solutions

This white paper, as the title suggests, is about new national and international mandates for a global standard to be used

in the Unique Device Identification (UDI) of medical devices and other healthcare products. It examines the global trading

opportunities, on an enormous scale, that can be captured by early adopters or forfeited by default by those who wait,

dismiss the idea, or discount the powerful market and competitive forces that UDI developments are driving. Also offered

is a starting blueprint for regulatory compliance professionals, packaging engineers, C-suite executives and manufacturing

experts who agree the time to start meeting the UDI opportunity has clearly arrived.

WHITE PAPER
166 Corporate Drive
Portsmouth, NH, 03801 USA
www.loftware.com
1.603.766.3630
In defense of forward thinking supply chain executives in the healthcare industry Chronology Overview
over many years, the inevitability of a global system of standards for the unique identification of medi-
July 2005: Leading global companies from the
cal devices and products didn’t begin nor end in Washington, DC. on a late September day in 2007. Yes,
pharmaceutical and medical device industry
that was the day, on September 27th, that the U.S. Food and Drug Administration’s (FDA) Amendments
form a GS1 global Healthcare User Group
Act was signed into law. Included in that Act, as everyone now knows, was language related to the (HUG) to lead the utilization and development
eventual establishment, for the first time in the history of healthcare products and medical device of global standards for the healthcare industry,
regulation, of a Unique Device Identification standard. with the primary focus on automatic product
identification to improve patient safety.

But for years in advance of this Act, healthcare manufacturers, suppliers, and providers have been
March 2007: The UK Department of Health
constantly analyzing opportunities for improving, streamlining, and bringing more efficiency to the issues guidelines saying they support GS1
healthcare supply chain, both independently and collaboratively. What the Amendments Act did signal, standards.
however, were two very important milestones: One, for the first time, it was seen that the implications
to patient safety of a UDI standard – of chief interest to the FDA -- could potentially align, co-exist and April 2007: The Council of Europe’s Expert
Group on Safe Medication Practices makes a
fuel supply chain efficiencies as well. And two, the FDA’s decision vanquished one of the biggest and
strong recommendation to use the GS1 System.
longest-standing concerns among manufacturers to the adoption of any would-be standard: whether
or not enough manufacturers – eventually all manufacturers everywhere – would adopt the same June 2007: GS1 and HL7 join forces to develop
standard solution. After all, for a standard to be effective, it has to be in standard use. For it to be use- global standards to improve Patient Care.
ful, it has to have common currency in the supply chain from end-to-end and across and among trading
partners. The 2007 Amendments Act set aside the possibility of purely voluntary adoption and upon September 2007: GS1 Healthcare and ICCBBA
join forces to advance global standards to
closer examination began to be seen as a way forward that promises significant logistics benefits and
improve patient safety.
safety features.
November 2007: Healthcare Supply Chain
Other factors leading up to 2007, and gaining momentum since, have also increased the inevitability Standards Coalition (HSCSC) endorses GLN and
of a UDI standard. These include significant consumer and mainstream media interest in patient safety, GTIN and recommends GDSN.
medical device recall effectiveness, and overall healthcare reform with particular emphasis on lower
January 2008: 70 UK hospitals to use GS1
costs (i.e., more efficiency in the system). This means even if the FDA were not moving to impose new
System following GS1 UK’s work with the NHS
safety standards on medical products and devices, consumer tolerance for the status quo is diminishing Connecting for Health initiative.
rapidly, making change a foregone conclusion. But perhaps the most significant turn of events, which
may have been only peripherally noticed by some domestic healthcare products manufacturers prior February 2008: GS1 Healthcare formally orga-
to 2007, occurred when a global, long-established, standards-driven and non-profit product marking nized and approved

movement by the name of GS1 turned its sights for the first time on the healthcare supply chain.
May 2008: Cenabast, the Supply Center for the
Ministry of Health in Chile, adopts GS1 Stan-
GS1’s Timely Healthcare Initiative Brings Voluntary Momentum and Velocity dards as part of a new initiative to improve the
GS1, which is a 30-year-old organization with offices today in more than 100 countries, is driven by management and quality of its supply chain.
more than a million companies executing more than six billion transactions a day with the GS1 System
May 2008: To complete its mission of making
of Standards that are used in and across virtually every industry. However, prior to mid-2005, the GS1
the healthcare supply chain safer and more
system of standards had never been used in, or adopted by, the healthcare industry. But a brief review
efficient through the adoption of global data
of the organization’s major milestones since then demonstrates a readiness on the part of healthcare standards, the Healthcare Supply Chain Stan-
industry experts for an appropriate and workable set of product marking standards worldwide. For dards Coalition (Standards Coalition) combines
example, consider the timeline of events and announcements made by GS1 since 2005 shown in the its efforts with GS1 Healthcare US™.
highlighted Chronology Overview.
July 2008: Premier healthcare alliance endorses
supply chain standards to enhance patient
Additional evidence of GS1’s success and visibility to date includes two additional points: As of Novem- safety, reduce costs. First healthcare group
ber 13 of this year, GS1 Healthcare US alone had 109 member companies. Twenty six of these member purchasing organization to require GS1 stan-
companies, including some of the largest multinational healthcare products companies in the world, dards in contracts to identify and track medical
use Loftware solutions in addition to dozens of other non-member healthcare manufacturers. Due to devices.
this unique perspective, a Loftware imitative in October of this year brought representatives of the FDA

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Loftware Connector are registered trademarks of Loftware, Inc. All other marks are the property of their respective owners.
and GS1 Healthcare US together at a major industry event for a panel discussion on GS1, FDA, and August 2008: Amerinet takes leadership role
UDI synergies. to standardize healthcare supply chain by
affirming its commitment to proactively partner
with its customers – both providers and suppli-
More Than a Voluntary Organization of Like-Minded Business People ers - to adopt and continue to implement GS1
As important as U.S.-based medical device and healthcare products manufacturers are, and have healthcare standards with a focus on driving
historically been, to world markets, trends and technology innovations and global product acceptance, costs out of the supply chain.
and as critical a role as the FDA has played in the past in vetting products in a way that has essentially
cleared them for worldwide commerce and use, GS1 has established a reach and an appeal among September 2008: GHX to become GDSN-
certified data pool to accelerate use of GS1
sovereign nations that has gained traction in advance of any FDA action in healthcare UDI rulings and
Standards in Healthcare.
that today, transcends in importance anything our own federal agencies may mandate. This is because
as you learn from this list of GS1 member countries, the adoption of the GS1 standard has been November 2008: US-based Resource Opti-
backed or driven in many cases by government fiat. What this means for U.S.-based manufacturers is mization & Innovation (ROi), the Sisters of
that within a very short period of time, medical products and devices that do not carry GS1 compliant Mercy Health System’s (Mercy) supply chain
operating division, takes a landmark step in the
product markings may be barred from these nations.
healthcare industry by adding specific terms
to contract language requiring the use of GS1
Many of these nations represent all-important emerging markets. This is a key consideration because Standards in transactions and in production
more and more major healthcare product manufacturers believe their greatest near-term potential processing.
growth will come from emerging market nations while their customary developed markets regain their
economic footing. All of these considerations are critical data points in examining how manufacturers December 2008: HealthPRO and Medbuy, two
of Canada’s most prominent group purchasing
are responding to current market and regulatory issues while continuing to optimize their supply chain
organizations (GPOs), confirmed their commit-
efficiencies and factoring the implications of an FDA/GS1 standard. ment to driving the adoption of GS1 Standards
with their members.
What Do The Most Important Experts – Supply Chain Professionals – Think?
While important associations and provider organizations have rallied in support of a GS1-driven March 2009: EK UNICO endorses GS1
Standards for patient safety and process optimi-
solution, the most important evidence of the inevitability of the standard must include a review of the
zation. EK UNICO, the largest group purchasing
current perception among healthcare supply chain and logistics executives toward this solution. To that organization in Germany, is comprised of 13
point, recent independent university-driven research provides an illuminating look at today’s prevailing university hospitals (including 300 special clin-
attitudes… and current as well as planned actions -- among the people most critical to the adoption ics and more than 240 institutes),
cycle.
March 2009: Novation announces its endorse-
ment of the GS1 Global Supply Chain Standards
Specifically, in November 2008, the Center for Innovation in Healthcare Logistics at the University
in health care.
of Arkansas in conjunction with the Association for Healthcare Resource & Materials Management
(AHRMM) administered an industry wide survey to assess the current state of the healthcare supply March 2009: The Association for Healthcare
chain from a cost and quality perspective. The survey involved 1381 healthcare supply chain profes- Resource & Materials Management (AHRMM)
sionals from all major sectors of the supply chain. Their findings, presented in a report entitled The announces their support of the GS1 standards
State of Healthcare Logistics captures the urgency for, and current adoption of, universal product data
May 2009: The Health Industry Group Purchas-
standards, their critical importance to elevated supply chain efficiency levels, and the prevailing prefer- ing Association (HIGPA) announced its endorse-
ence for GS1. ment of the GS1 Industry Timeline Implementa-
tion dates for standards adoption throughout
Here, first, is an overview of the survey’s most seminal findings of the overarching baseline concerns the health care supply chain.
among healthcare supply chain executives:
May 2009: The Institute for Safe Medication
Practices Canada (ISMP Canada) and the Ca-
1. The healthcare supply chain is starved for accurate and accessible data. Access to the desired nadian Patient Safety Institute (CPSI), following
quantity and quality of data is indicated as the primary barriers to supply chain excellence, collabora- broad consultation, jointly endorse the adop-
tion, and data standards adoption. There is a clear movement towards data standards adoption across tion of the GS1 global standard for automated
the healthcare supply chain. However, the readiness of healthcare organizations to implement data identification (e.g., bar coding) of pharmaceuti-
cal products in Canada.
standard systems in the near future is not obvious.

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Loftware Connector are registered trademarks of Loftware, Inc. All other marks are the property of their respective owners.
2. The lack of data standardization was the most common challenge to achieving supply chain excellence faced by the survey respondents regard-
less of their organization. The most frequent challenge faced by healthcare providers is the current separation between procurement, clinicians, and
payers. The high variation in their customer and client preferences is given as a dominant challenge for respondents employed by GPOs, distributors,
and providers. Manufacturer, GPO, and distributor respondents indicate that having no visibility into the end-to-end performance of their business
processes is one of their top three challenges.

3. Survey findings indicate that group purchasing organizations are leading the way in successfully attempting supply chain improvement initiatives.
[In fact, this is true. The nation’s three largest GPOs -- Premier, Novation and Amerinet -- have announced their advocacy for, adoption, and near-term
implementation timetables, for GS1.]

4. The average healthcare provider organization in the survey reported spending more than $100 million each year on supply chain functions, nearly
one-third of their annual operating budget. Manufacturers, GPOs, and distributors are spending even greater percentages of their annual budgets to
operate their supply chains. Much of this expense is being driven by inventory and order management functions.

Leading Companies are not Waiting for the Dust to Settle

However, does this mean there is momentum among these executives for GS1 as the preferred solution? Here are the most telling stats from the
survey in response to that question and that capture the opportunity for those ahead of the curve versus the potential difficulty ahead for those
taking a wait and see approach. In these statistics two classes of companies seem to emerge: those that have identified the opportunity, know what
it implies globally, and are actively pursuing a known plan and strategy for GS1 adoption; and, another class of companies that are not sure where
they are going or what they will do or exactly how. The first or most important specific finding was:

-Greater than one out of three healthcare professionals that participated in the survey are moving towards the adoption of a data standards system
with an overwhelming majority of those (88 percent) moving towards adoption of the GS1 system.

These are the manufacturers that know they will, at some future date, have to comply with an FDA mandate. But in the meantime, they also have
to meet international market demands and opportunities. Like everyone else, their supply chain budgets are strained. They know that in the medical
products and device world every change in process has to be tested, documented and validated...that a ‘change’ extends all the way down to a
change in a product’s label. The average medical device manufacturer makes 1000s of products, as defined by multiple configurations and packaging
options. In many cases, even for these early adopters, their current product labeling solutions have grown organically and by acquisition over time via
the implementation of disparate systems, including standalone functions dedicated to a single process or product. Many naturally worry that compli-
ance will dictate a wholesale change in systems across the board, or they’ll be forced to purchase yet more, new, and so-called ‘all-in one’ solutions
that merely layer yet more redundant functions (and expense) on top of what is already in place. But they are pressing ahead now for competitive
advantage while these same factors probably explain the following survey findings that some manufacturers are hoping the whole thing will just go
away:

-…the majority of those that indicate that they are moving towards a data standards system other than GS1 do not know which system their orga-
nization is moving towards.

-Almost half of the respondents surveyed (48 percent) indicate that they do not know if their organization is moving towards the adoption of data
standards.

-When asked about their timeline for adoption, a small percentage of these respondents (10 percent) have already adopted a location identification
standard such as the Global Location Number in the GS1 system, while even fewer have already adopted a product location identification standard
such as GS1’s Global Trade Item Number.

-There is also an indication of unreadiness among planned adopters where many survey participants (43 percent) indicate that their organizations

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Loftware Connector are registered trademarks of Loftware, Inc. All other marks are the property of their respective owners.
are only marginally ready or not ready at all to adopt data standards.

Probing Questions Every Undecided Healthcare Products Manufacturer Should Ask

Three questions come immediately to mind: One, which class of company do you think has the better chance for global market share gains in the
coming 12 to 24 months as GS1 standards meet their sunrise dates worldwide? Two, how does the cost of compliance now compare to the cost
of compliance later and lost market opportunities between now and then? Three, what are the early adopters doing, and how are they doing it, to
implement their solutions at the lowest possible cost, in the shortest period of time, and while optimizing what is currently in place?

Survey respondents listed no fewer than 814 distinct items as the most significant barrier that inhibits the adoption of data standards in their
organization. These items include all the usual and familiar suspects: lack of resources, absence of available IT infrastructure, supply chain partners
not willing to collaborate. But here’s what we know from working with 26 GS1 Healthcare US member companies, and many other non-member
healthcare organizations worldwide, including (here’s where you can decide to name customers).

Forging a Real Solution, in Partnership, for the Real World

The following is derived from more than 26 years experience in product marking with more than 25,000 customers, most of which are global
enterprises, and from our more recent work with some of the world’s most significant and forward-thinking healthcare products companies currently
adopting GS1. The five leading Group Purchasing Organizations in the U.S. and Canada alone – who are mandating GS1 compliance – represent
$63.4 billion in sales. But while approximately 70% of all major GPOs everywhere have announced their support of GS1, 50% of manufactures have
signed on. The healthcare products companies we’re working with realize their early adoption grants them a meaningful competitive advantage over
the laggards when it comes to doing business with GPOs.

The leading companies are also seeing this period as a time to once and for all make a lasting change, across the board, to at long last integrate
and optimize all their current systems versus making yet more piecemeal attempts to patch together some accommodation or worse, to layer their
infrastructure with yet another black box technology. These companies are not interested in depreciating their current investments in IT infrastruc-
ture; they are not interested in any solution that doesn’t or can’t leverage their installed suite of critical business applications; and they are wary of
any so-called single-source solution that claims to solve all problems, across all geographies and IT topologies singlehandedly. Instead, what they are
seeking is a technology partner that can bring to bear a ‘best of breed’ set of solutions, forged from multiple subject matter and technology product
experts, for the fastest, lowest-cost implementation in the shortest amount of time with the least disruption to existing systems, processes and
methodologies. Impossible? Not at all.

With a ‘master contractor’ like Loftware, these companies are getting a long-experienced subject matter expert with solutions designed to sup-
port global enterprises that refuse to compromise or otherwise diminish their Current Good Manufacturing Processes. They want solutions that are
designed to integrate, not replace or discard, their long-term investment in existing enterprise systems. If there is a word that captures the essence of
the Loftware approach, it is ‘connectivity,’ meaning high-speed, bi-directional connectivity bridges between enterprise applications and print servers;
connectivity to data filtering and decision-making tools that remove the complexities of high volume label printing from enterprise applications;
connectivity to high-speed queuing systems that support label printing on a large to massive scale across hundreds to thousands of printers. In short,
Loftware products require no change to current production workflow.

Our contribution to meeting the need is tailored for the enterprise architecture, with centralized and decentralized control options for high- and low-
volume throughout, with fault tolerance safeguards and native support for 500+ barcode and smart label printers. But everyone in the healthcare
supply chain and with logistics experience and responsibility knows the complete solution can never be met by just a software product, no matter
how extraordinary it is or how well it performs. In the real world, there are label consolidation issues, ERP/ECM/PLM integration issues, proof of
concept and process validation requirements, project management demands and divisional roll out scenarios to develop and implement along with
enterprise-wide deployment support. This is where Loftware Global Professional Services comes in and manages these concerns directly or brings to
fore our partners with specialized expertise.

Certainly there are contemporary providers of labeling solutions that paint a more simplistic approach; that sound attractive due to claims that some
all-in-one box will result in overnight plug and play relief. Few with any real experience in supply chain logistics, in any industry, believe in this prom-

Copyright © 2010 Loftware, Inc. All Rights Reserved. Loftware, Loftware Print Server, LPS, Loftware Label Manager, LLM and
Loftware Connector are registered trademarks of Loftware, Inc. All other marks are the property of their respective owners.