New Financing Paradigms Emerging From Adopting Blockchain in Healthcare

Non-Fungible Tokens (NFTs) backed by legitimate actors and business processes can become actual collateral to deliver faster, cheaper and affordable financing for businesses that participate in the blockchain revolution in healthcare.

As new cross-company business processes are captured and orchestrated by the blockchain, new opportunities to build on top of such infrastructure arise. At MediLedger, we brought blockchain to healthcare by creating a network that facilitates transactions between trading partners and reduces friction — and that’s just the beginning. Assets and business documents — such as invoices, payments and chargeback claims — are all being tokenized. These are all collateral that can support implementation of more efficient financing. In this context, two aspects are important to increase efficiency in the financing process:

1. Speed of assessing and acquiring collateral — typically achieved by creating an electronic record (or digital twin) of the collateral.
2. Level of trust in the collaterals that back the lent sum. When collaterals are represented by electronic records (such as data extracted from an ERP system), it might be challenging to prove that such electronic records were not altered.

While the first problem is solved by traditional software solutions, the second item is more challenging. That’s where NFTs come in. The blockchain can deliver the desired level of trust if the asset tokenization is backed by appropriate business processes.

Asset tokenization

The creation of tokens is already a common practice for blockchain-based platforms. Fungible tokens (like $1 bills, all tokens are equivalent and can be interchanged), and non-fungible tokens or NTFs (each token is unique with distinctive attributes) have become mainstream concepts in 2021, thanks to the collision of blockchain with digital art, collectibles and, more broadly, the metaverse.

When it comes to creating NFTs that represent industry assets, the challenge lies in establishing processes so that these tokens are trusted to be the digital twin of their real-life counterparts. MediLedger has worked on such key aspects with the industry, including:

• Ownership and accountability over tokenized assets
• Validity of on-chain settlements in the real world

Ownership and accountability are intrinsic aspects of tokens that represent “virtual assets”. When tokens represent real world assets, the following challenges need to be addressed:

1. Trust that the source that creates the token is accountable and,
2. Assurance that the ownership of the token follows the ownership of the real world asset.

MediLedger solved the first by developing a process to onboard participants with their real world identity. For instance, the network allows participants to create assets that represent the serialized drugs in the supply chain, backed by tokens that show the trusted source.

In support of industry compliance with the Drug Supply Chain Security Act (DSCSA), MediLedger, along with a broad industry consortium, demonstrated the power of tokenized assets in an FDA pilot study. MediLedger demonstrated the capability of following ownership of an asset in the supply chain by establishing a process where a token needs to be transferred by the current owner but also “accepted” by the recipient.

Validity of On-Chain Settlements in the Real World

A key component of the MediLedger Network is to settle transactions directly on the blockchain. Guaranteeing that such settlements are the source of truth for downstream processes is a paramount priority. This is achieved by the chargeback solution by:

• Ensuring that the rules to adjudicate chargeback claims on the blockchain are established and owned by the manufacturer,
• Delegating to the Network the generation of credit notes from blockchain-adjudicated chargeback claim and,
• Directly integrating these credit notes into the ERP systems by making the blockchain the source of truth.

The last step is an important shift in the typical paradigm: the source of truth moves from the ERP system to the blockchain. The shift certifies that none of the parties can deviate from the established processes and elevates the trust in the tokenized collaterals in a way that was not possible with simple electronic record or exchange of data, such as EDI.

New Opportunities

Blockchain usage in healthcare will capture more processes over time and new opportunities will emerge in the financing space. For instance, invoice tokenization can help companies seeking credit by establishing a marketplace where lenders can easily look into the credit worthiness of prospective borrowers. The due diligence process can be highly automated when there is certainty of the provenance of this new type of electronic records — tokenized invoices — and trust is no longer a factor that affects the due diligence.

Lenders trust highly reliable electronic records on the blockchain which reduces the cost of loan origination.

There may even be opportunities that have not been not possible in the past due to the inability to process a high volume of data. For example, when wholesalers submit a chargeback claim, they need to wait for approval and a credit note in order to financially benefit from the claim. The Chargeback Solution built on the MediLedger Network delivers immediate approval of the claim because the Manufacturer placed the business rules for such approval on the blockchain. A credit note might still take a few days to be processed, however, the blockchain has given the wholesaler proof of approval.

This “token” is strong collateral to use to secure financing because the claim is already approved based on the manufacturer business rules and carries high certainty of payment or redemption via a credit note. With the wholesaler’s permission, financial institutions can monitor these tokens and grant a certain credit based on the real time credit that manufacturers own to the wholesaler. The tokenization of claims removes the barriers of low speed of traditional EDI-based processes and the cost of verifying the source of EDI files.

To learn more about trust, automation & settlement for trading partner transactions in healthcare, visit us at mediledger.com.