Hospitals Create Drug Company To Combat Shortages, Rising Costs

Drugs and medical supplies are often out of stock at U.S. hospitals, increasing expenses for patients and prompting some health-care providers to take action.

“Every day … we manage more than 100 drug shortages, and most of them are generics,” Dr. Marc Harrison, president and CEO of Intermountain Healthcare, told National Public Radio. “The impact on patient care, in terms of trying to find alternatives and scurrying around and trying to find necessary drugs, is incredibly time-consuming and disconcerting.”

Intermountain, based in Salt Lake City, consists of 22 hospitals. The firm has joined several other organizations in establishing a nonprofit drug company that they hope will rein in costs and ensure the availability of critical health-care supplies.

Officials representing Intermountain, the Mayo Clinic, HCA Healthcare and others will sit on the board of directors for the new company, Civica Rx. The initial goal is to provide medical facilities with 14 regularly used generic medications. “It’s an ambitious plan, but health-care systems are in the best position to fix the problems in the generic drug market,” Harrison said.

He explained: “As we decided on the drugs we were really practical. We looked for drugs that were now in short supply. We looked for drugs that were on the lists of essential medications, and we looked for drugs that have had huge spikes in their prices.”

Harrison did not identify the medications. David Mitchell, who heads the Patients for Affordable Drugs advocacy group, told NPR: “If they take on very expensive drugs for rare diseases and for which there is no competition ... that's good. If it is to compete where there is already competition and lower prices, that's not as good.”

In 2017, the Justice Department and authorities in 45 states declared that generic drug makers were involved in a price-fixing scheme to bolster their profits. Drug shortages prompted the U.S. Food and Drug Administration to establish a task force in July.

Civica Rx plans to seek approval from the FDA to start selling generic medications next year. Harrison said that at first, the company will obtain the drugs directly from pharmaceutical firms and market them with new names. Later, Civica Rx expects to manufacture drugs at its own facilities.

A group of generic drug makers, the Association for Accessible Medicines, announced in a written statement that it “welcomes into the generic drug-manufacturing community any entity that shares our commitment to bring safe, effective and affordable treatment options to patients, providers and payers.”

The primary investors in the initiative are the Laura and John Arnold Foundation, the Peterson Center on Healthcare, and the Gary and Mary West Foundation. Civic Rx has chosen Martin Van Trieste, a former corporate executive with Amgen, as its chief executive officer.

Dan Liljenquist, Intermountain's vice president and chief strategy officer, came up with the idea of hospitals selling their own meds. He was worried about a small group of for-profit companies controlling the prescription-drug market, at the expense of consumers and health-care providers. “They can lower their prices until that new competitor leaves and then raise it back up again,” he said at a conference in June.

With that concern in mind, Civica Rx intends to make hospitals purchase its drugs at pre-determined prices, regardless whether another firm offers better deals. Liljenquist believes that the requirement will save money in the long term.

Harrison reported that 120 companies, which own about one-third of all the hospitals in the United States, have expressed interest in being part of Civica Rx. “There are a lot of very principled generic drug makers out there, and who sell drugs at reasonable prices and make them in adequate supplies,” he said. “They have nothing to worry about. They're friends. They're good colleagues.”

Harrison had a warning for less scrupulous companies. “The folks who are gouging people and creating shortages, they know who they are,” he said. “And they're the ones who should be very concerned.”

In January, Intermountain announced that it was working with Ascension, SSM Health and Trinity Health “to form a new, not-for-profit generic drug company,” in cooperation with the U.S. Department of Veterans Affairs. The organizations represent more than 450 hospitals.

The goals, officials wrote, were “to help patients by addressing the often unwarranted shortages and high costs of lifesaving generic medications”; “bring healthy competition to the market”; and “stabilize the supply of essential generic medications.”

SSM Health CEO Laura Kaiser was quoted in Intermountain's news release as having said: “All Americans deserve access to high-quality, affordable care. The best way to control the rising cost of health care in the U.S. is for payers, providers and pharmaceutical companies to work together and share responsibility in making care affordable. Until that time, initiatives such as this will foster our ability to protect patients from drug shortages and price increases that limit their ability to access the care they need.”

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