By John Rogers
Four major U.S. hospital systems — led by Utah’s Intermountain Healthcare — are planning to launch a nonprofit company to produce generic drugs in what the organization characterizes as a bid to fix a situation where soaring prices and drug shortages have hampered medical care. The nonprofit systems said the new firm will seek Food and Drug Administration approval to manufacture and market generic drugs or, alternatively, buy FDA approvals from other companies. Actual drug manufacturing will likely come from existing drug companies, according to a release from the hospital chains issued through Intermountain.
In addition to Intermountain, the other hospital systems are faith-based Ascension and SSM Health, both headquartered in St. Louis, and Trinity Health of Livonia, Michigan. Together, the four systems control 450 hospitals — or about 10 percent of those in the U.S.
The hospital groups said they would prioritize production of generic drugs for which the market lacks competition, although they declined to specify which drugs they would produce first.
“We have no designs on being a major pharmaceutical power,” Intermountain president and CEO Dr. Marc Harrison said. “This is a very specific problem we’re seeking to solve with a very specific solution.”
The new company will “provide an alternative to sole-sourced, overpriced, in-short-supply medications,” Harrison said.
According to the new group, prices for some generic drugs have skyrocketed with the lack of competition. A lack of manufacturing capacity has also caused shortages of some vital generic drugs in recent years, including painkillers, cancer drugs and saline. The problem has complicated hospitals’ efforts to control rapidly rising drug spending. The nonprofit would set its own prices, it said. The new company will “understand our production costs really well” and won’t have to return equity to shareholders, as investor-owned companies do, said Dan Liljenquist, vice president of the enterprise initiative office at Intermountain. Generic drugs account for 85 percent of drugs administered in Intermountain’s hospitals and outpatient clinics, he said. They account for one-third of the cost, he added. Although the hundreds of hospitals owned by the four partners will be customers of the nonprofit, they will make drugs available to others, Liljenquist said. “The power of this idea is we very much intend to make a market for these drugs.”
“As has been widely reported, certain generic drug manufacturers have been widely criticized for unwarranted and arbitrary price increases and for creating artificial shortages of vital medications,” the release from Intermountain said. “These activities have resulted in some generic drugs increasing in cost by more than 1,000 percent in just a few months for seemingly no reason. Research into the actual costs of manufacturing and distributing generic drugs suggests that, in many instances, generic drug prices can be reduced to a fraction of their current costs, saving patients and the healthcare systems that care for them, hundreds of millions of dollars each year.
“Many of the well-publicized problems in the U.S. generic drug market can be attributed to a reduction in the number of suppliers, consolidation of production volume and a concentration of market pricing power,” the release continued. “These market factors are particularly problematic with older generic medications that hospitals rely on every day to take care of desperately ill patients. This new initiative will bring together healthcare systems from around the country to help address these generic drug market failures, providing the new not-for-profit generic drug company with plenty of customers ready and eager for its products.”
“It’s an ambitious plan,” said Harrison, “but healthcare systems are in the best position to fix the problems in the generic drug market. We witness, on a daily basis, how shortages of essential generic medications or egregious cost increases for those same drugs affect our patients. We are confident we can improve the situation for our patients by bringing muchneeded competition to the generic drug market.”
Laura Kaiser, president and CEO of SSM Health, 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.”
“This initiative has the potential to greatly expand the availability and affordability of critically needed medications for millions of Americans, especially for people living in poverty and those most vulnerable,” said Anthony R. Tersigni, president and CEO of Ascension. “Rather than waiting and hoping for generic drug companies to address this need, we are taking this bold step on behalf of those we are privileged to serve. I’m pleased to see our respective systems come together along with the VA to ensure affordability and access to these essential medications.”
Dr. Richard J. Gilfillan, CEO of Trinity Health, said, “For people in the United States, there is a dangerous gap today between the demand and supply of affordable prescription drugs. If the only way to provide our communities with affordable drugs is to produce them ourselves, then that is what we will do. We look forward to more healthcare systems around the country joining this people-centered effort.”
Harrison also said that the Department of Veterans Affairs is involved in formulating plans for the new nonprofit and has expressed interest as a purchaser.
Dr. Carolyn M. Clancy, executive in charge of the Veterans Health Administration said of this initiative, “As an organization which must have an affordable and stable supply of generic pharmaceuticals to fulfill its healthcare mission, the Department of Veterans Affairs looks forward to the value this new company will bring to healthcare in the United States and applauds Intermountain Healthcare, Trinity Health, SSM Health and Ascension for this initiative. Increasing generic drug manufacturing capacity will generate a more stable generic drug supply and will reduce the negative clinical impact of chronic drug shortages, including the impact on our nation’s veterans.”
The formation of the new not-for-profit generic drug company will be guided by an advisory committee that includes a roster of well-known experts from the pharmaceutical industry, business and government. The committee will include Madhu Balachandran, retired executive vice president of global operations for multinational biopharmaceutical company Amgen; Dr. Don Berwick, president emeritus and senior fellow at the Institute for Healthcare Improvement; Clayton Christensen, professor at the Harvard Business School and founder of Innosight; Bob Kerrey, managing director of Allen & Co. and former Nebraska governor, U.S. senator and pharmacist; Martin VanTrieste, retired senior vice president and chief quality officer at Amgen; and other senior-level leaders from the four organizations founding the company.
“It’s hard to make people better if they don’t have access to the medicines they need,” Harrison said. “To add insult to injury, those medicines are being priced in a way that’s nonsensical.”