Hospitals Band Together to Bypass Big Pharma, Start Their Own Drug Company

Faced with numerous shortages of critical medications and frequent price gouging by the pharmaceutical industry, a large group of major U.S. hospitals have taken the unprecedented step of establishing their own not-for-profit generic pharmaceutical company.[1] The hospitals’ goals are to ensure a reliable supply of essential drugs and to avoid price spikes for certain generic medications that have been available for decades but are subject to price manipulation because they are produced only by one or a few for-profit manufacturers and thus have little to no competition.

In January 2018, a consortium of nearly 300 hospitals first revealed its plans to go into the generic drug manufacturing business.[2] On Sept. 6, the consortium — which has expanded to include seven large hospital systems spanning nearly 500 hospitals, including Intermountain Healthcare, HCA Healthcare, Mayo Clinic and Catholic Health Initiatives — announced the launch of the not-for-profit Civica Rx.[3],[4] The U.S. Department of Veterans Affairs also has signaled that it may participate,[5] and a third of U.S. hospitals have expressed interest in joining.[6]

Shortages of essential medicines have plagued hospitals across the country for more than a decade. The current national drug shortage list compiled by the University of Utah Drug Information Service comprises more than 200 medications, including antibiotics, chemotherapy agents, and heart disease drugs.[7] In recent years, drug companies that have established monopolies for decades-old off-patent drugs and sharply increased their prices by as much as 5,000 percent also have vexed hospitals.[8]

Civica Rx initially plans to market 14 drugs that are listed as essential medicines by the World Health Organization, are currently in shortage and have been subject to price increases of more than 50 percent over the past two years.[9] The names of the specific drugs to be marketed by Civica Rx have been kept secret because of fears that competing for-profit drug manufacturers would seek to undermine the effort by quickly lowering the prices of the same products and then raising them later.[10]

Civica Rx will need to obtain Food and Drug Administration approval of its generic drug products and optimistically expects that it will begin selling its first products as early as next year.

The creation of a not-for-profit drug manufacturing company that is not beholden to profit-driven shareholders or investors appears to be an exciting and positive development for the U.S. health care system. Although patients are likely to benefit from a reduction in shortages of certain essential medicines, a key unanswered question is whether the hospitals participating in this venture will pass on the expected drug cost savings to their patients or simply rely on Civica Rx to increase their own financial bottom line. We’ll have to wait and see.

References

[1] Johnson CY. Hospitals are fed up with drug companies, so they’re starting their own. The Washington Post. September 6, 2018. https://www.washingtonpost.com/national/health-science/hospitals-are-fed-up-with-drug-companies-so-theyre-starting-their-own/2018/09/05/61c27ec4-b111-11e8-9a6a-565d92a3585d_story.html?utm_term=.f1bcfc51cde3. Accessed September 18, 2018.

[2] Abelson R, Thomas K. Fed up with drug companies, hospitals decide to start their own. The New York Times. January 18, 2018. https://www.nytimes.com/2018/01/18/health/drug-prices-hospitals.html. Accessed September 18, 2018.

[3] Johnson CY. Hospitals are fed up with drug companies, so they’re starting their own. The Washington Post. September 6, 2018. https://www.washingtonpost.com/national/health-science/hospitals-are-fed-up-with-drug-companies-so-theyre-starting-their-own/2018/09/05/61c27ec4-b111-11e8-9a6a-565d92a3585d_story.html?utm_term=.f1bcfc51cde3. Accessed September 18, 2018.

[4] Tracer Z. Generic-drug venture backed by hospitals taps CEO from Amgen. Bloomberg. September 6, 2018. https://www.bloomberg.com/news/articles/2018-09-06/generic-drug-venture-backed-by-hospitals-picks-ceo-from-amgen. Accessed September 18, 2018.

[5] Palmer E. Hospital-backed Civica Rx nabs Amgen veteran as CEO and targets 14 drugs to knock off. FiercePharma. September 6, 2018. https://www.fiercepharma.com/manufacturing/hospital-supported-civica-rx-to-produce-14-drugs-are-chronic-shortage. Accessed September 18, 2018.

[6] Johnson CY. Hospitals are fed up with drug companies, so they’re starting their own. The Washington Post. September 6, 2018. https://www.washingtonpost.com/national/health-science/hospitals-are-fed-up-with-drug-companies-so-theyre-starting-their-own/2018/09/05/61c27ec4-b111-11e8-9a6a-565d92a3585d_story.html?utm_term=.f1bcfc51cde3. Accessed September 18, 2018.

[7] American Society of Health-System Pharmacists. Drug shortages statistics. https://www.ashp.org/Drug-Shortages/Shortage-Resources/Drug-Shortages-Statistics. Accessed September 18, 2018.

[8] Pollack A. Drug goes from $13.50 a tablet to $750, overnight. September 20, 2015. The New York Times. http://www.nytimes.com/2015/09/21/business/a-huge-overnight-increase-in-a-drugs-price-raises-protests.html. Accessed September 18, 2018.

[9] Silverman E. The hospital exec behind the new generic maker: We’re trying to bring ‘sanity’ to the market. STAT. September 6, 2018. https://www.statnews.com/pharmalot/2018/09/06/liljenquist-civica-intermountain-generics. Accessed September 18, 2018.

[10] Abelson R, Thomas K. Fed up with drug companies, hospitals decide to start their own. The New York Times. January 18, 2018. https://www.nytimes.com/2018/01/18/health/drug-prices-hospitals.html. Accessed September 18, 2018.