To combat chronic shortages and high drug prices, a group of nonprofit health systems have decided to come together to start their own nonprofit generic drug company.
Together the health systems operate more than 450 hospitals around the country.
Utah-based Intermountain Healthcare is leading the collaboration that includes two St. Louis area health systems, Ascension and SSM Health, in addition to Michigan-based Trinity Health and the Department of Veterans Affairs.
“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,” Tony Tersigni, CEO of Ascension, said in a joint statement. Ascension is the nation’s largest nonprofit health system.
The generic drug company will either become an FDA-approved manufacturer or subcontract the work
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The new company will provide an alternative to products currently made by generic manufacturers “whose capricious and unfair pricing practices are damaging the generic drug market and hurting consumers,” according to the joint statement released Thursday morning.
This venture is expected to provide relief when it comes to shortages of supplies used in hospitals, which can be a serious issue when it comes to older generic drugs used to treat very ill patients, according to the statement.
One example of a pricey generic is vancomycin, Laura Kaiser, CEO of SSM Health told the Post-Dispatch.
It’s made for “pennies on the dollar” but sold for far more to treat bacterial infections.
One of the leading problems fueling the issue is a consolidation of suppliers that ends up controlling the market and raising prices, according to the statement.
However, Kaiser said the company will provide drugs beyond just the inpatient setting. She envisions also being able to manufacture a drug such as amoxicilllin, an antibiotic that also is used outside the hospital and has become expensive in recent years.
“We believe that health care is a right not a privilege,” Kaiser said.
This venture will lower the cost of health care as many patients are seeing more of their household income go to health care costs, she said.
But some analysts are skeptical that patients will directly benefit.
“Hospitals mostly get paid on DRG basis and absorb generic costs, so it would help them, not the patients,” said Ronny Gal, a health care analyst with Sanford Bernstein.
A DRG (diagnosis related group) is the fee hospitals collect for providing certain services or a group of services.
“I’m not sure if it’ll flow through to the end-user/patient just yet. In the last year, we’ve heard hospitals complain about margin squeeze from high generic drug price inflation, so I think this is their move to react to that and proactively avoid getting squeezed,” said Brian Tanquilut, a health care analyst with Jefferies.
Kaiser disagrees with that characterization.
“The intent is not for this to be a giant profit-bearing engine,” Kaiser said. She said they expect the business to “break even” or be a “loss leader,” but help bring down overall costs that will also help patients.
An advisory committee that will guide the new company includes former pharmaceutical executives and government regulators.
It’s unclear how quickly the new company could be operational, but Kaiser said the plan is to get the company in operation as quickly as possible.
She expects the new venture will require physical space, but said there are no plans on where that might be located.
