Hospitals to Form Their Own Generic Drug-Maker

Health systems’ plan is a response to shortages and price hikes

Sick and tired of dealing with generic drug shortages and unpredictable price increases, five large U.S. health systems are taking an unusual step, Fierce Pharma reports: they're forming their own nonprofit generic drug-maker.

Representing more than 450 hospitals, nonprofit groups Intermountain Healthcare, Ascension, SSM Health, Trinity Health and the U.S. Department of Veterans Affairs will participate in the effort, according to an announcement. The new company will directly manufacture or contract out its production and will seek to put patients first, the organizers said, combating the price hikes and shortages that have made so many headlines in recent years.

"We witness, on a daily basis, how shortages of essential generic medications or egregious cost increases for those same drugs affect our patients," Intermountain Healthcare CEO Marc Harrison, MD, said in a statement. "We are confident we can improve the situation for our patients by bringing much needed competition to the generic drug market.”

Despite the unique nature of the announcement, RBC Capital Markets analyst Randall Stanicky cautioned about reading too much into the plan. According to Fierce Pharma, Stanicky wrote in a note that nonprofit hospitals make up a fraction of the market and that the new company will take time to get set up.  Further, the analyst believes it's more about "targeting 'certain' drugs that have traditionally seen shortages or are at risk of shortages" rather than a broad play on the generics market.

To get started, the group has recruited an advisory committee that includes expertise that ranges from the practical to the political. It includes two retired Amgen executives and former Centers for Medicare and Medicaid Services administrator Don Berwick. The team will also draw on experience from a Harvard Business School professor and former Nebraska governor, senator and pharmacist Bob Kerrey, among other experts.

As industry watchers know, the move comes at a tense time for the generics industry and the larger pharmaceutical industry. Pricing has come under fire in recent years after companies such as Martin Shkreli's Turing Pharmaceuticals, Valeant Pharmaceuticals and Mylan raised prices on old drugs several times over. Each controversy drew more attention to pharma's pricing and as a result, the public, lawmakers and other parts of the healthcare sector have lambasted the industry.

Over the years, hospitals have had to deal with shortages that led to price hikes. A shortage of simple saline solution has created a big headache for health providers recently. But experts representing providers argue that when supply returns to normal, they don't experience the price relief they would expect. Drug-makers have responded by citing manufacturing upgrades to improve quality and supply.

Source: Fierce Pharma; January 18, 2018.